# EDGAR Filing Document

**Accession Number:** 0001097362
**File Stem:** 0001097362-23-000013
**Filing Date:** 2023-2
**Character Count:** 1492839
**Document Hash:** d48e4c13ffc74788af0825365bcf299c
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001097362-23-000013.hdr.sgml**: 20230209

**ACCESSION NUMBER**: 0001097362-23-000013

**CONFORMED SUBMISSION TYPE**: 40-F

**PUBLIC DOCUMENT COUNT**: 204

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230209

**DATE AS OF CHANGE**: 20230208

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SUN LIFE FINANCIAL INC
- **CENTRAL INDEX KEY:** 0001097362
- **STANDARD INDUSTRIAL CLASSIFICATION:** LIFE INSURANCE [6311]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** Z4
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 40-F
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-15014
- **FILM NUMBER:** 23600687

**BUSINESS ADDRESS:**
- **STREET 1:** SUN LIFE ASSURANCE CO OF CANADA
- **STREET 2:** ONE YORK STREET
- **CITY:** TORONTO
- **STATE:** A6
- **ZIP:** M5J 0B6
- **BUSINESS PHONE:** 4169794800

**MAIL ADDRESS:**
- **STREET 1:** SUN LIFE ASSURANCE CO OF CANADA
- **STREET 2:** ONE YORK STREET
- **CITY:** TORONTO
- **STATE:** A6
- **ZIP:** M5J 0B6

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SUN LIFE FINANCIAL SERVICES INC
- **DATE OF NAME CHANGE:** 20030702

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SUN LIFE FINANCIAL SERVICES OF CANADA INC
- **DATE OF NAME CHANGE:** 20000224

?xml version="1.0" ? slf-20221231

**United States**

**Securities and Exchange Commission** 

**Washington, D.C. 20549** 

**Form 40-F**

☐ **REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934**

**OR** 

☒ **ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31, 2022**

**Commission File Number 001-15014**

**Sun Life Financial Inc.** 

**(Exact name of Registrant as specified in its charter)** 

**Canada** 

**(Province or other jurisdiction of incorporation or organization)** 

**52411** 

**(Primary Standard Industrial Classification Code Number (if applicable))** 

**Not Applicable** 

**(I.R.S. Employer Identification Number (if applicable))** 

**1 York Street, 31st Floor, Toronto, Ontario, Canada M5J 0B6 (416) 979-9966**

**(Address and telephone number of Registrant's principal executive offices)** 

**Sun Life Assurance Company of Canada – U.S. Operations Holdings, Inc.** 

**One Sun Life Executive Park** 

**Wellesley Hills, Massachusetts 02481** 

**(781) 237-6030**

**(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)** 

**Securities registered or to be registered pursuant to Section 12(b) of the Act:** 

---

| | | |
|:---|:---|:---|
| **Title of each class** | **Trading Symbol(s)** | **Name of each exchange on which registered** |
| **Common Shares** | **SLF** | **New York Stock Exchange** |

---

------

**Securities registered or to be registered pursuant to Section 12(g) of the Act.** 

**Not Applicable** 

**(Title of Class)** 

**Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.** 

**Not Applicable** 

**(Title of Class)** 

**For annual reports, indicate by check mark the information filed with this Form:** 

---

| | |
|:---|:---|
| ☒ **Annual information form** | ☒ **Audited annual financial statements** |

---

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

---

| | | |
|:---|:---|:---|
| **Common Shares** | **586396908** |  |
| **Class A Preferred Shares Series 3** | **10000000** |  |
| **Class A Preferred Shares Series 4** | **12000000** |  |
| **Class A Preferred Shares Series 5** | **10000000** |  |
| **Class A Preferred Shares Series 8R** | **6217331** |  |
| **Class A Preferred Shares Series 9QR** | **4982669** |  |
| **Class A Preferred Shares Series 10R** | **6838672** |  |
| **Class A Preferred Shares Series 11QR** | **1161328** |  |
| **Class A Preferred Shares Series 14** | **1000000** | **1** |

---

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

 <br> Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

<sup>1</sup> In connection with the issuance of $1 billion principal amount of 3.60% Limited Recourse Capital Notes (LRCN) Series 2021-1 (Subordinated Indebtedness) on June 30, 2021, the Registrant issued 1 million class A Non-Cumulative Rate Reset Preferred Shares Series 14 (Series 14) at a price of $1,000 per Series 14 share. The Series 14 shares were issued to a consolidated trust to be held as trust assets in connection with the LRCN structure.

------

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

**INCORPORATION BY REFERENCE** 

The following information is incorporated by reference in this annual report on Form 40-F:

**Disclosure Controls and Procedures** 

The information under the heading "Accounting and Control Matters – Disclosure Controls and Procedures" in the Company's Management's Discussion and Analysis for the year ended December 31, 2022 (the "**2022 Annual MD&A**") is incorporated by reference herein.

A copy of the Company's 2022 Annual MD&A is attached hereto as <u>Exhibit 99.1</u>.

**Management's Annual Report on Internal Control Over Financial Reporting** 

The information under the heading "Accounting and Control Matters – Management's Report on Internal Control over Financial Reporting" in the Company's 2022 Annual MD&A and the information in the management report titled "Financial Reporting Responsibilities", attached to the Company's annual consolidated financial statements for the year ended December 31, 2022 (the "**2022 Annual Financial Statements"**) is incorporated by reference herein.

A copy of the Company's 2022 Annual MD&A is attached hereto as <u>Exhibit 99.1</u>. A copy of the Company's 2022 Annual Financial Statements are attached hereto as <u>Exhibit 99.2</u>.

**Attestation Report of the Registered Public Accounting Firm** 

The "Report of Independent Registered Public Accounting Firm" with respect to the audit of the internal control over financial reporting of the Company, which accompanies the Company's 2022 Annual Financial Statements is incorporated by reference herein.

The Company's 2022 Annual Financial Statements are attached hereto as <u>Exhibit 99.2</u>.

**Changes in Internal Control Over Financial Reporting** 

The information under the heading "Accounting and Control Matters – Disclosure Controls and Procedures – Changes in Internal Control over Financial Reporting" in the Company's 2022 Annual MD&A is incorporated by reference herein.

A copy of the Company's 2022 Annual MD&A is attached hereto as <u>Exhibit 99.1</u>.

**Identification of Audit Committee** 

The information under the heading "Directors and Executive Officers – Audit Committee" in the Company's annual information form dated February 8, 2023 (the "**2022 AIF**") is incorporated by reference herein.

A copy of the Company's 2022 AIF is attached hereto as <u>Exhibit 99.3</u>.

------

**Audit Committee Financial Expert** 

The information under the heading "Directors and Executive Officers – Audit Committee" in the Company's 2022 AIF is incorporated by reference herein*.*

A copy of the Company's 2022 AIF is attached hereto as <u>Exhibit 99.3</u>.

**Code of Ethics** 

The information under the heading "Code of Conduct" in the Company's 2022 AIF is incorporated by reference herein.

A copy of the Company's 2022 AIF is attached hereto as <u>Exhibit 99.3</u>.

A copy of the current Sun Life Financial Code of Conduct is available on our website at <u>www.sunlife.com</u>.

**Principal Accountant Fees and Services** 

The information about aggregate fees billed to us by our principal accountant, Deloitte LLP, under the headings "Principal Accountant Fees and Services" in the Company's 2022 AIF is incorporated by reference herein.

A copy of the Company's 2022 AIF is attached hereto as <u>Exhibit 99.3</u>.

**Comparison with New York Stock Exchange Governance Rules** 

The Company's governance processes and practices are consistent with the New York Stock Exchange corporate governance rules for U.S. publicly-listed companies.

**UNDERTAKING** 

Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

**CONSENT TO SERVICE OF PROCESS** 

The Company has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this annual report on Form 40-F arises. Any change to the name or address of the Company's agent for service of process shall be communicated promptly to the Securities and Exchange Commission by an amendment to the Form F-X referencing the file number of the relevant registration statement of the Company.

------

**SIGNATURES** 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

---

| | |
|:---|:---|
| **Sun Life Financial Inc.** | **Sun Life Financial Inc.** |
| By: | /s/ Melissa J. Kennedy |
|  | Melissa J. Kennedy |
|  | Executive Vice-President, Chief Legal |
|  | Officer and Public Affairs |

---

Dated: February 8, 2023<br>

------

---

| | |
|:---|:---|
| **EXHIBITS**: |  |
| <u>[99.1](q42022slfmdaliveq42022.htm)</u> | Annual Management's Discussion and Analysis for the year ended December 31, 2022 |
| <u>[99.2](slf-20221231_d2.htm)</u> | Consolidated Annual Financial Statements for the year ended December 31, 2022 |
| <u>[99.3](annualaifmasterq42022.htm)</u> | Annual Information Form dated February 8, 2023 for the year ended December 31, 2022 |
| <u>[99.4](annual40-fexhibit994q42022.htm)</u> | Certifications required by Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| <u>[99.5](annual40-fexhibit995q42022.htm)</u> | Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of United States Code, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| <u>[99.6](annual40-fexhibit996q42022.htm)</u> | Consent of Independent Registered Public Accounting Firm (PCAOB ID No. 01208) |
| <u>[99.7](annual40-fexhibit997q42022.htm)</u> | Consent of Appointed Actuary |
| 101 | Interactive Data File |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |

---

## Exhibit 99.1

**MANAGEMENT'S**

**DISCUSSION**

**AND ANALYSIS**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

---

| | | | |
|:---|:---|:---|:---|
| **[10](#ib891a616a6fe44efbf9ccb70a6368ccd_13)** | &nbsp;&nbsp;**A. HOW WE REPORT OUR RESULTS** | **[50](#ib891a616a6fe44efbf9ccb70a6368ccd_331)** | &nbsp;&nbsp;**I. CAPITAL AND LIQUIDITY MANAGEMENT** |
|  |  | [50](#ib891a616a6fe44efbf9ccb70a6368ccd_334) | &nbsp;&nbsp;&nbsp;1. Capital |
| **[11](#ib891a616a6fe44efbf9ccb70a6368ccd_31)** | &nbsp;&nbsp;**B. OVERVIEW** | [53](#ib891a616a6fe44efbf9ccb70a6368ccd_337) | &nbsp;&nbsp;&nbsp;2. Capital Adequacy |
| [11](#ib891a616a6fe44efbf9ccb70a6368ccd_34) | &nbsp;&nbsp;&nbsp;1. Strategy | [54](#ib891a616a6fe44efbf9ccb70a6368ccd_340) | &nbsp;&nbsp;&nbsp;3. Shareholder Dividends |
| [14](#ib891a616a6fe44efbf9ccb70a6368ccd_52) | &nbsp;&nbsp;&nbsp;2. Financial Objectives | [55](#ib891a616a6fe44efbf9ccb70a6368ccd_343) | &nbsp;&nbsp;&nbsp;4. Principal Sources and Uses of Funds |
| [14](#ib891a616a6fe44efbf9ccb70a6368ccd_55) | &nbsp;&nbsp;&nbsp;3. Sustainability Plan | [56](#ib891a616a6fe44efbf9ccb70a6368ccd_346) | &nbsp;&nbsp;&nbsp;5. Liquidity |
| [15](#ib891a616a6fe44efbf9ccb70a6368ccd_61) | &nbsp;&nbsp;&nbsp;4. Acquisitions and Other |  |  |
|  |  | **[57](#ib891a616a6fe44efbf9ccb70a6368ccd_349)** | &nbsp;&nbsp;**J. RISK MANAGEMENT** |
| **[16](#ib891a616a6fe44efbf9ccb70a6368ccd_67)** | &nbsp;&nbsp;**C. FINANCIAL SUMMARY** | [57](#ib891a616a6fe44efbf9ccb70a6368ccd_355) | &nbsp;&nbsp;&nbsp;1. Risk Management Framework |
|  |  | [58](#ib891a616a6fe44efbf9ccb70a6368ccd_361) | &nbsp;&nbsp;&nbsp;2. Risk Governance |
| **[17](#ib891a616a6fe44efbf9ccb70a6368ccd_70)** | &nbsp;&nbsp;**D. PROFITABILITY** | [59](#ib891a616a6fe44efbf9ccb70a6368ccd_364) | &nbsp;&nbsp;&nbsp;3. Risk Universe |
|  |  | [59](#ib891a616a6fe44efbf9ccb70a6368ccd_367) | &nbsp;&nbsp;&nbsp;4. Risk Appetite |
| **[20](#ib891a616a6fe44efbf9ccb70a6368ccd_103)** | &nbsp;&nbsp;**E. GROWTH** | [60](#ib891a616a6fe44efbf9ccb70a6368ccd_370) | &nbsp;&nbsp;&nbsp;5. Risk Management Policies |
| [20](#ib891a616a6fe44efbf9ccb70a6368ccd_106) | &nbsp;&nbsp;&nbsp;1. Sales, Gross Flows and Value of New Business | [60](#ib891a616a6fe44efbf9ccb70a6368ccd_373) | &nbsp;&nbsp;&nbsp;6. Risk Management Process |
| [21](#ib891a616a6fe44efbf9ccb70a6368ccd_115) | &nbsp;&nbsp;&nbsp;2. Assets Under Management | [60](#ib891a616a6fe44efbf9ccb70a6368ccd_376) | &nbsp;&nbsp;&nbsp;7. Three Lines of Defence |
|  |  | [61](#ib891a616a6fe44efbf9ccb70a6368ccd_379) | &nbsp;&nbsp;&nbsp;8. Risk Culture and Philosophy |
| **[22](#ib891a616a6fe44efbf9ccb70a6368ccd_121)** | &nbsp;&nbsp;**F. FINANCIAL STRENGTH** | [62](#ib891a616a6fe44efbf9ccb70a6368ccd_385) | &nbsp;&nbsp;&nbsp;9. Risk Categories |
| **[24](#ib891a616a6fe44efbf9ccb70a6368ccd_133)** | &nbsp;&nbsp;**G. PERFORMANCE BY BUSINESS GROUP** | **[85](#ib891a616a6fe44efbf9ccb70a6368ccd_439)** | &nbsp;&nbsp;**K. ADDITIONAL FINANCIAL DISCLOSURE** |
| [24](#ib891a616a6fe44efbf9ccb70a6368ccd_145) | 1. Canada | [85](#ib891a616a6fe44efbf9ccb70a6368ccd_442) | 1. Selected Annual Information |
| [28](#ib891a616a6fe44efbf9ccb70a6368ccd_172) | 2. U.S.  | [85](#ib891a616a6fe44efbf9ccb70a6368ccd_457) | &nbsp;&nbsp;&nbsp;2. Items related to Statement of Operations |
| [32](#ib891a616a6fe44efbf9ccb70a6368ccd_196) | 3. Asset Management  | [88](#ib891a616a6fe44efbf9ccb70a6368ccd_481) | &nbsp;&nbsp;&nbsp;3. Items related to Statement of Financial Position |
| [37](#ib891a616a6fe44efbf9ccb70a6368ccd_217) | 4. Asia  | [89](#ib891a616a6fe44efbf9ccb70a6368ccd_496) | &nbsp;&nbsp;&nbsp;&nbsp;4. Fourth Quarter 2022 Profitability |
| [42](#ib891a616a6fe44efbf9ccb70a6368ccd_241) | &nbsp;&nbsp;&nbsp;5. Corporate | [91](#ib891a616a6fe44efbf9ccb70a6368ccd_517) | &nbsp;&nbsp;&nbsp;&nbsp;5. Fourth Quarter 2022 Growth |
|  |  | [92](#ib891a616a6fe44efbf9ccb70a6368ccd_520) | &nbsp;&nbsp;&nbsp;6. Previous Quarters |
| **[43](#ib891a616a6fe44efbf9ccb70a6368ccd_259)** | &nbsp;&nbsp;**H. INVESTMENTS** |  |  |
| [43](#ib891a616a6fe44efbf9ccb70a6368ccd_262) | &nbsp;&nbsp;&nbsp;1. Investment Profile | **[94](#ib891a616a6fe44efbf9ccb70a6368ccd_532)** | &nbsp;&nbsp;**L. NON-IFRS FINANCIAL MEASURES** |
| [43](#ib891a616a6fe44efbf9ccb70a6368ccd_271) | &nbsp;&nbsp;&nbsp;2. Debt Securities |  |  |
| [45](#ib891a616a6fe44efbf9ccb70a6368ccd_286) | &nbsp;&nbsp;&nbsp;3. Equities | **[103](#ib891a616a6fe44efbf9ccb70a6368ccd_553)** | &nbsp;&nbsp;**M. ACCOUNTING AND CONTROL MATTERS** |
| [45](#ib891a616a6fe44efbf9ccb70a6368ccd_289) | &nbsp;&nbsp;&nbsp;4. Mortgages and Loans | [103](#ib891a616a6fe44efbf9ccb70a6368ccd_556) | &nbsp;&nbsp;&nbsp;1. Critical Accounting Policies and Estimates |
| [47](#ib891a616a6fe44efbf9ccb70a6368ccd_310) | &nbsp;&nbsp;&nbsp;5. Derivatives | [109](#ib891a616a6fe44efbf9ccb70a6368ccd_565) | &nbsp;&nbsp;&nbsp;2. Changes in Accounting Policies |
| [49](#ib891a616a6fe44efbf9ccb70a6368ccd_319) | &nbsp;&nbsp;&nbsp;6. Investment Properties | [111](#ib891a616a6fe44efbf9ccb70a6368ccd_568) | &nbsp;&nbsp;&nbsp;3. Disclosure Controls and Procedures |
| [49](#ib891a616a6fe44efbf9ccb70a6368ccd_322) | &nbsp;&nbsp;&nbsp;7. Impaired Assets |  |  |
| [49](#ib891a616a6fe44efbf9ccb70a6368ccd_325) | &nbsp;&nbsp;&nbsp;8. Asset Default Provision | **[112](#ib891a616a6fe44efbf9ccb70a6368ccd_523)** | &nbsp;&nbsp;**N. LEGAL AND REGULATORY PROCEEDINGS** |
|  |  | **[112](#ib891a616a6fe44efbf9ccb70a6368ccd_571)** | &nbsp;&nbsp;**O. FORWARD-LOOKING STATEMENTS** |

---

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 9

------

**Management's Discussion and Analysis**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

February 8, 2023

**A. How We Report Our Results**

Sun Life is a leading international financial services organization providing asset management, wealth, insurance and health solutions to individual and institutional Clients. Sun Life has operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of December 31, 2022, Sun Life had total assets under management ("AUM") of $1.33 trillion. For more information please visit <u>www.sunlife.com</u>.

Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF.

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"). In this management's discussion and analysis ("MD&A"), SLF Inc., its subsidiaries and, where applicable, its joint ventures and associates are collectively referred to as "the Company", "Sun Life", "we", "our", and "us". Unless otherwise indicated, all information in this MD&A is presented as at and for the year ended December 31, 2022 and the information contained in this document is in Canadian dollars.

Where information at and for the year ended December 31, 2022 is not available, information available for the latest period before December 31, 2022 is used. Except where otherwise noted, financial information is presented in accordance with International Financial Reporting Standards ("IFRS") and the accounting requirements of the Office of the Superintendent of Financial Institutions ("OSFI"). Reported net income (loss) refers to Common shareholders' net income (loss) determined in accordance with IFRS.

We manage our operations and report our financial results in five business segments: Canada, United States ("U.S."), Asset Management, Asia, and Corporate. Information concerning these segments is included in our annual and interim consolidated financial statements and accompanying notes ("Annual Consolidated Financial Statements" and "Interim Consolidated Financial Statements", respectively, and "Consolidated Financial Statements" collectively), and this MD&A document.

**1. Use of Non-IFRS Financial Measures**

We report certain financial information using non-IFRS financial measures, as we believe that these measures provide information that is useful to investors in understanding our performance and facilitate a comparison of our quarterly and full year results from period to period. These non-IFRS financial measures do not have any standardized meaning and may not be comparable with similar measures used by other companies. For certain non-IFRS financial measures, there are no directly comparable amounts under IFRS. These non-IFRS financial measures should not be viewed in isolation from or as alternatives to measures of financial performance determined in accordance with IFRS. Additional information concerning non-IFRS financial measures and, if applicable, reconciliations to the closest IFRS measures are available in section L - Non-IFRS Financial Measures in this document and the Supplementary Financial Information package that are available on <u>www.sunlife.com</u> under Investors - Financial results and reports.

**2. Forward-looking Statements**

Certain statements in this document are forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Additional information concerning forward-looking statements and important risk factors that could cause our assumptions, estimates, expectations and projections to be inaccurate and our actual results or events to differ materially from those expressed in or implied by such forward-looking statements can be found in section O - Forward-looking Statements in this document.

**3. Additional Information** 

Additional information about SLF Inc. can be found in the Consolidated Financial Statements, the annual and interim MD&A, and SLF Inc.'s Annual Information Form ("AIF") for the year ended December 31, 2022. These documents are filed with securities regulators in Canada and are available at <u>www.sedar.com</u>. SLF Inc.'s Annual Consolidated Financial Statements, annual MD&A and AIF are filed with the United States Securities and Exchange Commission ("SEC") in SLF Inc.'s annual report on Form 40-F and SLF Inc.'s interim MD&A and Interim Consolidated Financial Statements are furnished to the SEC on Form 6-Ks and are available at <u>www.sec.gov</u>.

**4. COVID-19 Pandemic Considerations**

In early 2020, the world was impacted by COVID-19, which was declared a pandemic by the World Health Organization. The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus and on actions taken by governments, businesses and individuals, which could vary by country and result in differing outcomes. Given the extent of the circumstances, it is difficult to reliably measure or predict the potential impact of this uncertainty on our future financial results.

For additional information, refer to section J - Risk Management - 9 - Risk Categories - vii - Other Risks - Risks relating to the COVID-19 pandemic in this document.

10 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

------

**B. Overview**

Sun Life is a leading international financial services organization providing a diverse range of asset management, wealth, insurance, and health solutions to individual and institutional Clients. We have four business pillars: Asset Management, Canada, U.S. and Asia.

**1. Strategy**

Our strategy places the Client at the centre of everything we do. Our enterprise strategy, as described below, reflects both our priorities and our diversified business mix. We believe by effectively executing on our strategy, we can fulfill our Purpose, create a positive impact for our Clients, and achieve our goal to be a leader in each of our four pillars.

![imagea.jpg](imagea.jpg)

**Purpose and Ambition**

Our Purpose is to help our Clients achieve lifetime financial security and live healthier lives.

We seek to provide outstanding value and impact for our Clients in three ways:

**Driving positive financial actions by:**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Helping Clients build and protect their wealth.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Providing quality products and solutions that meet the needs of our Clients.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Delivering timely and expert advice through consistently superior Client experiences.

**Delivering solid long-term Client investment returns by:**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Leveraging our collective expertise to make better investment decisions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Sourcing broad investment capabilities to serve global Client needs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Actively engaging with our Clients to think and act sustainably.

**Driving positive health actions by:**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Being a trusted payer of benefits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Helping Clients access, navigate, manage, and receive the care they need.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Improving health outcomes, including physical and mental well-being, by providing health solutions.

Our Ambition is "to be one of the best asset management and insurance companies in the world". We aim to achieve our ambition by maintaining our balanced business mix and leading positions across our pillars, delivering on our Purpose and Client Impact strategy, and focusing on strong execution to meet our medium-term financial objectives<sup>(1)(2)</sup>:

&nbsp;&nbsp;&nbsp;&nbsp;• Underlying Earnings Per Share growth: 8-10%.

&nbsp;&nbsp;&nbsp;&nbsp;• Underlying Return on Equity: 16%+.

&nbsp;&nbsp;&nbsp;&nbsp;• Underlying Dividend Payout Ratio: 40%-50%.

<sup>(1)</sup> For more information about our medium-term financial objectives, see section B - Overview - 2 - Financial Objectives in this document. Underlying earnings per share, underlying ROE and underlying dividend payout ratio are Non-IFRS financial measures. See section L - Non-IFRS Financial Measures in this document.

<sup>(2)</sup> Our medium-term financial objectives following the adoption of IFRS 17 and IFRS 9 remain consistent for underlying earnings per share and underlying dividend payout ratio. Our underlying ROE medium-term financial objective will change to 18%+ following the adoption of both standards, an increase from 16%+ prior to transition. We continue to assess the impact that the adoption of IFRS 17 and IFRS 9 will have on our Consolidated Financial Statements and estimates of the financial impacts are subject to change. For more information, see Section J - Risk Management - 9 - Risk Categories - vii - Other Risks in this document.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 11

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**Our Four Pillars** 

Our four pillars define the businesses and markets in which we operate. In each of these pillars, we focus on creating value and positively impacting our Clients through businesses that have strong growth prospects, favourable return on equity ("ROE"), and strong capital generation in attractive global markets. We are well-positioned across each of our pillars.

**Asset Management: A global leader in both public and alternative asset classes through MFS and SLC Management**

We deliver value and drive positive Client impact through our offering of quality investment products:

• MFS Investment Management ("MFS") is a long-standing premier active investment manager offering a comprehensive set of asset management products and services to retail and institutional investors around the world.

• SLC Management is an institutional investment manager delivering alternative fixed income, private credit, infrastructure and global real estate solutions to institutional investors.

**Canada: A leader in health, wealth, and insurance**

We deliver value and impact to over 6.6 million Clients via our group and individual businesses, helping Clients achieve lifetime financial security and live healthier lives by:

• Providing a wide range of asset management, wealth, health and protection solutions to retail Clients.

• Continuing to build a health business that focuses on helping Canadians live healthy lives, both as a major provider of group benefits and through a growing focus on innovative products and services that lead to better health outcomes.

• Remaining a market leader in group retirement services in the workplace, including defined contribution pensions, and defined benefit pension de-risking.

**U.S.: A leader in health and benefits**

We have deep expertise in the health care market, and help our Clients get the coverage they need while improving health outcomes. We are:

• The largest independent medical stop-loss provider in the U.S., offering protection against large medical claims for employers who self-insure their employee health plans and health care navigation services to help members improve outcomes.

• The second largest dental benefits provider in the U.S.<sup>(1)</sup>, serving more than 37 million members<sup>(2)</sup> through government programs and commercial group dental and vision solutions for employers of all sizes.

• A top ten group life and disability provider in the U.S., offering a broad portfolio of group insurance products and services, as well as turnkey risk management solutions for health plans and other insurance carriers.

**Asia: A regional leader focused on fast-growing markets**

We are well-positioned in growing markets in Asia, with operations in key ASEAN markets (Philippines, Vietnam, Indonesia, and Malaysia), Hong Kong, India, China, and High-Net-Worth ("HNW") (International and Singapore). These markets account for approximately 65% of Asia's GDP with high potential for future growth<sup>(3)</sup>. We are:

• A provider of individual life and health insurance that delivers Client value across all of our markets.

• A provider, in select markets, of asset management and group retirement products and services.

• Among the global leaders in providing life insurance solutions to HNW Clients.

**Our Client Impact Strategy**

Our Client Impact strategy has seven areas of focus that we are pursuing across our four pillars. These areas of focus define how we compete in our markets, extend our competitive advantages, fulfill our Purpose and support our ambition to be one of the best asset management and insurance companies in the world.

**Client Impact:** Our Clients are at the centre of everything we do. Whether it is helping to navigate health concerns, save and plan for retirement or provide financial security for their families, our focus is on the positive impact we have on our Clients' lives. We believe this allows us to develop and offer the right solutions and experiences, build lasting and trusted Client relationships, and create value for Clients that also deliver better business outcomes for Sun Life. We are committed to helping Clients by driving positive health and financial actions, and delivering solid long-term investment returns.

**Distribution Excellence:** We have established an omni-channel approach to distribution that makes it easier for Clients to do business with us across all markets. To excel at distribution, we prioritize exceptional service, connecting with our Clients when and how they want to engage, and providing personalized and holistic solutions. We are focused on meeting our Clients' needs by being an exceptional distribution partner that empowers our advisors and partners to harness digital solutions to provide seamless Client experiences.

**Digital Leadership:** We are accelerating our digital, data and analytics capabilities and seek to think and act like a digital company. Our Digital Enterprise strategy brings our businesses and technology teams closer together and transforms how we work. Business and technology are working together in an agile way to deliver digital experiences, products, and solutions that meet our Clients' needs and drive positive outcomes. We continue to adopt Client-centric solutions that incorporate our Clients' perspectives in every stage of their lives, creating long-term relationships.

Our Digital Enterprise strategy is focused on:

• Creating deep Client relationships enabled by leading digital capabilities and analytics.

• Delivering personalized Client experiences harnessing our data to provide insights.

• Evolving how we work together to drive faster decisions that are made closer to the Client.

<sup>(1)</sup> Based on number of members as of December 31, 2021. Ranking based on data disclosed by competitors.

<sup>(2)</sup> Includes members who also have a Sun Life Group coverage.

<sup>(3)</sup> Source: International Monetary Fund, 2022.

12 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Financial Discipline:** Our strategy is underpinned by a continued commitment to strong financial performance and risk management, coupled with a focus on capital management. Sustained focus across these areas support our medium-term financial objectives and our aim of top quartile total shareholder returns. Specific areas of focus include:

• Delivering strong, stable earnings growth and disciplined expense management.

• Managing our capital to protect our policyholders and to maintain strong financial flexibility, to generate shareholder value.

• Disciplined investment and a programmatic M&A<sup>(1)</sup> approach focused on building scale and capabilities to drive future growth.

**Sustainability Driven:** Sustainability is essential to our long-term business success. We embed sustainability into our strategy, culture, and operations, to drive meaningful social and economic outcomes for our Clients, employees, advisors, investors and communities. We believe our actions will contribute to a healthier, more financially resilient, environmentally secure, and economically prosperous world. See Section B - Overview - 3 - Sustainability Plan in this document for more information about our approach to sustainability.

**Empowered People and Inclusive Culture:** Delivering on our strategy will require us to attract, retain, and develop the best talent, and to empower our people to drive results. It will also require us to preserve and strengthen our strong culture of Client focus, integrity, collaboration and inclusivity. Specifically, our focus is to:

• Empower employees and advisors to take action, make decisions, and be accountable.

• Develop talent that combines strong leadership skills with technological savvy, to support our transformation to a leading digital organization.

• Maintain momentum on our diversity, equity and inclusion ("DE&I") commitment, embedding DE&I into our decision-making to reflect our values.

• Design our Future of Work with intent, offering employees choice and flexibility in how and where we work.

• Be the employer of choice for top talent.

**Trusted Brand:** Preserving our long standing reputation of being a trusted brand is paramount in an increasingly complex and digitized world. Over the last 150 years, we have built and enjoyed strong, trusted relationships with our Clients in all Sun Life markets and through our distribution partnerships. Our brand informs the differentiated Sun Life experiences we create, the products and service experiences we deliver, and the culture we live by, to achieve our Purpose. Our forward-looking brand strategy will maintain focus on future competitive advantage and brand appeal with both new and existing Clients.

**Key Strategic Priorities**

Together with the strong foundation of our four pillars and key strategic areas of focus, our strategy emphasizes four key strategic priorities to accelerate growth and improve competitive positioning:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.Think and act like a digital company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Realize synergies between asset management and insurance businesses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Build scale and capabilities through M&A and strategic partnerships.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.Deliver on our health strategy in Canada, the U.S., and Asia.

We believe we are well-positioned to execute on each of these strategic priorities and that by doing so we will create positive Client Impact.

Our balanced four pillars, holistic Client Impact strategy, and focus on our strategic priorities combine elements that have been core to our success. Looking ahead, we are confident that our strategy will allow us to deliver on our Purpose, drive positive Client outcomes, create meaningful value for our shareholders, and support our ambition to be one of the best asset management and insurance companies in the world.

<sup>(1)</sup> Mergers & Acquisitions ("M&A").

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 13

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**2. Financial Objectives**

Our medium-term financial objectives are outlined as follows:

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| | | | |
|:---|:---|:---|:---|
| **Measure**<sup>(1)(2)</sup> | **Medium-term** <br>**financial objectives**<sup>(3)</sup> | **5-Year**<sup>(4)</sup> | **2022 results** |
| **Underlying EPS growth**<br>Growth in EPS reflects the Company's focus on generating sustainable earnings for shareholders. | 8%-10% | 9% | 4% |
| **Underlying Return on Equity ("ROE")**<br>ROE is a significant driver of shareholder value and is a major focus for management across all businesses. | 16%+ | 14.7% | 15.1% |
| **Underlying dividend payout ratio**<br>Payout of capital versus shareholder value, based on underlying net income. | 40%-50% | 41% | 44% |

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<sup>(1)</sup> Underlying earnings per share ("EPS"), underlying ROE and underlying dividend payout ratio are non-IFRS financial measures. See section L - Non-IFRS Financial Measures in this document. Underlying dividend payout ratio represents the ratio of common shareholders' dividends to diluted underlying EPS. See section I - Capital and Liquidity Management - 3 - Shareholder Dividends in this document for further information regarding dividends.

<sup>(2)</sup> Our medium-term financial objectives following the adoption of IFRS 17 and IFRS 9 remain consistent for underlying earnings per share and underlying dividend payout ratio. Our underlying ROE medium-term financial objective will change to 18%+ following the adoption of both standards, an increase from 16%+ prior to transition. We continue to assess the impact that the adoption of IFRS 17 and IFRS 9 will have on our Consolidated Financial Statements and estimates of the financial impacts are subject to change. For more information, see Section J - Risk Management - 9 - Risk Categories - vii - Other Risks in this document.

<sup>(3)</sup> Although considered reasonable, we may not be able to achieve our medium-term financial objectives as our assumptions may prove to be inaccurate. Accordingly, our actual results could differ materially from our medium-term financial objectives as described above. Our medium-term financial objectives do not constitute guidance. Our medium-term financial objectives are forward-looking non-IFRS financial measures and additional information is provided in this MD&A in section O - Forward-looking Statements - Medium-Term Financial Objectives.

<sup>(4)</sup> Underlying EPS growth is calculated using a compound annual growth rate. Underlying ROE and dividend payout ratio are calculated using an average.

In the year and over the medium-term, we have performed well against our medium-term financial objectives in a challenging operating environment reflecting economic and geopolitical uncertainties and global health concerns.

**3. Sustainability Plan**

Our sustainability plan is aligned directly with our Purpose of helping our Clients achieve lifetime financial security and live healthier lives, and is integrated into our enterprise strategy. We focus on three areas where we have the greatest opportunity to have a positive impact on society, while creating a competitive advantage for our business.

**Increasing Financial Security:** We provide Clients and employees with innovative solutions and services that increase their lifetime financial security. We empower and educate Clients to take positive financial action, improving access to and use of wealth and protection products, helping to build long-term wealth and close insurance coverage gaps.

**Fostering Healthier Lives:** We offer Clients and employees products, services and tools to help them live healthier lives. We positively impact health and wellness outcomes in society through our focus on increasing access to health care and health and disability insurance. Our investments in community health complement these efforts.

**Advancing Sustainable Investing:** We aspire to deliver sustainable returns for our Clients and drive the transition to a low-carbon, inclusive economy. We embed ESG factors in our investment processes, offering Clients sustainable investing opportunities. In addition, we invest our own assets in ways that support a low-carbon and more inclusive economy.

Our sustainability plan builds from our foundation as a **Trusted and Responsible Business**. We prioritize foundational sustainability considerations that are important to stakeholders: climate change, diversity, equity & inclusion, data security & privacy, talent management, governance & ethics, risk management, and reporting & disclosure. We recognize climate change as one of the defining issues of our time and commit to working together across industries, with our Clients, investees and other stakeholders to contribute to solving this global challenge. We are committed to the goal of achieving net zero greenhouse gas emissions by 2050, for our operations and investments.

Our sustainability plan is guided by the United Nations Sustainable Development Goals ("SDGs"). We focus primarily on supporting the five SDGs where we believe we can have the greatest impact. These are: #3 Good health & well-being, #5 Gender equality, #7 Affordable and clean energy, #8 Decent work and economic growth and #13 Climate action.

For additional information on our sustainability plan and recent progress, refer to <u>www.sunlife.com/sustainability</u> and the headings "2022 Highlights" throughout section G - Performance by Business Segment in this document. For more information on our approach to climate change, refer to the heading "Environmental and Social Risk Section" in section J - Risk Management - 9 - Business and Strategy Risks of this document, which includes our disclosure based on the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD").

14 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**4. Acquisitions and Other**

The following developments occurred since January 1, 2022. Additional information concerning acquisitions and dispositions is provided in our 2022 Annual Consolidated Financial Statements.

On April 5, 2022, we announced an expansion to our existing bancassurance partnership with PT Bank CIMB Niaga Tbk ("CIMB Niaga") in Indonesia, which also extends our existing agreement by six years to 2039. Under the new agreement, for a term of 15 years effective January 2025, Sun Life will be the provider of insurance solutions to CIMB Niaga customers across all distribution channels, accelerating our growth ambitions in the country.

On June 1, 2022, we completed the acquisition of DentaQuest Group, Inc. ("DentaQuest"), the second-largest dental benefits provider in the U.S,<sup>(1)</sup> for approximately $3.3 billion (US$2.6 billion). DentaQuest is included in our U.S. business segment as part of the new "Dental" business unit, along with our existing dental and vision business, formerly within Group Benefits. DentaQuest is the largest provider of U.S. Medicaid dental benefits, with growing Medicare Advantage, commercial, and U.S. Affordable Care Act exchange businesses. The acquisition advances our strategy of being a leader in health and benefits in the U.S. while contributing to fee-based earnings and businesses which generate higher ROE.

On August 4, 2022, we entered into an agreement to sell SLF of Canada UK Limited ("Sun Life UK") to Phoenix Group Holdings plc ("Phoenix Group") for approximately $385 million (£248 million). Sun Life UK manages life and pension policies as well as payout annuities for UK Clients. Sun Life UK is closed to new sales and has operated as a run-off business since 2001. Under the agreement, we will retain our economic interest in the payout annuities business through a reinsurance treaty. Phoenix Group is the UK's largest long-term savings and retirement business, with £270 billion<sup>(2)</sup> of assets under administration and approximately 13 million customers. As part of the sale, we will establish a long-term partnership to become a strategic asset management partner to Phoenix Group. Our asset management companies, MFS and SLC Management, will continue to manage approximately $9 billion of Sun Life UK's general account upon the close of the sale. In addition, Phoenix Group has set a goal to invest approximately US$25 billion in North American public and private fixed income and alternative investments over the next five years. MFS and SLC Management will be material partners to Phoenix Group in achieving this goal. In Q3'22, we recognized an impairment charge of $170 million

(£108 million) pertaining to the attributed goodwill that is not expect to be recovered for through the sale. The transaction is expected to close in the first half of 2023, subject to regulatory approvals and customary closing conditions.

**Subsequent Events**

For additional information, refer to Note 28 of our 2022 Annual Consolidated Financial Statements.

On January 20, 2023, we announced a 15-year exclusive bancassurance partnership in Hong Kong with Dah Sing Bank ("Dah Sing"). Under this partnership, Sun Life will be the exclusive provider of life insurance solutions to Dah Sing's 570,000 retail banking customers, helping to fulfill their savings and protection needs at different life stages. This is Sun Life's first exclusive bancassurance partnership in Hong Kong and will be a valuable complement to our existing network of over 2,500 expert insurance advisors. Hong Kong is a thriving life insurance hub in Asia and bancassurance is a key distribution channel, accounting for more than 50% of the life insurance distribution mix. Following the completion of regulatory processes and approvals, distribution of Sun Life products is anticipated to start in July 2023.

On February 1, 2023, we completed the acquisition of a 51%<sup>(3)</sup> interest in Advisors Asset Management, Inc. ("AAM"), a leading independent U.S. retail distribution firm. AAM provides access to U.S. retail distribution for SLC Management, Sun Life's institutional fixed income and alternatives asset manager. This allows SLC Management to meet the growing demand among U.S. HNW investors for alternative assets. AAM provides a range of solutions and products to financial advisors at wirehouses, registered investment advisors and independent broker-dealers, overseeing US$40.5 billion (approximately C$55 billion) in assets as at December 31, 2022, with 10 offices across nine U.S. states.

On February 1, 2023, we completed the sale of our sponsored markets business from Sun Life Assurance Company of Canada ("SLA"), a wholly owned subsidiary of SLF Inc., to Canadian Premier Life Insurance Company ("Canadian Premier"). Sponsored markets include a variety of association & affinity, and group creditor clients.

<sup>(1)</sup> Based on number of members as of December 31, 2021. Ranking based on data disclosed by competitors.

<sup>(2)</sup> As at June 30, 2022.

<sup>(3)</sup> On a fully diluted basis.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 15

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**C. Financial Summary**

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| | | |
|:---|:---|:---|
| ($ millions, unless otherwise noted) |  |  |
| **Profitability** | **2022** | 2021 |
| **Net income (loss)** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Reported net income (loss) - Common shareholders | **3060** | 3934 |
| &nbsp;&nbsp;&nbsp;&nbsp;Underlying net income (loss)<sup>(1)</sup> | **3674** | 3533 |
| **Diluted earnings per share ("EPS") ($)** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Reported EPS (diluted) | **5.21** | 6.69 |
| &nbsp;&nbsp;&nbsp;&nbsp;Underlying EPS (diluted)<sup>(1)</sup> | **6.27** | 6.03 |
| **Reported basic EPS ($)** | **5.22** | 6.72 |
| **Return on equity ("ROE") (%)** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Reported ROE<sup>(1)</sup> | **12.5%** | 17.1% |
| &nbsp;&nbsp;&nbsp;&nbsp;Underlying ROE<sup>(1)</sup> | **15.1%** | 15.4% |
| **Growth** | **2022** | 2021 |
| **Sales** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Insurance sales<sup>(1)</sup> | **4321** | 3674 |
| &nbsp;&nbsp;&nbsp;&nbsp;Wealth sales and asset management gross flows<sup>(1)</sup> | **204113** | 228408 |
| **Value of new business ("VNB")**<sup>(1)</sup> | **1253** | 1346 |
| **Assets under management**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;General fund assets | **205614** | 205374 |
| &nbsp;&nbsp;&nbsp;&nbsp;Segregated funds | **125292** | 139996 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other AUM<sup>(1)</sup> | **994953** | 1099358 |
| Total AUM<sup>(1)</sup> | **1325859** | 1444728 |
| **Financial Strength** | **2022** | 2021 |
| **LICAT ratios**<sup>(2)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. | **130%** | 145% |
| &nbsp;&nbsp;&nbsp;&nbsp;Sun Life Assurance<sup>(3)</sup> | **127%** | 124% |
| **Financial leverage ratio**<sup>(1)(4)</sup> | **25.1%** | 25.5% |
| **Dividend** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividend payout ratio<sup>(1)</sup> | **44%** | 38% |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends per common share ($) | **2.760** | 2.310 |
| **Capital** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated debt<sup>(4)</sup> | **6676** | 6425 |
| &nbsp;&nbsp;&nbsp;&nbsp;Innovative capital instruments<sup>(5)</sup> | **200** | 200 |
| &nbsp;&nbsp;&nbsp;&nbsp;Participating policyholders' equity | **1837** | 1700 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-controlling interest equity | **90** | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;Preferred shares and other equity instruments | **2239** | 2239 |
| &nbsp;&nbsp;&nbsp;&nbsp;Common shareholders' equity<sup>(6)</sup> | **25211** | 24075 |
| Total capital<sup>(4)</sup> | **36253** | 34698 |
| Weighted average common shares outstanding for basic EPS (millions) | **586** | 586 |
| Closing common shares outstanding (millions) | **586** | 586 |

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<sup>(1)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(2)</sup> Life Insurance Capital Adequacy Test ("LICAT") ratio. Our LICAT ratios are calculated in accordance with OSFI-mandated guideline, Life Insurance Capital Adequacy Test.

<sup>(3)</sup> Sun Life Assurance Company of Canada ("Sun Life Assurance") is SLF Inc.'s principal operating life insurance subsidiary.

<sup>(4)</sup> For 2021, amount included $2.0 billion of proceeds from the subordinated debt offerings completed in November 2021, of which $1.5 billion did not qualify as LICAT capital at issuance as it was subject to contractual terms requiring us to redeem the underlying securities in full, if the closing of the DentaQuest acquisition did not occur. We completed the acquisition of DentaQuest on June 1, 2022.

<sup>(5)</sup> Innovative capital instruments consist of Sun Life ExchangEable Capital Securities ("SLEECS"), which qualify as regulatory capital. However, under IFRS they are reported as Senior debentures in the Consolidated Financial Statements. For additional information, see section I - Capital and Liquidity Management in this document.

<sup>(6)</sup> Common shareholders' equity is equal to Total shareholders' equity less Preferred shares and other equity instruments.

16 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**D. Profitability**

The following table reconciles our Common shareholders' net income ("reported net income") and underlying net income. The table also sets out the impacts that other notable items had on reported net income and underlying net income. All factors discussed in this document that impact underlying net income are also applicable to reported net income.

---

| | | |
|:---|:---|:---|
| ($ millions, after-tax) | **2022** | 2021 |
| **Reported net income - Common shareholders** | **3060** | 3934 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | **(410)** | 627 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assumption changes and management actions<sup>(1)</sup> | **62** | 74 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other adjustments<sup>(1)(2)</sup> | **(266)** | (300) |
| **Underlying net income**<sup>(3)</sup> | **3674** | 3533 |
| **Reported ROE**<sup>(3)</sup> | **12.5%** | 17.1% |
| **Underlying ROE**<sup>(3)</sup> | **15.1%** | 15.4% |
| **Experience-related items attributable to reported and underlying net income**<sup>(3)(4)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Impacts of investment activity on insurance contract liabilities ("investing activity") | **247** | 144 |
| &nbsp;&nbsp;&nbsp;&nbsp;Credit | **81** | 114 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortality | **(97)** | (111) |
| &nbsp;&nbsp;&nbsp;&nbsp;Morbidity | **141** | 39 |
| &nbsp;&nbsp;&nbsp;&nbsp;Lapse and other policyholder behaviour ("policyholder behaviour") | **(30)** | (31) |
| &nbsp;&nbsp;&nbsp;&nbsp;Expenses | **22** | (170) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other experience | **(71)** | (56) |
| Total of experience-related items<sup>(3)(4)</sup> | **293** | (71) |

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<sup>(1)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax amounts.

<sup>(2)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures L - Non-IFRS Financial Measures in this document.

<sup>(3)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(4)</sup> Experience-related items reflect the difference between actual experience during the reporting period and best estimate assumptions used in the determination of our insurance contract liabilities. Experience-related items are a part of the Sources of Earnings framework, and are calculated in accordance with OSFI Guideline D-9, Sources of Earnings Disclosures. Experience-related items from our India, China and Malaysia joint ventures and associates are recorded within other experience.

**2022 vs. 2021**

Reported net income of $3,060 million decreased $874 million or 22%, reflecting unfavourable market-related impacts, a prior year gain on the IPO of our India asset management joint venture, a $170 million charge related to the sale of Sun Life UK<sup>(1)</sup> and DentaQuest acquisition and integration costs, partially offset by fair value changes on MFS'<sup>(2)</sup> share-based payment awards and the impact of the Canada Tax Rate Change<sup>(3)</sup>.

Underlying net income of $3,674 million<sup>(4)</sup> increased $141 million or 4%, driven by business growth and experience in protection and health, contribution from the DentaQuest acquisition, and lower incentive compensation expenses. This was partially offset by lower wealth and asset management earnings reflecting declines in global equity markets, a higher effective tax rate compared to prior year and lower available-for-sale ("AFS") gains.

Foreign exchange translation led to an increase of $67 million and $52 million in reported net income and underlying net income, respectively.

**1. Market-related impacts**

Market-related impacts resulted in a decrease of $410 million to reported net income (2021 - an increase of $627 million), reflecting interest rate movements and lower equity markets, partially offset by an increase in the value of real estate investments. See section L - Non-IFRS Financial Measures in this document for a breakdown of the components of market-related impacts.

<sup>(1)</sup> On August 4, 2022, we entered into an agreement to sell SLF of Canada UK Limited ("Sun Life UK") to Phoenix Group Holdings plc ("Phoenix Group"). In Q3'22, we recognized an impairment charge of $170 million (£108 million) pertaining to the attributed goodwill that is not expected to be recovered through the sale ("sale of Sun Life UK"). For more details, see section B - Overview - 4 - Acquisitions and Other in this document.

<sup>(2)</sup> MFS Investment Management ("MFS").

<sup>(3)</sup> On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada ("Canada Tax Rate Change"). This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, reported net income increased by $127 million in the fourth quarter, reflected in Assumption changes and management actions ("ACMA") and Other adjustments. Refer to section D - Profitability - 5 - Income taxes in this document for more information.

<sup>(4)</sup> Refer to section L - Non-IFRS Financial Measures in this document for a reconciliation between reported net income and underlying net income.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 17

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**2. Assumption changes and management actions** 

Due to the long-term nature of our business, we make certain judgments involving assumptions and estimates to value our obligations to policyholders. The valuation of these obligations is recorded in our financial statements as insurance contract liabilities and investment contract liabilities and requires us to make assumptions about equity market performance, interest rates, asset default, mortality and morbidity rates, policyholder behaviour, expenses and inflation and other factors over the life of our products. We review assumptions each year, generally in the third quarter, and revise these assumptions if appropriate. We consider our actual experience in current and past periods relative to our assumptions as part of our annual review.

The net impact of ACMA was an increase of $62 million to reported net income (2021 - an increase of $74 million). See section L - Non-IFRS Financial Measures in this document for more details.

**Assumption Changes and Management Actions by Type**

The following table sets out the impacts of ACMA on our reported net income in 2022.

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| | | |
|:---|:---|:---|
| As at December 31, 2022 |  |  |
| ($ millions, after-tax) | **Impacts on reported net income**<sup>(1)</sup> | **Comments** |
| Mortality / morbidity | **90** | Updates to reflect mortality/morbidity experience in all jurisdictions. The largest items were favourable mortality impacts in the UK in Corporate and in Group Retirement Services ("GRS") in Canada offset partially by adverse morbidity impacts in Sun Life Health in Canada. |
| Policyholder behaviour | **(65)** | Updates to lapse and policyholder behaviour in all jurisdictions. The largest item was an adverse lapse impact in Vietnam in Asia. |
| Expenses | **(11)** | Updates to reflect expense experience. |
| Investment returns | **(10)** | Updates to various investment-related assumptions. |
| Model enhancements and other | **58** | Various enhancements and methodology changes. |
| Total impacts on reported net income<sup>(2)</sup> | **62** |  |

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&nbsp;&nbsp;&nbsp;&nbsp;<sup>(1)</sup>ACMA is included in reported net income and is presented as an adjustment to arrive at underlying net income.

&nbsp;&nbsp;&nbsp;&nbsp;<sup>(2)</sup>In this table, ACMA represents the shareholders' reported net income impacts (after-tax) including management actions. In Note 10.A of our 2022 Consolidated Financial Statements for the period ended December 31, 2022, the impacts of method and assumptions changes represents the change in shareholders' and participating policyholders' insurance contract liabilities net of reinsurance assets (pre-tax) and does not include management actions. Further information can be found in section L - Non-IFRS Financial Measures in this document.

Additional information on estimates relating to our policyholder obligations, including the methodology and assumptions used in their determination, can be found in this MD&A under section M - Accounting and Control Matters - 1 - Critical Accounting Policies and Estimates and Note 10 of our 2022 Annual Consolidated Financial Statements.

**3. Other adjustments**

Other adjustments decreased reported net income $266 million (2021 - a decrease of $300 million), reflecting a $170 million charge related to the sale of Sun Life UK<sup>(1)</sup>, DentaQuest acquisition and integration costs, an increase in SLC Management's acquisition-related liabilities<sup>(2)</sup> and a charge reflecting the resolution of a matter related to reinsurance pricing for our U.S. In-force Management business, partially offset by fair value changes on MFS' share-based payment awards, an increase in the value of deferred tax assets related to the Canada Tax Rate Change<sup>(3)</sup>, and a gain on the sale-leaseback of the Wellesley office in the U.S.

**4. Experience-related items**

The notable experience-related items, which impact current year reported and underlying net income, are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Favourable investing activity gains across the businesses;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Favourable credit across the businesses;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Unfavourable mortality which primarily included COVID-19-related experience;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Favourable morbidity driven by U.S. medical stop-loss;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Unfavourable policyholder behaviour primarily in Asia;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Favourable expense experience, driven by lower corporate expenses and incentive compensation costs; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Unfavourable other experience reflecting higher project spend.

<sup>(1)</sup> On August 4, 2022, we entered into an agreement to sell SLF of Canada UK Limited ("Sun Life UK") to Phoenix Group Holdings plc ("Phoenix Group"). In Q3'22, we recognized an impairment charge of $170 million (£108 million) pertaining to the attributed goodwill that is not expected to be recovered through the sale ("sale of Sun Life UK"). For more details, see section B - Overview - 4 - Acquisitions and Other in this document.

<sup>(2)</sup> Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership interests of SLC Management affiliates.

<sup>(3)</sup> On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada ("Canada Tax Rate Change"). This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, reported net income increased by $127 million in the fourth quarter, reflected in ACMA and Other adjustments. Refer to section D - Profitability - 5 - Income taxes in this document for more information.

18 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**5. Income taxes**

The effective tax rate is impacted by various tax benefits, such as lower taxes on income subject to tax in foreign jurisdictions, a range of tax-exempt investment income, and other sustainable tax benefits.

On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada. This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, reported net income increased by $127 million in the fourth quarter, reflected in ACMA and Other adjustments. The increase was comprised of after-tax income of $22 million ($31 million pre-tax) in ACMA in Canada, and income of $115 million on the remeasurement of deferred tax assets, partially offset by the impact of the retroactive increase in the tax rate of $10 million in Canada and Corporate in Other adjustments.

The effective tax rates on reported net income and underlying net income<sup>(1)</sup> were 15.8% and 16.8%, respectively (2021 - 14.3% and 13.5%, respectively). In 2022, the effective tax rate on underlying net income was within our expected range of 15% to 20%. In 2021, the effective tax rate on underlying net income was slightly below the expected range primarily due to higher tax-exempt investment income and resolutions of prior years' tax matters. For additional information, refer to Note 20 of our 2022 Annual Consolidated Financial Statements.

**6. Impacts of foreign exchange translation**

We operate in many markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda, and generate revenues and incur expenses in local currencies in these jurisdictions, which are translated to Canadian dollars.

Items impacting our Consolidated Statements of Operations are translated into Canadian dollars using average exchange rates for the respective period. For items impacting our Consolidated Statements of Financial Position, period end rates are used for currency translation purposes.

The following table provides the foreign exchange rates for the U.S. dollar, which generates the most significant impact of foreign exchange translation, over the past four quarters and two years.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Exchange rate** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Full year | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Full year |
|  | **Q4'22** | Q3'22 | Q2'22 | Q1'22 | **2022** | 2021 |
| U.S. Dollar - Average | **1.358** | 1.304 | 1.276 | 1.267 | **1.301** | 1.254 |
| U.S. Dollar - Period end | **1.355** | 1.383 | 1.287 | 1.250 | **1.355** | 1.263 |

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The relative impacts of foreign exchange translation in any given period are driven by the movement of foreign exchange rates as well as the proportion of earnings generated in our foreign operations. In general, net income benefits from a weakening Canadian dollar and is adversely affected by a strengthening Canadian dollar as net income from the Company's international operations is translated back to Canadian dollars. Conversely, in a period of losses, the weakening of the Canadian dollar has the effect of increasing losses in foreign jurisdictions. We generally express the impacts of foreign exchange translation on net income on a year-over-year basis.

The impacts of foreign exchange translation led to an increase of $67 million and $52 million in reported net income and underlying net income, respectively.

<sup>(1)</sup> Our effective income tax rate on reported net income is calculated using Total income (loss) before income taxes, as detailed in Note 20 in our 2022 Consolidated Financial Statements for the period ended December 31, 2022. Our effective income tax rate on underlying net income is calculated using pre-tax underlying net income, as detailed in section L - Non-IFRS Financial Measures in this document, and the associated income tax expense.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 19

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**E. Growth**

**1. Sales, Gross Flows and Value of New Business**

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| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Insurance sales** **by business segment**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **1029** | 852 |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. | **1948** | 1564 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **1344** | 1258 |
| Total insurance sales<sup>(1)</sup> | **4321** | 3674 |
| **Wealth sales and** **gross flows by business segment**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **20092** | 19854 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **11140** | 15491 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total wealth sales | **31232** | 35345 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asset Management gross flows<sup>(1)</sup> | **172881** | 193063 |
| Total wealth sales and asset management gross flows<sup>(1)</sup> | **204113** | 228408 |
| **Value of New Business**<sup>(1)</sup> | **1253** | 1346 |

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<sup>(1)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

Total insurance sales increased $647 million or 18% from prior year ($548 million or 15%<sup>(1)</sup>, excluding foreign exchange translation).

• Canada insurance sales increased 21%,driven by large case group benefits sales in Sun Life Health.

• U.S. insurance sales increased 18%<sup>(1)</sup>, driven by growth in dental<sup>(2)</sup> and employee benefit sales partially offset by lower medical stop-loss sales.

• Asia insurance sales increased 8%<sup>(1)</sup>, driven by higher sales in India, Vietnam, the Philippines, Singapore and Malaysia, partially offset by lower sales in Hong Kong and International.

Total wealth sales and asset management gross flows decreased $24,295 million or 11% from prior year ($29,330 million or 13%<sup>(1)</sup>, excluding foreign exchange translation).

• Canada wealth sales were in line with prior year as higher defined contribution<sup>(3)</sup> sales in GRS were mostly offset by lower individual wealth sales.

• Asia wealth sales decreased 26%<sup>(1)</sup>, reflecting lower sales in India, Hong Kong and the Philippines.

• Asset Management gross flows decreased 13%<sup>(1)</sup>, reflecting lower retail gross flows in MFS and lower institutional gross flows in SLC Management.

Total VNB of $1,253 million decreased 7% from prior year, driven by lower wealth sales.

<sup>(1)</sup> This percentage change excludes the impacts of foreign exchange translation. For more information about these non-IFRS financial measures, see section L - Non-IFRS Financial Measures in this document.

<sup>(2)</sup> Dental sales include sales from DentaQuest, acquired on June 1, 2022.

<sup>(3)</sup> Defined contribution sales include retained business sales.

20 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**2. Assets Under Management**

AUM consists of general funds, the investments for segregated fund holders ("segregated funds") and other AUM, which is comprised of other third-party assets managed by the Company.

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Assets under management**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;General fund assets | **205614** | 205374 |
| &nbsp;&nbsp;&nbsp;&nbsp;Segregated funds | **125292** | 139996 |
| &nbsp;&nbsp;&nbsp;&nbsp;**Other assets under management**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Retail<sup>(2)(3)</sup> | **527617** | 623611 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Institutional and managed funds<sup>(2)(3)</sup> | **507673** | 517591 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidation adjustments and other | **(40337)** | (41844) |
| &nbsp;&nbsp;&nbsp;&nbsp;Total other AUM<sup>(1)</sup> | **994953** | 1099358 |
| Total assets under management<sup>(1)</sup> | **1325859** | 1444728 |

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<sup>(1)</sup> Represents a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document.

<sup>(2)</sup> Effective January 1, 2022, these components were renamed to Retail and Institutional and managed funds. Previously, these components of Other AUM were referred to as Mutual funds and Managed funds, respectively, in our interim and annual MD&A.

<sup>(3)</sup> Effective October 1, 2022, the classification of a MFS fund has changed from Institutional and managed funds to Retail. Other retail and trust accounts have also been reclassified from Institutional and managed funds to Retail. Prior periods have been restated.

AUM decreased $118.9 billion or 8% from December 31, 2021, primarily driven by:

&nbsp;&nbsp;&nbsp;&nbsp;(i)unfavourable market movements on the value of segregated, retail, institutional and managed funds of $159.9 billion;

&nbsp;&nbsp;&nbsp;&nbsp;(ii)net outflows from segregated, retail, institutional and managed funds of $21.5 billion; and

&nbsp;&nbsp;&nbsp;&nbsp;(iii)Client distributions of $4.6 billion; partially offset by

&nbsp;&nbsp;&nbsp;&nbsp;(iv)an increase of $57.3 billion from foreign exchange translation (excluding the impacts of general fund assets); and

&nbsp;&nbsp;&nbsp;&nbsp;(v)an increase of $9.5 billion from other business activities.

Segregated, retail, institutional and managed fund net outflows of $21.5 billion in 2022 were largely driven by net outflows of $43.4 billion in MFS, partially offset by net inflows of $21.5 billion in SLC Management.

Retail, Institutional and managed funds and other AUM decreased by $104.4 billion or 9% from December 31, 2021, primarily driven by:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)unfavourable market movements of $144.6 billion;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)net outflows of $23.5 billion; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)Client distributions of $4.6 billion; partially offset by

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)foreign exchange translation of $57.6 billion; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)other business activities of $10.7 billion.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 21

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**F. Financial Strength**

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| | | |
|:---|:---|:---|
| ($ millions, unless otherwise stated) | **2022** | 2021 |
| **LICAT ratio**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. | **130%** | 145% |
| &nbsp;&nbsp;&nbsp;&nbsp;Sun Life Assurance | **127%** | 124% |
| **Financial leverage ratio**<sup>(2)(3)</sup> | **25.1%** | 25.5% |
| **Dividend** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Underlying dividend payout ratio<sup>(2)</sup> | **44%** | 38% |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends per common share ($) | **2.760** | 2.310 |
| **Capital** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated debt<sup>(3)</sup> | **6676** | 6425 |
| &nbsp;&nbsp;&nbsp;&nbsp;Innovative capital instruments<sup>(4)</sup> | **200** | 200 |
| &nbsp;&nbsp;&nbsp;&nbsp;Participating policyholders' equity | **1837** | 1700 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-controlling interests | **90** | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;Preferred shares and other equity instruments | **2239** | 2239 |
| &nbsp;&nbsp;&nbsp;&nbsp;Common shareholders' equity<sup>(5)</sup> | **25211** | 24075 |
| Total capital<sup>(3)</sup> | **36253** | 34698 |

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<sup>(1)</sup> Our LICAT ratios are calculated in accordance with OSFI-mandated guideline, Life Insurance Capital Adequacy Test.

<sup>(2)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(3)</sup> For 2021, amount included $2.0 billion of proceeds from the subordinated debt offerings completed in November 2021, of which $1.5 billion did not qualify as LICAT capital at issuance as it was subject to contractual terms requiring us to redeem the underlying securities in full, if the closing of the DentaQuest acquisition did not occur. We completed the acquisition of DentaQuest on June 1, 2022.

<sup>(4)</sup> Innovative capital instruments consist of SLEECS and qualify as regulatory capital. However, under IFRS they are reported as Senior debentures in our Consolidated Financial Statements. For additional information, see section I - Capital and Liquidity Management - 1 - Capital in this document.

<sup>(5)</sup> Common shareholders' equity is equal to Total shareholders' equity less Preferred shares and other equity instruments.

**Life Insurance Capital Adequacy Test**

The Office of the Superintendent of Financial Institutions has developed the regulatory capital framework referred to as the Life Insurance Capital Adequacy Test for Canada. LICAT measures the capital adequacy of an insurer using a risk-based approach and includes elements that contribute to financial strength through periods when an insurer is under stress as well as elements that contribute to policyholder and creditor protection wind-up.

SLF Inc. is a non-operating insurance company and is subject to the LICAT guideline. As of December 31, 2022, SLF Inc.'s LICAT ratio was 130%, 15 percentage points lower than December 31, 2021, primarily reflecting the DentaQuest acquisition, market-related impacts and dividend payments, partially offset by reported net income, net subordinated debt issuance, net management actions and the smoothing impact of the interest rate scenario switch in North America for participating businesses.

Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary, is also subject to the LICAT guideline. As of December 31, 2022, Sun Life Assurance's LICAT ratio was 127%, 3 percentage points higher than December 31, 2021, primarily reflecting reported net income, net management actions and the smoothing impact of the interest rate scenario switch in North America for participating businesses, partially offset by market-related impacts and dividend payments to SLF Inc.

The Sun Life Assurance LICAT ratio at the end of 2022 and 2021 was well above OSFI's supervisory ratio of 100% and regulatory minimum ratio of 90%.

**Capital**

Our total capital consists of subordinated debt and other capital instruments, participating policyholders' equity and total shareholders' equity which includes common shareholders' equity, preferred shares and other equity instruments, and non-controlling interests. As at December 31, 2022, our total capital was $36.3 billion, an increase of $1.6 billion compared to December 31, 2021. The increase to total capital included reported net income of $3,060 million, the favourable impacts of foreign exchange translation of $934 million included in other comprehensive income (loss) ("OCI"), and the issuance of $650 million principal amount of Series 2022-1 Subordinated Unsecured 4.78% Fixed/Floating Debentures, which is detailed below. This was partially offset by net unrealized losses on AFS assets of $1,290 million, the payment of $1,614 million of dividends on common shares of SLF Inc. ("common shares"), and the redemption of $400 million principal amount of Series 2017-1 Subordinated Unsecured 2.75% Fixed/Floating Debentures, which is detailed below.

Our capital and liquidity positions remain strong with a LICAT ratio of 130% at SLF Inc., a financial leverage ratio of 25.1%<sup>(1)(2)</sup> and $1.1 billion in cash and other liquid assets<sup>(1)(2)</sup> as at December 31, 2022 in SLF Inc. (the ultimate parent company), and its wholly-owned holding companies (December 31, 2021 - $4.7 billion).

<sup>(1)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(2)</sup> For 2021, amount included $2.0 billion of proceeds from the subordinated debt offerings completed in November 2021, of which $1.5 billion did not qualify as LICAT capital at issuance as it was subject to contractual terms requiring us to redeem the underlying securities in full, if the closing of the DentaQuest acquisition did not occur. We completed the acquisition of DentaQuest on June 1, 2022.

22 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Capital Transactions**

On August 10, 2022, SLF Inc. issued $650 million principal amount of Series 2022-1 Subordinated Unsecured 4.78% Fixed/Floating Debentures due 2034. The net proceeds will be used for general corporate purposes of the Company, which may include investments in subsidiaries, repayment of indebtedness and other strategic investments.

On November 23, 2022, SLF Inc. redeemed all of the outstanding $400 million principal amount of Series 2017-1 Subordinated Unsecured 2.75% Fixed/Floating Debentures, in accordance with the redemption terms attached to such debentures. The redemptions were funded from existing cash and other liquid assets in SLF Inc.

During the fourth quarter, a matter related to reinsurance pricing for our U.S. In-force Management business was resolved. Sun Life recaptured the reinsurance treaty, which resulted in a net reduction to the SLF Inc. LICAT ratio of approximately two percentage points.

**Financial Strength Ratings** 

Independent rating agencies assign credit ratings to securities issued by companies and assign financial strength ratings to financial institutions such as Sun Life Assurance.

The financial strength ratings assigned by rating agencies are intended to provide an independent view of the creditworthiness and financial strength of a financial institution. Each rating agency has developed its own methodology for the assessment and subsequent rating of life insurance companies.

Rating agencies do not assign a financial strength rating for SLF Inc., however, credit ratings are assigned to the securities issued by SLF Inc. and its subsidiaries and are described in SLF Inc.'s AIF under the heading Security Ratings.

The following table summarizes the financial strength ratings for Sun Life Assurance as at January 31, 2023 and January 31, 2022.

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| | | | | |
|:---|:---|:---|:---|:---|
| | **A.M. Best** | **DBRS** | **Moody's** | **Standard & Poor's** |
| **January 31, 2023** | **A+** | **AA** | **Aa3** | **AA** |
| January 31, 2022 | A+ | AA | Aa3 | AA |

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Most recent rating agency actions on the financial strength rating of Sun Life Assurance:

• March 23, 2022 - Standard and Poor's ("S&P") affirmed the financial strength rating with a stable outlook.

• April 1, 2021 - Moody's affirmed the financial strength rating with a stable outlook.

• October 27, 2022 - DBRS affirmed the financial strength rating with a stable outlook.

• January 28, 2022 - A.M. Best affirmed the financial strength rating with a stable outlook.

**Subsequent Events**

For additional information, refer to Note 28 of our 2022 Annual Consolidated Financial Statements.

On January 20, 2023, we announced a 15-year exclusive bancassurance partnership in Hong Kong with Dah Sing Bank ("Dah Sing"). Under this partnership, Sun Life will be the exclusive provider of life insurance solutions to Dah Sing's 570,000 retail banking customers, helping to fulfill their savings and protection needs at different life stages. This is Sun Life's first exclusive bancassurance partnership in Hong Kong and will be a valuable complement to our existing network of over 2,500 expert insurance advisors. Hong Kong is a thriving life insurance hub in Asia and bancassurance is a key distribution channel, accounting for more than 50% of the life insurance distribution mix. Following the completion of regulatory processes and approvals, distribution of Sun Life products is anticipated to start in July 2023.

On February 1, 2023, we completed the acquisition of a 51%<sup>(1)</sup> interest in Advisors Asset Management, Inc. ("AAM"), a leading independent U.S. retail distribution firm. AAM provides access to U.S. retail distribution for SLC Management, Sun Life's institutional fixed income and alternatives asset manager. This allows SLC Management to meet the growing demand among U.S. HNW investors for alternative assets. AAM provides a range of solutions and products to financial advisors at wirehouses, registered investment advisors and independent broker-dealers, overseeing US$40.5 billion (approximately C$55 billion) in assets as at December 31, 2022, with 10 offices across nine U.S. states.

On February 1, 2023, we completed the sale of our sponsored markets business from Sun Life Assurance Company of Canada ("SLA"), a wholly owned subsidiary of SLF Inc., to Canadian Premier Life Insurance Company ("Canadian Premier"). Sponsored markets include a variety of association & affinity, and group creditor clients.

<sup>(1)</sup> On a fully diluted basis.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 23

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**G. Performance by Business Segment**

Sun Life's business is well-diversified across geographies and business types, supported by our four pillar strategy and diversified offerings of wealth and insurance products.

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| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Reported net income (loss) - Common shareholders** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **1000** | 1558 |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. | **586** | 499 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asset Management | **1141** | 892 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **515** | 1075 |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate | **(182)** | (90) |
| Total reported net income (loss) - Common shareholders | **3060** | 3934 |
| **Underlying net income (loss)**<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **1266** | 1131 |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. | **728** | 518 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asset Management | **1204** | 1346 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **627** | 586 |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate | **(151)** | (48) |
| Total underlying net income (loss)<sup>(1)</sup> | **3674** | 3533 |

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<sup>(1)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

All factors discussed in this document that impact our underlying net income are also applicable to reported net income.

**1. Canada**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

**Our Canada business segment is a leading provider of protection, health, asset management and wealth solutions, providing products and services that deliver value to over 6.6 million Clients. We are the largest provider of benefits and pensions in the workplace, and offer a wide range of products to individuals via retail channels. We are focused on helping Canadians achieve lifetime financial security and live healthier lives.**

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| | | |
|:---|:---|:---|
| **<u>Business Units</u>** | **<u>Business Units</u>** | **<u>Business Units</u>** |
| **• Individual Insurance & Wealth** | **• Sun Life Health** | **• Group Retirement Services** |

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**2022 Highlights**

***Putting Client Impact at the centre of everything we do, driving positive financial and health actions and outcomes***

• As part of the Net Zero Asset Manager's<sup>(1)</sup> ("NZAM") Initiative, SLGI Asset Management Inc. supports the goal of net zero greenhouse gas ("GHG") emissions by 2050, and set out an initial target to have, by 2030, 24% of total AUM<sup>(2)</sup> to be net zero aligned or aligning<sup>(3)</sup>. This will be achieved by executing on investment strategies that drive long-term sustainable outcomes while helping our Clients build wealth and secure their financial futures.

• Expanded our suite of sustainable wealth and asset management product offerings including our first green bond fund<sup>(4)</sup>, which seeks to provide members a direct way to participate in the transition to a low-carbon economy and our first Shariah-based pool fund<sup>(5)</sup>, which gives members an option that reflects Islamic principles.

• Created over 65,000 financial roadmaps using our Sun Life One Plan digital tool, contributing to our ambition for all Canadians to have a financial plan. We also enhanced our tools with a digital navigation portal, making it easier for Clients to track progress and build flexible scenarios into financial plans.

• Advanced our *Diabetes Signature Solutions* program helping address a major health concern in Canada. The program helps Canadians with type 2 diabetes get access to affordable life insurance coverage. In addition, access to a specialized diabetes clinic and wellness platform for some regions in Canada provides content to help Clients achieve their health goals.

• Recognizing that Canadians build families in different ways, Sun Life Health launched a new *Family Building Program* as an optional benefit that will provide plan members medical and non-medical coverage for fertility treatments, surrogacy arrangements and adoption.

<sup>(1)</sup> An international group of asset managers committed to supporting the goal of achieving net zero greenhouse gas emissions by 2050 or sooner.

<sup>(2)</sup> The target assumes the mix of AUM will not materially change.

<sup>(3)</sup> Aligning towards or aligned to a net zero pathway as defined by criteria set out in the Net Zero Investment Framework. Criteria are asset class-specific. Pathways is the term used to describe the emissions, technologies and investment trajectories that will be needed to deliver net zero. (Paris Aligned Investment Initiative. "Net Zero Investment Framework: Implementation Guide". 2021).

<sup>(4)</sup> AlphaFixe Green Bond Fund.

<sup>(5)</sup> BlackRock MSCI ACWI Islamic Equity Index Fund.

24 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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***Shaping the market and driving growth***

• Maintained our leading position in the group retirement market<sup>(1)</sup> with defined contribution assets under administration of over $133 billion. We extended our digital leadership in this space with innovations like our Sun Life One Plan and an enhanced mobile experience. In the pension risk transfer business, Defined Benefit Solutions, we achieved $2.1 billion in sales, assisting Canadian employers to de-risk their pension plans.

• Sun Life Health maintained its market leadership position in group benefits<sup>(2)</sup>, with over $12.8 billion of business-in-force, continuing to proactively advance our focus on mental health in workplaces across Canada. We introduced *Lumino Health Virtual Care's Stress Management and Well-Being* program providing members access to mental health and medical specialists 24/7.

• In Individual Wealth, broadened the product shelf, expanded distributor access, deepened advisor relationships, and attracted strong talent.

• In a challenging year for mutual fund industry net sales, SLGI Asset Management Inc. improved market share rank by six places to 9<sup>th (3)</sup>. We also launched a sustainable credit private pool fund<sup>(4)</sup>, providing Clients access to an alternative investment strategy.

• Recognized as one of the 2022 Best Workplaces in Canada by Great Place to Work® Canada, celebrating our commitment to our people. We maintain an equitable environment where diversity is championed, as well as offer resources and flexibility to support mental, physical and professional well-being.

***Thinking and acting like a digital company***

• Launched *Prospr by Sun Life*, a hybrid advice solution combining a best-in-class digital platform with a team of licensed advisors, to meet Canadians' personalized and holistic financial planning needs. *Prospr by Sun Life* makes it easier for Canadians to select, prioritize and track their financial goals all in one place.

• Launched Employee Assistance Program ("EAP") platform through *Lumino Health Virtual Care*. This all-in-one solution provides members access to professional support, the ability to get a personalized assessment within minutes and 24/7 access to online Cognitive Behavioural Therapy ("iCBT").

• Positively engaged Clients over 27 million times through *Ella*, our digital coach, an increase of 34% over prior year. *Ella* delivers proactive and personalized interactions to help our Clients achieve their health and financial goals.

• Made it easier for Clients to do business with us by digitally processing 93% of our retail insurance applications, 85% of retail wealth transactions and 96% of group benefits health and dental claims throughout the year.

• Introduced a new Voluntary Benefit eApp which consolidates our voluntary benefit products into a single resource, reducing the application process time for Clients by up to 50%.

**Strategy and Outlook** 

Canada is a growth market for Sun Life. We have a unique opportunity to address health, wealth and protection holistically with our diversified products and services. We will continue to shape the market and deliver on our Purpose through an integrated approach that helps Canadians achieve lifetime financial security and live healthier lives. We aspire to achieve our strategic ambition and further our market differentiation by focusing on Client impact, enabled by digital leadership and distribution excellence. We look to incorporate sustainability into our culture and decision making to deliver a positive social impact, increase Client and employee engagement, and introduce new, innovative products. Our focus for the Canadian businesses will be to:

***Advance our One Sun Client strategy***

• Offer customized solutions for our Clients to help them achieve their health, wealth, and protection goals.

• Build and scale an omni-channel advice and service model to meet all Client needs and expand our reach in the market. This includes combining face-to-face advisors and best-in-class digital platforms to offer Clients flexibility to move across channels seamlessly, including direct access through self-serve platforms and capabilities.

***Accelerate our wealth strategy***

• Scale and accelerate SLGI Asset Management Inc. as a growth engine within Canada, empowering Clients with more convenient access to investment solutions and a holistic product suite to meet their asset management needs.

• Accelerate progress towards being the retirement income provider of choice by leveraging our scale and understanding Client goals while providing member and sponsor tools.

• Provide Clients with seamless planning, asset consolidation capabilities, and a unified experience across our wealth channels.

• Continue to be a market leader in the growing Canadian pension risk transfer market, with customized solutions to meet employers' needs in managing and de-risking their defined benefit pension plans.

***Strengthen and expand our health business***

• Offer innovative solutions by leveraging our relationships with millions of group and retail Clients, to empower Canadians to act earlier to prevent and mitigate physical and mental health risks.

• To promote early intervention for mental disorders, we will engage at-risk group benefits plan members by prompting access to care through our virtual Mental Health Coach.

• Develop targeted insurance solutions for Canadians living with chronic conditions, for example diabetes, to improve insurability.

• Leveraging the Toronto Raptors' health and wellness experts and Sun Life's health ecosystem, we will motivate fans and communities to focus on their health and wellness through Sun Life's health offerings.

<sup>(1)</sup> Fraser Pension Universe Report, year-ended December 2021.

<sup>(2)</sup> Revenue for year ended December 2021 from 2022 Group Benefits Provider Report.

<sup>(3)</sup> ISS Market Intelligence Simfund, September 2022.

<sup>(4)</sup> Sun Life Crescent Specialty Private Pool Fund.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 25

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***Transform retail distribution***

• Strengthen and modernize our dedicated face-to-face advice model by updating digital tools and enhancing financial planning capabilities.

• Effectively integrate our direct-to-consumer distribution channels under *Prospr by Sun Life* to offer Clients the flexibility to move across channels seamlessly, based on their individual needs.

***Sustain financial discipline***

• Enhance advisor and Client experiences and drive operational efficiencies through digital initiatives such as straight-through processing and data consolidation.

• Continue to augment predictive underwriting models, utilizing advanced data analytics and predictive modelling to enhance our Client experience with easier access to products, while minimizing underwriting risk.

• Seek low-cost, innovative opportunities focusing on capital and risk optimization.

***<u>Outlook</u>***

Our diversified business, which address Clients' needs in asset and wealth management, as well as life and health protection and multi-channel distribution, positions us well to deepen Client relationships and capture opportunities as they arise. We expect to continue to reach more Clients through investing in enhancements to our products, systems, distribution and digital capabilities. We will meet our Clients' needs by providing diverse offerings, holistic advice and a personalized plan throughout their wealth and health journeys. We are confident that our leadership position in Canada will continue to generate value and positive outcomes for Clients.

We are well positioned to manage through macroeconomic uncertainty, including equity market downturn and rising inflation and interest rates, through pricing discipline, diversified Client centric businesses, and prudent risk management.

**Business Units**<br>

---

| | | |
|:---|:---|:---|
| **Business** | **Description** | **Market position** |
| *Individual Insurance & Wealth* | • Provides holistic advice to individuals to help them and their families achieve lifetime financial security, and live healthier lives, leveraging a broad suite of life and health insurance and investment products.<br>• Products distributed via multi-channel distribution model consisting of the SLFD network<sup>(1)</sup>, third-party channels, including independent brokers and broker-dealers, and direct-to-consumer. | • A leader in the market by premiums within the individual life and health market and 2<sup>nd</sup> place for Individual Critical Illness Insurance based on premiums<sup>(2)</sup><br>• 2<sup>nd</sup> in fixed product sales<sup>(2)</sup> and 4<sup>th</sup> place market position by total wealth deposits and premiums<sup>(2)</sup> |
| *Sun Life Health* | • Provides Clients with personalized and on-demand digital health experiences that will empower them to take action on their health earlier, ultimately improving their health outcomes.• Offers group insurance products in Canada, including life, dental, extended health care, disability and critical illness, to employers of all sizes.<br>• Leverages our worksite advantage to offer voluntary benefits solutions to individual plan members, including post-employment life and health plans.<br>• Products distributed by sales representatives in collaboration with independent advisors, benefits consultants and the SLFD network. | • Leading group benefits provider in Canada for the 10<sup>th</sup> consecutive year<sup>(3)</sup> |
| *Group Retirement Services* | • Provides defined contribution pension plans and defined benefit solutions in Canada to employers of all sizes.• Leverages our worksite advantage to offer voluntary savings plans, including post-employment plans, to those members exiting their employer-sponsored plans.<br>• Defined Benefit Solutions offers an expanding range of innovative de-risking solutions for defined benefit pension plans.<br>• Products distributed by sales representatives in collaboration with a multi-channel distribution network of pension consultants and advisors.<br>• Planning and asset consolidation capabilities for current and former plan members to benefit from a simplified and seamless experience with a single provider. | • Ranked 1<sup>st</sup> in the defined contribution market based on total Capital Accumulation Plan assets for the 20<sup>th</sup> consecutive year<sup>(4)</sup><br>• Ranked 2<sup>nd</sup> in the defined benefit solutions annuity market<sup>(2)</sup> |

---

<sup>(1)</sup> Sun Life Financial Distribution ("SLFD") is our proprietary career advisory network.

<sup>(2)</sup> LIMRA Market Share as of Q3'22, on a year-to-date basis.

<sup>(3)</sup> Based on revenue for year ended December 2021 from 2022 Group Benefits Provider Report.

<sup>(4)</sup> Fraser Pension Universe Report, based on year-ended December 2021.

26 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Financial and Business Results**

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Individual Insurance & Wealth | **287** | 911 |
| Sun Life Health<sup>(1)</sup> | **352** | 271 |
| Group Retirement Services | **361** | 376 |
| Reported net income - Common shareholders | **1000** | 1558 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(2)</sup> | **(387)** | 474 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assumption changes and management actions<sup>(2)</sup> | **70** | 40 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition, integration and restructuring<sup>(2)</sup> | **(3)** | (2) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other<sup>(2)(3)</sup> | **54** | (85) |
| Underlying net income<sup>(4)</sup> | **1266** | 1131 |
| Reported ROE (%)<sup>(4)</sup> | **12.0%** | 19.8% |
| Underlying ROE (%)<sup>(4)</sup> | **15.2%** | 14.4% |
| Insurance sales<sup>(4)</sup> | **1029** | 852 |
| Wealth sales<sup>(4)</sup> | **20092** | 19854 |

---

<sup>(1)</sup> Effective Q4'21, we began reporting on the performance and results of Sun Life Health, which brings our Group Benefits business and Lumino Health platform together.

<sup>(2)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax adjustments.

<sup>(3)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(4)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

**Profitability**

**2022 vs. 2021**

Canada reported net income of $1,000 million decreased $558 million or 36%, reflecting lower equity markets and interest rate movements, partially offset by the impact of the Canada Tax Rate Change<sup>(1)</sup> and the increase in underlying net income. Prior year reported net income also included larger increases in the value of real estate investments, partially offset by a Q3'21 par allocation adjustment<sup>(2)</sup>.

Underlying net income of $1,266 million increased $135 million or 12%, driven by business growth, investment gains and favourable morbidity.

**Growth**

**2022 vs. 2021**

Canada insurance sales increased $177 million or 21%, driven by large case group benefits sales in Sun Life Health.

Canada wealth sales were in line with the prior year as higher defined contribution<sup>(3)</sup> sales in GRS were mostly offset by lower individual wealth sales.

AUM for wealth businesses, including GRS, was $152.4 billion as at December 31, 2022, which decreased $12.8 billion or 7.8%, reflecting market movements, partially offset by net inflows.

**Profitability and Growth by Business Unit** 

**2022 vs. 2021**

***Individual Insurance & Wealth***

Individual Insurance & Wealth's reported net income of $287 million decreased $624 million or 68%, reflecting unfavourable market-related impacts, partially offset by investment gains, the impact of the Canada Tax Rate Change<sup>(1)</sup>, a prior year par allocation adjustment<sup>(2)</sup> and ACMA.

Individual life and health insurance product sales of $496 million were in line with the prior year. Individual wealth product sales were $7.3 billion, a decrease of $1.7 billion or 19%, reflecting lower mutual fund sales.

<sup>(1)</sup> On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada ("Canada Tax Rate Change"). This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, reported net income increased by $76 million in the fourth quarter, reflected in ACMA and Other adjustments. Refer to section D - Profitability in this document for more information.

<sup>(2)</sup> An adjustment of investment income and expense allocations between participating policyholders and shareholders for prior years recorded in Q3'21 ("par allocation adjustment").

<sup>(3)</sup> Defined contribution sales include retained business sales.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 27

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***Sun Life Health***

Sun Life Health's reported net income of $352 million increased $81 million or 30%, driven by business growth and morbidity experience, partially offset by unfavourable ACMA impacts.

Sun Life Health sales of $533 million, increased $170 million or 47%, driven by higher large case group benefits sales.

***Group Retirement Services***

GRS's reported net income of $361 million decreased $15 million or 4%, reflecting unfavourable market-related impacts.

GRS sales were $12.8 billion, an increase of $1.9 billion or 18%, driven by higher defined contribution<sup>(1)</sup> sales. Assets under administration was $133.2 billion as at December 31, 2022, a decrease of $8.9 billion or 6%, reflecting market movements, partially offset by net inflows.

**2. U.S.**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

**Sun Life U.S. is one of the largest providers of employee and government benefits in the U.S., serving more than 50 million Americans with disability, life, supplemental health, medical stop-loss insurance, and dental and vision benefits through employers, industry partners and government programs such as Medicaid, Medicare Advantage, and the Children's Health Insurance Program ("CHIP"). Services include absence management, dental care, and healthcare navigation. In addition, our U.S. business manages an in-force block of approximately 85,000 individual life insurance policies.**

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| | | |
|:---|:---|:---|
| **<u>Business Units</u>** | **<u>Business Units</u>** | **<u>Business Units</u>** |
| **• Group Benefits** | **• Dental** | **• In-force Management** |

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**2022 Highlights**

***Growing our business***

• On June 1, 2022 we completed our acquisition of DentaQuest Group, Inc. ("DentaQuest"), the second largest dental benefits provider in the U.S.<sup>(2)</sup>, positioning Sun Life as a leader in the U.S. dental benefits market. DentaQuest is the largest provider of U.S. Medicaid dental benefits, with growing Medicare Advantage, commercial, CHIP, and U.S. Affordable Care Act ("ACA") exchange businesses. The transaction advances our strategy of being a leader in health and benefits in the U.S.

• Sun Life U.S. delivered strong double-digit growth in earnings, sales, and revenue in 2022, driven by the successful execution of our strategy to help Clients access the health care and coverage they need as well as contributions from the DentaQuest acquisition and significant increases in membership.

***Helping Clients access the health care and coverage they need***

• As the largest Medicaid dental benefits provider, DentaQuest added approximately three million total members in 2022, increasing access for low-income American families and children who typically have not had access to dental care.

• Expanded DentaQuest's Advantage Dental+ practices with four new offices in Florida. These practices are located in areas where members have few alternative options, helping to increase access to dental care in underserved communities.

• DentaQuest announced a new program with Partners Health Plan, a non-profit managed care organization serving individuals with intellectual and other developmental disabilities. This partnership will increase access to oral health care and help improve outcomes for this underserved community, contributing to our goal of increasing health equity for all.

• PinnacleCare's personalized care navigation solutions helped members get timely access to high quality healthcare and armed them with the knowledge to make confident decisions about their health. In 2022, more than half of PinnacleCare's expert second opinions identified a more appropriate treatment plan or a change in the original diagnosis, and member satisfaction was 95%.

• Expanded our clinical approach to support long-term disability members dealing with Long COVID diagnoses, creating a specialized team to help Clients manage physical symptoms and behavioural health needs.

• Partnered with AbleTo, a leading provider of high-quality, evidence-based virtual mental health therapy and coaching solutions, to offer convenient mental health services supporting Sun Life disability and critical illness members with a cancer diagnosis.

***Making care and benefits easier through digital solutions***

• With the expanded launch of *Sun Life Onboard*, our fully digital benefits implementation process for employers and brokers, we have reduced the median onboarding time from 33 days to 24 days and significantly improved the onboarding experience.

• Continued to expand our digital connectivity capabilities through Application Programming Interfaces ("APIs"), which alleviate manual administrative tasks, automate processes, improve accuracy and provide real-time updates. For example, we've made it easier to apply for life insurance through this new digital functionality and members now complete the process online 97% of the time, compared to 50% for those without this capability.

• Launched *Benefits Explorer*, an interactive platform designed to provide employees with personalized, live educational content and customized tools to help them make well-informed benefits decisions.

• Partnered with *Teledentistry.com* to offer members 24/7 virtual access to dental providers, making it easier to get dental care and advice in emergencies while travelling or during evenings and weekends, complementing DentaQuest's mission to make oral health accessible to all.

<sup>(1)</sup> Defined contribution sales include retained business sales.

<sup>(2)</sup> Based on number of members as of December 31, 2021. Ranking based on data disclosed by competitors.

28 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Strategy and Outlook** 

Sun Life U.S. has significantly advanced our strategy of being a leader in health and benefits by transforming our business from one focused on traditional benefits to one now focused on health and related benefits and services, with over 70% of our revenue now coming from health care products. With health as our core strategy and a focus on helping people with the increasing challenge of accessing care and benefits, we will be a differentiated provider whose offerings complement core health insurance offerings from large U.S. health insurers. Health care staffing shortages and increasing demand are reducing capacity in the U.S. health care system and are expected to make accessing care more challenging. With our recent DentaQuest and PinnacleCare acquisitions, and the addition of clinical support in our disability business, we are already well-positioned to play a role in helping members get access to care as our competitive differentiator in the complex, growing and rapidly changing US$4 trillion U.S. health and benefits ecosystem. We are also part of the large and growing government programs market that covers more than 160 million Americans. As a result, we now have three leading businesses: medical stop-loss, dental, and our top-10 group life and disability benefits business.

Through our digital tools and support services, we are also making it easier to do business with us and close coverage gaps. We continue to leverage our unique partnership capabilities to drive growth by delivering solutions to our more than 100 health and insurance industry partners to support their members.

***Helping Clients access the health care and coverage they need***

• Leverage DentaQuest's scale and expertise to provide quality oral health to all and help Americans live healthier lives, continue to grow in government programs, and become a leader in commercial dental through our leading capabilities.

• Focus employee benefits offerings on health and productivity through expanded and enhanced offerings across disability, absence, life, and supplemental health to provide income protection, fill gaps in coverage, and help Clients get the care they need so they can recover and get back to work and life.

• Help employers comply with complex regulations and provide more Americans access to paid family and medical leave.

• Drive growth in FullscopeRMS by leveraging our expertise, scale, and suite of turnkey solutions for insurance carriers and health plan partners.

***Making care and benefits easier through digital solutions***

• Expand our ability to integrate with other major platforms in the health and benefits ecosystem, delivering a better Client experience.

• Drive digital expansion through new capabilities and partnerships while leveraging existing assets to deliver predictive and personalized analytics to help Clients make decisions that are right for them.

• Leverage digital tools to increase Client interactions and virtual engagement, enhancing selling effectiveness and delivering deeper insights for brokers and employers.

 ***Help In-force Management policy-owners achieve lifetime financial security, while effectively managing our operations***

• Continue to provide excellent service to our individual insurance policy-owners.

• Optimize the value of the business by implementing opportunities to improve profitability, including expense efficiencies and alternative investment strategies.

• Effectively manage risk and capital through reinsurance and via product offerings for converting or maturing policies.

***<u>Outlook</u>***

With the pandemic stabilizing, the strength of our underlying U.S. business is evident as reflected by growth in sales, revenues, and net income in 2022. Significant enhancements to our products, systems and digital capabilities over the past several years have contributed to our growth, in addition to our recent acquisitions. While ongoing COVID-related challenges, inflation and a potential recession may continue to impact the U.S. group benefits industry, we have a diversified business that helps to mitigate some of these headwinds. We have also adjusted pricing to account for the future environment.

The U.S. health and employee benefits ecosystem is large and growing, with Clients becoming increasingly aware of the value of protection products and services. These markets remain competitive, and we are committed to growing profitably by leveraging our leadership positions, deep expertise and new capabilities to extend further into the health benefits and services space while helping Americans live healthier lives. With the acquisition of DentaQuest, more than 70% of our U.S. business is now in health care products and services, including medical stop-loss insurance, health care navigation services, clinical disability support, supplemental health products, and now a leading dental benefits business. The DentaQuest integration remains on track and we are committed to providing enhanced offerings and a positive integration experience for Clients and plan members.

We continue to work with state and federal elected officials to increase access to benefits for our Clients. In addition to our focus on paid family and medical leave, we have increased our advocacy to expand dental coverage for beneficiaries of Medicaid and other government programs, and to keep employer-sponsored dental benefits affordable. We continue to monitor possible legislative and regulatory changes to key areas that impact our business, such as data security and privacy, minimum loss ratios for employer-sponsored dental insurance plans, and state government contractor requirements.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 29

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**Business Units**

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| | | |
|:---|:---|:---|
| **Business** | **Description** | **Market position** |
| *Group Benefits* | • Employee Benefits provides group insurance products and services, including life, long-term and short-term disability, absence management, and voluntary and supplemental health insurance such as hospital indemnity, accident and critical illness. Includes our FullscopeRMS business, which provides turnkey risk management solutions for insurers and health plans.<br>• Health and Risk Solutions provides protection against large medical claims for employers who self-insure their employee health plans through medical stop-loss and health care navigation services to help members access care and improve health outcomes. <br>• Products distributed through more than 32,000 independent brokers and benefits consultants, supported by approximately 175 employed sales representatives.<br>• Serves nearly 60,000 employers in small, medium and large workplaces across the U.S. and approximately 17 million members<sup>(1)</sup>. | • Largest independent medical stop-loss provider<sup>(3)</sup><br>• Top 10 group life and disability benefits provider, including the leading turnkey disability provider<sup>(4)</sup> |
| *Dental* | • Provides Medicaid and Medicare Advantage products and services, as well as commercial group dental and vision solutions for employers of all sizes.<br>• Serves approximately 37 million members<sup>(2)</sup>.<br>• Supports preventative dental care through its innovative Preventistry® model, which focuses on early and quality care, access, and measurable outcomes.<br>• More than 70 Advantage Dental+ practices, which are located in underserved communities to help increase access to dental care. | • Second largest Dental benefits provider in the U.S<sup>(5)</sup><br>• Largest Medicaid dental benefits provider<sup>(6)</sup><br>• The commercial Sun Life Dental Network® includes more than 130,000 unique providers and offers easy access to care with in-network cost benefits<sup>(7)</sup> |
| *In-force Management* | • Manages approximately 85,000 individual life insurance policies, primarily universal life and participating whole life insurance. In-force Management is a run-off block with no new sales. |  |

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<sup>(1)</sup> Includes members who also have a commercial Sun Life Dental and/or Vision coverage.

<sup>(2)</sup> Includes members who also have a Sun Life Group coverage.

<sup>(3)</sup> Ranking compiled by Sun Life based on data contained in the 2021 Accident and Health Policy Experience Report from the National Association of Insurance Commissioners ("NAIC"). An independent stop-loss carrier is defined as a stop-loss carrier that does not also sell medical claim administration services.

<sup>(4)</sup> LIMRA 2021 Annual Sales & In-force Reports for Group Life & Disability. Long-term disability results exclude reserve buy outs. Group Term Life, long-term disability and short-term disability results exclude business sold through associations; includes BIF managed by Sun Life for insurance carrier partners.

<sup>(5)</sup> Based on number of members as of December 31, 2021. Ranking based on data disclosed by competitors.

<sup>(6)</sup> Based on membership numbers as of September 2022, calculated using publicly available data from state Medicaid agencies and other sources, and information disclosed by competitors.

<sup>(7)</sup> Sun Life's commercial dental networks include its affiliate, Dental Health Alliance®, L.L.C. (DHA®), and dentists under access arrangements with other dental networks.

30 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Financial and Business Results**

---

| | | |
|:---|:---|:---|
| (US$ millions) | **2022** | 2021 |
| Group Benefits<sup>(1)</sup> | **347** | 243 |
| Dental<sup>(1)</sup> | **(36)** | 4 |
| In-force Management | **142** | 152 |
| Reported net income - Common shareholders | **453** | 399 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(2)</sup> | **3** | 74 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assumption changes and management actions<sup>(2)</sup> | **(11)** | (80) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition, integration and restructuring<sup>(2)(3)</sup> | **(115)** | (8) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other<sup>(2)(4)</sup> | **19** |  |
| Underlying net income<sup>(5)</sup> | **557** | 413 |
| Reported ROE (%)<sup>(5)</sup> | **10.3%** | 13.6% |
| Underlying ROE (%)<sup>(5)</sup> | **12.7%** | 14.0% |
| After-tax profit margin for Group Benefits (%)<sup>(1)(5)(6)</sup> | **8.4%** | 6.0% |
| Insurance sales<sup>(5)</sup> | **1464** | 1244 |
| (C$ millions) |  |  |
| Reported net income - Common shareholders | **586** | 499 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(2)</sup> | **—** | 93 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assumption changes and management actions<sup>(2)</sup> | **(14)** | (101) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition, integration and restructuring<sup>(2)(3)</sup> | **(152)** | (11) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other<sup>(2)(4)</sup> | **24** |  |
| Underlying net income<sup>(5)</sup> | **728** | 518 |

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<sup>(1)</sup> Effective Q2'22, we began reporting on the performance and results of our Dental business unit, which represents our existing dental and vision business within Group Benefits together with DentaQuest Group, Inc. ("DentaQuest"), acquired on June 1, 2022. We have updated prior periods to reflect this change in presentation.

<sup>(2)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax amounts.

<sup>(3)</sup> Amounts in 2022 mostly relate to DentaQuest acquisition and integration costs.

<sup>(4)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(5)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(6)</sup> Based on underlying net income, on a trailing four-quarter basis. For more details, see section L - Non-IFRS Financial Measures in this document.

**Profitability**

**2022 vs. 2021**

U.S. reported net income of US$453 million ($586 million) increased US$54 million ($87 million), driven by an increase in underlying net income, favourable ACMA impacts and a gain on the sale-leaseback of the Wellesley office, partially offset by DentaQuest acquisition and integration costs, market-related impacts and a charge reflecting the resolution of a matter related to reinsurance pricing for our In-force Management business.

Underlying net income of US$557 million ($728 million) increased US$144 million ($210 million), driven by growth across all businesses, the contribution from the DentaQuest acquisition and experience-related items, partially offset by lower AFS gains. Year-to-date experience included favourable medical stop-loss margins, investment gains and favourable credit, partially offset by mortality experience. For 2022, COVID-19 impacts were largely reflected in Q1 group life mortality.

Foreign exchange translation led to an increase of $22 million and $31 million in reported net income and underlying net income, respectively.

**Growth**

**2022 vs. 2021**

U.S. insurance sales increased US$220 million or 18%, reflecting growth in dental<sup>(1)</sup> and employee benefit sales partially offset by lower medical stop-loss sales.

**Acquisition of DentaQuest**

On June 1, 2022, we completed the acquisition of DentaQuest, the second-largest dental benefits provider in the U.S,<sup>(2)</sup> for approximately $3.3 billion (US$2.6 billion). DentaQuest is included in our U.S. business segment as part of the new "Dental" business unit, along with our existing dental and vision business, formerly within Group Benefits. DentaQuest is the largest provider of U.S. Medicaid dental benefits, with growing Medicare Advantage, commercial, and U.S. Affordable Care Act exchange businesses. The acquisition advances our strategy of being a leader in health and benefits in the U.S. while contributing to fee-based earnings which generate higher ROE.

<sup>(1)</sup> Dental sales include sales from DentaQuest, acquired on June 1, 2022.

<sup>(2)</sup> Based on number of members as of December 31, 2021. Ranking based on data disclosed by competitors.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 31

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**Profitability by Business Unit**

**2022 vs. 2021**

***Group Benefits***

Group Benefits' reported net income of US$347 million increased US$104 million or 43%, driven by business growth, favourable medical stop-loss margins and improved group life mortality, partially offset by unfavourable market-related impacts and ACMA.

***Dental***

Dental's reported net loss was US$36 million, compared to reported net income of US$4 million in the prior year, reflecting acquisition and integration costs partially offset by the contribution from the DentaQuest acquisition and favourable morbidity experience.

***In-force Management***

In-force Management's reported net income of US$142 million decreased US$10 million or 7%, driven by a charge reflecting the resolution of a matter related to reinsurance pricing, unfavourable mortality and market-related impacts, partially offset by ACMA impacts.

**3. Asset Management**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

**Our Asset Management business group is comprised of MFS and SLC Management. MFS is a premier global asset manager offering a comprehensive selection of financial products and services that deliver superior value, actively managing assets for retail and institutional investors around the world. SLC Management is a global asset manager with capabilities across fixed income and alternative asset classes including public and private fixed income, real estate equity and debt, and infrastructure equity.**

---

| | |
|:---|:---|
| **<u>Business Units</u>** | **<u>Business Units</u>** |
| **• MFS Investment Management** | **• SLC Management** |

---

**2022 Highlights** 

• We ended 2022 with $952.0 billion in assets under management consisting of $742.3 billion (US$547.9 billion) from MFS and $209.6 billion from SLC Management.

• Total Asset Management net outflows of $22.0 billion for 2022 reflected net outflows of $43.4 billion (US$34.6 billion) from MFS partially offset by new inflows of $21.5 billion from SLC Management.

• We entered into an agreement with Phoenix Group Holdings plc ("Phoenix Group"), establishing a long-term strategic asset management partnership through MFS and SLC Management, in conjunction with the intended sale of our Sun Life UK<sup>(1)</sup> business. Phoenix Group is the UK's largest long-term savings and retirement business, with £270 billion<sup>(2)</sup> of assets under administration and approximately 13 million customers. Phoenix Group has set a goal to invest approximately US$25 billion in North American public and private fixed income and alternative investments over the next five years and Sun Life will be a material partner to them in achieving this goal.

**MFS**

• MFS generated solid net income and sustained a strong pre-tax net operating profit margin<sup>(3)</sup> of 39% despite challenging market conditions.

• Delivered strong long-term investment performance with 97% of MFS' U.S. retail mutual fund assets ranked in the top half of their Morningstar categories based on ten- and five-year performance, and 48% ranked in the top half of their Morningstar categories based on three-year performance, as at December 31, 2022.

• MFS continued to deliver on a consistent long-term track record as a top-performing active asset manager. MFS ranked in the top 10<sup>(4)</sup> for 5- and 10-year performance categories across U.S. funds, marking the 13<sup>th</sup> time in the last 14 years that MFS has achieved this recognition.

• As part of the NZAM Initiative, MFS has set its net zero GHG emissions interim targets. MFS' targets are for 90% of in-scope AUM<sup>(5)</sup> to be considered net zero aligned or aligning<sup>(6)</sup> by 2030 and 100% to be aligned by 2040.

<sup>(1)</sup> SLF of Canada UK Limited.

<sup>(2)</sup> As at June 30, 2022.

<sup>(3)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(4)</sup> Barron's 2021 Fund Family rankings.

<sup>(5)</sup> In-scope assets include all equity and corporate bonds, comprising approximately 90% of MFS' global AUM as at December 31, 2022.

<sup>(6)</sup> Aligning towards or aligned to a net zero pathway as defined by criteria set out in the Net Zero Investment Framework. Criteria are asset class-specific. Pathways is the term used to describe the emissions, technologies and investment trajectories that will be needed to deliver net zero. (Paris Aligned Investment Initiative. "Net Zero Investment Framework: Implementation Guide". 2021).

32 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**SLC Management**

• On February 1, 2023, we completed the acquisition of a 51%<sup>(1)</sup> interest in Advisors Asset Management, Inc. ("AAM"), a leading independent retail distribution firm in the U.S., with the option to acquire the remaining interest starting in 2028. AAM provides access to U.S. retail distribution, allowing SLC Management to meet the growing demand for alternative assets among U.S. HNW investors. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

• Crescent closed its third U.S. Direct Lending Fund, raising approximately US$6 billion, more than double the size of the predecessor fund.

• We continued to build on our commitment to sustainable investing through the NZAM Initiative:

&nbsp;&nbsp;&nbsp;&nbsp;◦ InfraRed Capital Partners ("InfraRed") published its net zero GHG emissions interim targets, in-line with its commitment to the NZAM Initiative. This is the latest milestone for InfraRed as it seeks to reach net zero GHG emissions across its entire portfolio and to have a long-term, positive impact on societies and the environment. InfraRed's three interim targets are for:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;▪ 70%<sup>(2)</sup> of in-scope assets<sup>(3)</sup> to be considered net zero, aligned or aligning<sup>(4)</sup> by 2030;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;▪ 50%<sup>(5)</sup> of assets to be allocated in climate solutions by 2025; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;▪ Engaging with the portfolio companies responsible for 90% of InfraRed's financed emissions by 2030.

&nbsp;&nbsp;&nbsp;&nbsp;◦ We announced that our investment grade fixed income business ("SLC Fixed Income") joined the NZAM initiative in 2022, pledging to achieve net zero GHG emissions for portfolios by 2050. Interim targets for SLC Fixed Income are expected to be published in 2023.

• We also demonstrated our commitment to sustainable investing through the following achievements:

&nbsp;&nbsp;&nbsp;&nbsp;◦ BentallGreenOak ("BGO") was awarded the 2022 ENERGY STAR Partner of the Year – Sustained Excellence Award by the U.S. Environmental Protection Agency and the U.S. Department of Energy ("DOE") for the 12th consecutive year and received Gold Recognition in the 2022 Green Lease Leaders program organized by the Institute for Market Transformation and the DOE's Better Buildings Alliance.

&nbsp;&nbsp;&nbsp;&nbsp;◦ WELPUT<sup>(6)</sup>, a fund managed by BGO, won the 2022 Pension Real Estate Association ("PREA") Closed-End Fund ESG Award.

&nbsp;&nbsp;&nbsp;&nbsp;◦ For the 12th consecutive year, BGO achieved top performance scores for its global real estate platform in the annual GRESB Real Estate Assessment, demonstrating its leadership in sustainable investing.

&nbsp;&nbsp;&nbsp;&nbsp;◦ InfraRed received a five-star rating in the latest Principles for Responsible Investment ("PRI") assessment<sup>(7)</sup> for the Direct – Infrastructure module. This marks the seventh consecutive assessment where InfraRed has achieved the highest possible PRI rating for this module, demonstrating the integration of ESG throughout its investment practices. InfraRed also received a five-star rating for Investment and Stewardship Policy module, which was also above the median score.

&nbsp;&nbsp;&nbsp;&nbsp;◦ SLC Management, and its affiliates, BGO and Crescent, have become founding signatories to the CFA Institute's recently launched Diversity, Equity, and Inclusion ("DEI") Code in the U.S. and Canada.

**Strategy and Outlook** 

Our strategy is to provide investment products through MFS and SLC Management that will deliver growth in active asset management as well as fixed income and alternative asset classes. MFS competes primarily in the global institutional, U.S. retail and select non-U.S. retail markets. SLC Management competes primarily in the global institutional market, offering a broad and deep fixed income and real assets platform through affiliate managers. SLC Management leverages Sun Life's long-standing expertise in private asset class investments, augmented by the specialized alternative capabilities of SLC Management's affiliate managers, to offer customized investment solutions to investors.

***MFS: Continue to deliver superior investment performance while allocating capital responsibly for our Clients***

MFS' active management strategy focuses on delivering value to our Clients over the long term. Our relative performance provides us with a strong competitive position over other asset managers:

• With our strong long-term performance, MFS is well-positioned to attract flows from all Client sectors that are seeking risk-managed capital appreciation over the long term based on our disciplined, long-term approach. We are engaging Clients to align with MFS to focus on longer investment horizons, to leverage our proven ability to deliver over benchmark performance through a market cycle.

• Our strong leadership on ESG is embedded in our overall investment approach of allocating capital responsibly on behalf of our Clients.

• Our continued strategic focus to build out institutional fixed income product and sales capabilities and broaden our non-U.S. retail initiatives enables us to meet Clients' unique and local needs.

• MFS strives to maintain margins in the top quartile of active managers while maintaining our commitment to provide long-term value to Clients.

• We continue to focus on diversity at all levels and promoting an inclusive culture.

<sup>(1)</sup> On a fully diluted basis.

<sup>(2)</sup> From the baseline of 8% of AUM as of December 31, 2021.

<sup>(3)</sup> In-scope assets comprise approximately 83% of InfraRed's global AUM as at June 30, 2022. Funds where assets are currently being sold or transferred in line with the original fund strategy have been excluded from the commitment.

<sup>(4)</sup> Aligning towards or aligned to a net zero pathway as defined by criteria set out in the Net Zero Investment Framework. Criteria are asset class-specific. Pathways is the term used to describe the emissions, technologies and investment trajectories that will be needed to deliver net zero. (Paris Aligned Investment Initiative. "Net Zero Investment Framework: Implementation Guide". 2021).

<sup>(5)</sup> From a baseline of 45% in 2021.

<sup>(6)</sup> West End of London Property Unit Trust.

<sup>(7)</sup> InfraRed PRI Transparency and Assessment Reports are available at <u>https://www.ircp.com/sustainability#documents</u>.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 33

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***SLC Management: Help investors meet their investment objectives by offering a broad suite of alternative asset classes and fixed income strategies***

We are well-positioned to take advantage of key trends in our target markets:

• Growing demand for alternative investments, including demand among U.S. HNW retail investors

• An increasing focus by investors on ESG and sustainable investing

• Outsourcing of asset management by insurance companies, and

• Consolidation of investment manager relationships by institutional investors.

Our strategy is to continue to deliver superior investment performance, expand and deepen our distribution relationships and build out our product lineup. SLC Management is positioned for growth over the medium-term; our objectives<sup>(1)</sup> are to achieve AUM of $225 billion, operating margin of 30%-35%, and underlying net income of $235 million by 2025. We offer our Clients a compelling suite of investment capabilities to meet their needs, including:

• Leading public and private fixed income capabilities, spanning both investment grade and alternative credit

• Global real estate expertise across both equity and debt investments, and

• Global infrastructure capabilities.

***<u>Outlook</u>***

**MFS**

As the prospects of a global recession increase, companies may face significant top line and expense pressures. This will create a more challenging environment to generate value in the short to medium-term. Companies who can operate successfully in this more challenging, higher cost environment will be rewarded by investors due to scarcity of profits. This could create greater opportunities for active managers to outperform benchmarks that have not been present. MFS employs an investment philosophy that involves a long-term approach and looks across the complete business cycle. Our scale, proven long-term track record and broad product portfolios, coupled with our investment philosophy, position us well to deliver strong results over a market cycle. Our expense structure leverages significant variable costs based on assets, sales or profitability, and as a result a majority of our expense base adjusts with market dynamics. In addition, we will continue to be diligent with discretionary spending while investing in strategic initiatives that help grow the business over the long-term.

**SLC Management**

With current economic and geopolitical uncertainty, we expect to see more volatility in equity markets, rising interest rates and elevated levels of inflation. These macroeconomic headwinds are expected to moderate our ability to raise capital as investors rebalance their portfolios, or defer committing further capital. However, we expect to see continued demand for yield-orientated fixed income and alternative assets classes, as these asset types continue to provide an opportunity for portfolio diversification, a potential hedge against inflation, and a reduction in overall risk exposure across investments. We believe we are well positioned to meet this demand with our platform of world-class investment capabilities, complimentary businesses that drive product and distribution opportunities, and leveraging of global resources, including those from Sun Life. The acquisition of a majority stake in AAM provides further momentum to SLC Management to grow and expand our retail HNW business. The investment capabilities we use for our Clients are the same capabilities that we use in managing the general account of Sun Life; this facilitates co-investment opportunities that result in an alignment of interest with our Clients and enables SLC Management's speed to market for products.

**Business Units**<br>

---

| | | |
|:---|:---|:---|
| **Business** | **Description** | **Market position** |
| *MFS* | • Actively manages assets for retail and institutional investors, including pension plans, sovereign wealth funds, monetary authorities, and endowments and foundations.• Retail products are distributed through financial advisors, brokerages and other professionals.<br>• Institutional products are distributed by an internal sales force, which is aided by a network of independent consultants. | • US$548 billion in AUM<br>• The 10th largest U.S. Retail funds manager<sup>(1)</sup> |
| *SLC Management* | • SLC Management delivers public and private credit, fixed income, real estate and infrastructure solutions to Clients through a group of affiliate managers, including:<br>• BentallGreenOak, a global real estate investment manager.<br>• InfraRed Capital Partners, a global infrastructure and real estate investment manager headquartered in London, UK.<br>• Crescent Capital Group, a U.S.-based global alternative credit investment manager.<br>• SLC Management, a North American institutional asset manager specializing in investment grade public and private fixed income portfolios.<br>• Institutional products are distributed by an internal sales force, which is aided by a network of independent consultants. The acquisition of a majority stake in AAM will provide access to U.S. retail distribution and will allow SLC Management to meet the growing demand for alternative assets among U.S. HNW investors.  | • $210 billion in AUM |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;As reported by ISS Market Intelligence Simfund based on AUM as at December 31, 2022.

<sup>(1)</sup> Although considered reasonable, we may not be able to achieve our medium-term financial objectives as our assumptions may prove to be inaccurate. Accordingly, our actual results could differ materially from our medium-term financial objectives as described above. Our medium-term financial objectives do not constitute guidance. Our medium-term financial objectives are forward-looking non-IFRS financial measures and additional information is provided in this MD&A in section O - Forward-looking Statements - Medium-Term Financial Objectives.

34 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Financial and Business Results**

---

| | | |
|:---|:---|:---|
| **Asset Management (C$ millions)** | **2022** | 2021 |
| Reported net income - Common shareholders | **1141** | 892 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Fair value adjustments on MFS' share-based payment awards<sup>(1)</sup> | **106** | (186) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition, integration and restructuring<sup>(1)(2)(3)</sup> | **(176)** | (247) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other<sup>(1)(4)</sup> | **7** | (21) |
| Underlying net income<sup>(5)</sup> | **1204** | 1346 |
| Assets under management (C$ billions)<sup>(5)</sup> | **952.0** | 1059.2 |
| Gross flows (C$ billions)<sup>(5)</sup> | **172.9** | 193.1 |
| Net flows (C$ billions)<sup>(5)</sup> | **(22.0)** | 21.1 |
| **MFS (C$ millions)** |  |  |
| Reported net income - Common shareholders | **1195** | 1049 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Fair value adjustments on MFS' share-based payment awards<sup>(1)</sup> | **106** | (186) |
| Underlying net income<sup>(5)</sup> | **1089** | 1235 |
| Assets under management (C$ billions)<sup>(5)(6)</sup> | **742.3** | 875.2 |
| Gross flows (C$ billions)<sup>(5)</sup> | **140.6** | 150.1 |
| Net flows (C$ billions)<sup>(5)</sup> | **(43.4)** | (11.4) |
| **MFS (US$ millions)** |  |  |
| Reported net income - Common shareholders | **919** | 836 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Fair value adjustments on MFS' share-based payment awards<sup>(1)</sup> | **81** | (149) |
| Underlying net income<sup>(5)</sup> | **838** | 985 |
| Pre-tax net operating margin<sup>(5)</sup> | **39%** | 41% |
| Average net assets (US$ billions)<sup>(5)</sup> | **584.8** | 657.8 |
| Assets under management (US$ billions)<sup>(5)(6)</sup> | **547.9** | 692.8 |
| Gross flows (US$ billions)<sup>(5)</sup> | **108.4** | 119.7 |
| Net flows (US$ billions)<sup>(5)</sup> | **(33.1)** | (9.2) |
| Asset appreciation (depreciation) (US$ billions) | **(111.9)** | 91.7 |
| **SLC Management (C$ millions)** |  |  |
| Reported net income - Common shareholders | **(54)** | (157) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Acquisition, integration and restructuring<sup>(1)(2)(3)</sup> | **(176)** | (247) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other<sup>(1)(4)</sup> | **7** | (21) |
| Underlying net income<sup>(5)</sup> | **115** | 111 |
| Fee-related earnings<sup>(5)</sup> | **237** | 197 |
| Pre-tax fee-related earnings margin<sup>(5)(7)</sup> | **24%** | 22% |
| Pre-tax net operating margin<sup>(5)(7)</sup> | **21%** | 22% |
| Assets under management (C$ billions)<sup>(5)</sup> | **209.6** | 183.9 |
| Gross flows - AUM (C$ billions)<sup>(5)</sup> | **32.3** | 43.0 |
| Net flows - AUM (C$ billions)<sup>(5)</sup> | **21.5** | 32.5 |
| Fee earning assets under management ("FE AUM") (C$ billions)<sup>(5)</sup> | **164.4** | 147.9 |
| Gross flows - FE AUM (C$ billions)<sup>(5)</sup> | **33.0** | 37.3 |
| Net flows - FE AUM (C$ billions)<sup>(5)</sup> | **25.2** | 29.7 |
| Capital raising (C$ billions)<sup>(5)</sup> | **18.2** | 27.4 |
| Deployment (C$ billions)<sup>(5)</sup> | **30.2** | 36.6 |

---

<sup>(1)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax adjustments.

<sup>(2)</sup> Amounts relate to acquisition costs for our SLC Management affiliates, BentallGreenOak, InfraRed Capital Partners and Crescent Capital Group LP, which include the unwinding of the discount for Other financial liabilities of $64 million in 2022 (2021 - $59 million).

<sup>(3)</sup> Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership interests of SLC Management affiliates of $80 million in 2022 and $153 million in 2021.

<sup>(4)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(5)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(6)</sup> Monthly information on AUM is provided by MFS in its Corporate Fact Sheet, which can be found at <u>www.mfs.com/CorpFact</u>. The Corporate Fact Sheet also provides MFS' U.S. GAAP assets and liabilities as at December 31, 2022.

<sup>(7)</sup> Based on a trailing 12-month basis.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 35

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**Profitability**

**2022 vs. 2021**

Asset Management reported net income of $1,141 million increased $249 million or 28%, driven by fair value changes on MFS' share-based payment awards and a lower increase in SLC Management's acquisition-related liabilities<sup>(1)</sup>, partially offset by a decline in underlying net income.

Underlying net income of $1,204 million decreased $142 million or 11%, driven by lower MFS earnings.

Foreign exchange translation led to an increase of $41 million and $39 million in reported net income and underlying net income, respectively.

**Growth**

**2022 vs. 2021**

Asset Management AUM decreased $107.2 billion or 10%, reflecting net asset value changes of $80.7 billion, net outflows of $22.0 billion, and Client distributions of $4.6 billion.

**Profitability and Growth by Business Unit**

**2022 vs. 2021**

***MFS***

MFS reported net income of US$919 million increased US$83 million or 10%, reflecting fair value changes on MFS' share-based payment awards. Underlying net income of US$838 million decreased US$147 million or 15%, reflecting declines in global equity markets which contributed to lower ANA ("average net assets"), partially offset by lower variable compensation expenses and higher net investment returns.

MFS AUM decreased US$144.9 billion or 21%, reflecting asset value changes of US$111.9 billion and net outflows of US$33.1 billion. In Q4'22, 97% of MFS' U.S. retail mutual fund assets ranked in the top half of their Morningstar categories based on ten- and five-year performance, and 48% ranked in the top half of their Morningstar categories based on three-year performance.

***SLC Management***

SLC Management reported net loss of $54 million improved $103 million or 66%, primarily reflecting a lower increase in acquisition-related liabilities<sup>(1)</sup>. Underlying net income of $115 million increased $4 million or 4%, driven by higher fee-related earnings reflecting strong capital raising and capital deployment across the platform, and lower fundraising sales incentives, partially offset by real estate investment losses. The fee-related earnings margin<sup>(2)</sup> and the pre-tax net operating profit margin<sup>(2)</sup> for 2022 was 24% and 21%, respectively (2021 - 22% and 22%, respectively).

SLC Management AUM increased $25.7 billion or 14%, driven by net inflows of $21.5 billion and asset value changes of $8.8 billion, partially offset by Client distributions of $4.6 billion. Net inflows were comprised of capital raising and Client contributions, totaling $32.3 billion, partially offset by outflows of $10.9 billion.

SLC Management FE AUM increased $16.5 billion or 11%, driven by net inflows of $25.2 billion, partially offset by Client distributions of $6.9 billion and asset value changes of $1.8 billion. Net inflows were comprised of capital deployment and Client contributions, totaling $33.0 billion, partially offset by outflows of $7.8 billion.

<sup>(1)</sup> Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership interests of SLC Management affiliates.

<sup>(2)</sup> Based on a trailing 12-month basis.

36 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**4. Asia**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

**Our Asia presence provides us with a strong footprint to take advantage of the high growth prospects in the region. We operate in eight Asian markets, delivering value to over 25 million Clients. Local Markets provides asset management, wealth, protection and health solutions through a multi-channel distribution approach in China, India, Philippines, Vietnam, Malaysia and Indonesia. International Hubs offers leading insurance and wealth products through agency and broker distribution, including life insurance solutions to HNW families and individuals, with operations in Hong Kong, Singapore and Bermuda.**

---

| | |
|:---|:---|
| **<u>Business Units</u>** | **<u>Business Units</u>** |
| **• Local Markets** | **• International Hubs** |

---

**2022 Highlights** 

***Growing our scale and distribution*** 

• We retained our second position ranking<sup>(1)</sup> for net flows in Hong Kong Mandatory Provident Fund ("MPF") despite declines in equity markets driving lower flows across the industry.

• In India, Aditya Birla Sun Life AMC Limited ("ABSLAMC") partnered with BGO, an affiliate of SLC Management, to form a real estate-focused investment vehicle. This collaboration brings together two leading investment managers with extensive track records in both the domestic and international markets to create new investment opportunities for Clients.

• Strong insurance sales momentum with growth of 8% and total weighted premium income ("TWPI")<sup>(2)</sup> of $4.9 billion up 12% over prior year driven by investments made in bancassurance and agency, and Asia's emergence from the pandemic.

• Bancassurance is an essential distribution channel in Asia to deliver on our Purpose. In January 2023, we announced a 15-year exclusive bancassurance partnership in Hong Kong with Dah Sing Bank ("Dah Sing"), with sales expected to start in July 2023, subject to regulatory processes and approvals. Under this partnership, Sun Life will be the exclusive provider of life insurance solutions to Dah Sing's 570,000 retail banking customers to fulfill their savings and protection needs at different life stages. In Indonesia, we expanded and deepened our existing bancassurance partnership with CIMB Niaga, Indonesia's second largest privately-owned bank<sup>(3)</sup>. Sun Life will be the provider of all life insurance solutions to the bank's seven million customers, across all channels, starting in 2025 through 2039. CIMB is an important regional partner for Sun Life, also contributing to sales in Malaysia, which showed strong growth of 33%<sup>(4)</sup> over prior year.

• In the Philippines, our joint venture, Sun Life Grepa Financial, renewed its bancassurance partnership with Rizal Commercial Banking Corporation ("RCBC"), one of the country's leading commercial banks. The 10-year renewal, through to 2033, allows more Filipinos to access financial protection products, leveraging the strength of RCBC's extensive sales network of over 430 branches and nearly 2 million customers.

• We continue to build out a sustainable high quality agency force. In Vietnam, we launched a full-time advisor agency channel enabled by more selective and diversified advisor recruitment and comprehensive advisor training, providing holistic advice to meet the needs of Clients.

• We continued to enhance our product offerings for HNW Clients to diversify, protect, and grow their assets. We launched Sun Global Aurora, a savings-oriented indexed universal life product. Sun Global Aurora provides Clients the flexibility to customize premium payments to meet their wealth accumulation goals, while offering stable returns and exposure to equity markets. Strong demand for our protection products in the HNW space contributed to sales growth of over four times the prior year in Singapore.

***Putting Client Impact at the centre of everything we do***

• As part of our aspiration to deliver meaningful impact to Clients through their life journey, we are continuing to improve their digital service experience to make it easier for them to do business with us. We made substantial progress in 2022, with 83% of applications and 38% of claims submitted digitally, up 12 and 17 percentage points from prior year, respectively.

***Embedding sustainability into our business to drive value creation and align with our Purpose***

• To enable our Clients to achieve lifetime financial security in a more sustainable manner, we expanded our range of ESG products. We introduced Stellar, the first ESG-focused savings plan in the Hong Kong market that actively integrates ESG concepts into investment strategies<sup>(5)</sup>. Following strong reception, we enhanced our suite of Stellar offerings to include additional cost-effective, flexible options that allow for broader Client access to sustainable long-term savings products.

• We were the first Malaysian insurance company to launch a Shariah-based investment-linked Takaful ESG Fund<sup>(6)</sup>, partnering with Nomura Asset Management, giving Clients an option that reflects Islamic principles.

• We achieved 100% rollout of internal ESG plus<sup>(7)</sup> ratings for our Asia fixed income General Account, and are continuing the rollout to our Asia equities investments, demonstrating the integration of ESG into our investment practices.

<sup>(1)</sup> Based on market share measured by net flows from Mercer MPF Market Share Report, as at September 30, 2022.

<sup>(2)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

<sup>(3)</sup> Based on total assets, as at September 30, 2022.

<sup>(4)</sup> This percentage change excludes the impacts of foreign exchange translation. For more information about these non-IFRS financial measures, see section L - Non-IFRS Financial Measures in this document.

<sup>(5)</sup> This is based on market conditions as of April 12, 2022 and comparison among other savings plans for new Composite and Long Term Businesses as defined by the Insurance Authority in the Register of Authorized Insurers.

<sup>(6)</sup> Sun Life Malaysia Islamic Global Sustainable Fund.

<sup>(7)</sup> ESG plus is SLC Fixed Income's proprietary ESG rating methodology which is designed to assess the relative ESG risk of issuers within an industry or asset type.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 37

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**Strategy and Outlook**

To achieve our ambitious growth objectives for strategic positioning and driving scale in all our markets, we will continue to capitalize on new opportunities. We are dedicated to building distribution excellence and offering a seamless, digital experience for Clients and advisors to deliver Client impact. We will continue to foster our strong and distinctive culture, while attracting, developing and empowering high calibre talent. We will embed sustainability into our business, as we engage Clients along their journeys towards lifetime financial security and healthier lives. Our areas of focus for Asia are to:

***Leverage distribution excellence to diversify our mix, build scale and deliver Client Impact***

• Create a trusted brand for Sun Life in Asia to facilitate lead generation, relationship building with Clients, and recruitment of advisors.

• Build sustainable scale through a diversified mix of high performing, quality-focused distribution channels that enhance Client impact by offering holistic sales advice delivered through our expanding range of life, wealth and health solutions.

• Build on our Most Respected Advisor ("MRA") program, including Brighter Academy, our proprietary agency incubator program, and become the partner of choice for advisors to develop active and sustainable agency talent.

• Continue to effectively collaborate with existing bancassurance partners to unlock the potential of recent deals, while selectively considering new bank relationships that provide purpose-aligned solutions to a wider range of Clients.

***Be a digital leader, enhancing the digital experience to transform the Client and advisor experience, and enable greater efficiency and scalability***

• Digitize our business and leverage common tools and technology platforms across the region to make it easier for Clients and advisors to do business with us.

• Increase engagement of prospective and existing Clients by being more personal, proactive and predictive. Create personalized experiences to deepen our relationship and improve retention with Clients.

• Empower advisors, including bancassurance distribution, by building best-in-class digital and data capabilities that enable more engaging experiences, create Client impact, and enhance prospect conversion, advisor productivity, and recruitment and training.

***Embed sustainability into our business to drive value creation, positive impact, and align with our Purpose***

• Provide quality advice and offer relevant financial solutions to enable Clients to plan and protect themselves from adverse financial events and invest for their future.

• Become a partner in our Clients' health journeys, by offering a wider set of valued health solutions and deepen the level of engagement across the Client relationship.

• Strive to make insurance, health and wealth solutions more affordable and accessible, while considering market trends and societal needs.

• Fully embed ESG into our investment processes and introduce ESG investment opportunities for our Clients.

***<u>Outlook</u>***

Our diversified business, with a multi-country presence and multi-channel distribution, positions us well to deepen Client relationships, capture opportunities as they arise, and protect our business against adverse economic cycles and regulatory changes in any one market. Despite the uncertainties and short-term headwinds from market volatility, we expect that the region's economic growth will continue, and rapid wealth creation, coupled with low insurance penetration rates, will result in sustained growth across all markets over the medium-term. In addition, we expect to continue to reach more Clients by expanding and deepening our high-quality agency force, diverse network of bancassurance partners and broker partnerships. Our position among the global leaders in the international HNW space will continue to generate value and positive outcomes for Clients.

Economic and geopolitical uncertainty, as well as intense competition, equity market downturn, rise in interest rates and inflation continue to pose challenges to our businesses. However, our steadfast dedication to our Purpose and our Clients, strengthening market positions, key strategic relationships, investments in digital and analytics, and our ability to leverage Sun Life's global expertise position us well for the future. As local governments continue to push responsibility down to their people in both the retirement and health spaces, we are well-equipped to offer current and prospective Clients a diverse range of products and solutions.

38 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Business Markets**<br>

---

| | | |
|:---|:---|:---|
| **Business** | **Description** | **Market Position** |
| **Local Markets** | **Local Markets** | **Local Markets** |
| *Philippines*<sup>(1)</sup> | • Individual and group life and health insurance products to individuals and businesses through a multi-channel distribution network.<br>• Asset management for individual and institutional Clients through agency, brokerage, bancassurance and digital partners. | • #1 ranked insurance company based on total premium<sup>(2)</sup><br>• #2 mutual fund operation in the country<sup>(3)</sup> |
| *Indonesia* | • Individual life and health insurance through agency, telco arrangements and banks, including a bancassurance partnership with CIMB Niaga, Indonesia's 2nd largest bank | • 10<sup>th</sup> ranked insurance company<sup>(4)</sup> |
| *Vietnam* | • Individual insurance and pensions distributed through agency, corporate sales, and digital distribution channels and partnerships, including exclusive bancassurance agreements with TPBank<sup>(5)</sup> and ACB<sup>(5)</sup>. | • 5<sup>th</sup> in bancassurance sales, 6<sup>th</sup> ranked insurance company<sup>(6)</sup> |
| *Malaysia*<sup>(7)</sup> | • Individual and group insurance through banks and telco arrangements, including an exclusive bancassurance agreement with CIMB Bank, Malaysia's 2<sup>nd</sup> largest bank, and a growing agency force.  | • 1<sup>st</sup> in bancatakaful sales and 3<sup>rd</sup> in bancassurance sales, 7<sup>th</sup> overall<sup>(8)</sup> |
| *India*<sup>(9)</sup> | • Individual and group insurance, savings and retirement products through agency, brokerage and bancassurance channels.<br>• Asset management for both individual and institutional investors through independent financial advisors, banks, and direct distribution channels. | • 7<sup>th</sup> largest life insurance company in India<sup>(10)</sup><br>• 6<sup>th</sup> largest mutual fund operation in the country<sup>(11)</sup> |
| *China*<sup>(12)</sup> | • Individual and group life and health insurance and savings products distributed through agency, brokerage, bancassurance and digital channels. <br>• Institutional asset management, passive third-party asset management and debt financing business through direct distribution. | • 9<sup>th</sup> ranked life insurance company in China among multinationals<sup>(13)</sup> |
| **International Hubs** | **International Hubs** | **International Hubs** |
| *Hong Kong* | • Mandatory Provident Fund (MPF) and pension administration to individuals and businesses through agency and brokerage distribution.<br>• Individual and group life and health insurance through agency and brokerage distribution, including life insurance solutions for HNW Clients. | • 3<sup>rd</sup> largest provider based on AUM, 2<sup>nd</sup> based on net inflows<sup>(14)</sup><br>• Top 10 in Agency for Life Insurance<sup>(15)</sup> |
| *International* | • Individual life insurance solutions for HNW Clients residing outside the U.S. and Canada<br>• Manages a block of International wealth investment products closed to new sales. | • A leader in international HNW life insurance business |
| *Singapore* | • Individual life insurance solutions for HNW Clients in Asia. | • New entrant to the market in 2021 |

---

<sup>(1)</sup> Philippines: Includes a joint venture with the Yuchengco Group - Sun Life Grepa Financial, Inc. (49%).

<sup>(2)</sup> Insurance Commission of the Philippines, based on Q2'22 year-to-date total premium income for Sun Life of Canada (Philippines).

<sup>(3)</sup> Philippine Investment Funds Association, based on December 2022 ending AUM.

<sup>(4)</sup> Indonesia Life Insurance Association industry report, based on Q3'22 year-to-date first year premiums.

<sup>(5)</sup> Tien Phong Commercial Bank ("TPBank") and Asia Commercial Joint Stock Bank ("ACB").

<sup>(6)</sup> November 2022 year-to-date annualized first year premiums based on data shared among industry players.

<sup>(7)</sup> Malaysia: Joint ventures with Khazanah Nasional Berhad and CIMB Group Holdings Berhad - Sun Life Malaysia Assurance Berhad (49%), Sun Life Malaysia Takaful Berhad (49%).

<sup>(8)</sup> Life Insurance Association of Malaysia and Insurance Services Malaysia Berhad, based on Q3'22 year-to-date annualized first year premium for conventional and takaful business.

<sup>(9)</sup> India: Joint venture with Aditya Birla Group - Aditya Birla Sun Life Insurance Company Limited (49%) and Aditya Birla Sun Life Asset Management Company Limited (36.5% indirect ownership).

<sup>(10)</sup> Insurance Regulatory Authority of India, based on Q3'22 year-to-date first year premiums among private players.

<sup>(11)</sup> Association of Mutual Funds in India, based on average AUM for the quarter ended December 31, 2022.

<sup>(12)</sup> China: Joint ventures with the China Everbright Group: Sun Life Everbright Life Insurance Company Limited (24.99%), Sun Life Everbright Asset Management Co., Ltd (24.74%).

<sup>(13)</sup> China: based on gross premiums for Q3'22 (excluding universal life insurance deposits and pension companies) amongst foreign multinationals.

<sup>(14)</sup> Mercer MPF Market Shares Report, September 2022.

<sup>(15)</sup> Insurance Authority of Hong Kong, Provisional Statistics on Hong Kong Long Term Insurance Business, based on Q3'22 year-to-date annualized first year premiums.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 39

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**Financial and Business Results**

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Local Markets | **210** | 608 |
| International Hubs | **305** | 467 |
| Reported net income - Common shareholders | **515** | 1075 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | **(82)** | 61 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assumption changes and management actions<sup>(1)</sup> | **(40)** | 135 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition, integration and restructuring<sup>(1)(2)</sup> | **(7)** | 293 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other<sup>(1)(3)</sup> | **17** |  |
| Underlying net income (loss)<sup>(4)</sup> | **627** | 586 |
| Reported ROE (%)<sup>(4)</sup> | **7.7%** | 17.4% |
| Underlying ROE (%)<sup>(4)</sup> | **9.3%** | 9.5% |
| Insurance sales<sup>(4)</sup> | **1344** | 1258 |
| Wealth sales<sup>(4)</sup> | **11140** | 15491 |

---

<sup>(1)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax amounts.

<sup>(2)</sup> Prior year amount includes a realized gain of $297 million on the Initial Public Offering of Aditya Birla Sun Life Asset Management Company.

<sup>(3)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(4)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

**Profitability**

**2022 vs. 2021**

Asia reported net income of $515 million decreased $560 million, reflecting a gain from the IPO of the India asset management joint venture and favourable ACMA impacts in the prior year, and unfavourable market-related impacts in the current year.

Underlying net income of $627 million increased $41 million or 7%, driven by improved mortality, including from joint ventures<sup>(1)</sup>, compared to prior year which included COVID-19-related claims, and expense experience, partially offset by lower fee-based income reflecting equity market declines, and policyholder behaviour experience primarily in Vietnam. Higher new business strain in Hong Kong was mostly offset by new business gains in International, Vietnam and Malaysia.

Foreign exchange translation led to decline of $5 million and $9 million in reported net income and underlying net income, respectively.

**Growth**

**2022 vs. 2021**

Asia insurance sales increased 8%<sup>(2)</sup>, driven by higher sales in India, Vietnam, the Philippines, Singapore and Malaysia, partially offset by lower sales in Hong Kong and International.

Asia wealth sales decreased 26%<sup>(2)</sup>, reflecting lower sales in India, Hong Kong and the Philippines.

**Expansion of PT Bank CIMB Niaga Tbk Partnership**

On April 5, 2022, we announced an expansion to the existing bancassurance partnership with PT Bank CIMB Niaga Tbk ("CIMB Niaga") in Indonesia, which also extends our existing agreement by six years to 2039. Under the new agreement, for a term of 15 years effective January 2025, Sun Life will be the provider of insurance solutions to CIMB Niaga customers across all distribution channels, accelerating our growth ambitions in the country. For additional information, refer to Note 3 in our Consolidated Financial Statements for the period ended December 31, 2022.

**Dah Sing Bank Bancassurance Partnership**

On January 20, 2023, we announced a 15-year exclusive bancassurance partnership in Hong Kong with Dah Sing Bank ("Dah Sing"). Under this partnership, Sun Life will be the exclusive provider of life insurance solutions to Dah Sing's 570,000 retail banking customers, helping to fulfill their savings and protection needs at different life stages. This is Sun Life's first exclusive bancassurance partnership in Hong Kong and will be a valuable complement to our existing network of over 2,500 expert insurance advisors. Hong Kong is a thriving life insurance hub in Asia and bancassurance is a key distribution channel, accounting for more than 50% of the life insurance distribution mix. Following the completion of regulatory processes and approvals, distribution of Sun Life products is anticipated to start in July 2023.

<sup>(1)</sup> Experience-related items from the India, China and Malaysia joint ventures are recorded within other experience.

<sup>(2)</sup> This percentage change excludes the impacts of foreign exchange translation. For more information about these non-IFRS financial measures, see section L - Non-IFRS Financial Measures in this document.

40 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Profitability by Business Unit and Growth by Business Market**

**2022 vs. 2021**

**Local Markets**

Local Markets' reported net income of $210 million decreased $398 million or 65%, reflecting a prior year gain from the IPO of our India asset management joint venture, market-related impacts and policyholder behaviour experience, partially offset by improved mortality, including from our joint ventures<sup>(1)</sup>, compared to prior year which included COVID-19-related claims, favourable expense experience and higher new business gains.

We continued to maintain a strong Client focus, build our agency and strengthen bancassurance channels, leverage a more balanced product portfolio and increase productivity.

***Philippines* -** On a local currency basis, individual insurance sales increased 12%. Mutual and managed fund AUM was $2.3 billion as at December 31, 2022, a decrease of 47%, measured in local currency, reflecting lower money market sales.

Agency headcount reached approximately 23,500 at the end of 2022, 5% higher than 2021.

***Indonesia* -** On a local currency basis, individual life insurance sales increased 4%, with growth in the bancassurance channel, partially offset by lower sales in agency and telemarketing channel.

Agency headcount was at approximately 3,700 in 2022, a decrease of 36% from the previous year-end.

***Vietnam* -** On a local currency basis, individual insurance sales increased 41%, driven by the bancassurance channel and growth in the agency channel.

Agency headcount was approximately 8,100 at the end of 2022, 42% higher than 2021.

***Malaysia* -** On a local currency basis, individual insurance sales increased 33%, with higher sales in the bancassurance channel.

Malaysia's agency force was at approximately 1,200 agents as at the end of 2022, 43% higher than 2021.

***India* -** On a local currency basis, individual life insurance sales increased 22%, with growth in all channels. On a local currency basis, gross sales of equity and fixed income funds decreased 36%.

India's agency headcount of 53,100 at the end of 2022 was 24% lower than 2021.

Total AUM as at December 31, 2022 was $46.8 billion, of which $17.0 billion is reported in our AUM based on Sun Life's 36.49% share, 4% lower than 2021, on a local currency basis.

***China* -** On a local currency basis, individual insurance sales decreased 9%, reflecting lower sales in agency and online channels, partially offset by bancassurance and broker channels.

Agency headcount of 2,600 at the end of 2022 was 69% lower than 2021 due to focus on quality.

**International Hubs**

International Hubs' reported net income of $305 million decreased $162 million or 35%, reflecting favourable ACMA impacts in the prior year, lower fee-based income reflecting equity market declines and higher new business strain in Hong Kong, partially offset by new business gains in International and higher investment gains.

***Hong Kong* -** On a local currency basis, individual insurance sales decreased 22%, reflecting lower sales in the agency and broker channel. AUM in the pension business was $21.3 billion as at December 31, 2022, 7% lower than prior year measured on a local currency basis, reflecting equity declines, and lower pension net flows.

Agency headcount in 2022 remained flat at approximately 2,500 relative to 2021.

***International -*** On a local currency basis, individual life insurance sales decreased 26%, due to the closing of a product in 2021.

***Singapore -*** On a local currency basis, individual insurance sales are gaining momentum, primarily reflecting sales from an expanded suite of products.

<sup>(1)</sup> Experience-related items from the India, China and Malaysia joint ventures are recorded within other experience.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 41

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**5. Corporate**

![lineslfblue100a04.jpg](lineslfblue100a04.jpg)

Corporate includes the results from the UK business and Corporate Support.

**Business Units**<br>

---

| | |
|:---|:---|
| **Business**  | **Description** |
| *UK* | • UK has a run-off block of business consisting of approximately 460,000 in-force life and pension policies, with approximately £8.2 billion of AUM. Since December 2010, UK has been closed to new business and focuses on supporting existing Clients. Most administrative functions have been outsourced to external service providers which are managed by an in-house management team. We entered into an agreement to sell Sun Life UK<sup>(1)</sup> to Phoenix Group Holdings plc. Under the agreement, Sun Life will retain economic interest in the payout annuities business through a reinsurance treaty. The transaction is expected to close in the first half of 2023, subject to regulatory approvals and customary closing conditions.  |
| *Corporate Support* | • Corporate Support operations consist of the certain expenses, debt charges, investment income, capital and other items, pertaining to monitoring and oversight of enterprise activities and Corporate treasury functions, which are not allocated to business segments. Corporate Support also includes our Run-off reinsurance business. Coverage in our Run-off reinsurance business includes medical, guaranteed minimum income and death benefit coverage. The block also includes group long-term disability and personal accident policies which are 100% retroceded. |

---

<sup>(1)</sup> SLF of Canada UK Limited.

**Financial and Business Results**

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| UK | **(14)** | 141 |
| Corporate Support | **(168)** | (231) |
| Reported net income (loss) - Common shareholders | **(182)** | (90) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | **59** | (1) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assumption changes and management actions<sup>(1)</sup> | **46** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition, integration and restructuring<sup>(1)(2)</sup> | **—** | (51) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other<sup>(1)(3)</sup> | **(136)** | 10 |
| Underlying net income (loss)<sup>(4)</sup> | **(151)** | (48) |

---

<sup>(1)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax amounts.

<sup>(2)</sup> The restructuring charge of $57 million in 2021 related to our strategy for our workspace and redefining the role of the office.

<sup>(3)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(4)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.

**Profitability**

**2022 vs. 2021**

Corporate reported net loss was $182 million, compared to a net loss of $90 million in the prior year, reflecting a $170 million charge related to the sale of Sun Life UK as well as the change in underlying net loss. This was partially offset by the net impact of tax-related matters<sup>(1)</sup>, a restructuring charge of $57 million in the first quarter of 2021, and favourable ACMA impacts.

Underlying net loss was $151 million, compared to a net loss of $48 million in the prior year, reflecting a higher effective tax rate and AFS losses, partially offset by lower expenses primarily for incentive compensation.

**Profitability by Business Unit**

**2022 vs. 2021**

***UK***

UK's reported net loss was $14 million, compared to reported net income of $141 million in the prior year, reflecting a $170 million charge related to the sale of Sun Life UK, partially offset by favourable ACMA impacts.

***Corporate Support***

Corporate Support's reported net loss of $168 million improved $63 million or 27%, driven by a restructuring charge of $57 million in the first quarter of 2021 and lower expenses primarily for incentive compensation, partially offset by the net impact of tax-related matters<sup>(2)</sup> and AFS losses. 

<sup>(1)</sup> Tax related matters include tax-exempt investment income in reported net income and the impact of the Canada Tax Rate Change. On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada ("Canada Tax Rate Change"). This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, Corporate reported net income increased by $51 million in the fourth quarter, reflected in Other adjustments. Refer to section D - Profitability in this document for more information.

<sup>(2)</sup> Tax related matters include a higher effective tax rate compared to the prior year, partially offset by the impact of the Canada Tax Rate Change.

42 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**H. Investments**

The Company strives to ensure that general fund investments are aligned with business objectives including meeting policyholder obligations and maintaining adequate liquidity at all times. Consideration is given to a wide range of factors in our investment process, including ensuring attractive risk and return profiles, appropriate diversification by asset type, credit exposure and sector, financial condition and ESG profile of issuers and borrowers, quality and value of underlying security and macro- and micro-economic developments and trends including prospects for specific industry sectors. The Risk Committee of the Board of Directors ("Risk Committee") approves policies that contain prudent standards and procedures for the investment of our general fund assets. These policies include requirements, restrictions and limitations for interest rate, credit, equity market, real estate market, liquidity, concentration, currency, and derivative risks. Compliance with these policies is monitored on a regular basis and reported annually to the Risk Committee. The Governance, Investment & Conduct Review Committee of the Board of Directors monitors the Company's Investment Plan and investment performance, oversees practices, procedures and controls related to the management of the general fund investment portfolio, and reviews corporate governance guidelines and processes.

**1. Investment Profile**

Total general fund invested assets of $177.3 billion as at December 31, 2022, were down $7.2 billion from December 31, 2021. The decrease was primarily due to declines in net fair value from rising interest rates and widening credit spreads, partially offset by favourable impacts from foreign exchange translation. Our general fund invested assets are well-diversified across investment types, geographies and sectors with the majority of our portfolio invested in high quality fixed income assets.

The following table sets out the composition of our general fund invested assets:<sup>(1)</sup> 

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | &nbsp;&nbsp;&nbsp;&nbsp;**December 31, 2022** | &nbsp;&nbsp;&nbsp;&nbsp;**December 31, 2022** | &nbsp;&nbsp;&nbsp;&nbsp;**December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | **Carrying value** | **Fair value** | **% of Total fair value** | Carrying value | Fair value | % of Total fair value |
| Cash, cash equivalents and short-term securities | **11219** | **11219** | **7%** | 12278 | 12278 | 6% |
| Debt securities | **75902** | **75902** | **44%** | 88727 | 88727 | 47% |
| Equity securities | **7148** | **7148** | **4%** | 9113 | 9113 | 5% |
| Mortgages and loans | **56261** | **51850** | **30%** | 51692 | 55756 | 29% |
| Derivative assets | **2095** | **2095** | **1%** | 1583 | 1583 | 1% |
| Other invested assets - financial assets | **9582** | **9418** | **5%** | 7081 | 7071 | 4% |
| Policy loans | **3350** | **3350** | **2%** | 3261 | 3261 | 2% |
| Total financial assets | **165557** | **160982** | **93%** | 173735 | 177789 | 94% |
| Investment properties | **10102** | **10102** | **6%** | 9109 | 9109 | 5% |
| Other invested assets - non-financial assets | **1633** | **1633** | **1%** | 1678 | 1678 | 1% |
| Total invested assets | **177292** | **172717** | **100%** | 184522 | 188576 | 100% |

---

<sup>(1)</sup> The values and ratios presented are based on the fair value of the respective asset categories. Generally, the carrying values for invested assets are equal to their fair values; however our mortgages and loans are generally carried at amortized cost. For invested assets supporting insurance contracts, in the event of default, if the amounts recovered are insufficient to satisfy the related insurance contract liability cash flows that the assets are intended to support, credit exposure may be greater than the carrying value of the assets.

**2. Debt Securities**

The debt securities portfolio is actively managed through a regular program of purchases and sales aimed at optimizing yield, quality and liquidity, while ensuring that it remains well-diversified and duration-matched to insurance contract liabilities. As at December 31, 2022, with the exception of certain countries where we have business operations, including Canada, the United States, the United Kingdom and the Philippines, our exposure to debt securities from any single country did not exceed 1% of total invested assets.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 43

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**Debt Securities by Issuer and Industry Sector** 

---

| | | | | |
|:---|:---|:---|:---|:---|
| | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**December 31, 2022** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**December 31, 2022** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2021 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2021 |
| ($ millions) | **Total** | **% of Total** | Total | % of Total |
| Debt securities issued or guaranteed by: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canadian federal government | **5611** | **8%** | 7101 | 8% |
| &nbsp;&nbsp;&nbsp;&nbsp;Canadian provincial and municipal government | **13665** | **18%** | 17079 | 19% |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. government and agency | **1537** | **2%** | 2413 | 3% |
| &nbsp;&nbsp;&nbsp;&nbsp;Other foreign government | **4624** | **6%** | 5511 | 6% |
| Total government issued or guaranteed debt securities | **25437** | **34%** | 32104 | 36% |
| Corporate debt securities by industry sector:<sup>(1)</sup> |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Financials | **11355** | **15%** | 11948 | 14% |
| &nbsp;&nbsp;&nbsp;&nbsp;Utilities | **6676** | **9%** | 8192 | 9% |
| &nbsp;&nbsp;&nbsp;&nbsp;Industrials | **5575** | **7%** | 6596 | 7% |
| &nbsp;&nbsp;&nbsp;&nbsp;Energy | **3342** | **4%** | 4279 | 5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Communication services | **3329** | **4%** | 3886 | 4% |
| &nbsp;&nbsp;&nbsp;&nbsp;Real estate | **2506** | **3%** | 2688 | 3% |
| &nbsp;&nbsp;&nbsp;&nbsp;Health care | **2034** | **3%** | 2427 | 3% |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer staples | **1978** | **3%** | 2278 | 3% |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer discretionary | **1836** | **2%** | 2120 | 2% |
| &nbsp;&nbsp;&nbsp;&nbsp;Information technology | **1384** | **2%** | 1635 | 2% |
| &nbsp;&nbsp;&nbsp;&nbsp;Materials | **1295** | **2%** | 1517 | 2% |
| Total corporate debt securities | **41310** | **54%** | 47566 | 54% |
| Asset-backed securities | **9155** | **12%** | 9057 | 10% |
| Total debt securities | **75902** | **100%** | 88727 | 100% |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Our grouping of debt securities by sector is based on the Global Industry Classification Standard and S&P Dow Jones Indices.

**Debt Securities by Geography**

The carrying value of our debt securities by geographic location is presented in the following table.

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | **FVTPL debt<br>securities** | **AFS debt<br>securities** | **Total** | **% of Total** | FVTPL debt<br>securities | AFS debt<br>securities | Total | % of Total |
| Debt securities by geography: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **27816** | **4861** | **32677** | **43%** | 33028 | 5135 | 38163 | 43% |
| &nbsp;&nbsp;&nbsp;&nbsp;United States | **21412** | **5058** | **26470** | **35%** | 26678 | 4552 | 31230 | 35% |
| &nbsp;&nbsp;&nbsp;&nbsp;Europe | **6210** | **1393** | **7603** | **10%** | 8289 | 1337 | 9626 | 11% |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **4761** | **752** | **5513** | **7%** | 5249 | 622 | 5871 | 7% |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **2558** | **1081** | **3639** | **5%** | 2754 | 1083 | 3837 | 4% |
| Total debt securities | **62757** | **13145** | **75902** | **100%** | 75998 | 12729 | 88727 | 100% |

---

Our gross unrealized losses as at December 31, 2022 for FVTPL and AFS debt securities were $9,522 million and $1,382 million, respectively (December 31, 2021 - $405 million and $122 million, respectively). The increase in gross unrealized losses was largely due to the impact from rising interest rates.

**Debt Securities by Credit Rating**

Debt securities with a credit rating of "A" or higher represented 72% of the total debt securities as at December 31, 2022 (December 31, 2021 - 73%). Debt securities with a credit rating of "BBB" or higher represented 99% of total debt securities as at December 31, 2022, consistent with December 31, 2021.

44 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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The credit risk ratings in the following table were established in accordance with the internal rating process described in this MD&A under the heading J - Risk Management - 9 - Risk Categories - Credit Risk Management Governance and Control.

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | **FVTPL debt<br>securities** | **AFS debt<br>securities** | **Total debt<br>securities** | **% of<br>Total debt<br>securities** | FVTPL debt<br>securities | AFS debt<br>securities | Total debt<br>securities | % of<br>Total debt<br>securities |
| Debt securities by credit rating: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AAA | **10400** | **4862** | **15262** | **20%** | 12811 | 5294 | 18105 | 20% |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **9545** | **1765** | **11310** | **15%** | 11510 | 1502 | 13012 | 15% |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **24144** | **3552** | **27696** | **37%** | 29984 | 3282 | 33266 | 38% |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **17947** | **2721** | **20668** | **27%** | 20710 | 2484 | 23194 | 26% |
| &nbsp;&nbsp;&nbsp;&nbsp;BB and lower | **721** | **245** | **966** | **1%** | 983 | 167 | 1150 | 1% |
| Total debt securities | **62757** | **13145** | **75902** | **100%** | 75998 | 12729 | 88727 | 100% |

---

**3. Equities**

The equity portfolio is well-diversified with approximately 59% of the portfolio invested in exchange-traded funds as at December 31, 2022 (December 31, 2021 - 64%). Exchange-traded fund holdings are primarily in the SPDR S&P 500 ETF Trust and Tracker Fund of Hong Kong Ltd. The carrying value of equities by issuer geography as at December 31, 2022 is set out in the following table.

**Equities by Issuer Geography**

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | **FVTPL equities** | **AFS <br>equities** | **Total** | **% of Total** | FVTPL equities | AFS <br>equities | Total | % of Total |
| Equity securities: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **2981** | **57** | **3038** | **42%** | 3301 | 62 | 3363 | 37% |
| &nbsp;&nbsp;&nbsp;&nbsp;United States | **1732** | **192** | **1924** | **27%** | 2010 | 1405 | 3415 | 37% |
| &nbsp;&nbsp;&nbsp;&nbsp;Europe | **361** | **4** | **365** | **5%** | 449 | 6 | 455 | 5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **1717** | **71** | **1788** | **25%** | 1768 | 102 | 1870 | 21% |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **33** | **—** | **33** | **1%** | 10 |  | 10 | —% |
| Total equity securities | **6824** | **324** | **7148** | **100%** | 7538 | 1575 | 9113 | 100% |

---

Excluding exchange-traded funds and mutual funds, there were no issuers exceeding 1% of the equity portfolio as at December 31, 2022.

**4. Mortgages and Loans**

Mortgages and loans are presented at their carrying value in our 2022 Annual Consolidated Financial Statements. Our mortgage portfolio consisted almost entirely of first mortgages and our loan portfolio consisted of private placement loans.

**Mortgages and Loans by Geography**

The carrying value of mortgages and loans by geographic location is presented in the following table.<sup>(1)</sup> 

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | **Mortgages** | **Loans** | **Total** | **% of Total** | Mortgages | Loans | Total | % of Total |
| Canada | **9892** | **13143** | **23035** | 41% | 9569 | 12885 | 22454 | 43% |
| United States | **5439** | **17238** | **22677** | 40% | 5907 | 14596 | 20503 | 40% |
| Europe | **29** | **7716** | **7745** | 14% | 9 | 6093 | 6102 | 12% |
| Asia | **—** | **556** | **556** | 1% |  | 532 | 532 | 1% |
| Other | **—** | **2248** | **2248** | 4% |  | 2101 | 2101 | 4% |
| Total mortgages and loans | **15360** | **40901** | **56261** | 100% | 15485 | 36207 | 51692 | 100% |
| % of Total Invested Assets | **9%** | **23%** | **32%** |  | 8% | 20% | 28% |  |

---

<sup>(1)</sup> The geographic location for mortgages is based on the location of the property and for loans it is based on the country of the creditor's parent.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 45

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**Mortgage Portfolio**

As at December 31, 2022, we held $15.4 billion of mortgages (December 31, 2021 - $15.5 billion). Our mortgage portfolio consists entirely of commercial mortgages, as presented in the following table.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | **Insured** | **Uninsured** | **Total** | Insured | Uninsured | Total |
| Mortgages: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Retail | **—** | **3001** | **3001** |  | 3388 | 3388 |
| &nbsp;&nbsp;&nbsp;&nbsp;Office | **—** | **3284** | **3284** |  | 3531 | 3531 |
| &nbsp;&nbsp;&nbsp;&nbsp;Multi-family residential | **3724** | **1546** | **5270** | 3870 | 1857 | 5727 |
| &nbsp;&nbsp;&nbsp;&nbsp;Industrial and land | **—** | **2883** | **2883** |  | 2035 | 2035 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **450** | **472** | **922** | 348 | 456 | 804 |
| Total mortgages | **4174** | **11186** | **15360** | 4218 | 11267 | 15485 |
| % of Total mortgages | **27%** | **73%** | **100%** | 27% | 73% | 100% |

---

Our mortgage portfolio consists entirely of commercial mortgages, including retail, office, multi-family, industrial and land properties. As at December 31, 2022, 34% of our commercial mortgage portfolio consisted of multi-family residential mortgages; there are no single-family residential mortgages. Our uninsured commercial portfolio had a weighted average loan-to-value ratio of approximately 53% as at December 31, 2022 (December 31, 2021 - 58%). While we generally limit the maximum loan-to-value ratio to 75% at issuance, we may invest in mortgages with a higher loan-to-value ratio in Canada if the mortgage is insured by the Canada Mortgage and Housing Corporation ("CMHC"). The estimated weighted average debt service coverage for our uninsured commercial portfolio is 1.72 times. Of the $4.0 billion of multi-family residential mortgages in the Canadian commercial mortgage portfolio, 92% were insured by the CMHC.

The following tables summarize our mortgages by credit quality indicator:

---

| | | | | |
|:---|:---|:---|:---|:---|
| ($ millions) | **December 31, 2022** | **As % of Total<br>Mortgages** | December 31, 2021 | As % of Total<br>Mortgages |
| Mortgages by credit rating: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Insured | **4174** | **27%** | 4218 | 27% |
| &nbsp;&nbsp;&nbsp;&nbsp;AAA | **—** | **— %** |  | —% |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **1769** | **12%** | 1640 | 11% |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **5917** | **38%** | 4979 | 32% |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **2911** | **19%** | 3814 | 25% |
| &nbsp;&nbsp;&nbsp;&nbsp;BB and lower | **589** | **4%** | 822 | 5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Impaired | **—** | **— %** | 12 | —% |
| Total mortgages | **15360** | **100%** | 15485 | 100% |

---

**Loan Portfolio**

As at December 31, 2022, we held $40.9 billion of loans (December 31, 2021 - $36.2 billion). Private placement loans provide diversification by type of loan, industry segment and borrower credit quality. The private placement loan portfolio consists of senior secured and unsecured loans to large- and mid-market corporate borrowers, securitized lease/loan obligations secured by a variety of assets, and project finance loans in sectors such as power and infrastructure.

The credit risk ratings in the following table were established in accordance with the internal rating process described in this MD&A under the heading J - Risk Management - 9 - Risk Categories - Credit Risk Management Governance and Control. As at December 31, 2022, 95% of our total loan portfolio is investment grade (December 31, 2021 - 94%).

---

| | | | | |
|:---|:---|:---|:---|:---|
| ($ millions) | **December 31, 2022** | **As % of Total Loans** | December 31, 2021 | As % of Total Loans |
| Loans by credit rating: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AAA | **274** | **1%** | 192 | 1% |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **5712** | **14%** | 4994 | 14% |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **16891** | **41%** | 14231 | 39% |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **15920** | **39%** | 14632 | 40% |
| &nbsp;&nbsp;&nbsp;&nbsp;BB and lower | **2071** | **5%** | 2139 | 6% |
| &nbsp;&nbsp;&nbsp;&nbsp;Impaired | **33** | **— %** | 19 | —% |
| Total loans | **40901** | **100%** | 36207 | 100% |

---

46 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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The following tables summarize our loans by sector:

---

| | | | | |
|:---|:---|:---|:---|:---|
| ($ millions) | **December 31, 2022** | **As % of Total Loans** | December 31, 2021 | As % of Total Loans |
| Loans by Sector: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate issued loans | **29217** | **71%** | 24852 | 69% |
| &nbsp;&nbsp;&nbsp;&nbsp;Canadian provincial & municipal government | **7154** | **18%** | 7041 | 19% |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. government & agency | **3022** | **7%** | 2783 | 8% |
| &nbsp;&nbsp;&nbsp;&nbsp;Other foreign government | **1451** | **4%** | 1470 | 4% |
| &nbsp;&nbsp;&nbsp;&nbsp;Canadian federal government | **57** | **— %** | 61 | —% |
| Total loans | **40901** | **100%** | 36207 | 100% |

---

**Mortgages and Loans Past Due or Impaired**

The gross carrying value and allowance for mortgages and loans past due or impaired are presented in the following table.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
| | **Gross carrying value** | **Gross carrying value** | **Gross carrying value** | **Allowance for losses** | **Allowance for losses** | **Allowance for losses** |
| ($ millions) | **Mortgages** | **Loans** | **Total** | **Mortgages** | **Loans** | **Total** |
| Not past due | **15360** | **40868** | **56228** | **—** | **—** | **—** |
| Past due: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Past due less than 90 days | **—** | **—** | **—** | **—** | **—** | **—** |
| &nbsp;&nbsp;&nbsp;&nbsp;Past due 90 days or more | **—** | **—** | **—** | **—** | **—** | **—** |
| Impaired | **80** | **145** | **225** | **80** | **112** | **192** |
| Total | **15440** | **41013** | **56453** | **80** | **112** | **192** |
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | Gross carrying value | Gross carrying value | Gross carrying value | Allowance for losses | Allowance for losses | Allowance for losses |
| ($ millions) | Mortgages | Loans | Total | Mortgages | Loans | Total |
| Not past due | 15473 | 36188 | 51661 |  |  |  |
| Past due: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Past due less than 90 days |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Past due 90 days or more |  |  |  |  |  |  |
| Impaired | 92 | 71 | 163 | 80 | 52 | 132 |
| Total | 15565 | 36259 | 51824 | 80 | 52 | 132 |

---

As at December 31, 2022, our impaired mortgages and loans, net of allowances for losses, were $33 million (December 31, 2021 - $31 million).

**5. Derivatives**

The fair value of derivative assets held by the Company was $2,095 million, while the fair value of derivative liabilities was $2,351 million as at December 31, 2022 (December 31, 2021 - $1,583 million and $1,392 million, respectively).

We use derivative instruments to manage risks related to interest rate, equity market and currency fluctuations and in replication strategies to reproduce permissible investments. Use of derivatives in these risk mitigation strategies does not mitigate all risk exposure; rather, they are used to keep us within our risk tolerance limits.

In addition to the general policies and monitoring, we use a variety of tools in counterparty risk management. Over-the-counter ("OTC") derivative transactions are executed under International Swaps and Derivatives Association ("ISDA") Master Agreements. A Credit Support Annex accompanies most of the ISDAs, which establish requirements for collateral.

**Derivative Financial Instruments**

The values associated with our derivative instruments are presented in the following table. Notional amounts serve as the basis for payments calculated under derivatives contracts and are generally not exchanged.

---

| | | |
|:---|:---|:---|
| ($ millions) | **December 31, 2022** | December 31, 2021 |
| Net fair value asset (liability) | **(256)** | 191 |
| Total notional amount | **69768** | 65966 |
| Credit equivalent amount<sup>(1)</sup> | **1173** | 1179 |
| Risk-weighted credit equivalent amount<sup>(1)</sup> | **26** | 28 |

---

<sup>(1)</sup> Amounts presented are net of collateral received.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 47

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The net fair value of derivatives was a liability of $256 million as at December 31, 2022 (December 31, 2021 - asset of $191 million). The decrease in net fair value was driven by a decrease in interest rate contracts due to upward shifts in yield curves, a decrease in foreign exchange contracts due to the weakening of the Canadian dollar against the U.S. dollar, partially offset by gains on foreign exchange contracts due to swap spread differentials between the U.S. and Canadian dollar.

The total notional amount of our derivatives increased to $69.8 billion as at December 31, 2022 (December 31, 2021 - $66.0 billion). The change in notional amount is mainly attributable to an increase in foreign exchange contracts used for hedging foreign currency assets.

Certain of our derivatives are designated in qualifying hedging relationships for accounting purposes, and represented $1.4 billion, or 1.9% of the total notional amount. Derivatives are designated in hedging relationships for accounting purposes to minimize accounting mismatches. These hedging relationships are documented at inception and hedge effectiveness is assessed on a quarterly basis.

Derivatives designated in qualifying hedging relationships for accounting purposes include interest rate swaps, foreign exchange agreements and equity forwards. We designate certain interest rate swaps in fair value hedging relationships to hedge interest rate exposure on AFS assets. We also designate certain foreign exchange agreements in fair value and cash flow hedging relationships to manage foreign currency fluctuations associated with AFS assets. Additionally, we designate certain equity forwards in cash flow hedging relationships for anticipated payments of awards under certain stock-based compensation plans.

**Credit Equivalent Amount**

As the regulator of the Canadian insurance industry, OSFI provides guidelines to quantify the use of derivatives. The credit equivalent amount, a measure used to approximate the potential credit exposure, is determined as the replacement cost of the derivative contracts with a positive fair value plus an amount representing the potential future credit exposure.

The risk-weighted credit equivalent amount is a measure used to determine the amount of capital necessary to support derivative transactions for certain Canadian regulatory purposes. It is determined by weighting the credit equivalent amount according to the nature of the derivative and the creditworthiness of the counterparties.

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 |
| ($ millions) | **Credit equivalent amount ("CEA")** <sup>(1)</sup> | **Risk weighted CEA** <sup>(1)</sup> | Credit equivalent amount ("CEA") <sup>(1)</sup> | Risk weighted CEA <sup>(1)</sup> |
| Foreign exchange contracts | **1049** | **24** | 1024 | 24 |
| Interest rate contracts | **73** | **1** | 90 | 2 |
| Equity and other contracts | **51** | **1** | 65 | 2 |
| Total | **1173** | **26** | 1179 | 28 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Amounts presented are net of collateral received.

**Credit Default Swaps By Underlying Financial Instrument Credit Rating**

Credit default swaps ("CDS") are derivative contracts that transfer credit risk related to an underlying referenced financial instrument from one counterparty to another. The purchaser receives protection against the decline in the value of the referenced financial instrument as a result of specified credit events such as default or bankruptcy. The Company sells credit protection through CDS to replicate credit exposure of an underlying reference security and enhance investment returns. The credit risk ratings of the underlying reference securities for single name contracts were established in accordance with the internal rating process described in section J - Risk Management - 9 - Risk Categories - Credit Risk Management Governance and Control.

The following table provides a summary of the credit default swap protection sold by credit rating of the underlying reference security.

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 |
| ($ millions) | **Notional amount** | **Fair value** | Notional amount | Fair value |
| Single name credit default swap contracts |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **20** | **—** | 38 | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **587** | **4** | 347 | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **706** | **5** | 431 | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;BB | **47** | **7** | 19 |  |
| Total single name credit default swap contracts | **1360** | **16** | 835 | 14 |
| Credit default swap index contracts | **—** | **—** |  |  |
| Total credit default swap contracts sold | **1360** | **16** | 835 | 14 |

---

Additional detail on our derivative portfolio by derivative type is provided in Note 6.A.iv of our 2022 Annual Consolidated Financial Statements.

48 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**6. Investment Properties**

Office, retail and industrial properties are the major components of our investment properties portfolio, representing approximately 81% as at December 31, 2022. The increase in our investment property portfolio is predominantly driven by market appraisal gains, net purchases, and impacts of foreign exchange translation in the year.

**Investment Properties by Type and Geography**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
| ($ millions) | **Office** | **Industrial** | **Retail** | **Multi-family<br>residential** | **Other** | **Total** | **% of Total by Geography** |
| Canada | **1747** | **3434** | **926** | **1322** | **612** | **8041** | **79%** |
| United States | **647** | **1105** | **263** | **—** | **1** | **2016** | **20%** |
| Europe | **12** | **16** | **17** | **—** | **—** | **45** | **1%** |
| Total | **2406** | **4555** | **1206** | **1322** | **613** | **10102** | **100%** |
| % of Total by Type | **24%** | **45%** | **12%** | **13%** | **6%** | **100%** |  |
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | Office | Industrial | Retail | Multi-family<br>residential | Other | Total | % of Total by Geography |
| Canada | 1784 | 2481 | 971 | 1396 | 750 | 7382 | 81% |
| United States | 665 | 600 | 260 | 73 | 66 | 1664 | 18% |
| Europe | 19 | 20 | 24 |  |  | 63 | 1% |
| Total | 2468 | 3101 | 1255 | 1469 | 816 | 9109 | 100% |
| % of Total by Type | 27% | 34% | 14% | 16% | 9% | 100% |  |

---

**7. Impaired Assets**

Financial assets that are classified as FVTPL, which represented 42% of our invested assets as at December 31, 2022, do not have allowances for losses since changes in the fair value of these assets are recorded to income and the assets are recorded at fair value in our 2022 Annual Consolidated Financial Statements. In the event of default, if the amounts recovered are insufficient to satisfy the related insurance contract liability cash flows that the assets are intended to support, credit exposure may be greater than the carrying value of the asset.

In the absence of objective evidence of impairment, impairment losses are not recognized on AFS debt securities, equity securities and other invested assets. If the cost of these assets is greater than their fair values, unrealized losses are recognized in other comprehensive income (loss). Unrealized losses may be due to interest rate fluctuations or depressed fair values in sectors which have experienced strong negative market performance. Additional detail on our impairment policy is provided in Note 1.iii of our 2022 Annual Consolidated Financial Statements.

**8. Asset Default Provision**

We make provisions for possible future credit events in the determination of our insurance contract liabilities. The amount of the provision for asset default included in insurance contract liabilities is based on possible reductions in future investment yields that vary by factors such as type of asset, asset credit quality (rating), duration and country of origin. To the extent that an asset is written off, or disposed of, any amounts that were set aside in our insurance contract liabilities for possible future asset defaults in respect of that asset are released.

Our asset default provision reflects the provision relating to future credit events for fixed income assets currently held by the Company that support our insurance contract liabilities. Our asset default provision as at December 31, 2022 was $2,457 million (December 31, 2021 - $2,992 million). The decrease of $535 million was primarily due to yield curve movements and the release of provisions on fixed income assets supporting our insurance contract liabilities, partially offset by currency impacts and increases in the provisions for assets purchased net of dispositions. This asset default provision represents 2.1% of the fixed income assets supporting insurance contract liabilities reported on our Consolidated Statements of Financial Position as at December 31, 2022.

A one-notch downgrade of 25% of our fixed income investment portfolio<sup>(1)</sup> would result in a $125 million (post-tax) increase in insurance contract liabilities from ratings and a corresponding decrease to common shareholders' net income. This excludes the impact from the release of best estimate credit provision and fixed income investments not impacting shareholders net income, for example assets supporting participating policyholders. Of this total amount, approximately 60% is related to our BBB portfolio.

<sup>(1)</sup> Excluding federal and provincial securities, asset-backed securities, mortgage-backed securities, and CMHC mortgages.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 49

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The following table sets out the changes in our asset default provision for existing fixed income investments.

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Opening balance | **2992** | 3127 |
| Purchases, dispositions and net asset movement<sup>(1)</sup> | **(294)** | 251 |
| Changes in assumptions and methodologies | **—** |  |
| Changes in ratings | **(10)** | (25) |
| Release of provisions<sup>(2)</sup> | **(317)** | (339) |
| Currency | **86** | (22) |
| Closing balance | **2457** | 2992 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Net movement reflects the fluctuation in the value of FVTPL assets arising from movements in interest rates, credit spreads and other factors that impact the market value of fixed income investments.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>This amount represents the orderly release of provisions for future credit events held in insurance contract liabilities.

**I. Capital and Liquidity Management**

Capital and liquidity management is core to our business as an insurance company. We ensure adequate capital for the protection of our policyholders, Clients and creditors, while managing capital adequacy and allocation across our businesses for the benefit of our shareholders. In addition, we maintain strong financial flexibility by ensuring that sufficient liquid assets are available to cover our anticipated payment obligations and funding requirements. We invest in various types of assets with a view to matching them with liabilities of various durations.

The regulatory environments in which we operate are expected to evolve as governments and regulators work to develop the appropriate level of financial regulation required to ensure that capital, liquidity and risk management practices are sufficient to withstand severe economic downturns.

**1. Capital**

We have a capital risk policy designed to maintain a strong capital position and to provide the flexibility necessary to take advantage of growth opportunities, to support the risk associated with our businesses and to optimize shareholder return. Our capital risk 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 the Company and its subsidiaries to take advantage of opportunities for expansion. Our capital base is structured to exceed minimum regulatory and internal capital targets and to maintain strong credit and financial strength ratings, while maintaining a capital-efficient structure. 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 jurisdictions in which we operate. The capital of our foreign subsidiaries is managed on a local statutory basis in a manner commensurate with their individual risk profiles.

Sun Life, including all of its business groups, engages in a capital planning process annually in which capital deployment options, capital raising and dividend recommendations are presented to the Board of Directors ("Board"). 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 Committee on a quarterly basis. The Board is responsible for the approval of our annual capital plan and quarterly shareholder dividends.

The Company's capital risk policy establishes policies, operating guidelines and procedures that govern the management of capital. The capital risk policy is reviewed annually by the Risk Committee and any changes are approved by the Board. Our Corporate Capital and Risk Management functions are responsible for the development and implementation of the capital risk policy.

The Company's capital base consists mainly of common shareholders' equity. Other sources of capital include preferred shares and other equity instruments, non-controlling interests, participating policyholders' equity, subordinated debt issued by SLF Inc. and Sun Life Assurance, and certain other capital securities that qualify as regulatory capital. For Canadian regulatory purposes, our capital also includes innovative capital instruments issued by Sun Life Capital Trust.

50 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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The following table summarizes the sources of our capital and our capital position over the past two years. Notes 13, 14, 15 and 21 of our 2022 Annual Consolidated Financial Statements include additional details on our capital.

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Subordinated debt<sup>(1)</sup> | **6676** | 6425 |
| Innovative capital instruments<sup>(2)</sup> | **200** | 200 |
| Equity |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Preferred shares and other equity instruments | **2239** | 2239 |
| &nbsp;&nbsp;&nbsp;&nbsp;Common shareholders' equity<sup>(3)</sup> | **25211** | 24075 |
| &nbsp;&nbsp;&nbsp;&nbsp;Participating policyholders' equity | **1837** | 1700 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-controlling interests' equity | **90** | 59 |
| Total equity | **29377** | 28073 |
| Total capital<sup>(1)</sup> | **36253** | 34698 |
| Financial leverage ratio<sup>(1)(4)</sup> | **25.1%** | 25.5% |

---

<sup>(1)</sup> For 2021, amount included $2.0 billion of proceeds from the subordinated debt offerings completed in November 2021, of which $1.5 billion did not qualify as LICAT capital at issuance as it was subject to contractual terms requiring us to redeem the underlying securities in full, if the closing of the DentaQuest acquisition did not occur. We completed the acquisition of DentaQuest on June 1, 2022.

<sup>(2)</sup> Innovative capital instruments are presented net of associated transaction costs and consist of SLEECS, which were issued by Sun Life Capital Trust. SLEECS qualify as capital for Canadian regulatory purposes. However, under IFRS they are reported as Senior debentures in our Annual and Interim Consolidated Financial Statements.

<sup>(3)</sup> Common shareholders' equity is equal to Total shareholders' equity less Preferred shares and other equity instruments.

<sup>(4)</sup> Represents a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document.

Our total capital consists of subordinated debt and other capital instruments, participating policyholders' equity, non-controlling interests and total shareholders' equity, which includes common shareholders' equity, preferred shares and other equity instruments.

Common shareholders' equity was $25.2 billion as at December 31, 2022 (December 31, 2021 - $24.1 billion). The increase of $1.1 billion was due to common shareholders' net income and other comprehensive income, partially offset by dividends.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 51

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The table below provides the earliest par call and maturity dates for our subordinated debt, innovative capital instruments, preferred shares and other equity instruments outstanding as at December 31, 2022.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Description** | **Interest Rate** | **Earliest Par Call Date/Redemption Date**<sup>(1)</sup> | **Maturity** | **Principal/ Face Amount ($ millions)** |
| **Subordinated Debt Issued by Sun Life Assurance** | | | | |
| &nbsp;&nbsp;&nbsp;&nbsp;6.30% Debentures, Series 2 | 6.30% | n/a | 2028 | 150 |
| **Subordinated Debt Issued by SLF Inc.** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2007-1 | 5.40% | May 29, 2037 | 2042 | 400 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2016-2 | 3.05% | September 19, 2023 | 2028 | 1000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2019-1 | 2.38% | August 13, 2024 | 2029 | 750 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2020-1 | 2.58% | May 10, 2027 | 2032 | 1000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2020-2 | 2.06% | October 1, 2030 | 2035 | 750 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2021-1 | 2.46% | November 18, 2026 | 2031 | 500 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2021-2 | 2.80% | November 21, 2028 | 2033 | 1000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2021-3 | 3.15% | November 18, 2031 | 2036 | 500 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2022-1 | 4.78% | August 10, 2029 | 2034 | 650 |
| **Trust Units Issued by Sun Life Capital Trust** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;SLEECS - Series B | 7.093% | June 30, 2032 | Perpetual | 200 |
| **Class A Preferred Shares and Other Equity Instruments Issued by SLF Inc.** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 3 | 4.45% | Any time | Perpetual | 250 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 4 | 4.45% | Any time | Perpetual | 300 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 5 | 4.50% | Any time | Perpetual | 250 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 8R<sup>(2)</sup> | 1.825% | June 30, 2025 | Perpetual | 155 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 9QR<sup>(3)</sup> | Floating | June 30, 2025<sup>(5)</sup> | Perpetual | 125 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 10R<sup>(2)</sup> | 2.967% | September 30, 2026 | Perpetual | 171 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 11QR<sup>(4)</sup> | Floating | September 30, 2026<sup>(5)</sup> | Perpetual | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2021-1 - LRCN<sup>(6)</sup> | 3.600% | June 30, 2026 | June 30, 2081 | 1000 |

---

<sup>(1)</sup> The earliest date on which the Company has the option, but not the obligation, to call securities for redemption at their par value. Redemption of these securities is subject to regulatory approval.

<sup>(2)</sup> On the earliest redemption date and every five years thereafter, the dividend rate will reset to an annual rate equal to the 5-year Government of Canada bond yield plus a spread specified for each series. The specified spread for Class A shares is: Series 8R - 1.41% and Series 10R - 2.17%. On the earliest redemption date and every five years thereafter, holders will have the right, at their option, to convert their shares into the series that is one number higher than their existing series.

<sup>(3)</sup> Holders of Series 9QR Shares will be entitled to receive quarterly floating rate non-cumulative dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 1.41%. Holders of the Series 9QR Shares will have the right, at their option, to convert their Series 9QR Shares into Series 8R Shares on June 30, 2025, and on June 30 every five years thereafter.

<sup>(4)</sup> Holders of Series 11QR Shares will be entitled to receive quarterly floating rate non-cumulative dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 2.17%. Holders of the Series 11QR Shares will have the right, at their option, to convert their Series 11QR Shares into Series 10R Shares on September 30, 2026, and on September 30 every five years thereafter.

<sup>(5)</sup> Redeemable on the redemption date and every five years thereafter, in whole or in part, at par, and on any other date at $25.50 per share.

<sup>(6)</sup> Series 2021-1 Notes bear interest at a fixed rate of 3.60% payable semi-annually until June 30, 2026. On June 30, 2026, and every five years thereafter until June 30, 2076, the interest rate on the Series 2021-1 Notes will be reset at an interest rate equal to the five-year Government of Canada yield, as defined in the prospectus, plus 2.604%. In case of non-payment of interest on or principal of the Series 2021-1 Notes when due, the recourse of each noteholder will be limited to that holder's proportionate share of the Limited Recourse Trust's assets. For more information about the LRCN, see Note 15.B of the 2022 Annual Consolidated Financial Statements.

52 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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The following table shows the number of common shares and stock options outstanding of SLF Inc. for the last two years.

---

| | | |
|:---|:---|:---|
| **Number of Common Shares Outstanding** | | |
| (in millions) | **2022** | 2021 |
| Balance, beginning of year | **586** | 585.1 |
| Stock options exercised | **0.4** | 0.9 |
| Common shares repurchased and cancelled | **—** |  |
| Balance, end of year | **586.4** | 586 |
| **Number of Stock Options Outstanding** |  |  |
| (in millions) | **2022** | 2021 |
| Balance, beginning of year | **3.0** | 3.2 |
| Options issued | **0.7** | 0.8 |
| Options exercised, forfeited or expired | **(0.2)** | (0.9) |
| Balance, end of year | **3.6** | 3.0 |

---

Under our Canadian Dividend Reinvestment and Share Purchase Plan ("DRIP"), Canadian-resident common and preferred shareholders may choose to have their dividends automatically reinvested in common shares of SLF Inc. and may also purchase common shares through our DRIP with cash. For dividend reinvestments, we may, at our option, issue common shares of SLF Inc. from treasury at a discount of up to 5% to the volume-weighted average trading price or direct that common shares be purchased on behalf of participants on the open market through the TSX and alternative Canadian trading platforms (collectively, the "Exchanges") at the market price. Common shares of SLF Inc. acquired by participants through optional cash purchases may also be issued from treasury or purchased through the Exchanges at SLF Inc.'s option, in either case at no discount. Commencing with the dividends payable on March 31, 2016 and until further notice, common shares purchased under the Plan were purchased on the open market. There are no applicable discounts because the common shares are being purchased on the open market and are not being issued from treasury.

SLF Inc. grants stock options to certain employees. These options are granted at the closing price of SLF Inc.'s common shares on the TSX on the grant date.

As at January 27, 2023, SLF Inc. had 586,397,074 common shares, 3,588,520 options to acquire SLF Inc. common shares and 52,200,000 Class A Shares outstanding.

**2. Capital Adequacy**

OSFI has indicated that it will review the effectiveness of the LICAT guideline and update it to keep abreast of development in the life insurance industry and evolving risk measurement and management practices.

**SLF Inc.**

SLF Inc. is a non-operating insurance company and was subject to OSFI's LICAT guideline as at December 31, 2022. In accordance with this guideline, SLF Inc. manages its capital in a manner commensurate with its risk profile and control environment, and SLF Inc.'s regulated subsidiaries comply with the capital adequacy requirements imposed in the jurisdictions in which they operate. SLF Inc.'s consolidated capital position is above its internal target. As at December 31, 2022, SLF Inc.'s LICAT ratio was 130%. For additional information, refer to section F - Financial Strength in this document.

**Sun Life Assurance**

Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary in Canada, was subject to OSFI's LICAT guideline as at December 31, 2022. With a LICAT ratio of 127% as at December 31, 2022, Sun Life Assurance's capital ratio is well above OSFI's supervisory ratio of 100% and regulatory minimum ratio of 90%. The LICAT guideline uses a risk-based approach for measuring specific life insurer risks and for aggregating the results to calculate the amount of a life insurer's regulatory required capital to support these risks. Certain of these risk components, along with available capital, are sensitive to changes in equity markets and interest rates as outlined in the section J - Risk Management of this document. For additional information, refer to section F - Financial Strength in this document.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 53

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The following table shows the components of Sun Life Assurance's LICAT ratio for 2022 and 2021.

**Sun Life Assurance LICAT Ratio**

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| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Capital resources** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings and contributed surplus | **18130** | 15934 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjusted accumulated other comprehensive income | **354** | 811 |
| &nbsp;&nbsp;&nbsp;&nbsp;Common and preferred shares | **7285** | 7285 |
| &nbsp;&nbsp;&nbsp;&nbsp;Innovative capital instruments and subordinated debt | **350** | 350 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **269** | 252 |
| Less: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Goodwill | **2292** | 2370 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-life investments and other | **3326** | 2826 |
| Available capital | **20770** | 19436 |
| Surplus allowance and eligible deposits | **9137** | 10383 |
| Total Capital resources | **29907** | 29819 |
| **Capital requirements** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Credit, market and insurance risks | **23787** | 24292 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Diversification and other credits | **4481** | 4446 |
| &nbsp;&nbsp;&nbsp;&nbsp;Segregated fund guarantee risk | **963** | 872 |
| &nbsp;&nbsp;&nbsp;&nbsp;Operational risk | **2103** | 2101 |
| Total before scalar | **22372** | 22819 |
| **Base solvency buffer (Total before scalar x 1.05)** | **23491** | 23960 |
| **LICAT ratio** | **127%** | 124% |

---

**Foreign Life Insurance Companies**

Foreign subsidiaries and foreign operations of SLF Inc. must comply with local capital or solvency requirements in the jurisdictions in which they operate. Our operations maintained capital levels above the minimum local regulatory requirements during 2022 and 2021. Additional information on capital and regulatory requirements for our foreign subsidiaries and foreign operations is provided in SLF Inc.'s AIF under the heading Regulatory Matters.

As at December 31, 2022, we have two internal reinsurance arrangements with affiliated reinsurance companies, in Delaware and Michigan, relating to our closed block of individual universal life insurance products with no-lapse guarantee benefits issued in the U.S. The Delaware reinsurance structure was established in 2013 and finances excess U.S. statutory reserves for certain universal life policies issued between January 2000 and February 2006. The financing of U.S. statutory reserve requirements in excess of those required under IFRS for the Delaware reinsurance company is supported by a guarantee from SLF Inc. The Michigan reinsurance structure was established in 2007 for certain policies issued between March 2006 and December 2008. The entity was redomesticated from Vermont to Michigan in 2020. Under the Michigan reinsurance structure, the related excess U.S. statutory reserve requirements are similarly supported by a guarantee from SLF Inc.

**3. Shareholder Dividends**

The declaration, amount and payment of dividends by SLF Inc. is subject to the approval of our Board and is dependent on our results of operations, our reported net income, financial condition, cash requirements and contractual restrictions. Capital management activities, as well as regulatory considerations and macro-economic factors including the economic outlook for the jurisdictions in which we do business, are also considered along with other factors. The Board reviews the level of dividends on a quarterly basis.

A regular and appropriate level of dividend payout and growth provides a stable source of return to common shareholders.

We target an underlying dividend payout ratio of between 40% and 50% based on underlying EPS.

During 2022, our dividend payout ratio to common shareholders based on our reported EPS was 53% and on an underlying EPS basis was 44%.

Total common shareholder dividends declared in 2022 were $2.76 per share, compared to $2.31 in 2021.

On March 13, 2020, OSFI set the expectation for all federally regulated financial institutions that dividend increases and share buybacks should be halted. On November 4, 2021, OSFI lifted this restriction on the basis that these restrictions were no longer considered necessary and Sun Life has subsequently increased its dividend.

54 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Dividends declared**

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| | | | |
|:---|:---|:---|:---|
| Amount per share | **2022** | 2021 | 2020 |
| Common shares | **2.76** | 2.31 | 2.20 |
| Class A preferred shares |  |  |  |
| Series 1<sup>(1)</sup> | **—** | 0.890625 | 1.187500 |
| Series 2<sup>(1)</sup> | **—** | 0.900000 | 1.200000 |
| Series 3 | **1.112500** | 1.112500 | 1.112500 |
| Series 4 | **1.112500** | 1.112500 | 1.112500 |
| Series 5 | **1.125000** | 1.125000 | 1.125000 |
| Series 8R<sup>(2)(3)</sup> | **0.456250** | 0.456250 | 0.512500 |
| Series 9QR<sup>(4)</sup> | **0.701122** | 0.382421 | 0.583985 |
| Series 10R<sup>(2)(5)</sup> | **0.741750** | 0.718313 | 0.710500 |
| Series 11QR<sup>(6)</sup> | **0.891122** | 0.572421 | 0.774505 |
| Series 12R<sup>(7)</sup> | **—** | 0.951500 | 0.951500 |

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<sup>(1)</sup> Series 1 and 2 Shares were redeemed on September 30, 2021.

<sup>(2)</sup> On the earliest redemption date and every five years thereafter, the dividend rate will reset to an annual rate equal to the 5-year Government of Canada bond yield plus a yield specified for each series. The specified yield for Class A shares is: Series 8R - 1.41% and Series 10R - 2.17%. On the earliest redemption date and every five years thereafter, holders will have the right, at their option, to convert their shares into the series that is one number higher than their existing series.

<sup>(3)</sup> The dividend rate was reset on June 30, 2020 to a fixed annual dividend rate of 1.825% until the earliest redemption date June 30, 2025.

<sup>(4)</sup> Holders of the Series 9QR Shares are entitled to receive quarterly floating rate non-cumulative dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 1.41%. Holders of the Series 9QR Shares will have the right, at their option, to convert their Series 9QR Shares into Series 8R Shares on June 30, 2025 and on June 30 every five years thereafter.

<sup>(5)</sup> The dividend rate was reset on September 30, 2021 to a fixed annual dividend rate of 2.967% until the earliest redemption date September 30, 2026.

<sup>(6)</sup> Holders of the Series 11QR Shares are entitled to receive quarterly floating rate non-cumulative dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 2.17%. Holders of the Series 11QR Shares will have the right, at their option, to convert their Series 11QR Shares into Series 10R Shares on September 30, 2026 and on September 30 every five years thereafter.

<sup>(7)</sup> The dividend rate was reset on December 31, 2016 to a fixed annual dividend rate of 3.806% until the earliest redemption date December 31, 2021. Series 12R Shares were redeemed on December 31, 2021.

**4. Principal Sources and Uses of Funds**

Our primary source of funds is cash provided by operating activities, including premiums, investment management fees and net investment income. These funds are used primarily to pay policy benefits, dividends to policyholders, claims, commissions, operating expenses, interest expenses and shareholder dividends. Excess cash flows generated from operating activities are generally invested to support future payment requirements. We also raise funds from time to time, through borrowing and issuing of securities, to finance growth, acquisitions or other needs.

As at December 31, 2022, we maintained net cash, cash equivalents and short-term securities totaling $11.2 billion. In addition to providing for near-term funding commitments, cash, cash equivalents and short-term securities include amounts that support short-term payment obligations.

Net cash, cash equivalents and short-term securities decreased by $0.9 billion. The table below outlines our principal sources and uses of cash.

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Net cash and cash equivalents, beginning of period** | **7693** | 10648 |
| Cash flows provided by (used in): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating activities | **4311** | (1857) |
| &nbsp;&nbsp;&nbsp;&nbsp;Investing activities | **(2863)** | (803) |
| &nbsp;&nbsp;&nbsp;&nbsp;Financing activities | **(71)** | (260) |
| Changes due to fluctuations in exchange rates | **302** | (35) |
| **Increase (decrease) in cash and cash equivalents** | **1679** | (2955) |
| Net cash and cash equivalents, end of period | **9372** | 7693 |
| Short-term securities, end of period | **1841** | 4452 |
| **Net cash, cash equivalents and short-term securities, end of period** | **11213** | 12145 |

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**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 55

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**5. Liquidity**

We generally maintain an overall asset liquidity profile that exceeds requirements to fund insurance contract liabilities under prescribed adverse liability demand scenarios. To strengthen our liquidity further, we actively manage and monitor our:

• Capital levels

• Asset levels

• Matching position

• Diversification and credit quality of investments

• Cash forecasts and actual amounts against established targets

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 properly funded and maintain adequate liquidity to meet obligations, both individually and in aggregate.

SLF Inc. and its wholly-owned holding companies had $1.1 billion in cash and other liquid assets<sup>(1)</sup> as at December 31, 2022. See section F - Financial Strength in this document for more information.

We maintain various credit facilities for general corporate purposes, as set out in the table below. Unless otherwise noted, all amounts are in Canadian dollars.

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| ($ millions) | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| **Credit Facility** | **Amount** | **Amount** | **Utilized** | **Utilized** | **Expiry** | Amount | Amount | Utilized | Utilized | Expiry |
| Committed | **US** | $**400** | **US** | $**11** | **2025** | US | $400 | US | $12 | 2025 |
| Committed | **US** | $**1950** | **US** | $**1358** | **2024** | US | $1000 | US | $349 | 2023 |
| Committed |  | $**500** |  | $**500** | **2025** |  | $— |  | $— | n/a |
| Uncommitted | **US** | $**100** | **US** | $**—** | **n/a** | US | $100 | US | $— | n/a |
| Uncommitted |  | $**227** |  | $**89** | **n/a** |  | $225 |  | $81 | n/a |
| Uncommitted | **US** | $**25** | **US** | $**5** | **n/a** | US | $25 | US | $7 | n/a |

---

The agreements relating to our committed credit facilities contain typical covenants for investment grade companies regarding solvency, credit ratings and financial strength, all of which were met as at December 31, 2022. These covenants include, but are not limited to, the maintenance of total equity by SLF Inc. of at least $12 billion, tested as of the last day of each fiscal quarter. SLF Inc.'s total equity was $29.4 billion as at December 31, 2022.

Our failure to comply with the covenants under the committed credit facility would, subject to grace periods in the case of certain covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize letters of credit under the facility. A failure by SLF Inc. (or any of its subsidiaries) to pay an obligation due for an amount exceeding $250 million would also result in an event of default under the committed credit facility described above.

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.

<sup>(1)</sup> This is a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document.

56 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**J. Risk Management**

**1. Risk Management Framework**

The Company has an established Risk Management Framework ("Risk Framework") approved by the Board that prescribes a comprehensive set of protocols and programs that need to be followed in conducting business activities. The risks that arise when providing products and services to Clients, which are in line with our Purpose to help our Clients achieve lifetime financial security and live healthier lives, are managed within these protocols and programs. Effective risk management is critical to the overall profitability, competitive market positioning and long-term financial viability of the Company. While all risks cannot necessarily be eliminated or known with certainty, the Risk Framework seeks to ensure that risks to a business undertaking are appropriately managed to achieve the Company's business objectives over time and are not expected to exceed pre-established boundaries for risk taking. The Risk Framework, corporate strategy and business objectives are all aligned and risk management protocols and programs are embedded within every business segment.

![rmfgraphic_2020v2.jpg](rmfgraphic_2020v2.jpg)

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 57

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**2. Risk Governance and Accountabilities**

Our Risk Framework sets out lines of responsibility and authority for risk-taking, governance and control. These governance requirements are summarized below.

![riskgovernancegraphic_2020.jpg](riskgovernancegraphic_2020.jpg)

**Board of Directors**

The Board is responsible for ensuring the governance of all risks across the enterprise and has primary responsibility for taking action to ensure risk management policies, programs and practices are in place. By approving our Risk Framework and the Risk Appetite Policy and providing ongoing oversight of the risk management programs, the Board monitors that significant risks are appropriately identified and managed. The Board oversees business and strategic risk through review and approval of the business and strategic plans, and regularly discusses key themes, issues and risks emerging in connection with the design or implementation of these plans.

The Risk Committee is a standing committee of the Board whose primary functions are to assist the Board with oversight of the management of current and emerging risks enterprise-wide, and of the risk management function to ensure that management has in place programs, frameworks, policies, processes and controls designed to identify and effectively manage the significant risks to which the Company is exposed and has sufficient capital to underpin those risks. It reviews and approves all risk management frameworks, policies and reviews compliance with those frameworks and policies. In addition, where the Board has delegated risk oversight to other committees of the Board ("Board Committees"), the Risk Committee provides the Board with an integrated view of oversight of risk management across all Board committees. The Risk Committee regularly monitors the Company's risk profile to ensure it is within the agreed risk appetite and that the Company's capital position exceeds regulatory capital requirements, monitors and recommends to the Board for approval, the specific risk limits allocated to the businesses and the annual Capital Plan. The Risk Committee also oversees risk management activities of our subsidiaries and risks posed to the Company through its joint ventures.

The Governance, Investment & Conduct Review Committee ("GICRC") of the Board is responsible for assisting the Board in developing effective corporate governance guidelines and processes, including processes to assess the effectiveness of the Board and its committees. It reviews and monitors the Company's Investment Plan and investment performance, and oversees investment practices, procedures and controls related to the management of the general fund investment portfolio. The Committee assists the Board with its oversight over the Corporation's sustainability reporting and Sustainability Plan. In addition, the GICRC meets with the senior business and functional leaders who have first-line responsibility for compliance and compliance management programs, oversees the effectiveness of the second-line compliance function, oversees compliance with legal and regulatory requirements and the identification and management of compliance risk, and oversees the development of policies and processes to sustain ethical behaviour.

The Audit Committee of the Board is responsible for assisting the Board in overseeing the integrity of financial statements and related information provided to shareholders and other stakeholders, compliance with financial regulatory requirements, adequacy and effectiveness of the internal controls implemented and maintained by management, and assessing the qualifications, independence and performance of the external auditor.

The Management Resources Committee of the Board is responsible for assisting the Board with oversight of succession planning for senior executive positions and programs to effectively attract, retain, develop and reward employees. It provides guidance to management on advancing the talent

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agenda to achieve strategic objectives and foster Sun Life's culture. The Committee reviews incentive designs and governance of material incentive programs against alignment with business objectives and avoiding excessive risk taking. It reviews the implications of key enterprise risks, including human resources risks pertaining to compensation design and human resources practices. In addition, the Committee reviews compensation matters, including the remuneration of executives who have a material impact on the risk exposure of the Company.

**Senior Management Committees**

The Executive Risk Committee ("ERC") provides executive management oversight of the Company's enterprise risk management activities. This includes the review and articulation of the risk appetite, overseeing that the risk profile is within the agreed risk appetite, and overseeing that there are policies, processes and controls are in place to identify and effectively manage the significant risks, in accordance with the risk appetite and the overall objective of promoting a balanced business and product model to achieve agreed upon risk-adjusted returns and allocate capital accordingly.

The Investment & Credit Risk Committee is responsible for reviewing critical matters related to the on-going management of the Company's General Fund. Accordingly, the Committee is responsible for overseeing, monitoring and reviewing current and potential credit and investment risk exposures, other credit and investment risk management issues and future credit and investment risk management strategies.

The Corporate Asset Liability Management Committee is responsible for providing oversight and input on the Asset Liability Management framework, policies, guidelines, limits, measurement and performance assessment applicable to the management of market and liquidity risks in the design and operation of general fund investment strategies for efficiently discharging the Company's general fund liabilities.

The Operational Risk & Compliance Committee is responsible for providing oversight of the Company's operational and compliance risk management practices, current and emerging operational risk exposures, and the processes to ensure ongoing identification of major operational and compliance risks facing the Company.

The Insurance Risk Committee is responsible for providing oversight and direction on insurance risk exposures facing the Company and to ensure that effective insurance risk management practices and controls are in place. This includes reviewing the current and projected insurance risk profile against limits; engaging in review of topical insurance, reinsurance and underwriting risk issues; and reviewing and recommending changes to the insurance risk measurement methodology to the ERC.

**Accountabilities**

Primary accountability for risk management is delegated by the Board to our Chief Executive Officer ("CEO"). The CEO further delegates responsibilities throughout the Company through management authorities and responsibilities. The CEO delegates accountability for the various classes of risk management to our executive officers, who are accountable for ensuring that the management of risk in the scope of their business accountability is in accordance with the Board approved Risk Framework, Risk Appetite Policy and risk management policies.

**3. Risk Universe**

As a large financial services organization operating in a complex industry, the Company encounters a variety of risks and uncertainties. We face risks in formulating our business strategy and business objectives, in carrying on our business activities in the pursuit of our strategy and objectives, and from external factors such as changes in the economic, political, competitive, regulatory, social and environmental landscapes. We are subject to financial and insurance risks that are connected to our liabilities and with the management and performance of our assets, including how we match returns from assets with the payment of liabilities to our Clients. Each of these risks is also considered from the perspective of different types of uncertainties under which either the outcomes and/or their probabilities of occurrence are unknown. The Risk Framework covers all risks and these have been grouped into six major categories: credit, market, insurance, business and strategic, operational and liquidity risks. The Risk Framework sets out the key risk management processes in the areas of risk: appetite, identification, measurement, management, monitoring and reporting. The Risk Framework sets out both qualitative and quantitative measures and processes to control the risk the Company will bear in respect of each of these categories of risk and in aggregate.

**4. Risk Appetite**

Our Risk Appetite Policy defines the amount and type of risk we are willing to accept in pursuit of our business objectives, and is approved by the Board. It is forward-looking and our strategic plan, capital plan, business plan and business objectives are established within its boundaries.

The Company's risk appetite seeks to balance the various needs, expectations, risk and reward perspectives and investment horizons of key stakeholders. In particular, our risk appetite supports the pursuit of shareholder value while ensuring that the Company's ability to pay claims and fulfill policyholder commitments is not compromised.

The Company's risk appetite is the primary mechanism to operationalize its risk philosophy and the boundaries of permissible risk-taking across the enterprise. It ensures that business activities are assessed against performance criteria that are appropriately risk-adjusted. Our risk appetite supports the objective of maintaining adequate capital, managing return on equity, managing earnings volatility, managing operational risk and managing liquidity. To accomplish this, our risk appetite includes a wide array of qualitative and quantitative standards that reflect the Company's overall risk management principles and values.

We generally accept diversifiable risks and utilize risk pooling to create portfolios with relatively low liability volatility. We take risk where we have internal expertise such as actuarial, underwriting, claims management, investment or distribution or where reinsurance partners are able to supplement our internal expertise. We prefer risks where it is possible to diversify across various segments including products, geographies, distribution channels or asset classes in order to maximize diversification opportunities.

Our Risk Appetite Policy sets out specific constraints which define the aggregate level of risk that the Company is willing to accept. We translate our risk appetite constraints into specific risk limits by risk class and business segment. Our risk profile is measured, managed and monitored regularly to

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ensure that we operate within our risk appetite. Our risk appetite limits are reviewed periodically to reflect the risks and opportunities inherent in our evolving business strategies and operating environment.

**5. Risk Management Policies**

In order to support the effective communication, implementation and governance of our Risk Framework, we have codified our processes and operational requirements in a comprehensive series of risk management frameworks, policies and operating guidelines. These frameworks, policies and guidelines promote the application of a consistent approach to managing risk exposures across our global business platform. The Board and Board Committees regularly review and approve significant changes to the risk management framework and policies and regularly review management's reporting and attestation on compliance to these policies.

**6. Risk Management Process**

The risk management process as set out in our Risk Framework is described below:

**Risk Identification and Measurement**

All business segments employ a common approach to identify and measure risks. Business segments have accountability for identifying and managing risks facing their business. We have a process to identify and monitor key and emerging risks that may have a material impact on our finances, operations or reputation. We evaluate potential correlations and inter-connections between various risk events and categories, and monitor key and emerging risks, regulatory and rating agency requirements, and industry developments.

Risk measurement involves determining and evaluating potential risk exposures and includes a number of techniques, such as monitoring key risk indicators, probability-severity assessments, stress testing (including sensitivity and scenario analysis), reverse stress testing and stochastic modelling. Risk measures are expressed in quantitative and qualitative terms.

A robust stress testing program is an essential component of the Company's Risk Framework used to measure, monitor and mitigate the Company's risk exposures and to ensure ongoing capital adequacy under plausible stress events. Stress testing is performed on key metrics such as earnings, regulatory capital ratios and liquidity to identify and monitor potential vulnerabilities to key risk drivers and ensure that the Company is operating within its risk appetite.

We develop and test a range of scenarios based on our internal assessment and regulatory guidance. Emerging risks are one of the inputs to determine stress test scenarios. Sensitivity testing is conducted on a regular basis and measures the earnings and regulatory capital impact from changes in underlying risk factors, assuming that there are no changes to any of the other risk factors. Sensitivity testing is performed for individual risks and for consolidated risk exposures at different levels of stress and at various levels of aggregation. Scenario testing involves changes to a number of risk factors to assess the impact of and interaction between these risk factors. These scenarios include integrated scenario testing, reverse scenario testing and key assumption sensitivity testing. We also use the Financial Condition Testing ("FCT") process, as prescribed by the Canadian Institute of Actuaries, to satisfy requirements under the Canadian insurance Company Act, and OSFI regulations, to annually stress test capital.

**Risk Management, Monitoring and Reporting**

Risk management decisions are formed by evaluating whether the assessed risk for a business activity aligns to our risk appetite and meets the objective of risk-adjusted returns.

Monitoring processes include oversight by the Board, which is exercised through Board Committees and Senior Management committees described in the Risk Governance and Accountabilities section in this document.

Senior Management committees, Board Committees and the Board regularly review reports that summarize our risk profile against the Board approved risk appetite, including the exposures across our principal risks, any changes in risk trends, forward-looking view of risks and emerging risks. These committees also review the effectiveness of the risk management strategies presented in the reports. On a regular basis, the Board and the Board Committees review and approve any significant changes to risk management frameworks and policies for the management of risk and review compliance with these frameworks and policies.

**7. Three Lines of Defence**

The Company has adopted the Three Lines of Defence ("LOD") model to provide a consistent, transparent and clearly documented allocation of accountability and segregation of functional responsibilities. This segregation of responsibility helps to establish a robust control framework that promotes transparent and independent challenge of all risk taking activities, and that encourages all functions to engage in self-critical examination to foster continuous improvement of the management of risk in our business.

The **first line of defence** is represented by the business segment management who own the risks that are intrinsic to the business and have the primary responsibility to identify, measure, manage, monitor and report these risks. Some of the first LOD risk related responsibilities include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Identification of key and emerging risks;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Manage, measure, monitor and report on risk within their business operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Accountability for business results and the risks taken to achieve business results and the resulting impact of those risks; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Operating within risk appetite and according to risk management policies.

The **second line of defence** includes the Chief Risk Officer ("CRO") and heads of the oversight functions who are responsible for providing independent oversight of our Company-wide risk management programs. The CRO is responsible for developing our Risk Framework and Risk Appetite Policy, and for overseeing the development and implementation of risk management strategies aimed at optimizing the risk-return profile

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of the Company. The CRO is supported by a network of business segment risk officers. The functional heads support the CRO in the implementation and communication of our Risk Framework and Risk Appetite Policy. Some of the key second LOD risk related responsibilities include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Establishment of the risk management framework and policies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Providing oversight and effective independent challenge of first line; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Independent reporting to Senior Management committees and the Board on the level of risk against risk appetite.

The **third line of defence** responsibilities are distinct from first and second LOD responsibilities. The Internal Audit function is the third LOD and is responsible for providing independent assurance to Senior Management and the Board and/or Board Committees on the design and operational effectiveness of the risk management practices and internal controls carried out by first LOD and second LOD. Internal Audit provides a quarterly opinion on the effectiveness of internal controls, risk management and governance processes to the Audit Committee of the Board. In addition, the Risk Committee may engage third-party independent reviews to supplement the third LOD review of the effectiveness of the Company's risk management programs.

**8. Risk Culture and Philosophy**

We have built a strong corporate culture on a foundation of ethical behaviour, high business standards, integrity and respect. The Board establishes the "tone from the top" and is accountable to ensure that the CEO and Senior Management create and sustain a culture of integrity throughout the organization. We work together through our focus on diversity, equity and inclusion and sustainability to fulfill our Purpose of helping our Clients to achieve lifetime financial security and to live healthier lives.

Risk culture relates to how we behave and respond, in addition to the requirements we set. It enables and rewards taking the right risks in an informed manner. It enables effective challenge and transparency regarding risks and outcomes without fear of reprisal. It drives us to understand Client needs and preferences so that we can act in their best interests. In order to support employees in fulfilling their role, we have taken action to ensure our risk protocols and procedures are well defined and embedded in our day-to-day business activities, assess that appropriate resources and training are provided, establish and communicate a common risk philosophy and a high bar for integrity and conduct, and encourage every employee to openly identify risk exposures and communicate escalating risk concerns. The following six elements support our Risk Culture:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Establishing tone from the top;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Encouraging transparency in risk-taking;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Performing effective challenge in conducting business decisions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Aligning incentives and risk management practices;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Effectively communicating the risk culture expectations; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Establishing clear accountabilities.

A key premise of our culture is that all employees have an important role to play in managing the Company's risks. Risk Management is embedded in the Company's culture, which encourages ownership and responsibility for risk management at all levels. Our compensation programs are aligned to the organization's risk management practices through our governance structure for the design and approval of incentive compensation plans and processes used to support the alignment of compensation and risk management. We continuously reinforce and embed the culture through communication and training on risk culture elements at various forums and across various levels through training on the Code of Conduct annually, reinforcing accountability through performance reviews and compensation, and through defining roles, responsibilities and expectations in the risk management policies.

The Company's risk philosophy includes the following core principles:

**Strategic Alignment**

Our corporate strategy and business objectives are required to be established within the boundaries set out in the Risk Framework and the Risk Appetite Policy. This requires us to consider whether a business activity, intended to achieve the business and financial objectives, will result in a risk profile that we are willing to accept and which we are prepared to manage. We have established a range of explicit risk appetite constraints for credit, market, insurance, operational and liquidity risks. Business and strategic risk is managed through our strategic and business planning process and through controls over the implementation of these strategic and business plans. Risks associated with activities outside our risk appetite or outside the acceptable defined risks are avoided.

**Stakeholder Interests**

Our Risk Appetite Policy considers the interests of a large number of key stakeholders, including Clients, shareholders, debt-holders, employees, regulators, distributors, rating agencies and other capital markets participants. The policy describes how to balance the needs, expectations, risk and reward perspectives, and investment horizons of these different stakeholders.

Effective risk management requires that objectives and incentives be aligned to ensure management's decisions are consistent with the Company's risk philosophy and risk appetite. To ensure this, the business plans and strategies are independently tested to ensure that they operate within the boundaries and requirements set out in the Risk Framework and the Risk Appetite Policy, and the results of this testing are reported to the Board. Compensation programs for employees are approved by the Board and the Board Committees and are aligned with the Company's risk philosophy, values, business and risk management strategies, and the long-term interests of stakeholders. In establishing annual performance objectives, we consider risk management goals to ensure that business decisions are consistent with the desired risk and return profile of the Company.

**Capability Alignment**

We seek out profitable risk-taking opportunities in those areas where we have established risk management skills and capabilities. Conversely, we endeavour to avoid or transfer risks that are beyond our risk-taking capability. Our ability to measure and evaluate risks, the quality of our risk governance and control environment, the depth and quality of our risk responses and the robustness of our pricing strategies are particularly important capabilities that we assess.

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**Portfolio Perspective**

In evaluating a particular risk, consideration is given to a portfolio perspective of risk and return including the explicit recognition of the impacts of diversification and concentration and how different risks interact with each other. This perspective is extended to the development of risk mitigation and pricing strategies, recognizing that often the most cost-effective way of managing risk involves utilizing available relationships already inherent in our businesses.

**Risk-Adjusted Returns**

Financial return metrics used to assess business activities are developed in consideration of the constraints set out in the Risk Appetite Policy, and reflect the expected costs of mitigation and the cost of risk capital required to support the risk taking activity.

**Culture**

Culture is the sum of the shared assumptions, values and beliefs that create the unique character of an organization. Our culture encourages behaviour aligned with goals for long-term value creation. It defines the appropriate behaviour for any given situation, governs the interaction with Clients and affects how employees identify with the organization. Our culture has significant potential to impact our risk profile. An organization's culture impacts its ability to create value and to protect value. Maintaining the right balance of risk-taking and risk control activities is a key organizational capability and fundamental to our long-term sustainable success.

**9. Risk Categories**

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| | |
|:---|:---|
| The shaded text and tables in the following section of this MD&A represent our disclosure on credit, market and liquidity risks in accordance with IFRS 7 *Financial Instruments - Disclosures* and includes a discussion on how we measure risk and our objectives, policies and methodologies for managing these risks. The shaded text and tables represent an integral part of our audited annual Consolidated Financial Statements for the year ended December 31, 2022. The shading in this section does not imply that these disclosures are of any greater importance than non-shaded tables  | The shaded text and tables in the following section of this MD&A represent our disclosure on credit, market and liquidity risks in accordance with IFRS 7 *Financial Instruments - Disclosures* and includes a discussion on how we measure risk and our objectives, policies and methodologies for managing these risks. The shaded text and tables represent an integral part of our audited annual Consolidated Financial Statements for the year ended December 31, 2022. The shading in this section does not imply that these disclosures are of any greater importance than non-shaded tables  |
| and text, and the Risk Management disclosure should be read in its entirely. | This information should be considered carefully together with other |
| information in this MD&A and in the 2022 AIF, our Consolidated Financial Statements and other reports and materials that we file with securities regulators. | information in this MD&A and in the 2022 AIF, our Consolidated Financial Statements and other reports and materials that we file with securities regulators. |
| In this section, segregated funds include segregated fund guarantees, variable annuities and investment products, and includes Run-off reinsurance in Corporate. | In this section, segregated funds include segregated fund guarantees, variable annuities and investment products, and includes Run-off reinsurance in Corporate. |

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Our Risk Framework groups all risks into six major risk categories: market, insurance, credit, business and strategic, operational and liquidity risks.

**i. Market Risk**

**Risk Description**

We are exposed to financial and capital market risk, which is defined as 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 equity, interest rate and spread, real estate, foreign currency, and inflation risks.

**Market Risk Management Governance and Control**

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

• Market risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Risk appetite limits have been established for equity, interest rate, real estate and foreign currency risks.

• Income and regulatory capital sensitivities are monitored, managed and reported against pre-established risk limits.

• Comprehensive asset-liability management and hedging policies, programs and practices are in place.

• Regulatory solvency requirements include risk-based capital requirements and are monitored regularly.

• Product Design and Pricing Policy requires a detailed risk assessment and pricing provisions for material risks.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse market movements.

• Insurance contract liabilities are established in accordance with Canadian actuarial standards of practice.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

Specific market risks and our risk management strategies are discussed below in further detail.

**Equity Risk**

Equity risk is the potential for financial loss arising from declines or volatility in equity market prices. We are exposed to equity risk from a number of sources. A portion of our exposure to equity risk arises in connection with benefit guarantees on segregated fund products. These benefit guarantees may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing these guarantees is uncertain and depends upon a number of factors, including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impacts on net income and capital.

62 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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We generate revenue in our asset management businesses and from certain insurance and annuity contracts where fees are levied on account balances that are affected directly by equity market levels. Accordingly, we have further exposure to equity risk as adverse fluctuations in the market value of such assets will 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) in these businesses, 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 fall within our risk-taking philosophy and appetite, and are therefore generally not hedged.

**Interest Rate and Spread Risk**<br>Interest rate and spread risk is the potential for financial loss arising from changes or volatility in interest rates or spreads when asset cash flows and the policy obligations they support are not matched. This may result in the need to either sell assets to meet policy payments and expenses or reinvest excess asset cash flows in unfavourable interest rate or spread environments. The impact of changes or volatility in interest rates or spreads is reflected in the valuation of our financial assets and liabilities for insurance contracts.<br>Our primary exposure to interest rate and spread risk arises from certain general account products and segregated fund contracts which contain 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 our risk appetite limits.<br>Declines in interest rates or narrowing spreads can result in compression of the net spread between interest earned on investments and interest credited to policyholders. Declines in interest rates or narrowing spreads may also result in increased asset calls, mortgage prepayments, and net reinvestment of positive cash flows at lower yields, and therefore adversely impact our profitability and financial position. Negative interest rates may additionally result in losses on our cash deposits and low or negative returns on our fixed income assets impacting our profitability. In contrast, increases in interest rates or a widening of spreads may have a material impact on the value of fixed income assets, resulting in depressed market values, and may lead to lower LICAT ratios or losses in the event of the liquidation of assets prior to maturity. <br>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, potentially forcing us to liquidate 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.<br>We also have direct exposure to interest rates and spreads from investments supporting other general account liabilities, surplus and employee benefit plans. Lower interest rates or a narrowing of spreads will result in reduced investment income on new fixed income asset purchases. Conversely, higher interest rates or wider spreads will reduce the value of our existing assets. These exposures fall within our risk-taking philosophy and appetite and are therefore generally not hedged.<br>

A sustained low interest rate environment may adversely impact our earnings, regulatory capital requirements and our ability to implement our business strategy and plans in several ways, including:

• Lower sales of certain insurance and wealth products, which can in turn pressure our operating expense levels;

• Shifts in the expected pattern of redemptions (surrenders) on existing policies;

• Higher new business strain reflecting lower new business profitability;

• Reduced return on new fixed income asset purchases, and higher hedging costs;

• The impact of changes in actuarial assumptions;

• Impairment of goodwill; and

• Additional valuation allowances against our deferred tax assets.

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| |
|:---|
| **Market Risk Sensitivities** |
| Our net income<sup>(1)</sup> is affected by the determination of policyholder obligations under our annuity and insurance contracts. These amounts are determined using internal valuation models and are recorded in our Consolidated Financial Statements, primarily as Insurance contract liabilities. The determination of these obligations requires management to make assumptions about the future level of equity market performance, interest rates, credit and swap spreads and other factors over the life of our products. Differences between our actual experience and our best estimate assumptions are reflected in our Consolidated Financial Statements. Refer to Additional Cautionary Language and Key Assumptions Related to Sensitivities in this section for important additional information regarding these estimates. |

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 <br> <sup>(1)</sup><sup></sup>Net income in section J - Risk Management in this document refers to common shareholders' net income.

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The market value of our investments in fixed income and equity securities fluctuates based on movements in interest rates and equity markets. The market value of fixed income assets designated as AFS that are held primarily in our surplus segment increases with declining interest rates and decreases with rising interest rates. The market value of equities designated as AFS and held primarily in our surplus segment increases with rising equity markets and decreases with declining equity markets. Changes in the market value of AFS assets flow through OCI and are only recognized in net income when realized upon sale, or when considered impaired. The sale or impairment of AFS assets held in surplus can therefore have the effect of modifying our net income sensitivity.

In 2022, we realized $20 million (pre-tax), in net gains on the sale of AFS assets (2021 - $146 million). The net unrealized gains (losses) within our Accumulated OCI position on AFS fixed income and equity assets were $(1,098) million and $73 million, respectively, net of tax, as at December 31, 2022 (December 31, 2021 - $137 million and $129 million, respectively).

During the fourth quarter of 2022, we realized $9 million (pre-tax), in net losses on the sale of AFS assets (net gains of $5 million pre-tax in the fourth quarter of 2021).

**Equity Market Sensitivities**

The following table sets out the estimated immediate impact on, or sensitivity of, our net income and OCI and Sun Life Assurance's LICAT ratio to certain instantaneous changes in equity market prices as at December 31, 2022 and December 31, 2021.

It is important to note that these estimates are illustrative and performance of our segregated fund dynamic hedging program may differ as actual

equity-related exposures vary from broad market indices (the impact of active management, basis risk, and other factors) and higher or lower

volatility level than assumed.

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| | | | | |
|:---|:---|:---|:---|:---|
| ($ millions, unless otherwise noted) **As at December 31, 2022** | ($ millions, unless otherwise noted) **As at December 31, 2022** | ($ millions, unless otherwise noted) **As at December 31, 2022** | ($ millions, unless otherwise noted) **As at December 31, 2022** | ($ millions, unless otherwise noted) **As at December 31, 2022** |
| Change in Equity Markets<sup>(1)</sup> | **25% decrease** | **10% decrease** | **10% increase** | **25% increase** |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on net income<sup>(2)(3)</sup> | $**(300)** | $**(100)** | $**100** | $**250** |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on OCI<sup>(3)</sup> | $**(100)** | $**(50)** | $**50** | $**100** |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on LICAT<sup>(2)(4)</sup> | **1.0% point decrease** | **0.0% point change** | **0.5% point decrease** | **0.5% point decrease** |
| ($ millions, unless otherwise noted) As at December 31, 2021 | ($ millions, unless otherwise noted) As at December 31, 2021 | ($ millions, unless otherwise noted) As at December 31, 2021 | ($ millions, unless otherwise noted) As at December 31, 2021 | ($ millions, unless otherwise noted) As at December 31, 2021 |
| Change in Equity Markets<sup>(1)</sup> | 25% decrease | 10% decrease | 10% increase | 25% increase |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on net income<sup>(2)(3)</sup> | $(400) | $(150) | $150 | $350 |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on OCI<sup>(3)</sup> | $(150) | $(50) | $50 | $150 |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on LICAT<sup>(2)(4)</sup> | 0.5% point decrease | 0.0% point change | 0.0% point change | 0.5% point increase |
| <sup>(1)</sup> Represents the respective change across all equity markets as at December 31, 2022 and December 31, 2021. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets). | <sup>(1)</sup> Represents the respective change across all equity markets as at December 31, 2022 and December 31, 2021. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets). | <sup>(1)</sup> Represents the respective change across all equity markets as at December 31, 2022 and December 31, 2021. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets). | <sup>(1)</sup> Represents the respective change across all equity markets as at December 31, 2022 and December 31, 2021. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets). | <sup>(1)</sup> Represents the respective change across all equity markets as at December 31, 2022 and December 31, 2021. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets). |
| <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. |
| <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis. | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis. | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis. | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis. | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis. |
| <sup>(4)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. LICAT ratios are rounded in increments of 0.5%. | <sup>(4)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. LICAT ratios are rounded in increments of 0.5%. | <sup>(4)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. LICAT ratios are rounded in increments of 0.5%. | <sup>(4)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. LICAT ratios are rounded in increments of 0.5%. | <sup>(4)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. LICAT ratios are rounded in increments of 0.5%. |

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64 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Interest Rate Sensitivities**

The following table sets out the estimated immediate impact on, or sensitivity of, our net income and OCI and Sun Life Assurance's LICAT ratio to certain instantaneous changes in interest rates as at December 31, 2022 and December 31, 2021.

Our LICAT sensitivities may be non-linear and can change due to the interrelationship between market rates and spreads, actuarial assumptions and our LICAT calculations.

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| ($ millions, unless otherwise noted) | **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** | As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 |
| Change in Interest Rates<sup>(1)</sup> | **50 basis point decrease** | **50 basis point decrease** | **50 basis point increase** | **50 basis point increase** | 50 basis point decrease | 50 basis point decrease | 50 basis point increase | 50 basis point increase |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on net income<sup>(2)(3)(4)</sup> | **$** | **—** | **$** | **—** | $| (50) | $| 50 |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on OCI<sup>(3)</sup> | **$** | **250** | **$** | **(250)** | $| 250 | $| (250) |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on LICAT<sup>(2)(5)</sup> | **1.0% point increase** | **1.0% point increase** | **1.5% point decrease** | **1.5% point decrease** | 1.5% point increase | 1.5% point increase | 0.5% point decrease | 0.5% point decrease |
| <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). | <sup>(1)</sup> Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021 with no change to the Actuarial Standards Board ("ASB") promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates). |
| <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. | <sup>(2)</sup> The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates. |
| <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  | <sup>(3)</sup> Net income and OCI sensitivities have been rounded in increments of $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.  |
| <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. | <sup>(4)</sup> The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products. |
| <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(5)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. |

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The above sensitivities were determined using a 50 basis point change in interest rates and a 10% change in our equity markets because we believe that these market shocks were reasonably possible as at December 31, 2022. We have also disclosed the impact of a 25% change in equity markets to illustrate that significant changes in equity market levels may result in other than proportionate impacts on our sensitivities.<br>

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| |
|:---|
| **Credit Spread and Swap Spread Sensitivities** |
| The credit spread sensitivities reflect the impact of changes in credit spreads on our asset and liability valuations (including non-sovereign fixed income assets, provincial governments, corporate bonds, and other fixed income assets). The swap spread sensitivities reflect the impact of changes in swap spreads on swap-based derivative positions and liability valuations. |

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The following table sets out the estimated immediate impact on, or sensitivity of, our net income and Sun Life Assurance's LICAT ratio attributable to certain instantaneous changes in credit and swap spreads as at December 31, 2022 and December 31, 2021.

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| ($ millions, unless otherwise noted) | **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** | As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 |
| Change in Credit Spreads<sup>(1)</sup> | **50 basis point decrease** | **50 basis point decrease** | **50 basis point increase** | **50 basis point increase** | 50 basis point decrease | 50 basis point decrease | 50 basis point increase | 50 basis point increase |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on net income<sup>(2)</sup> | **$** | **(25)** | **$** | **25** | $| (75) | $| 50 |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on LICAT<sup>(3)</sup> | **1.0% point increase** | **1.0% point increase** | **1.0% point decrease** | **1.0% point decrease** | 0.5% point decrease | 0.5% point decrease | 0.5% point increase | 0.5% point increase |
| <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. | <sup>(1)</sup> In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period. |
| <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. | <sup>(2)</sup> Sensitivities have been rounded in increments of $25 million. |
| <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. | <sup>(3)</sup> The LICAT sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2022 and December 31, 2021. The sensitivities assume that a scenario switch does not occur in the quarter. The extent to which actual LICAT ratio movements differ from the indicative sensitivities may increase when we are close to a scenario switch. LICAT ratios are rounded in increments of 0.5%. |

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| | | | | |
|:---|:---|:---|:---|:---|
| ($ millions, unless otherwise noted) | **As at December 31, 2022** | **As at December 31, 2022** | As at December 31, 2021 | As at December 31, 2021 |
| Change in Swap Spreads | **20 basis point decrease** | **20 basis point increase** | 20 basis point decrease | 20 basis point increase |
| &nbsp;&nbsp;&nbsp;&nbsp;Potential impact on net income<sup>(1)</sup> | $**—** | $**—** | $25 | $(25) |
| <sup>(1)</sup>Sensitivities have been rounded in increments of $25 million. | <sup>(1)</sup>Sensitivities have been rounded in increments of $25 million. | <sup>(1)</sup>Sensitivities have been rounded in increments of $25 million. | <sup>(1)</sup>Sensitivities have been rounded in increments of $25 million. | <sup>(1)</sup>Sensitivities have been rounded in increments of $25 million. |

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The credit and swap spread sensitivities assume a parallel shift in the indicated spreads across the entire term structure. Variations in realized spread changes based on different terms to maturity, geographies, asset classes and derivative types, underlying interest rate movements, and ratings may result in realized sensitivities being significantly different from those provided above. The credit spread sensitivity estimates exclude any credit spread impact that may arise in connection with asset positions held in segregated funds. Spread sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Refer to Additional Cautionary Language and Key Assumptions Related to Sensitivities in this section for important additional information regarding these estimates. <br>

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 65

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**LICAT Interest Rate Scenario Switch**

The LICAT interest rate risk is assessed under four different interest rate scenarios, and the scenario leading to the highest capital requirement is chosen as the worst scenario for each geographic region as defined by the LICAT guideline. Changes and interaction between the level and term movements in interest rates and credit spreads can shift the interest rate scenario applied in the LICAT calculation causing a discontinuity where capital requirements change materially. In 2020, OSFI updated the LICAT guideline for interest rate risk requirements for participating businesses to be smoothed over six quarters. As a result, the actual impact to the LICAT ratio from participating businesses in any quarter will reflect the scenarios from current quarter as well as the prior five quarters and switching between the scenarios would have the effect of offsetting the previous impacts over time. As per OSFI's communication, this treatment will remain in place until at least December 31, 2023. The switching of the scenario can also change the direction of our sensitivities.

SLF Inc. and Sun Life Assurance experienced multiple scenario switches in the year. The scenario switches did not materially change the six-quarter smoothing impact that has been previously disclosed.

For SLF Inc., the six-quarter smoothing resulted in a one percentage point increase to the LICAT ratio in the year. Assuming no further scenario switches, the LICAT ratio is expected to increase by one percentage point over the next five quarters.

For Sun Life Assurance, the six-quarter smoothing resulted in a three percentage point increase to the LICAT ratio in the year. Assuming no further scenario switches, the LICAT ratio is expected to increase by one percentage point over the next five quarters.

**Market Risk Management Strategies**

Market risk is managed at all stages during the product life cycle including product design and development, ongoing review and positioning of our suite of products, and ongoing asset-liability management and hedge re-balancing.

We have implemented asset-liability management and hedging programs involving regular monitoring and adjustment of market risk exposures using assets, derivative instruments and repurchase agreements to maintain market risk exposures within our risk appetite. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors including changes in interest rates, increased volatility in capital markets, and changes in the general market and regulatory environment within which these hedging programs operate. In particular, regulations for OTC derivatives could impose additional costs and could affect our hedging strategy. In addition, these programs may themselves expose us to other risks. <br>

Our market risk management strategies are developed based on policies and operating guidelines at the enterprise level, business segment level and product level. Liabilities having a similar risk profile are grouped together and a customized investment and hedging strategy is developed and implemented to optimize return within our risk appetite limits.

In general, market risk exposure is mitigated by the assets supporting our products. This includes holdings of fixed income assets such as bonds and mortgages. Derivative instruments may supplement these assets to reduce the risk from cash flow mismatches and mitigate the market risk associated with liability features and optionality. The following table sets out the use of derivatives across a number of our products as at December 31, 2022.

**Asset-Liability Management Applications for Derivative Usage**

The primary uses of derivatives are set out in the table below.

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| | | |
|:---|:---|:---|
| **Products/Application** | **Uses of Derivative** | **Derivatives Used** |
| General asset-liability management - interest rate risk exposure for most insurance and annuity products | To manage the sensitivity of the duration gap between assets and liabilities to interest rate changes | Interest rate swaps, swaptions, floors and bond futures |
| Guarantees on insurance and annuity contracts - minimum interest rate guarantees, guaranteed surrender values and guaranteed annuitization options | To limit potential financial losses from significant reductions in asset earned rates relative to contract guarantees | Interest rate swaps, swaptions, floors and bond futures |
| Segregated fund guarantees | To manage the exposure of product guarantees sensitive to movement in equity market and interest rate levels and currency fluctuations | Put options, call options, futures and swaps on equity indices, interest rate swaps, bond futures, and foreign exchange forwards |
| Currency 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 |
| Credit exposure | To replicate credit exposures and enhance investment returns | Credit default swaps |

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66 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**General Account Insurance and Annuity Products**

Most of our expected sensitivity to changes in interest rates and about three-quarters of our expected sensitivity to changes in equity markets are derived from our general account insurance and annuity products. We have implemented market risk management strategies to mitigate a portion of the market risk related to our general account insurance and annuity products.

Individual insurance products include universal life and other long-term life and health insurance products. Major sources of market risk exposure for individual insurance products include the reinvestment risk related to future premiums on regular premium policies, asset reinvestment risk on both regular premium and single premium policies and the guaranteed cost of insurance. Interest rate risk for individual insurance products is typically managed on a duration basis, within tolerance ranges set out in the applicable investment policy or guidelines. Targets and limits are established so that the level of residual exposure is commensurate with our risk appetite. Exposures are monitored frequently, and assets are re-balanced as necessary to maintain compliance within prescribed tolerances using a combination of assets and derivative instruments. A portion of the longer-term cash flows are backed with equities and real estate.

For participating insurance products and other insurance products with adjustability features, the investment strategy objective is to provide a total rate of return given a constant risk profile over the long term.

Fixed annuity products generally provide the policyholder with a guaranteed investment return or crediting rate. Interest rate risk for these products is typically managed on a duration basis, within tolerance ranges set out in the applicable investment guidelines. Targets and limits are established so that the level of residual exposure is commensurate with our risk appetite. Exposures are monitored frequently, and assets are re-balanced as necessary to maintain compliance within prescribed tolerances using a combination of fixed income assets and derivative instruments.

Certain insurance and annuity products contain minimum interest rate guarantees. Market risk management strategies are implemented to limit potential financial loss due to reductions in asset earned rates relative to contract guarantees. These typically involve the use of hedging strategies utilizing interest rate derivatives such as interest rate floors, swaps and swaptions.

Certain insurance and annuity products contain features which allow the policyholders to surrender their policy at book value. Market risk management strategies are implemented to limit the potential financial loss due to changes in interest rate levels and policyholder behaviour. These typically involve the use of dynamic hedging strategies and the purchase of interest rate swaptions.

Certain products have guaranteed minimum annuitization rates. Market risk management strategies are implemented to limit the potential financial loss and typically involve the use of fixed income assets, interest rate swaps, and swaptions.

**Segregated Fund Guarantees**

Approximately one-quarter of our equity market sensitivity and a small amount of interest rate risk sensitivity as at December 31, 2022 are derived from segregated fund products. These products provide benefit guarantees, which are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing these guarantees is uncertain and depends upon a number of factors including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impacts on net income and capital.

The following table provides information with respect to the guarantees provided for our segregated fund products by business group.

**Segregated Fund Risk Exposures**

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| | | | | |
|:---|:---|:---|:---|:---|
| **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** | **As at December 31, 2022** |
| ($ millions) | **Fund value** | **Amount at Risk**<sup>(1)</sup> | **Value of guarantees**<sup>(2)</sup> | **Insurance contract liabilities**<sup>(3)</sup> |
| Canada | **11573** | **755** | **10808** | **68** |
| Asia | **1289** | **328** | **1560** | **67** |
| Corporate<sup>(4)</sup> | **2167** | **204** | **890** | **156** |
| Total | **15029** | **1287** | **13258** | **291** |

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| | | | | |
|:---|:---|:---|:---|:---|
| As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 | As at December 31, 2021 |
| ($ millions) | Fund value | Amount at Risk<sup>(1)</sup> | Value of guarantees<sup>(2)</sup> | Insurance contract liabilities<sup>(3)</sup> |
| Canada | 13751 | 183 | 11210 | 350 |
| Asia | 1728 | 166 | 1711 | 69 |
| Corporate<sup>(4)</sup> | 2672 | 137 | 892 | 184 |
| Total | 18151 | 486 | 13813 | 603 |

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<sup>(1)</sup> The Amount at Risk represents the excess of the value of the guarantees over fund values on all policies where the value of the guarantees exceeds the fund value. The Amount at Risk is not currently payable as the guarantees are only payable upon death, maturity, withdrawal or annuitization if fund values remain below guaranteed values.

<sup>(2)</sup> For guaranteed lifetime withdrawal benefits, the value of guarantees is calculated as the present value of the maximum future withdrawals assuming market conditions remain unchanged from current levels. For all other benefits, the value of guarantees is determined assuming 100% of the claims are made at the valuation date.

<sup>(3)</sup> The insurance contract liabilities represent management's provision for future costs associated with these guarantees and include a provision for adverse deviation in accordance with Canadian actuarial standards of practice. 

<sup>(4)</sup> Corporate includes Run-off reinsurance, a closed block of reinsurance. The Run-off reinsurance business includes risks assumed through reinsurance of variable annuity products issued by various North American insurance companies between 1997 and 2001.

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The movement of the items in the table above from December 31, 2021 to December 31, 2022 primarily resulted from the following factors:

&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;the total fund values decreased due to decreases in equity markets and increases in interest rates;

&nbsp;&nbsp;&nbsp;&nbsp;(ii) &nbsp;&nbsp;&nbsp;&nbsp;the total amount at risk increased due to decreases in equity markets;

&nbsp;&nbsp;&nbsp;&nbsp;(iii) &nbsp;&nbsp;&nbsp;&nbsp;the total value of guarantees decreased due to net redemptions from products closed to new business; and

&nbsp;&nbsp;&nbsp;&nbsp;(iv) &nbsp;&nbsp;&nbsp;&nbsp;the total insurance contract liabilities decreased due to increases in interest rates, partially offset by decreases in equity markets.

**Segregated Fund Hedging**

Our hedging programs use derivative instruments to mitigate the interest and equity-related exposure of our segregated fund contracts. As at December 31, 2022, over 90% of our segregated fund contracts, as measured by associated fund values, were included in a hedging program. While a large percentage of contracts are included in the hedging program, not all of our market risk exposure related to these contracts is hedged. For those segregated fund contracts included in the hedging program, we generally hedge the value of expected future net claims costs and associated margins.

The following table illustrates the impact of our hedging program related to our sensitivity to a 50 basis point decrease in interest rates and a 10% and 25% decrease in equity markets for segregated fund contracts as at December 31, 2022 and December 31, 2021.

It is important to note that these estimates are illustrative and performance of our segregated fund dynamic hedging program may differ as actual equity-related exposures vary from broad market indices (the impact of active management, basis risk, and other factors) and higher or lower volatility level than assumed.

**Impact of Segregated Fund Hedging** 

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| | | | |
|:---|:---|:---|:---|
| **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
| ($ millions) | **Changes in interest rates**<sup>(3)</sup> | **Changes in equity markets**<sup>(4)</sup> | **Changes in equity markets**<sup>(4)</sup> |
| Net income sensitivity<sup>(1)(2)</sup> | **50 basis point decrease** | **10% decrease** | **25% decrease** |
| Before hedging | **(100)** | **(150)** | **(350)** |
| Hedging impact | **100** | **100** | **300** |
| Net of hedging | **—** | **(50)** | **(50)** |
| December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| ($ millions) | Changes in interest rates<sup>(3)</sup> | Changes in equity markets<sup>(4)</sup> | Changes in equity markets<sup>(4)</sup> |
| Net income sensitivity<sup>(1)(2)</sup> | 50 basis point decrease | 10% decrease | 25% decrease |
| Before hedging | (150) | (150) | (350) |
| Hedging impact | 150 | 100 | 250 |
| Net of hedging |  | (50) | (100) |

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<sup>(1)</sup> Net income sensitivities have been rounded in increments of $50 million.

<sup>(2)</sup> Since the fair value of benefits being hedged will generally differ from the financial statement value, this will result in residual volatility to interest rate and equity market shocks in net income and capital. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors, including volatile and declining equity and interest rate market conditions.

<sup>(3)</sup> Represents a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2022 and December 31, 2021, with no change to the ASB promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates).

<sup>(4)</sup> Represents the change across all equity markets as at December 31, 2022 and December 31, 2021. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).

Our hedging strategy is applied both at the line of business or product level and at the Company level using a combination of dynamic hedging techniques (i.e., frequent re-balancing of short-dated interest rate and equity derivative contracts) and longer-dated put options. We actively monitor our overall market exposure and may implement tactical hedge overlay strategies in order to align expected earnings sensitivities with risk management objectives.

68 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**Real Estate Risk**

Real estate risk is the potential for financial loss arising from fluctuations in the value of, or future cash flows from, our investments in real estate. We are exposed to real estate risk and may experience financial losses resulting from the direct ownership of real estate investments or indirectly through fixed income investments secured by real estate property, leasehold interests, ground rents, and purchase and leaseback transactions. Real estate price risk may arise from external market conditions, inadequate property analysis, inadequate insurance coverage, inappropriate real estate appraisals, or from environmental risk exposures. We hold real estate investments that support general account liabilities and surplus, and fluctuations in value will impact our profitability and financial position. A material and sustained increase in interest rates may lead to deterioration in real estate values. An instantaneous 10% decrease in the value of our real estate investments as at December 31, 2022 would decrease net income<sup>(1)</sup> by approximately $450 million (December 31, 2021 - decrease of $375 million). Conversely, an instantaneous 10% increase in the value of our real estate investments as at December 31, 2022 would increase net income by approximately $450 million (December 31, 2021 - increase of $350 million).

**Foreign Currency Risk**<br>Foreign currency risk is the result of mismatches in the currency of our assets and liabilities (inclusive of capital), and cash flows. This risk may arise from a variety of sources such as foreign currency transactions and services, foreign currency hedging, investments denominated in foreign currencies, investments in foreign subsidiaries and net income from foreign operations. Changes or volatility in foreign exchange rates, including a change to currencies that are fixed in value to another currency, could adversely affect our financial condition and results of operations.<br>As an international provider of financial services, we operate in a number of countries, with revenues and expenses denominated in several local currencies. In each country in which we operate, we generally maintain the currency profile of assets to match the currency of aggregate liabilities and required surplus. This approach provides an operational hedge against disruptions in local operations caused by currency fluctuations. Foreign currency derivative contracts such as currency swaps and forwards are used as a risk management tool to manage the currency exposure in accordance with our Asset Liability Management Policy. As at December 31, 2022 and December 31, 2021, the Company did not have a material foreign currency risk exposure on a functional currency basis. <br>Changes in exchange rates can affect our net income and surplus when financial results in functional currencies are translated into Canadian dollars. Net income earned outside of Canada is generally not currency hedged and a weakening in the local currency of our foreign operations relative to the Canadian dollar can have a negative impact on our net income reported in Canadian currency. A strengthening in the local currency of our foreign operations relative to the Canadian dollar would have the opposite effect. Regulatory capital ratios could also be impacted by changes in exchange rates. <br>

**Inflation Risk**

Inflation risk is the potential for financial loss arising from changes in inflation rates. This risk results from insurance contract liabilities that are linked to market measures of inflation such as the Consumer Price Index. The primary sources for this risk exposure are from certain group and retail annuity contracts and group long term disability contracts. In these contracts, the annuity and disability benefit payments may be linked to an indexing formula containing an inflation price index. Benefit payments linked to inflation indices may also include various caps, floors and averaging mechanisms that vary across product designs. <br>Exposure to inflation risk is managed within our asset-liability management program, primarily by investing in inflation linked assets to match liability exposures. The resulting net income exposure to changes in inflation rates arising from benefit payments is not material.

The impact of inflation on expenses is discussed in Expense Risk section under section 9 - ii Insurance risk in this document.

**Additional Cautionary Language and Key Assumptions Related to Sensitivities**<br>The market risk sensitivities are measures of estimated changes in net income and OCI for changes in interest rates and equity market price levels described above, based on interest rates, equity market prices and business mix in place as at the respective calculation dates. These sensitivities are calculated independently for each risk factor, generally assuming that all other risk variables stay constant. The sensitivities do not take into account indirect effects such as potential impacts on goodwill impairment or valuation allowances on deferred tax assets. The sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Actual results can differ materially from these estimates for a variety of reasons, including differences in the pattern or distribution of the market shocks, the interaction between these risk factors, model error, or changes in other assumptions such as business mix, effective tax rates, policyholder behaviour, currency exchange rates and other market variables relative to those underlying the calculation of these sensitivities. The extent to which actual results may differ from the indicative ranges will generally increase with larger capital market movements. Our sensitivities as at December 31, 2021 have been included for comparative purposes only.<br>

We have also provided measures of our net income sensitivity to instantaneous changes in credit spreads, swap spreads, real estate price levels, and capital sensitivities to changes in interest rates and equity price levels. The real estate sensitivities are non-IFRS financial measures. For additional information, see section L - Non-IFRS Financial Measures in this document. The cautionary language which appears in this section is also applicable to the credit spread, swap spread, real estate, and LICAT ratio sensitivities. In particular, these sensitivities are based on interest rates, credit and swap spreads, equity market, and real estate price levels as at the respective calculation dates and assume that all other risk variables remain constant. Changes in interest rates, credit and swap spreads, equity market, and real estate prices in excess of the ranges illustrated may result in other-than-proportionate impacts.

<sup>(1)</sup> Sensitivities have been rounded in increments of $25 million.

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As these market risk sensitivities reflect an instantaneous impact on net income, OCI and Sun Life Assurance's LICAT ratio, they do not include impacts over time such as the effect on fee income in our asset management businesses.

The sensitivities reflect the composition of our assets and liabilities as at December 31, 2022 and December 31, 2021, respectively. Changes in these positions due to new sales or maturities, asset purchases/sales, or other management actions could result in material changes to these reported sensitivities. In particular, these sensitivities reflect the expected impact of hedging activities based on the hedge programs in place as at the respective calculation dates. The actual impact of hedging activity can differ materially from that assumed in the determination of these indicative sensitivities due to ongoing hedge re-balancing activities, changes in the scale or scope of hedging activities, changes in the cost or general availability of hedging instruments, basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), model risk, and other operational risks in the ongoing management of the hedge programs or the potential failure of hedge counterparties to perform in accordance with expectations.<br>

The sensitivities are based on methods and assumptions in effect as at December 31, 2022 and December 31, 2021, as applicable. Changes in the regulatory environment, accounting or actuarial valuation methods, models, or assumptions after those dates could result in material changes to these reported sensitivities. Changes in interest rates and equity market prices in excess of the ranges illustrated may result in other than proportionate impacts.<br>The market risk sensitivities reflect the IFRS 4 and IAS 39 accounting standards in effect as at December 31, 2022 and December 31, 2021. Adoption of IFRS 17 and IFRS 9 may result in changes to the magnitude or direction of the reported net income, OCI, and LICAT ratio sensitivities. The impact on CSM will be disclosed as part of the IFRS 17 market risk sensitivities, as changes related to financial risk are first recorded through the CSM for insurance contracts measured using the VFA.<br>Our hedging programs may themselves expose us to other risks, including basis risk, volatility risk, and increased levels of derivative counterparty credit risk, liquidity risk, model risk and other operational risks. These factors may adversely impact the net effectiveness, costs, and financial viability of maintaining these hedging programs and therefore adversely impact our profitability and financial position. While our hedging programs are intended to mitigate these effects, residual risk, potential reported earnings and capital volatility remain. Hedge counterparty credit risk is managed by maintaining broad diversification, dealing primarily with highly-rated counterparties, and transacting through over-the-counter ("OTC") contracts cleared through central clearing houses, exchange-traded contracts or bilateral OTC contracts negotiated directly between counterparties that include credit support annexes. <br>For the reasons outlined above, our sensitivities should only be viewed as directional estimates of the underlying sensitivities of each factor under these specialized assumptions, and should not be viewed as predictors of our future net income, OCI, and capital. Given the nature of these calculations, we cannot provide assurance that actual impacts will be consistent with the estimates provided.<br>

Information related to market risk sensitivities and guarantees related to segregated fund products should be read in conjunction with the information contained in section M - Accounting and Control Matters - 1 - Critical Accounting Policies and Estimates in our 2022 annual MD&A. Additional information on market risk can be found in Note 6 of our 2022 Annual Consolidated Financial Statements and the Risk Factors section in the 2022 AIF.

**ii. Insurance Risk**

**Risk Description**

Insurance risk is the uncertainty of product performance due to actual experience emerging differently than expected in the areas of policyholder behaviour, mortality, morbidity and longevity. In addition, product design and pricing, expense and reinsurance risks impact multiple risk categories, including insurance risk.

**Insurance Risk Management Governance and Control**

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

• Insurance risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Income and regulatory capital sensitivities are monitored, managed and reported against pre-established risk appetite limits for policyholder behaviour, mortality, morbidity and longevity risks.

• Comprehensive Insurance Risk Policy, guidelines and practices are in place.

• The global underwriting manual aligns underwriting practices with our corporate risk management standards and ensures a consistent approach in insurance underwriting.

• Board-approved maximum retention limits are in place. Amounts issued in excess of these limits are reinsured.

• Detailed procedures, including criteria for approval of risks and for claims adjudication are established and monitored for each business segment.

• Underwriting and risk selection standards and procedures are established and overseen by the corporate underwriting and claims risk management function.

• Diversification and risk pooling is managed by aggregation of exposures across product lines, geography and distribution channels.

• We use reinsurance to limit losses, minimize exposure to significant risks and to provide additional capacity for growth.

• The Insurance Risk Policy and Investment & Credit Risk Policy establish acceptance criteria and protocols to monitor the level of reinsurance ceded to any single reinsurer or group of reinsurers.

• Reinsurance counterparty risk is monitored, including annual reporting of reinsurance exposure to the Risk Committee.

• Concentration risk exposure is monitored on group policies in a single location to avoid a catastrophic event occurrence resulting in a significant impact.

• Various limits, restrictions and fee structures are introduced into plan designs in order to establish a more homogeneous policy risk profile and limit potential for anti-selection.

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• Regulatory solvency requirements include risk-based capital requirements and are monitored regularly.

• The Product Design and Pricing Policy requires detailed risk assessment and pricing provision for material risks.

• Company specific and industry level experience studies and sources of earnings analysis are monitored and factored into valuation, renewal and new business pricing processes.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse movements in insurance risk factors.

• Insurance contract liabilities are established in accordance with Canadian actuarial standards of practice.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

Our Insurance Risk Policy sets maximum global retention limits and related management standards and practices that are applied to reduce our exposure to large claims. Amounts in excess of the Board-approved maximum retention limits are reinsured. On a single life or joint-first-to-die basis retention limit is $40 million in Canada and US$40 million outside of Canada. For survivorship life insurance, our maximum global retention limit is $50 million in Canada and US$50 million 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.

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. This includes performing periodic due diligence on our reinsurance counterparties as well as internal credit assessments on counterparties with which we have material exposure. While reinsurance arrangements provide for the recovery of claims arising from the liabilities ceded, we retain primary responsibility to the policyholders.

Specific insurance risks and our risk management strategies are discussed below in further detail.

**Policyholder Behaviour Risk**

We can incur losses due to adverse policyholder behaviour relative to the 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 the financial and capital markets, 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.

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

• Surrender charges that 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 Clients can select and the frequency with which they can change funds.

• Policyholder behaviour risk is also mitigated through reinsurance on some insurance contracts.

Internal experience studies are used to monitor, review and update policyholder behaviour assumptions as needed which could result in updates to policy liabilities.

**Mortality and Morbidity Risk**

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, as a result of a pandemic, 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.

External factors could adversely affect our life insurance, health insurance, critical illness, disability, long-term care insurance and annuity businesses. Morbidity experience could be unfavourably impacted by external events, such as pandemics, increases in disability claims during economic slowdowns and increases in high medical treatment costs and growth in utilization of specialty drugs. This introduces the potential for adverse financial volatility in our financial results.

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.

Mortality and morbidity concentration risk is the risk of a catastrophic event, such as natural environmental disasters (for example, earthquakes), human-made disasters (for example, acts of terrorism, military actions, and inadvertent introduction of toxic elements into the environment) as well as epidemics that could occur in geographic locations where there is significant insurance coverage. 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. Individual and group insurance policies are underwritten prior to initial issue and renewals, based on risk selection, plan design, and rating techniques.

The Insurance Risk Policy approved by the Risk Committee includes 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.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 71

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**Longevity Risk**

Longevity risk is the potential for economic loss, accounting loss or volatility in earnings arising from 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 medical breakthroughs that significantly extend life expectancy. Longevity risk affects contracts where benefits or costs are based upon the likelihood of survival and higher than expected improvements in policyholder life expectancy could therefore increase the ultimate cost of these benefits (for example, annuities, pensions, pure endowments, reinsurance, segregated funds, and specific types of health contracts). Additionally, our longevity risk exposure is increased for certain annuity products such as guaranteed annuity options by an increase in equity market levels.

To improve management of longevity risk, we monitor research in the fields that could result in a change in expected mortality improvement. 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.

**Product Design and Pricing Risk**

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. This could have an adverse effect on our profitability and capital position.

Our Product Design and Pricing Policy, approved by the Risk Committee, 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 significance of the initiative. Each initiative is subject to a risk assessment process to identify key risks and risk mitigation requirements, and is reviewed by multiple stakeholders. Additional governance and control procedures are listed below:

• 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, 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.

**Expense Risk**

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

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**

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 reinsurance capacity, with adverse impacts on our business strategies, profitability and financial position. There is a possibility of rate increases or renegotiation of some of the legacy reinsurance contracts by a few of our reinsurers, as they continue to review and optimize their business models. In addition, changes to the regulatory treatment of reinsurance arrangements could have an adverse impact on our capital position.

We have an Insurance Risk Policy and an Investment & Credit Risk Policy approved by the Risk Committee, which set acceptance criteria and processes to monitor the level of reinsurance ceded to any single reinsurer. These policies also set minimum criteria for determining which reinsurance companies qualify as suitable reinsurance counterparties having the capability, expertise, governance practices and financial capacity to assume the risks being considered. Additionally, these policies require 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. Periodic due diligence is performed on the reinsurance counterparties with which we do business and internal credit assessments are performed on reinsurance counterparties with which we have material exposure. Reinsurance counterparty credit exposures are monitored closely and reported annually to the Risk Committee.

New sales of our products can be discontinued or changed to reflect developments in the reinsurance markets. Rates for our in-force reinsurance treaties can be either guaranteed or adjustable for the life of the ceded policy. In order to diversify reinsurance risk, there is generally more than one reinsurer supporting a reinsurance pool.

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Additional information on insurance risk can be found in Note 7 of our 2022 Annual Consolidated Financial Statements and in the Risk Factors section in the AIF.

**iii. Credit Risk**

**Risk Description**

Credit risk is the possibility of loss from amounts owed by our borrowers or financial counterparties. We are subject to credit risk in connection with issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties (including derivative, repurchase agreement and securities lending counterparties), other financial institutions 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, any underlying security that may be used as collateral for the debt obligation. Credit risk can occur 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 may cause an increase in our provisions for asset default, adversely impacting earnings.

**Credit Risk Management Governance and Control**

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

• Credit risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Risk appetite limits have been established for credit risk.

• Income and regulatory capital sensitivities are monitored, managed and reported against pre-established risk limits.

• Comprehensive Investment and Credit Risk Management Policy, guidelines and practices are in place.

• Specific investment diversification requirements are in place, such as defined investment limits for asset class, geography, and industry.

• Risk-based credit portfolio, counterparty, and sector exposure limits have been established.

• Mandatory use of credit quality ratings for portfolio investments has been established and is reviewed regularly. These internal rating decisions for new fixed income investments and ongoing review of existing rating decisions are independently adjudicated by Corporate Risk Management.

• Comprehensive due diligence processes and ongoing credit analyses are conducted.

• Regulatory solvency requirements include risk-based capital requirements and are monitored regularly.

• Comprehensive compliance monitoring practices and procedures including reporting against pre-established investment limits are in place.

• Reinsurance exposures are monitored to ensure that no single reinsurer represents an undue level of credit risk.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse credit developments.

• Insurance contract liabilities are established in accordance with Canadian actuarial standards of practice.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

Our core principles of credit risk management include asset diversification, fundamental research and analysis of cash flows, proactive and continuous risk monitoring, active management and relative value assessment, all with the objective of optimizing risk-adjusted returns, with due consideration for the impacts of capital and taxation.

We rate fixed income investments primarily through the use of internally developed scorecards which combine an estimated probability of default and loss given default to determine an expected loss and credit risk rating. This rating is expressed using a 22-point scale that is generally consistent with those used by external rating agencies, and is based on detailed examination of the borrower's, or issuer's, credit quality and the characteristics of the specific instrument. The probability of default assessment is based on borrower-level or issuer-level analysis, which encompasses an assessment of industry risk, business strategy, competitiveness, strength of management and other financial information. The loss given default assessment is based on instrument-level analysis, which considers the impact of guarantees, covenants, liquidity and other structural features. These scorecards provide input to stochastic value-at-risk models and are used to stress test the portfolio, which provide insight into the distribution and characteristics of credit risk within our portfolios. In accordance with our policies and under normal circumstances, our ratings cannot be higher than the highest rating provided by certain Nationally Recognized Statistical Rating Organizations ("NRSROs"). Certain assets, including those in our sovereign debt and asset-backed securities portfolios, are assigned a rating based on ratings provided by NRSROs using a priority sequence order of Standard & Poor's, Moody's, Fitch and DBRS Limited.<br>

Additional information on credit risk can be found in Note 6 of our 2022 Annual Consolidated Financial Statements and in the Risk Factors section in the AIF.

**iv. Business and Strategic Risk**

**Risk Description**

Business and strategic risk is the risk of loss from the inability to adequately identify, plan or implement an appropriate strategy to achieve strategic and business objectives or adapt to changes in Client behaviours or the external business, economic, political, regulatory or environmental and social landscape or when assumptions made in strategy are not realized as expected.

**Business and Strategic Risk Management Governance and Control**

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

• Business and strategic risk governance practices are in place, including independent monitoring, review and reporting to senior management, the Board and the Board Committees.

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• Business and strategic risk is managed through our strategic and business planning process and controls over the implementation of these plans. These plans are reviewed and discussed at the executive level and the key themes, issues and risks emerging are discussed by the Board and the Board Committees.

• Our business and strategic plans are subject to approval by the Board, which also receives regular reviews of implementation progress against key business plan objectives.

• Comprehensive policies including the Risk Management Framework, Risk Appetite Policy, Product Design and Pricing Policy, Mergers and Acquisition Policy, Capital and Liquidity Management Framework and Capital Risk Policy are in place.

• Our corporate strategy and business objectives are established within the boundaries of the Risk Appetite Policy. Our business strategies and plans are designed to align with our risk appetite, our capital position and our financial performance objectives.

• Our risk appetite is periodically assessed, taking into consideration the economic and regulatory environments in which we operate.

• Merger, acquisition, strategic investments and divestiture transactions are governed by a Board-approved Merger and Acquisition Risk Management Policy and significant transactions require the approval of the Board.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse scenarios.

• Key and emerging risks are identified, monitored and reported, including emerging regulatory changes that may have a material impact on our finances, operations or reputation.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

We regularly review and adapt our business strategies and plans to take account of changes in the external business, economic, political and regulatory environments in which we operate. Our business strategies and plans are designed to align with our risk appetite, our capital position and our financial performance objectives. We periodically reassess our risk appetite taking into consideration the economic, regulatory and competitive environment in which we operate.

Specific business and strategic risks are discussed below in further detail.

**Economic and Political Risk**

We operate in various geographies and our business and financial operations are susceptible to regional and global economic, political and regulatory changes. We may be affected by economic and capital markets conditions and economic shocks around the globe as a result of increasingly connected global markets. Factors such as changes in interest rates, foreign exchange rates, market volatility, housing prices, consumer spending, saving and debt, business investment and inflation around the globe can affect the business and economic environments in which we operate. Continued economic and political uncertainty may give rise to increased business and strategic risks including those associated with industry restructuring, mergers and acquisitions, changing competitive dynamics and changes in the legal, regulatory and tax regimes in which our businesses operate. In addition, adverse economic conditions often arise in conjunction with volatile and deteriorating capital markets conditions, which can have an adverse impact on Client behaviour and in turn on our sales and profitability, credit and financial strength ratings, and capital and liquidity positions.

**Strategic Execution Risk**

Our business strategies and plans are dependent on the successful execution of organizational and strategic initiatives designed to support the growth of our business. Our ability to manage the execution of these initiatives effectively and prioritize initiatives directly affects our ability to execute our strategies. Identifying and implementing the right set of initiatives is critical to achieving our business plan targets. Failure to identify and implement the right set of initiatives could also lead to cost structure challenges and inability to achieve our growth objectives.

**Distribution Risk**

Failure to achieve planned distribution scale could materially impact our financial and strategic objectives. This includes the inability to attract and retain intermediaries and agents at a cost that is financially feasible to the Company, or to develop digital sales and Client support capabilities and technologies. Distribution risk may also be influenced where our distribution or product strategy and related services (including digital sales and Client support capabilities and technologies) are not developed, modified or executed in line with our strategic objectives or in consideration of the changes in Client behaviour or our regulatory environment. In addition, the lack of a well-diversified distribution model in the jurisdictions in which we do business may cause over-reliance on agency channel or key partners.

**Risks Relating to Mergers, Acquisitions, Divestitures and Strategic Investments**

We regularly explore opportunities to selectively acquire other businesses or to divest ourselves of all or part of certain businesses, in support of our growth and strategic objectives. Any transaction that we enter into introduces a number of risks associated with economic, operational, strategic, financial, tax, legal, regulatory, compliance, and other factors.

There is a risk that we may be unable to make an appropriate acquisition in a desired market or business line or are unable to realize the financial and strategic benefits of the transactions due to competitive factors, regulatory requirements or other factors. There is a risk that the capital utilized to finance any transaction could limit our ability to deploy further capital to pursue other opportunities and initiatives. These risks could adversely impact our ability to achieve our financial and strategic objectives.

Our ability to realize the contemplated economic, financial, and strategic benefit of any transaction that we enter into is contingent on several factors, which include the effective separation and/or integration of the transferred businesses, restructuring and/or reorganization of related businesses, and incentivizing and/or retaining personnel to effectively execute these transactions. In addition, the integration of operations and harmonization of any differences in organizational culture may require the dedication of significant management resources, which may distract management's attention from our day-to-day business. Anticipated synergies and other expected benefits may not materialize due to a failure to successfully integrate the acquired businesses with our existing operations. Any of these risks, if realized, could prevent us from achieving the expected results from a transaction or could impact our financial and strategic objectives.

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To mitigate these risks, we have established procedures to govern the evaluation, execution and integration of merger and acquisition transactions. Regular updates on execution and integration risks relating to these transactions are provided to the Board, Board Committees and senior management committees, as appropriate, along with any mitigants developed to address such risks.

**Competitive Environment**

Competition from insurance companies, banks, asset managers, mutual fund companies, financial planners and other service providers (including new entrants and non-traditional financial services companies) is intense, and could adversely affect our business in certain countries.

The businesses in which we engage are highly competitive and our ability to sell our products is dependent on many factors, including scale, price and yields offered, distribution channels, digital capabilities, financial strength ratings, range of product lines and product and service quality, brand strength, investment performance, historical dividend levels and the ability to provide value added services to distributors and Clients. In certain markets, some of our competitors may be superior to us on one or more of these factors. Our competitors have significant potential to disrupt our business through targeted strategies to reduce our market share which may include targeting our key people or bancassurance partners and other distributors or aggressively pricing their products. Our ability to achieve our business plans and strategies depends significantly upon our capacity to anticipate and respond quickly to these competitive pressures.

Technology is driving rapid change in the financial services sector and is enabling new entrants to compete or offer services to our competitors to enhance their ability to compete in certain segments of the insurance, wealth and asset management markets. The emergence of new technologies such as robotic process automation, artificial intelligence, blockchain and advanced analytics may have an impact on the financial services sector and how companies interact with their stakeholders. Our current competitors or new entrants may use these or other new technologies to provide services in various areas such as customized pricing, proactive outreach to Clients and targeted marketing in order to strengthen their Client relationships and influence Client behaviour. The impact of disruption from changing technology and innovation by traditional and non-traditional competitors who may offer a better user experience, functionality or lower priced products and may have lower distribution costs will require us to adapt at a more rapid pace and may create margin pressures. The risk of disruption may also impact our distribution models as new and low cost digital-based business models emerge in connection with the distribution of financial services and products, such as insurtechs and robo-advisors. These risks are evolving rapidly with an increasing number of digital users and are difficult to anticipate and respond to proactively, and may adversely impact our profitability and financial position.

**Investment Performance**

Investment performance risk is the possibility that we fail to achieve the desired return objectives on our investment portfolio, or that our asset management businesses fail to design or execute investment strategies in order to achieve competitive returns on the products and managed accounts offered by these businesses. Failure to achieve investment objectives may adversely affect our revenue and profitability through slower growth prospects and adverse impacts on policyholder or Client behaviour.

**Changes in Legal and Regulatory Environment**

Most of our businesses are subject to extensive regulation and supervision. Changes to legislation, regulations or government policies, or the manner in which they are interpreted or enforced, may require that we make significant changes to our strategy and may result in increased implementation costs and diversion of resources to manage the change. These changes could impact financial reporting, accounting processes, capital requirements, the regulatory framework for our products and services, the regulation of selling practices, sales intermediaries and product offerings, solvency requirements, executive compensation, and corporate governance practices and could impose restrictions on our foreign operations (such as limits on foreign ownership of local companies). All of these changes could have an adverse effect on our business and operations. Our failure to comply with existing and evolving regulatory requirements could also result in regulatory sanctions and could affect our relationships with regulatory authorities and our ability to execute our business strategies and plans.

**Environmental and Social Risk**

Our financial performance, operations, and reputation may be adversely affected if we do not adequately prepare for the direct or indirect impacts of environmental and social risks. Environmental and social risks include but are not limited to environmental damage on properties owned or managed by us and climate change-related physical and transition risks, public health issues and issues of inequality. These risks may occur in our direct operations, investing activities or other areas of our value chain.

Business units in our Asset Management pillar integrate environmental, social and governance (ESG) considerations in their investment decision-making for Sun Life assets and Client assets. Existing and potential ESG risks are incorporated, subject to data availability, into initial and ongoing reviews and assessments of public equities and fixed income, private fixed income, real estate, infrastructure and commercial mortgage investments, among others. In addition, we monitor our third-party managers in the asset management, general account and fund platform businesses through our International Investment Centre. This centre functions as an investment research and consulting group. In the due diligence and monitoring of third-party managers, it assesses each manager's incorporation of ESG into its investment processes, as well as other relevant sustainability factors, and monitors them on an ongoing basis. These activities may be undertaken on behalf of, or in partnership with, the relevant Sun Life businesses. These businesses may also undertake their own due diligence activities.

We engage in and monitor environmental, social and broader sustainability developments in part through our participation as a signatory to the United Nations-supported Principles for Responsible Investment ("PRI"), United Nations Environment Programme - Finance Initiative ("UNEP FI"), Climate Action 100+, Climate Engagement Canada and CDP (formerly the Carbon Disclosure Project).

Our Chief Sustainability Officer leads enterprise-wide efforts to embed sustainable practices across our businesses and help drive further actions that create a cleaner, more inclusive, and sustainable future, in line with our enterprise strategy and our Purpose. Our International Sustainability Council, composed of senior executives from each of our businesses, key functions and regions convenes on broad sustainability issues. Members are responsible for implementation of our sustainability plan, through the areas of focus that align with their business or function. They champion,

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influence and drive action. We report on sustainability performance, including reporting related to climate change, environmental and social issues, in our annual Sustainability Report, which is published on the same date as our Annual Report and is available at sunlife.com/sustainability.

**Climate Change**

Climate change is one of the defining issues of our time. The scientific community has demonstrated that the world is warming. Governments, regulators, investors, clients and other stakeholders are increasing efforts to tackle this global issue. We believe that it is incumbent upon us to respond and to take actions that support the goal of the Paris Agreement to limit the global temperature increase in this century to well below 2 degrees Celsius compared to pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels.

The commitments we make to our Clients may extend decades into the future. For this reason, risks related to climate change impacts that could occur in the future exist within the solutions we are providing to our Clients today. Our Purpose of helping our Clients achieve lifetime financial security and live healthier lives cannot be achieved without a sound approach to climate change that supports the transition to a lower-carbon future. Our Purpose can best be realized through the integration of this mindset across our businesses, and through working collaboratively with other stakeholders towards a common goal of avoiding the worst effects of climate change. We have set a goal to achieve net-zero GHG emissions by 2050. (Refer to Metrics and Targets for additional details).

Our climate strategy includes the following elements:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We recognize that as a long-term investor, we have the opportunity to be part of the solution to this global challenge and invest proactively in assets and businesses that support a transition to a lower-carbon economy.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We assess climate-related impacts on our businesses and investments with the aim of prudently managing them to realize our commitments, while acknowledging the challenges of uncertainty and imperfect data to inform such decisions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We are committed to advocacy and collaboration with governments, regulators, investors and industry leaders to develop supportive net-zero programs and policies that pave a path towards decarbonization.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We advocate for better data and disclosures, so we can make better-informed assessments of climate-related risks. We support the actions of regulators to require reporting aligned to the recommendations of the Financial Stability Board's Task Force on Climate-Related Financial Disclosures ("TCFD"), and welcome ongoing efforts to improve disclosure standards.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We commit to continuously improving our climate-related measurement, monitoring and reporting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We are focused on reducing climate impact and strengthening the resilience of our own operations around the world, as well as the properties that we own in our investment portfolio.

We commit to working together across industries, with our Clients, investees and other stakeholders to contribute to solving this global challenge. We recognize that we do not yet have the answers to this complex topic.

Our strategy will evolve over time, building on our experience and external developments.

**TCFD Disclosures** 

The following sets out our climate-related disclosures in line with TCFD recommendations, which are structured around four themes that represent core elements of how organizations operate: strategy, governance, risk management, and metrics and targets.

**Strategy**

Climate change has potential implications for us as an insurance and asset management company. Climate change is impacting the life and health of people worldwide. The increased severity and frequency of extreme weather events and the chronic shift towards higher temperatures could have meaningful impacts on health. Heat-related deaths and hospitalizations have increased over the last decade and will continue to increase as temperatures rise. Lower air quality from pollutants, warming temperatures and wildfires could have long-term implications on respiratory health. Also negatively impacting our mental health is the emotional distress, anxiety and trauma caused by extreme weather events.

Changing precipitation and ensuing floods, droughts and wildfires directly impact food crops and can lead to food insecurity and malnutrition. Changing precipitation and warming temperatures also increase the proliferation of pests, causing direct damage to food crops, while also spreading disease like dengue fever and Zika. It is expected that warming temperatures will expand the geographic region and lengthen the duration of the transmission season for diseases spread by mosquitos and other pests.

A focus of our Financial Condition Testing ("FCT")<sup>(1)</sup> has been climate-related investment risks which we believe are larger and a more immediate concern. The scope and scale of climate related life and health risks for Sun Life are relatively small at this point in time, although still a significant longer-term concern we are monitoring. In addition to using climate scenarios in FCT, our experience with climate scenario analysis includes participation in a pilot project between the Bank of Canada, OSFI, and a small group of Canadian financial institutions in 2021. The pilot focused on transition risks and was designed to capture a range of potential outcomes and illustrate the kinds of stresses on the financial system and economy that could occur as the world transitions to a lower-carbon future. The findings of the pilot were broadly consistent with our past understanding of sectors that are most likely to be affected by potential climate change transition impacts and the implications of delaying policy action.

<sup>(1)</sup> Financial Condition Testing is a stress testing exercise to assess the future financial condition of Sun Life under adverse scenarios.

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A transition to a lower carbon economy could affect asset values. Among other impacts, portfolio investments in coal, conventional oil and oil sands producers, utilities and related fossil fuel industries, railways and pipelines, as well as markets that depend on these industries, may be subject to additional financial risk as a result of changes in regulation, cost of capital, consumer preferences and competition from renewable energy companies. This may lead to lower overall profitability and/or stranded assets (assets for which the investment costs cannot be recovered as intended).

Physical climate impacts could affect investments in real assets such as real estate, commercial mortgages, and infrastructure, as well as our own operations, and operations and revenues of our Clients and businesses across our portfolios. Risks may result from increased severity and frequency of extreme weather events and from longer-term shifts in climate patterns.

For further discussion of potential climate-related risks, please refer to Environmental and Social Risk in our 2022 AIF under Risk Factors – Business and Strategic Risk.

From an investments perspective, climate change presents both risks and opportunities.

Climate-related opportunities include those related to sustainability and green bonds, investments in developing resilient and adaptive real estate and infrastructure as well as renewable energy and other assets and businesses that support or benefit from a transition to a low-carbon economy. Many companies and industries are benefiting from climate change-related tailwinds, such as mobility (vehicle electrification), energy efficiency services, battery technology and renewables. Through our ESG integration efforts, we seek to identify these investment opportunities in both public and private markets, including opportunities in securitized investments and direct investments (real estate, traditional public infrastructure, and other types of public infrastructure such as sustainable agriculture). We were the first life insurer globally to issue a sustainability bond. Sustainability bonds can play a role in supporting the transition to a lower-carbon economy. Through our Asset Management pillar, we are well-positioned to invest in this transition. Asset management is delivered by SLC Fixed Income, Infrared, BGO and Crescent, all of which operate under the SLC Management brand, as well as by MFS. Climate-related investing strategies for our asset management businesses are highlighted below:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• SLC Management invests in sustainable infrastructure around the world through its platform of public and private fixed income investments. Sustainable infrastructure categories include renewable energy, energy efficiency, and clean transportation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• InfraRed invests in and manages social infrastructure and energy efficiency, low-carbon generation, and renewable energy projects, which advances our sustainable investment options for institutional Clients while complementing our focus on sustainable investing and climate change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• BGO proactively addresses climate risks at the property and portfolio levels through strategic planning that assesses and mitigates critical vulnerabilities and builds adaptive capacity. BGO utilizes its award-winning proprietary resilience tool that combines industry research with predictive climate modeling to deliver tailor-made climate resilience adaptation plans across our portfolios. These efforts help BGO to drive for long-term returns for Clients and investors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Crescent's investment decisions are guided by Clients' long-term interests, which are served through the incorporation of ESG considerations, including those related to climate change. Where possible, Crescent seeks to engage collaboratively with portfolio companies on topics such as carbon emissions measurement and reporting and energy efficiency.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• As long-term investors in public issuers, MFS assesses climate change as a key investment decision factor at both the issuer level and portfolio level. MFS also regularly engages with companies to encourage better disclosure and management of climate-related risks and opportunities. MFS' Climate Manifesto outlines its beliefs and purpose as an investor with regard to the risks and opportunities associated with climate change and the goal of achieving net-zero emissions by 2050.

As longer-term investors, we believe that integrating climate change as a key element of investment decision-making can be a source of competitive advantage for two reasons: it should lead to stronger risk-adjusted returns for Clients over time, and stronger ESG investment ratings from groups such as PRI, Morningstar, GRESB and others, which are increasingly key decision factors for Clients. As participants in Climate Engagement Canada and Climate Action 100+ investor initiatives, we engage some of the world's largest corporate GHG emitters with whom we have investments, to encourage them to align their climate related goals and objectives with those of the Company and our Clients.

The same principles are used in the selection and monitoring of third-party investment managers that we engage to invest assets on behalf of our Clients in group retirement savings plans, private pools, Guaranteed Investment Funds (GIFs) and mutual funds. We recognize that our Clients are increasingly bringing a sustainable investment lens to our solutions. Our GRS business's proprietary ESG integration evaluation framework helps sponsors of Sun Life Canada group retirement plans make informed decisions about the investment options they make available to their employees in their workplace plans. The evaluation framework uses detailed criteria in three key areas: Firm Policies, Investment Process and Active Ownership. SLGI similarly evaluates its managers on firm commitment, investment strategy and active ownership. This approach provides deeper insights into its managers' direction on ESG matters and their ability to embed these considerations across all aspects of the investment decision process.

We engage on emerging climate regulation and policy impacting our business directly and through industry associations, such as the Canadian Life and Health Insurance Association, the American Council of Life Insurers and the Canadian Chamber of Commerce. We have advocated for improved climate-related financial disclosure and data and harmonization of emerging standards and regulations. Better and more consistent data across industries would allow for better decision making and ultimately for capital to flow to those companies that are working to develop real solutions for the transition to a low-carbon economy. In addition, we advocate for improving Canada's sustainable finance market and expanding opportunities to invest in green buildings and sustainable infrastructure. We disclose our lobbying activities in compliance with regulatory obligations as determined by jurisdiction.

**Governance**

Three Board Committees have oversight over aspects of climate change:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The GICRC provides oversight of our enterprise-wide Sustainability Policy and sustainability program, including reviewing and recommending approval of the annual Sustainability Report and Sustainability Plan to the Board. The GICRC monitors progress on the Sustainability Plan's implementation, goals and targets, including GHG emissions performance.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The Risk Committee provides enterprise-wide oversight of the management of current and emerging risks, including of climate-related risks and, broadly, environmental risks. For more detail on the Risk Committee's role, refer to Risk Management in this section.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The Audit Committee has oversight of all financial disclosures in the financial statements and MD&A, including those related to climate change.

The Board has ultimate oversight of climate change issues, and uses reports from the Board Committee Chairs noted above, and other direct presentations by management and external experts, to decide on the nature and extent of its input and to provide challenge, advice and guidance to senior management on the enterprise approach to climate change. In 2022, climate-related topics were reviewed by the Board or a Committee of the Board at each of the quarterly meetings and the annual board strategy meeting either as part of dedicated agenda topics on Sun Life's Business and Strategic Plans, including Sun Life's sustainability strategy, or as part of various committee, officer and business group reports.

At the management level, the Chief Sustainability Officer, Chief Risk Officer, and Chief Investment Officer play key roles in assessing and managing climate-related risks and opportunities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Our Chief Sustainability Officer has overall accountability for sustainability, including climate change, across the enterprise. This accountability includes setting strategy and the governance framework for our organization. As stated above, the Chief Sustainability Officer chairs our International Sustainability Council. Sun Life's Vice-President of Climate Change and Environmental Impact, a newly-created role in 2022 reporting directly to the Chief Sustainability Officer, oversees the development and implementation of the enterprise-wide climate change strategy, climate risk and decarbonization performance and reporting functions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Our Chief Risk Officer is responsible for leading the Risk Management function (as noted above in Risk Management sections 2 and 7). Key and emerging risks are monitored and reported to the Risk Committee of the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The Chief Investment Officer chairs the Sustainability Committee and Sustainable Investment Council within SLC Management. The Sustainability Committee is responsible for setting strategic direction related to sustainability and ESG matters and sets priorities on key sustainability initiatives across SLC Management. The Sustainable Investment Council oversees the integration of material ESG factors, including climate change, into the investment process.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• MFS has established oversight committees to provide strategic leadership and support the effective integration of sustainability across MFS. The MFS Sustainability Executive Group provides strategic leadership concerning MFS' sustainability strategy. It includes various senior leaders responsible for the integration of sustainability across the firm. MFS has also established committees that are a part of its existing committee governance structure. These committees are devoted to the implementation of specific aspects of MFS' sustainability strategy, including ESG integration strategy and policies, engagement, proxy voting and ESG client and corporate strategies and policies.

**Risk Management**

Climate risk management is integrated into our Risk Framework, Governance, and supporting processes (as noted in preceding sections 1 through 8 and under Governance above).

Our definition of climate risk includes physical impacts of climate change and impacts of the transition to a lower-carbon economy. These impacts can include, but are not limited to, damage to owned and operated real assets including real estate and infrastructure, a reduction in the values of investments in public and private fixed income and non-fixed income assets tied to fossil fuels and carbon intensive industries, litigation risk to a company or sector in which we invest, health impacts to affected populations, and socio-economic, geopolitical and regulatory changes.

From an investment perspective, climate-related risks (where material to an industry or asset class) are integrated into the risk management process as we look to make long-term investments that are better positioned to withstand issues related to climate change. We incorporate a number of different analyses into our assessment of climate risks through both stand-alone analysis of physical risks by geographic region and through the assessment of business model and carbon transition risks. Climate-related risk categories monitored may include acute and chronic physical risks and transition risks related to current and emerging laws and regulation, changing technology, market and reputation risks or consumer preferences.

Each of the Company's asset management businesses takes its own approach to identifying, assessing, monitoring and responding to climate-related risks and opportunities, based on the asset classes it invests in. Approaches are refined periodically. Examples of approaches include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Proprietary climate risk surveys to identify, assess and respond to climate-related risks and opportunities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Portfolio and asset level risk analysis to inform investment decisions and resilience plans;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Scoring methodologies that look to standardize the assessment of transition risks. For example, when considering a longer-term investment in fossil fuel related companies, SLC Fixed Income reviews the companies' carbon reduction plans and ability to transition to a lower-carbon future;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Emissions data analysis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Stranded asset modeling;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Carbon intensity monitoring and benchmarking; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Individual as well as collaborative engagements on topics such as decarbonization.

Additionally, an environmental issue, whether caused by climate change or other factors, on a property owned or operated by us could have financial or reputational impacts. We maintain an environmental risk management program to help monitor and manage real estate investment assets from losses due to environmental issues and to ensure compliance with applicable laws. We maintain insurance policies to cover certain environmental risks on owned assets. We have implemented a business continuity program to facilitate the recovery of critical business operations if an environmental issue affects a location where we conduct operations. The Company's corporate real estate group, together with our building owners and property managers, assesses the potential effects of climate change-related hazards and examines ways to improve the ability of our buildings to withstand these hazards. These hazards include tornadoes, flash floods, ice storms and coastline flooding.

**Metrics and Targets**

The Company has set a goal to achieve net-zero GHG emissions by 2050 for both its investments and operations, and is continuing progress on its climate commitments with a focus on setting interim targets. Our asset management businesses that are members of the Net Zero Asset Managers

78 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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(NZAM) initiative have been communicating their interim targets following their finalization. The NZAM initiative is an international group of asset managers committed to supporting the goal of net-zero emissions by 2050 or sooner. NZAM members include MFS, SLGI and SLC Management businesses SLC Fixed Income, InfraRed and BGO. As an asset owner, the Company plans to achieve net-zero GHG emissions in its general account. We are using the Partnership for Carbon Accounting Financials ("PCAF") methodology for determining our financed emissions. Our approach for achieving net-zero emissions in the General Account will focus on asset classes where we have access to quality data, net-zero emissions methodologies are established, and where we believe we can have the biggest real-world impact in reducing emissions. Updated interim targets and a summary of our other commitments and progress towards net-zero emissions are available at <u>www.sunlife.com/sustainability</u>.

For our operations, we have set an interim target of a 50% absolute reduction of GHG emissions by 2030, relative to 2019. This target includes emissions reductions from our offices and corporate travel<sup>(1)</sup>. While we continue our efforts to reduce GHG emissions, we purchase high-quality carbon offsets to compensate for the remaining emissions in our operations that we have yet to reduce. This approach of purchasing offsets is not part of our enterprise decarbonization strategy, but is one way to help manage the climate impact of our operations today, while we work towards our interim 2030 operational target and enterprise-wide goal of net-zero GHG emissions by 2050.

The Company is continuing progress towards its target of $20 billion in new sustainable investments from 2021 to 2025 across its general account and Client investments, which are managed by SLC Management. Investments include, but are not limited to, renewable energy, energy efficiency, sustainable buildings, clean transportation, water management, and social infrastructure projects. We report our progress in our annual Sustainability Report available at <u>www.sunlife.com/sustainability</u>.

Sun Life and majority-owned affiliate companies report global Scope 1 and 2 emissions from company-occupied real estate, data centres and real estate investments under our financial control (as defined in the GHG Protocol Corporate Accounting and Reporting Standard) as well as Scope 3 emissions<sup>(2)</sup> associated with corporate travel and real estate-related sources (where Scope 3 data is available) in our annual Sustainability Report available at <u>www.sunlife.com/sustainability</u>. DentaQuest corporate offices are excluded for the 2022 reporting cycle. All emissions reporting is aligned to the GHG Protocol Corporate Accounting and Reporting Standard using the financial control approach.

Please refer to Environmental and Social Risk in our AIF for additional climate-related risk discussion.

**v. Operational Risk**

**Risk Description**

Operational risk is the risk of loss (financial and non-financial) resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk is present in all of our business activities and encompasses a broad range of risks as described below. Operational risk is embedded in the practices utilized to manage other risks and, therefore, if not managed effectively, operational risk can impact our ability to manage other key risks.

**Operational Risk Management Governance and Control**

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

• Operational risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Board Committees.

• Risk appetite limits have been established in Operational Risk.

• Comprehensive Operational Risk Management Framework, Policies, guidelines and practices are in place.

• Our governance practices, corporate values, Code of Conduct and Company-wide approach to managing risk set the foundation for mitigating operational risks.

• Our Code of Conduct sets the tone for a strong ethical culture, and we regularly review and update the Code of Conduct to ensure that it continues to meet the expectations of regulators and other stakeholders. All our directors and employees must reconfirm annually their understanding of and commitment to comply with the Code of Conduct.

• We have established appropriate internal controls and systems for talent acquisition, rewards and development programs that attract, build and retain top talent and create strong succession plans as well as compensation programs, and we provide ongoing training to our people.

• We conduct regular monitoring of employee engagement to ensure we create and maintain a work environment where all employees are welcome and able to contribute effectively.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse scenarios.

• We mitigate a portion of our operational risk exposure through our corporate insurance program by purchasing insurance coverage that seeks to provide insurance against unexpected material losses resulting from events such as criminal activity, property loss or damage and liability exposures, or that satisfies legal requirements and contractual obligations.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

Specific operational risks and our risk management strategies are discussed below in further detail and in the Risk Factor section in the AIF.

<sup>(1)</sup> Emissions resulting from global corporate offices and data centres as well as from corporate travel, inclusive of majority-owned Sun Life affiliate companies. DentaQuest corporate offices are excluded for the 2022 reporting cycle. All emissions reporting is aligned to the GHG Protocol Corporate Accounting and Reporting Standard using the financial control approach.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 79

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**Information Security and Privacy Risks**

Information and technology are used in almost all aspects of our business and operations. As part of our Client strategy, we continue to enhance the digital side of our business to support and enable new business models and processes, that are more personal, proactive and predictive.

Our business and the successful implementation of our digital strategy are dependent on various factors including maintaining a secure environment for our Clients, employees and other parties' information. This requires the effective and secure use, management and oversight of information and physical assets. We engage with various stakeholders and leverage emerging technologies, including digital, mobile applications, cloud computing, artificial intelligence and robotic process automation. These technologies are used to collect, process and maintain information relating to business transactions and financial reporting, as well as the personal information of our Clients and employees. We also obtain services from a wide range of third-party service providers and have outsourced some business and information technology functions in various jurisdictions.

There continues to be an increasing number of information security compromises and privacy breaches across industry sectors, governments and individuals. The increasing scope and complexity of malicious activity poses a significant risk to our systems and these risks may be exacerbated by the breadth of our operations, our geographic footprint and the complexity of our technology systems. The risk of information security compromises and privacy breaches continued during the COVID-19 pandemic as individuals extending remote working arrangements. A serious security or privacy breach of either an internal or third-party service provider's computer system that contains sensitive business, Client and/or employee information may result in business interruption, theft or misuse of confidential information, regulatory penalties and scrutiny, litigation, reputational damage and may have an adverse impact on current and future business opportunities with our Clients, employees and business relationships. We continue to monitor for increases in malicious activity due to the conflict in Ukraine.

We continue investing in people, processes and technology to strengthen our abilities to respond to the evolving threat landscape. Our Information Security framework is overseen by the Chief Information Security Officer, supported by senior leadership and by our Operational Risk Management Framework. Our information security framework and governance controls (policies, procedures, training) are aligned with recognized industry standards and are compliant with applicable laws and regulations.

Our well-established security controls and processes are intent on protecting our information and computer systems and the information entrusted to us by our Clients and employees. Our protection strategy leverages information security risk assessments and privacy impact assessments to evaluate potential risks. The security framework also includes technology and process safeguards and regularly promotes secure behavioural practices. As part of our layered security approach, we deliver general security awareness training sessions to all employees every year that is reinforced with regular awareness resources and activities.

Many jurisdictions in which we do business are developing and implementing cyber security reporting requirements and more stringent consumer privacy legislation, many with greater enforcement powers for regulators and higher fines and penalties. Our global privacy program monitors adherence to our global privacy commitments, local laws and local privacy policies. We have also established a network of privacy officers across the Company who monitor emerging privacy legislation and provide guidance on handling personal information and help manage, report and resolve any privacy incidents that may occur. We also conduct privacy training, provide regular monitoring and reporting and carry cyber risk insurance to help mitigate the impact of privacy incidents.

**Human Resources Risk**

Our ability to achieve business objectives can be adversely affected if we are unable to attract, retain or effectively deploy resources with the in-depth knowledge and necessary skills required, or are unable to design compensation and talent programs that effectively drive employee behaviour and shape corporate culture. Failure to manage Human Resources risk can also lead to direct financial and reputational loss including losses arising from activity that is inconsistent with Human Rights or employment laws or health and safety regulations.

To mitigate this risk, we have comprehensive Human Resource policies, practices and programs in place to ensure compliance with employment legislation, minimize the risk of employee misconduct, and proactively develop employee skills, capabilities and behaviours to meet future business needs.

**Regulatory Compliance, Legal and Conduct Risk**

We are subject to extensive regulatory oversight by financial services regulators in the jurisdictions in which we conduct business. Failure to comply with applicable laws or to conduct our business consistent with changing regulatory or public expectations could adversely impact our reputation and may lead to regulatory investigations, examinations, proceedings, settlements, penalties, fines, restrictions on our business, litigation or an inability to carry out our business strategy.

Our Chief Compliance Officer oversees our comprehensive Enterprise-wide compliance framework, which is consistent with regulatory guidance from OSFI and other regulators. This framework promotes proactive, risk-based management of compliance and regulatory risk, and includes Enterprise-wide and business segment policies, standards and operating guidelines, programs to promote awareness of laws and regulations that impact us, ongoing monitoring of emerging legal issues and regulatory changes and training programs. The employee training programs include anti-money laundering and anti-terrorist financing, anti-bribery and corruption, privacy and information security risk management. Effective governance, oversight and implementation is a coordinated effort between first and second lines of defence functions. Second line oversight relies on a network of compliance officers. In addition to the second line, the general counsel in each business segment provides advice. The Chief Compliance Officer reports regularly to the Board and Board Committees on the state of compliance, key compliance risks, emerging regulatory trends, escalation of key issues and key risk indicators.

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**Information Technology Risk**

The use of technology and computer systems is essential in supporting and maintaining business operations. We use technology to support virtually all aspects of our business and operations. The rapidly changing business environment increases the risk of our technology strategy not being agile enough to adapt to new business demands in a timely manner leading to financial losses, increased costs and the inability to meet Client needs.

To manage the risks associated with our technology infrastructure and applications, we have implemented a number of policies, directives and controls through our technology approval and risk governance model to ensure ongoing systems availability, stability and currency.

**Third-Party Risk**

We engage in a variety of third-party relationships, including with distributors, independent contractors, outsourcing service providers and suppliers. Our profitability or reputation could be impacted if these third parties are unable to meet their ongoing service commitments or fail to perform to expected standards.

To manage these risks, we have established Company-wide policies and guidelines which are consistent with OSFI's and other local regulatory requirements, and which set out our requirements to identify, assess, manage, monitor and report on third-party risks. Our program includes third-party risk assessments and enhanced due diligence if a supplier will have access to any personal data and/or confidential information or access to non-public systems. The key elements and risks associated with the third party are documented in the form of a written agreement, and the company monitors performance of its third parties in a manner that is commensurate to the size, risk, scope and complexity of the third-party relationship.

**Business Disruption Risk**

To conduct operations, our businesses are dependent on the availability of trained employees, physical locations and access to technology. A significant business disruption to our operations can result if one or more of these key elements are negatively impacted. System disruptions as well as unanticipated events, including pandemics, can negatively affect staff, preventing them from getting to work or from operating business processes.

To manage this risk, we have implemented a business continuity program to facilitate the recovery of critical business operations. This program encompasses business continuity, crisis management and disaster recovery planning. Our policy, guidelines and operating procedures establish consistent processes designed to ensure that key business functions can continue and normal operations can resume effectively and efficiently should a major disruption occur. In addition, to regularly update and test business continuity plans for critical business operations, we conduct mandatory business continuity awareness training for all employees annually and have off-site backup facilities and failover capability designed to minimize downtime and accelerate recovery time in the event of a major disruption.

**Model Risk**

We use complex models to support many business functions including product development and pricing, capital management, valuation, financial reporting, planning, hedging, asset-liability management, risk management and advanced analytics (such as artificial intelligence, predictive modeling and decision making algorithms). Model risk is the risk of loss, either in the form of financial loss, inappropriate or poor business decisions, damage to reputation, or other adverse impact, arising from inaccurate model outputs or incorrect use or interpretation of model outputs.

To manage model risk, we have established robust, Company-wide model risk management procedures over the models' life cycle with respect to building, using, changing and retiring models. The policy and operating guidelines set out minimum, risk-based requirements to ensure that models are effectively controlled, maintained and appropriately understood by users.

**Information Management Risk**

As an international provider of financial services, we deal with extensive information across a number of countries. Information management risk is the a) inability to capture, manage, retain and appropriately dispose of business records, b) the inability to provide data that is valid, complete, accurate, consistent, unique, or timely to support business decisions, and c) the inability to manage data location and cross-border appropriately. Failure to manage these risks could have financial or reputational impacts, and may lead to regulatory proceedings, penalties and litigation.

To manage and monitor information management risk, we have an internal control framework, data governance and record management practices in place. Additional information on operational risk can be found in the Risk Factors section in the AIF.

**vi. Liquidity Risk**

**Risk Description**

Liquidity risk is the possibility that we will not be able to fund all cash outflow commitments and collateral requirements as they fall due. This includes the risk of being forced to sell assets at depressed prices resulting in realized losses on sale. This risk also includes restrictions on our ability to efficiently allocate capital among our subsidiaries due to various market and regulatory constraints on the movement of funds. Our funding obligations arise in connection with the payment of policyholder benefits, expenses, reinsurance settlements, asset purchases, investment commitments, interest on debt, and dividends on common and preferred shares. Sources of available cash flow include general fund premiums and deposits, investment related inflows (such as maturities, principal repayments, investment income and proceeds of asset sales), proceeds generated from financing activities, and dividends and interest payments from subsidiaries. We have various financing transactions and derivative contracts under which we may be required to pledge collateral or to make payments to our counterparties for the decline in market value of specified assets. The amount of collateral or payments required may increase under certain circumstances (such as changes to interest rates, credit spreads, equity markets or foreign exchange rates), which could adversely affect our liquidity.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 81

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**Liquidity Risk Management Governance and Control**

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

• Liquidity risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Liquidity is managed in accordance with our Asset Liability Management Policy and operating guidelines.

• Liquidity contingency plans are maintained for the management of liquidity in a liquidity event.

• Stress testing is performed by comparing liquidity coverage risk metrics under a one-month stress scenario to our policy thresholds. These liquidity coverage risk metrics are measured and managed at the enterprise and legal entity levels.

• Stress testing of our collateral is performed by comparing collateral coverage ratios to our policy thresholds.

• 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.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

• We actively manage and monitor our capital and asset levels, and the diversification and credit quality of our investments.

• Various credit facilities for general corporate purposes are maintained.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| The following table summarizes the contractual maturities of our significant financial liabilities and contractual commitments as at <br>December 31, 2022 and 2021: | The following table summarizes the contractual maturities of our significant financial liabilities and contractual commitments as at <br>December 31, 2022 and 2021: | The following table summarizes the contractual maturities of our significant financial liabilities and contractual commitments as at <br>December 31, 2022 and 2021: | The following table summarizes the contractual maturities of our significant financial liabilities and contractual commitments as at <br>December 31, 2022 and 2021: | The following table summarizes the contractual maturities of our significant financial liabilities and contractual commitments as at <br>December 31, 2022 and 2021: | The following table summarizes the contractual maturities of our significant financial liabilities and contractual commitments as at <br>December 31, 2022 and 2021: |
| **Financial Liabilities and Contractual Obligations** | **Financial Liabilities and Contractual Obligations** | **Financial Liabilities and Contractual Obligations** | **Financial Liabilities and Contractual Obligations** | **Financial Liabilities and Contractual Obligations** | **Financial Liabilities and Contractual Obligations** |
| **December 31, 2022**<br>($ millions) | **Within<br>1 year** | **1 year to<br>3 years** | **3 years to<br> 5 years** | **Over<br>5 years** | **Total** |
| Insurance and investment contract liabilities<sup>(1)</sup> | $**16743** | $**8421** | $**8775** | $**391172** | $**425111** |
| Senior debentures and unsecured financing<sup>(2)</sup> | **14** | **28** | **28** | **548** | **618** |
| Subordinated debt<sup>(2)</sup> | **208** | **416** | **416** | **7856** | **8896** |
| Bond repurchase agreements | **2725** | **—** | **—** | **—** | **2725** |
| Accounts payable and accrued expenses | **8619** | **—** | **—** | **—** | **8619** |
| Lease liabilities<sup>(3)</sup> | **168** | **297** | **211** | **324** | **1000** |
| Secured borrowings from mortgage securitization | **87** | **767** | **757** | **762** | **2373** |
| Borrowed funds<sup>(2)</sup> | **210** | **26** | **38** | **170** | **444** |
| Credit facilities | **2339** | **—** | **—** | **—** | **2339** |
| Total liabilities | $**31113** | $**9955** | $**10225** | $**400832** | $**452125** |
| Contractual commitments:<sup>(4)</sup> |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Contractual loans, equities and mortgages | $**1134** | $**1202** | $**375** | $**2359** | $**5070** |
| Total contractual commitments | $**1134** | $**1202** | $**375** | $**2359** | $**5070** |
| December 31, 2021<br>($ millions) | Within<br>1 year | 1 year to<br>3 years | 3 years to<br> 5 years | Over<br>5 years | Total |
| Insurance and investment contract liabilities<sup>(1)</sup> | $14781 | $8271 | $8383 | $344533 | $375968 |
| Senior debentures and unsecured financing<sup>(2)</sup> | 14 | 28 | 28 | 555 | 625 |
| Subordinated debt<sup>(2)</sup> | 188 | 375 | 375 | 7587 | 8525 |
| Bond repurchase agreements | 2324 |  |  |  | 2324 |
| Accounts payable and accrued expenses | 7284 |  |  |  | 7284 |
| Lease liabilities<sup>(3)</sup> | 151 | 276 | 188 | 335 | 950 |
| Secured borrowings from mortgage securitization | 150 | 377 | 869 | 817 | 2213 |
| Borrowed funds<sup>(2)</sup> | 116 | 94 | 51 | 229 | 490 |
| Credit facilities | 441 |  |  |  | 441 |
| Total liabilities | $25449 | $9421 | $9894 | $354056 | $398820 |
| Contractual commitments:<sup>(4)</sup> |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Contractual loans, equities and mortgages | $1184 | $1023 | $407 | $1597 | $4211 |
| Total contractual commitments | $1184 | $1023 | $407 | $1597 | $4211 |
| <sup>(1)</sup> These amounts represent the undiscounted estimated cash flows of insurance and investment contract liabilities on our Consolidated Statements of Financial Position. These 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, amounts on deposit, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts. These estimated cash flows are based on the best estimated assumptions used in the determination of insurance and investment contract liabilities. Due to the use of assumptions, actual cash flows will differ from these estimates. | <sup>(1)</sup> These amounts represent the undiscounted estimated cash flows of insurance and investment contract liabilities on our Consolidated Statements of Financial Position. These 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, amounts on deposit, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts. These estimated cash flows are based on the best estimated assumptions used in the determination of insurance and investment contract liabilities. Due to the use of assumptions, actual cash flows will differ from these estimates. | <sup>(1)</sup> These amounts represent the undiscounted estimated cash flows of insurance and investment contract liabilities on our Consolidated Statements of Financial Position. These 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, amounts on deposit, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts. These estimated cash flows are based on the best estimated assumptions used in the determination of insurance and investment contract liabilities. Due to the use of assumptions, actual cash flows will differ from these estimates. | <sup>(1)</sup> These amounts represent the undiscounted estimated cash flows of insurance and investment contract liabilities on our Consolidated Statements of Financial Position. These 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, amounts on deposit, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts. These estimated cash flows are based on the best estimated assumptions used in the determination of insurance and investment contract liabilities. Due to the use of assumptions, actual cash flows will differ from these estimates. | <sup>(1)</sup> These amounts represent the undiscounted estimated cash flows of insurance and investment contract liabilities on our Consolidated Statements of Financial Position. These 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, amounts on deposit, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts. These estimated cash flows are based on the best estimated assumptions used in the determination of insurance and investment contract liabilities. Due to the use of assumptions, actual cash flows will differ from these estimates. | <sup>(1)</sup> These amounts represent the undiscounted estimated cash flows of insurance and investment contract liabilities on our Consolidated Statements of Financial Position. These 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, amounts on deposit, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts. These estimated cash flows are based on the best estimated assumptions used in the determination of insurance and investment contract liabilities. Due to the use of assumptions, actual cash flows will differ from these estimates. |
| <sup>(2)</sup> Payments due based on maturity dates and include expected interest payments. Actual redemption of certain securities may occur sooner as some include an option for the issuer to call the security at par at an earlier date. | <sup>(2)</sup> Payments due based on maturity dates and include expected interest payments. Actual redemption of certain securities may occur sooner as some include an option for the issuer to call the security at par at an earlier date. | <sup>(2)</sup> Payments due based on maturity dates and include expected interest payments. Actual redemption of certain securities may occur sooner as some include an option for the issuer to call the security at par at an earlier date. | <sup>(2)</sup> Payments due based on maturity dates and include expected interest payments. Actual redemption of certain securities may occur sooner as some include an option for the issuer to call the security at par at an earlier date. | <sup>(2)</sup> Payments due based on maturity dates and include expected interest payments. Actual redemption of certain securities may occur sooner as some include an option for the issuer to call the security at par at an earlier date. | <sup>(2)</sup> Payments due based on maturity dates and include expected interest payments. Actual redemption of certain securities may occur sooner as some include an option for the issuer to call the security at par at an earlier date. |
| <sup>(3)</sup> Lease liabilities are included on the Consolidated Statements of Financial Position due to the implementation of IFRS 16 *Leases* ("IFRS 16"). | <sup>(3)</sup> Lease liabilities are included on the Consolidated Statements of Financial Position due to the implementation of IFRS 16 *Leases* ("IFRS 16"). | <sup>(3)</sup> Lease liabilities are included on the Consolidated Statements of Financial Position due to the implementation of IFRS 16 *Leases* ("IFRS 16"). | <sup>(3)</sup> Lease liabilities are included on the Consolidated Statements of Financial Position due to the implementation of IFRS 16 *Leases* ("IFRS 16"). | <sup>(3)</sup> Lease liabilities are included on the Consolidated Statements of Financial Position due to the implementation of IFRS 16 *Leases* ("IFRS 16"). | <sup>(3)</sup> Lease liabilities are included on the Consolidated Statements of Financial Position due to the implementation of IFRS 16 *Leases* ("IFRS 16"). |
| <sup>(4)</sup> Contractual commitments and operating lease commitments are not reported on our Consolidated Financial Statements. Additional information on these commitments is included in Note 23 of our 2022 Annual Consolidated Financial Statements. | <sup>(4)</sup> Contractual commitments and operating lease commitments are not reported on our Consolidated Financial Statements. Additional information on these commitments is included in Note 23 of our 2022 Annual Consolidated Financial Statements. | <sup>(4)</sup> Contractual commitments and operating lease commitments are not reported on our Consolidated Financial Statements. Additional information on these commitments is included in Note 23 of our 2022 Annual Consolidated Financial Statements. | <sup>(4)</sup> Contractual commitments and operating lease commitments are not reported on our Consolidated Financial Statements. Additional information on these commitments is included in Note 23 of our 2022 Annual Consolidated Financial Statements. | <sup>(4)</sup> Contractual commitments and operating lease commitments are not reported on our Consolidated Financial Statements. Additional information on these commitments is included in Note 23 of our 2022 Annual Consolidated Financial Statements. | <sup>(4)</sup> Contractual commitments and operating lease commitments are not reported on our Consolidated Financial Statements. Additional information on these commitments is included in Note 23 of our 2022 Annual Consolidated Financial Statements. |

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Additional information on liquidity risk can be found in Note 6 of our 2022 Annual Consolidated Financial Statements and the Risk Factors section in the 2022 AIF.

**vii. Other Risks**

**Risks relating to the COVID-19 Pandemic**

Pandemics, epidemics or outbreaks of an infectious disease could have an adverse impact on our results, business, financial condition or liquidity, and could result in changes to the way we operate. The COVID-19 pandemic and the measures imposed by governments around the world have disrupted the global economy, financial markets, supply chains, business activity and productivity in unprecedented ways. Additional risks are emerging around governments' withdrawal of COVID-19 pandemic support measures, and how they will seek to finance the unprecedented level of support. The worsening of the economic and market conditions caused by the COVID-19 pandemic, and impact on Clients, industries and individual countries could have a material adverse effect on our businesses including sales, fee income, investment performance, expenses, results of operations, corporate reputation and financial condition. Sustained adverse effects could negatively impact profitability and also make it difficult for us to access capital markets, could impact our liquidity and capital position, or may result in downgrades in our credit ratings. These actions may also have the effect of heightening many of the other risks described in the Risk Factors section in our AIF and section J - Risk Management in this document. This includes, but is not limited to:

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 83

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• Market risks, such as equity, interest rates and spread, real estate, and foreign currency risks, including impact on fee income;

• Insurance risk, including higher than expected mortality and, morbidity claims and adverse policyholder behaviour including but not limited to higher than expected policy lapses, withdrawals, and surrenders;

• Credit risk, including defaults, impairments and downgrades;

• Business and strategic risk including economic and political risk, business strategy implementation risk, distribution risk, expense risk, changes in Client behaviour, sales, investment performance, and changes in legal and regulatory environment;

• Operational risk, including information security and privacy risk, human resources risks, regulatory compliance, legal and conduct risk, information technology risk, processing risk, third-party risk, and business disruption risk, and change management risk with the need to quickly implement and execute new programs and procedures to support Clients, advisors, employees, products, and services; and

• Liquidity risk including collateral, and payment deferrals on invested assets or policyholder insurance premium impacts.

The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus, including variants, vaccine efficacy, public acceptance of containment measures and vaccine adoption, the subsequent reduction in rates of infection and the actions taken by governments, monetary authorities, regulators, financial institutions, businesses and individuals, and could vary by country and result in differing outcomes. The longer-term impacts of COVID-19 on morbidity and mortality are unknown and are being monitored. Given the extent of the circumstances, it is difficult to reliably measure or predict the potential impact of this uncertainty on our future financial results.

Consistent with the protocols and programs established in our Risk Management Framework, we continue to manage the risks that arise when providing products and services to Clients, which are in line with our Purpose to help Client achieve lifetime financial security and live healthier lives.

**IFRS 17 Insurance Contracts ("IFRS 17") and IFRS 9 Financial Instruments ("IFRS 9") to be Adopted in 2023**

For periods beginning on or after January 1, 2023, we will be adopting IFRS 17, which replaces IFRS 4 *Insurance Contracts*. IFRS 17 establishes the principles for the recognition, measurement, presentation, and disclosure of insurance contracts. Effective January 1, 2023, we will also be adopting IFRS 9, which replaces IAS 39 *Financial Instruments: Recognition and Measurement*.

The adoption of IFRS 17 and IFRS 9 requires significant changes to accounting and reporting process. To ensure readiness, we have invested to modernize our finance and actuarial technology platforms, including the centralization of actuarial models and the enablement of self-service reporting and analysis to produce management information and enhance business insights. During the year ended December 31, 2022, we performed parallel reporting which allowed for the analysis of results based on both current and future reporting requirements.

As part of our implementation, we have dedicated significant resources to execute and oversee the multi-year cross functional plan to manage operational, regulatory, and business and strategic risks associated with the implementation of these standards.

• Operational risk - IFRS 17 and IFRS 9 requires a more expansive set of data, introduces complex estimation techniques, computational requirements and disclosures, which necessitate a major transformation to various actuarial and financial reporting processes, tools, and systems.

• Business and strategic risk - the standards may create additional volatility in our financial results and capital position. Volatility of reported results may require changes to business strategies and the introduction of new or modified non-GAAP measures to explain our results. The impact to business strategy could include changes to hedging and investment strategy, product strategy and the use of reinsurance and, as a result, could impact our exposures to other risks such as counterparty risk and liquidity risk.

• Regulatory Capital risk - In addition to IFRS 17 changes, LICAT Guideline changes for Segregated Fund Guarantee capital are also planned to take effect January 1, 2025. OSFI has been engaging the industry in testing of new Segregated Fund Guarantee capital requirements,.

The adoption of IFRS 17 and IFRS 9 is not expected to have a material impact on our overall business strategies. However, upon transition at January 1, 2022, the changes in measurement of insurance contract liabilities and timing of recognition of earnings, in combination with IFRS 9, are expected to have the following impacts:

• A net transfer of $4.5 billion from Shareholders' equity, primarily driven by the establishment of the contractual service margin ("CSM") on the balance sheet, among other items.

• A high single digit decrease<sup>(1)</sup> in 2022 underlying net income as we restate the comparative year.

On July 21, 2022, OSFI finalized the LICAT guidelines to reflect the IFRS 17 adoption, effective January 1, 2023. The CSM balance will qualify as Tier 1 available capital. We expect a high single digit increase to the LICAT ratio on adoption and we also expect capital generation and capital sensitivities to be relatively unchanged under the new regime<sup>(2)</sup>.

Our medium-term financial objectives<sup>(3)</sup>, following the adoption of IFRS 17 and 9 as at January 1, 2023, will be:

• Underlying EPS growth: 8-10%

• Underlying ROE: 18%+ (an increase from 16%+ under IFRS 4)

• Underlying Dividend payout ratio: 40-50%

Additional information on other risks can be found in the Risk Factor section in our 2022 AIF and Note 2 in the Consolidated Financial Statements for the year ended December 31, 2022.

<sup>(1)</sup> The amount can be impacted by changes in certain experience-related items that are dependent on economic and/or operating environment factors. This statement is a forward-looking statement within the meaning of applicable securities laws. For more information, see section O - Forward-looking Statements in this document.

<sup>(2)</sup> This statement is a forward-looking statement within the meaning of applicable securities laws. For more information, see the Forward-looking statements section in this document.

<sup>(3)</sup> Although considered reasonable, we may not be able to achieve our medium-term financial objectives as our assumptions may prove to be inaccurate. Accordingly, our actual results could differ materially from our medium-term financial objectives as described above. Our medium-term financial objectives do not constitute guidance. Our medium-term financial objectives are forward-looking non-IFRS financial measures and additional information is provided in section O - Forward-looking Statements of this document.

84 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**K. Additional Financial Disclosure**

**1. Selected Annual Information**

---

| | | | |
|:---|:---|:---|:---|
| ($ millions, after-tax, unless otherwise stated) | **2022** | 2021 | 2020 |
| Total revenue | **23322** | 35688 | 43337 |
| Common shareholders' net income (loss) | **3060** | 3934 | 2404 |
| Reported basic earnings per share ($) | **5.22** | 6.72 | 4.11 |
| Reported earnings per share (diluted) ($) | **5.21** | 6.69 | 4.10 |
| Total assets | **330906** | 345370 | 323011 |

---

**2. Items related to Statement of Operations**

**i. Business Group Summary Statements of Operations**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **2022** | **2022** | **2022** | **2022** | **2022** | **2022** | 2021 |
| ($ millions, after-tax) | **Canada** | **U.S.** | **Asset<br>Management** | **Asia** | **Corporate** | **Total** | Total |
| Net premiums | **15121** | **8309** | **—** | **3374** | **59** | **26863** | 23053 |
| Net investment income (loss) | **(4864)** | **(2306)** | **28** | **(3242)** | **(1203)** | **(11587)** | 4633 |
| Fee income | **1610** | **297** | **5729** | **620** | **(210)** | **8046** | 8002 |
| **Revenue** | **11867** | **6300** | **5757** | **752** | **(1354)** | **23322** | 35688 |
| Gross claims and benefits paid | **11935** | **7645** | **—** | **1982** | **482** | **22044** | 18722 |
| Changes in insurance contract liabilities, investment contract liabilities and reinsurance assets | **(4395)** | **(3810)** | **—** | **(3401)** | **(1708)** | **(13314)** | 2150 |
| Operating expenses, commissions and premium taxes | **3918** | **2316** | **4120** | **1731** | **279** | **12364** | 11817 |
| Reinsurance expenses (recoveries) | **(1315)** | **(654)** | **—** | **(168)** | **(3)** | **(2140)** | (2425) |
| Interest expense | **201** | **74** | **95** | **74** | **1** | **445** | 327 |
| **Total benefits and expenses** | **10344** | **5571** | **4215** | **218** | **(949)** | **19399** | 30591 |
| Income tax expense (benefit) | **363** | **143** | **345** | **63** | **(293)** | **621** | 727 |
| Dividends on preferred shares and distributions on other equity instruments | **—** | **—** | **—** | **—** | **70** | **70** | 101 |
| Non-controlling interests and participating policyholders' income in net income of subsidiaries | **160** | **—** | **56** | **(44)** | **—** | **172** | 335 |
| **Reported net income (loss) - Common shareholders** | **1000** | **586** | **1141** | **515** | **(182)** | **3060** | 3934 |

---

**2022 vs. 2021**

**Canada**

Canada's revenue decreased $7.0 billion or 37% in 2022, reflecting net investment losses from fair value changes of assets, partially offset by higher net premiums in Sun Life Health and Individual Insurance & Wealth.

**U.S.**

U.S.'s revenue increased $0.3 billion or 5% in 2022, driven by higher net premiums across all businesses, largely offset by net investment losses from fair value changes of assets.

**Asset Management**

Asset Management's revenue decreased $0.1 billion or 2% in 2022, reflecting lower fee income in MFS, partially offset by higher fee income in SLC Management.

**Asia**

Asia's revenue decreased $4.3 billion or 85% in 2022, reflecting net investment losses from fair value changes of assets.

**Corporate**

Corporate's loss increased $1.2 billion in 2022, reflecting higher net investment losses from fair value changes of assets.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 85

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**ii. Revenue**

Revenue includes: (i) premiums received on life and health insurance policies and fixed annuity products, net of premiums ceded to reinsurers; (ii) net investment income comprised of income earned on general fund assets, realized gains and losses on AFS assets and changes in the value of derivative instruments and assets designated as FVTPL and foreign exchange translation on assets and liabilities; and (iii) fee income received for services provided. Premium and deposit equivalents from administrative services only ("ASO"), as well as deposits received by the Company on investment contracts such as segregated funds, mutual funds and managed funds are not included in revenue; however, the Company does receive fee income from these contracts, which is included in revenue. Fee income and ASO premium and deposit equivalents are an important part of our business and as a result, revenue does not fully represent sales and other activity taking place during the respective periods.

Net investment income can experience volatility arising from the quarterly fluctuation in the value of FVTPL assets and foreign currency changes on assets and liabilities, which may in turn affect the comparability of revenue from period to period. The change in fair value of FVTPL assets is driven largely by market-related factors such as interest rates, credit spreads and equity returns. The debt and equity securities that support insurance contract liabilities are generally designated as FVTPL and changes in fair values of these assets are recorded in net investment income in our Consolidated Statements of Operations. Changes in the fair values of the FVTPL assets supporting insurance contract liabilities are largely offset by a corresponding change in the liabilities.

---

| | | |
|:---|:---|:---|
| | Year-to-date | Year-to-date |
| ($ millions) | **2022** | 2021 |
| **Premiums** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Life insurance | **11395** | 10925 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Health insurance | **13820** | 10664 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Annuities | **3945** | 3917 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross | **29160** | 25506 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Life insurance | **(1329)** | (1563) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Health insurance | **(701)** | (611) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Annuities | **(267)** | (279) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Ceded | **2297** | 2453 |
| Net premiums | **26863** | 23053 |
| **Net investment income (loss)** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest and other investment income | **6152** | 6272 |
| &nbsp;&nbsp;&nbsp;&nbsp;Fair value<sup>(1)</sup> and foreign currency changes on assets and liabilities | **(17759)** | (1785) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net gains (losses) on available-for-sale assets | **20** | 146 |
| Net Investment income (loss) | **(11587)** | 4633 |
| **Fee income** | **8046** | 8002 |
| Total revenue | **23322** | 35688 |

---

<sup>(1)</sup> Represents the change in FVTPL assets and liabilities.

Revenue decreased by $12.4 billion or 35% in 2022 compared to the prior year, reflecting lower net investment income from fair value changes of assets, partially offset by higher net premium revenue. Foreign exchange translation increased revenue by $614 million.

Gross premiums increased by $3.7 billion or 14% in 2022 compared to the prior year, driven by increases in the U.S and Canada.

Ceded premiums of $2.3 billion decreased $0.2 billion or 6% in 2022 compared to the prior year reflecting decreases in the U.S partially offset by increases in Canada.

Net investment income decreased by $16.2 billion in 2022 compared to the prior year, mainly from fair value changes of assets reflecting the impact of interest rates, credit spreads, and equity markets.

Fee income was in line with prior year.

86 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**iii. Benefits and Expenses**

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Benefits and Expenses** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross claims and benefits paid | **22044** | 18722 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in insurance contract liabilities, investment contract liabilities and reinsurance assets<sup>(1)</sup> | **(13314)** | 2150 |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating expenses, commissions and premium taxes | **12364** | 11817 |
| &nbsp;&nbsp;&nbsp;&nbsp;Reinsurance expenses (recoveries) | **(2140)** | (2425) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense | **445** | 327 |
| **Total benefits and expenses** | **19399** | 30591 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Includes changes in insurance contract liabilities, investment contract liabilities, reinsurance assets and segregated funds. For more information, see Note 10.E in our 2022 Annual Consolidated Financial Statements.

Total benefits and expenses decreased by $11.2 billion or 37% in 2022 compared to the prior year, primarily reflecting decreases in insurance contract liabilities, partially offset by gross claims and benefits paid.

Gross claims and benefits paid of $22.0 billion increased $3.3 billion or 17.7% in 2022 compared to the prior year, primarily driven by increases in Canada and the U.S.

Changes in insurance contract liabilities, investment contract liabilities and reinsurance assets decreased by $15.5 billion in 2022 compared to the prior year, driven by Canada, Asia and the U.S.

Operating expenses, commissions and premium taxes increased $0.5 billion or 5% in 2022 compared to the prior year, reflecting higher project spend, partially offset by $151 million of favourable foreign exchange translation. For additional information, see Note 18 of our 2022 Annual Consolidated Financial Statements.

Reinsurance recoveries of $2.1 billion decreased by $0.3 billion or 11.8% and interest expense of $0.4 billion increased $0.1 billion or 36% in 2022 compared to the prior year.

**iv. Taxes**

**Income Taxes**

In 2022, we had an income tax expense of $621 million on reported net income before taxes of $3,923 million, which resulted in an effective income tax rate of 15.8%. This compares to an income tax expense of $727 million on reported net income before taxes of $5,097 million and an effective income tax rate of 14.3% in 2021.

On an underlying basis<sup>(1)</sup>, in 2022, we had an income tax expense of $765 million on our underlying net income before taxes of $4,565 million, representing an effective income tax rate of 16.8% which is within our expected range of 15% to 20%. This compares to an income tax expense of $578 million on our underlying net income before taxes of $4,275 million and an effective income tax rate of 13.5% in 2021, which was slightly below our expected range of 15% to 20%.

See section D - Profitability - 5 - Income taxes in this document for additional information on our effective tax rates.

**Other Taxes**

In addition to income taxes, we pay various indirect taxes in jurisdictions in which we carry on business. Indirect taxes include premium taxes, investment income tax, payroll related taxes, property taxes, sales taxes, business taxes and other taxes, as follows:

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Income tax expense | **621** | 727 |
| Indirect taxes |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Premium taxes (net of premium taxes on ceded business)<sup>(1)</sup> | **453** | 396 |
| &nbsp;&nbsp;&nbsp;&nbsp;Payroll taxes | **221** | 202 |
| &nbsp;&nbsp;&nbsp;&nbsp;Property taxes | **130** | 126 |
| &nbsp;&nbsp;&nbsp;&nbsp;Goods and services tax ("GST"), harmonized tax ("HST") and other sales taxes | **130** | 125 |
| &nbsp;&nbsp;&nbsp;&nbsp;Business taxes and other | **50** | 58 |
| Total indirect taxes | **984** | 907 |
| Total taxes | **1605** | 1634 |
| Reported effective income tax rate | **15.8%** | 14.3% |
| Total taxes as a percentage of net income before deduction of total taxes | **32.7%** | 27.2% |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Premium taxes include investment income tax.

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Our effective income tax rate on underlying net income is calculated using underlying net income and income tax expense associated with underlying net income, which excludes amounts attributable to participating policyholders.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 87

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**3. Items related to Statements of Financial Position**

**i. Changes in Liabilities and Shareholders' Equity**

Insurance contract liabilities balances before Other policy liabilities of $131.4 billion as at December 31, 2022 (December 31, 2021 - $139.7 billion), reflect changes in balances on in-force policies (which include fair value changes on FVTPL assets supporting insurance contract liabilities) and foreign exchange translation.

Total shareholders' equity, including preferred share capital, is $27.5 billion as at December 31, 2022 (December 31, 2021 - $26.3 billion). The change reflects:

&nbsp;&nbsp;&nbsp;&nbsp;(i)total shareholders' net income of $3,130 million, before preferred share dividends of $70 million; and

&nbsp;&nbsp;&nbsp;&nbsp;(ii)an increase of $934 million from the impacts of foreign exchange translation; partially offset by

&nbsp;&nbsp;&nbsp;&nbsp;(iii)common share dividend payments of $1,614 million; and

&nbsp;&nbsp;&nbsp;&nbsp;(iv)net unrealized losses on AFS assets in OCI of $1,290 million.

As at January 27, 2023, SLF Inc. had 586,397,074 common shares, 3,588,520 options to acquire SLF Inc. common shares, and 52,200,000 Class A Shares outstanding.

**ii. Off-Balance Sheet Arrangements**

In the normal course of business, we are engaged in a variety of financial arrangements. The principal purposes of these arrangements are to earn management fees and additional spread on a matched book of business and to reduce financing costs.

While most of these activities are reflected on our balance sheet with respect to assets and liabilities, certain of them are either not recorded on our balance sheet or are recorded on our balance sheet in amounts that differ from the full contract or notional amounts. The types of off-balance sheet activities we undertake primarily include asset securitizations and securities lending. For more information, see Note 5 in our 2022 Annual Consolidated Financial Statements.

**iii. Goodwill and Intangibles Impairment**

The Company completed its annual goodwill and indefinite life intangible asset impairment testing in the fourth quarter of 2022. Impairment charges on goodwill of $170 million were recognized in 2022 and there were no goodwill impairment charges in 2021. Impairment charges on intangible assets of $18 million were recognized in 2022 and there were impairment charges of $9 million in 2021.

**iv. Commitments, Guarantees, Contingencies and Reinsurance Matters**

In the normal course of business, we enter into leasing agreements, outsourcing arrangements and agreements involving indemnities to third parties. We are also engaged in arbitration proceedings from time to time with certain companies that have contracts to provide reinsurance to the Company. Information regarding our commitments, guarantees and contingencies are summarized in Note 23 of our 2022 Annual Consolidated Financial Statements. A table summarizing our significant financial liabilities and contractual obligations can be found in this MD&A in the section J - Risk Management - 9 - Risk Categories - vi - Liquidity Risk.

88 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**4. Fourth Quarter 2022 Profitability** 

The following table reconciles our reported net income and underlying net income. The table also sets out the impacts of experience-related items attributable to reported net income and underlying net income in the fourth quarter of 2022 and 2021. All factors discussed in this document that impact our underlying net income are also applicable to reported net income.

---

| | | |
|:---|:---|:---|
| | **Q4'22** | Q4'21 |
| ($ millions, after-tax) |  |  |
| Reported net income - Common shareholders | **951** | 1078 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | **(136)** | 156 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption changes and management actions<sup>(1)</sup> | **54** | (19) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments<sup>(1)(2)</sup> | **43** | 43 |
| Underlying net income<sup>(3)</sup> | **990** | 898 |
| Reported ROE<sup>(3)</sup> | **15.1%** | 18.0% |
| Underlying ROE<sup>(3)</sup> | **15.7%** | 15.0% |
| Experience-related items attributable to reported net income and underlying net income<sup>(3)(4)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Investing activity | **59** | 14 |
| &nbsp;&nbsp;&nbsp;&nbsp;Credit | **18** | 32 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortality | **(47)** | (71) |
| &nbsp;&nbsp;&nbsp;&nbsp;Morbidity | **92** | (34) |
| &nbsp;&nbsp;&nbsp;&nbsp;Policyholder behaviour | **(2)** | (10) |
| &nbsp;&nbsp;&nbsp;&nbsp;Expenses | **(28)** | (47) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other experience | **(4)** | (1) |
| Total of experience-related items<sup>(3)(4)</sup> | **88** | (117) |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Represents an adjustment made to arrive at a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax amounts.

<sup>(2)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(3)</sup> Represents a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document.

<sup>(4)</sup> Experience-related items reflect the difference between actual experience during the reporting period and best estimate assumptions used in the determination of our insurance contract liabilities. Experience-related items are a part of the Sources of Earnings framework, and are calculated in accordance with OSFI Guideline D-9, Sources of Earnings Disclosures. Experience-related items from our India, China and Malaysia joint ventures and associates are recorded within other experience.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 89

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**Quarterly Comparison - Q4'22 vs. Q4'21** 

Reported net income of $951 million decreased $127 million or 12%, primarily reflecting unfavourable market-related impacts and DentaQuest integration costs, partially offset by the impact of the Canada Tax Rate Change<sup>(1)</sup>, fair value changes on MFS' share-based payment awards and ACMA. Prior year reported net income included a gain on the IPO of our India asset management joint venture partially offset by an increase to SLC Management's acquisition-related liabilities<sup>(2)</sup>.

Underlying net income of $990 million increased $92 million or 10%,driven by business growth and experience in protection and health and contribution from the DentaQuest acquisition. This was partially offset by lower wealth and asset management earnings reflecting declines in global equity markets, and a higher effective tax rate compared to prior year.

Foreign exchange translation led to an increase of $32 million and $36 million in reported net income and in underlying net income, respectively.

Our Q4'22 effective income tax/(income tax recovery) rate<sup>(3)</sup> on reported net income and underlying net income<sup>(3)</sup> were (1.0)% and 16.1%, respectively (Q4'21 - 4.2% and 4.8%, respectively). In the fourth quarter of 2022, the tax recovery on reported net income was primarily due to the Canada Tax Rate Change, while the effective tax rate on underlying net income was within the expected range of 15% to 20%. In the fourth quarter of 2021, the effective tax rate on underlying net income was below the expected range primarily due to higher tax-exempt investment income and resolutions of prior years' tax matters. For additional information, refer to Note 20 in our Consolidated Financial Statements for the period ended December 31, 2022.

**Performance by Business Group - Fourth Quarter**

We manage our operations and report our financial results in five business segments. The following section describes the operations and financial performance of Canada, U.S., Asset Management, Asia and Corporate.

The following table sets out the differences between our reported net income (loss) and underlying net income (loss) by business group.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Q4'22** | **Q4'22** | **Q4'22** | **Q4'22** | **Q4'22** | **Q4'22** |
| ($ millions, after-tax) | **Canada** | **U.S.** | **Asset<br>Management** | **Asia** | **Corporate** | **Total** |
| Reported net income (loss) - Common shareholders | **367** | **110** | **322** | **98** | **54** | **951** |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | **(44)** | **(63)** | **—** | **(88)** | **59** | **(136)** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption changes and management actions<sup>(1)</sup> | **34** | **3** | **—** | **17** | **—** | **54** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments<sup>(1)</sup> | **53** | **(70)** | **9** | **17** | **34** | **43** |
| Underlying net income (loss)<sup>(2)</sup> | **324** | **240** | **313** | **152** | **(39)** | **990** |
|  | Q4'21 | Q4'21 | Q4'21 | Q4'21 | Q4'21 | Q4'21 |
| ($ millions, after-tax) | Canada | U.S. | Asset<br>Management | Asia | Corporate | Total |
| Reported net income (loss) - Common shareholders | 356 | 85 | 140 | 446 | 51 | 1078 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | 90 | 40 |  | 23 | 3 | 156 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption changes and management actions<sup>(1)</sup> | 2 | (19) |  | (2) |  | (19) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments<sup>(1)</sup> | (2) | (8) | (242) | 295 |  | 43 |
| Underlying net income (loss)<sup>(2)</sup> | 266 | 72 | 382 | 130 | 48 | 898 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Represents an adjustment made to arrive at a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment, including pre-tax amounts.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Represents a non-IFRS financial measure. See section L - Non-IFRS Financial Measures in this document.

**Quarterly Comparison - Q4'22 vs. Q4'21** 

**Canada**

Canada's reported net income of $367 million increased $11 million or 3%, mainly driven by the impact of the Canada Tax Rate Change<sup>(1)</sup> and an increase in underlying net income, partially offset by a decrease in the value of real estate investments and lower equity market gains.

Underlying net income of $324 million increased $58 million or 22%, primarily driven by experience-related items and higher investment-related earnings. Growth in protection and health was mostly offset by lower wealth results reflecting declines in equity markets. Experience in the fourth quarter included favourable morbidity mainly reflecting lower claims volumes and higher margins in Sun Life Health, and investment gains.

<sup>(1)</sup> On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada. This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, total Company and Canada reported net income increased by $127 million, and $76 million, respectively, in the fourth quarter, reflected in ACMA and Other adjustments. Refer to section D - Profitability in this document for more information.

<sup>(2)</sup> Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership interests of SLC Management affiliates.

<sup>(3)</sup> Our effective income tax rate on underlying net income is calculated using underlying net income and income tax expense associated with underlying net income, which excludes amounts attributable to participating policyholders.

90 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**U.S.**

U.S.'s reported net income of US$81 million ($110 million) increased US$13 million ($25 million) or 29%, driven by the increase in underlying net income, partially offset by market-related impacts and DentaQuest integration costs.

Underlying net income of US$177 million ($240 million) increased US$121 million ($168 million), driven by growth across all businesses, contribution from the DentaQuest acquisition and favourable experience-related items. Experience in the quarter included favourable morbidity mainly reflecting lower medical stop-loss and group disability claims volumes, and investment gains, partially offset by mortality due to higher value claims. Compared to prior year, mortality experience in Group Benefits improved significantly due to lower COVID-19-related claims

<br>Foreign exchange translation led to an increase of $9 million in reported net income and $17 million in underlying net income.

**Asset Management**

Asset Management's reported net income of $322 million increased $182 million, which included a charge for the increase in SLC Management's acquisition-related liabilities<sup>(1)</sup> in the fourth quarter of 2021. Q4'22 reported net income also reflects a decline in the fair value of MFS' share-based payment awards, mostly offset by the decline in underlying net income.

Underlying net income of $313 million decreased $69 million or 18%, primarily due to lower MFS earnings.

Foreign exchange translation led to an increase of $21 million in reported net income and $20 million in underlying net income.

MFS reported net income of US$223 million decreased US$11 million or 5%, reflecting fair value changes on MFS' share-based payment awards. Underlying net income of US$202 million decreased US$70 million or 26% , largely reflecting declines in global equity markets which contributed to lower ANA, partially offset by lower variable compensation expenses and higher net investment returns. Pre-tax net operating profit margin was 40%, (Q4'21 - 43%), driven by the decline in ANA.

SLC Management reported net income was $19 million, compared to reported net loss of $155 million in the prior year, which included a charge for the increase in SLC Management's acquisition-related liabilities<sup>(1)</sup> in the fourth quarter of 2021. Underlying net income of $38 million decreased $2 million or 5%. Higher fee-related earnings reflecting strong capital raising and capital deployment across the platform were mostly offset by real estate investment losses.

**Asia**

Asia's reported net income of $98 million decreased $348 million or 78% , reflecting a prior year gain from the IPO of our India asset management joint venture and unfavourable market-related impacts in the current year.

Underlying net income of $152 million increased $22 million or 17%, driven by business growth and experience in protection and health, including improved mortality compared to prior year which included COVID-19-related claims, partially offset by lower fee-based income reflecting equity market declines. Higher new business strain in Hong Kong was offset by new business gains in International and Vietnam.

Foreign exchange translation led to an increase of $5 million and $1 million in reported net income and underlying net income, respectively.

**Corporate**

Corporate reported net income of $54 million increased $3 million or 6%, reflecting the net impact of tax related matters<sup>(2)</sup> largely offset by the change in underlying net income.

Underlying net loss was $39 million, compared to net income of $48 million in the prior year, reflecting a higher effective tax rate, partially offset by lower expenses.

**5. Fourth Quarter 2022 Growth**

Revenue of $12,301 million decreased $694 million or 5% compared to the same period in 2021, reflecting fair value changes of assets driven by higher interest rates, partially offset by net premium growth. Foreign exchange translation increased revenue by $369 million.

<sup>(1)</sup> Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership interests of SLC Management affiliates.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Tax related matters include tax-exempt investment income in reported net income and the impact of the Canada Tax Rate Change. On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada. This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, reported net income increased by $51 million in the fourth quarter, reflected in Other adjustments. Refer to section D - Profitability in this document for more information.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 91

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**6. Quarterly Financial Results**

The following table provides a summary of our results for the eight most recently completed quarters. A more complete discussion of our historical quarterly results can be found in our Interim and Annual MD&A for the relevant periods.

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | Quarterly results | Quarterly results | Quarterly results | Quarterly results | Quarterly results | Quarterly results | Quarterly results | Quarterly results |
| ($ millions, unless otherwise noted) | **Q4'22** | Q3'22 | Q2'22 | Q1'22 | Q4'21 | Q3'21 | Q2'21 | Q1'21 |
| Total revenue | **12301** | 8630 | 2011 | 380 | 12995 | 8510 | 12669 | 1514 |
| **Common shareholders' net income (loss)** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Reported net income | **951** | 466 | 785 | 858 | 1078 | 1019 | 900 | 937 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts<sup>(1)</sup> | **(136)** | (160) | (152) | 38 | 156 | 171 | 91 | 209 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption changes and management actions<sup>(1)</sup> | **54** | 7 |  | 1 | (19) | 95 | 2 | (4) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments<sup>(1)(2)</sup> | **43** | (330) | 45 | (24) | 43 | (149) | (76) | (118) |
| &nbsp;&nbsp;&nbsp;&nbsp;Underlying net income<sup>(3)</sup> | **990** | 949 | 892 | 843 | 898 | 902 | 883 | 850 |
| **Diluted EPS ($)** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Reported | **1.62** | 0.80 | 1.34 | 1.46 | 1.83 | 1.74 | 1.53 | 1.59 |
| &nbsp;&nbsp;&nbsp;&nbsp;Underlying<sup>(3)</sup> | **1.69** | 1.62 | 1.52 | 1.44 | 1.53 | 1.54 | 1.50 | 1.45 |
| **Basic reported EPS ($)** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Reported | **1.62** | 0.80 | 1.34 | 1.46 | 1.84 | 1.74 | 1.54 | 1.60 |
| **Reported net income (loss) by segment - Common shareholders** | **Reported net income (loss) by segment - Common shareholders** | **Reported net income (loss) by segment - Common shareholders** | **Reported net income (loss) by segment - Common shareholders** | **Reported net income (loss) by segment - Common shareholders** | **Reported net income (loss) by segment - Common shareholders** | **Reported net income (loss) by segment - Common shareholders** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **367** | 210 | 160 | 263 | 356 | 393 | 404 | 405 |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. | **110** | 94 | 213 | 169 | 85 | 46 | 157 | 211 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asset Management | **322** | 215 | 296 | 308 | 140 | 301 | 221 | 230 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **98** | 125 | 131 | 161 | 446 | 288 | 143 | 198 |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate | **54** | (178) | (15) | (43) | 51 | (9) | (25) | (107) |
| Total reported net income (loss) - Common shareholders | **951** | 466 | 785 | 858 | 1078 | 1019 | 900 | 937 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | **(273)** | (212) | (109) | 193 | 153 | 231 | 85 | 380 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax)<sup>(1)</sup> | **67** | 15 |  | 1 | (23) | 93 | 2 | (6) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(4)</sup> | **(88)** | (362) | 57 | (26) | 67 | (179) | (64) | (144) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(4)</sup> | **255** | 76 | (55) | (153) | (17) | (28) | (6) | (143) |
| **Underlying net income (loss) by segment**<sup>(3)</sup> |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **324** | 300 | 344 | 298 | 266 | 290 | 290 | 285 |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. | **240** | 216 | 154 | 118 | 72 | 110 | 165 | 171 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asset Management | **313** | 295 | 270 | 326 | 382 | 362 | 311 | 291 |
| &nbsp;&nbsp;&nbsp;&nbsp;Asia | **152** | 175 | 148 | 152 | 130 | 145 | 152 | 159 |
| &nbsp;&nbsp;&nbsp;&nbsp;Corporate | **(39)** | (37) | (24) | (51) | 48 | (5) | (35) | (56) |
| Total underlying net income (loss)<sup>(3)</sup> | **990** | 949 | 892 | 843 | 898 | 902 | 883 | 850 |

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<sup>(1)</sup> Represents an adjustment made to arrive at a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment.

<sup>(2)</sup> Other adjustments to arrive at a non-IFRS financial measure include other items that are unusual or exceptional in nature. See section L - Non-IFRS Financial Measures in this document.

<sup>(3)</sup> Represents a non-IFRS financial measure. For more details, see section L - Non-IFRS Financial Measures in this document.<sup>.</sup>

<sup>(4)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

**Third Quarter 2022**

Reported&nbsp;&nbsp;&nbsp;&nbsp;net income of $466 million decreased $553 million or 54% from prior year, primarily reflecting unfavourable market-related impacts, a

$170 million charge related to the sale of&nbsp;&nbsp;&nbsp;&nbsp;Sun Life UK, less favourable ACMA impacts, and an increase in SLC Management's acquisition-related&nbsp;&nbsp;&nbsp;&nbsp;

liabilities, partially offset by fair value changes on MFS' share-based payment awards. Underlying net income of $949 million increased $47 million or 5%, driven by business growth and experience in protection and health including a strong contribution from the DentaQuest acquisition. This was partially offset by lower fee-based income in wealth and asset management, mainly driven by declines in global equity markets.&nbsp;&nbsp;&nbsp;&nbsp;**&nbsp;&nbsp;&nbsp;&nbsp;**

**Second Quarter 2022**

Q2'22 reported net income of $785 million decreased $115 million or 13%, reflecting unfavourable market-related impacts and DentaQuest acquisition costs, partially offset by fair value changes on MFS' share-based payment awards and a gain on the sale-leaseback of our Wellesley office in the U.S. Underlying net income of $892 million was up slightly driven by business growth, new business gains, contribution from the DentaQuest acquisition, and lower incentive compensation expenses. This was largely offset by Asset Management results reflecting a decline in global equity markets driving lower average net assets, lower available-for-sale gains and morbidity experience in the U.S. Foreign exchange translation led to an increase of $16 million and $12 million in reported net income and underlying net income, respectively.

92 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**First Quarter 2022**

Q1'22 reported net income of $858 million decreased $79 million or 8%, driven by less favourable market-related impacts, partially offset by a Q1'21 restructuring charge and lower fair value changes on MFS' share-based payment awards. Underlying net income of $843 million was down slightly, driven by broad-based business growth, favourable expense experience and investment gains, offset by unfavourable mortality and morbidity experience, and lower AFS gains.

**Fourth Quarter 2021**

Q4'21 reported net income of $1,078 million increased $334 million or 45% compared to the prior year, driven by a $297 million gain on the Initial Public Offering of our India asset management joint venture and an increase in the value of our real estate investments, partially offset by a

$153 million increase in SLC Management's acquisition-related liabilities. Underlying net income of $898 million increased $36 million or 4%, driven by broad-based business growth across our pillars, with particular strength in asset management and wealth. Underlying net income also benefited from a lower effective tax rate in the quarter, largely offset by $113 million of ongoing COVID-19-related mortality and morbidity experience. Foreign exchange translation led to a decline of $33 million in reported net income and $22 million in underlying net income.

**Third Quarter 2021**

Q3'21 reported net income of $1,019 million increased $269 million or 36% compared to the prior year, driven by favourable market-related impacts from changes in the fair value of investment properties, and ACMA, partially offset by a par allocation adjustment. Underlying net income of

$902 million increased by $60 million or 7%, driven by business growth, favourable credit experience and higher tax-exempt investment income. This was partially offset by morbidity and expense experience, and the unfavourable impacts of foreign exchange translation. Mortality experience was elevated in the U.S. and Asia, but relatively in line with the prior year. During the Q3'21, the impacts of foreign exchange translation led to a decline of $41 million in reported net income and $36 million in underlying net income.

**Second Quarter 2021**

Q2'21 reported net income increased by $381 million compared to the prior year, driven by favourable market-related impacts, primarily from changes in interest rates. Underlying net income increased by $144 million or 19%, driven by business growth, a lower effective tax rate, and favourable credit experience. These factors were partially offset by the unfavourable impacts of foreign exchange translation, lower investing activity and unfavourable expense experience. During Q2'21, the impacts of foreign exchange translation decreased reported net income and underlying net income by $70 million and $75 million, respectively.

**First Quarter 2021**

Q1'21 reported net income increased by $546 million compared to the prior year, driven by market-related impacts, reflecting favourable equity markets and interest rate changes, partially offset by unfavourable credit spread movements. This was partially offset by higher fair value adjustments on MFS' share-based payment awards and higher restructuring costs. An after-tax restructuring charge of $57 million was recorded in Q1'21 that related to our strategy for our workspace and redefining the role of the office. Underlying net income increased by $80 million or 10%, driven by business growth, favourable morbidity experience in the U.S. and favourable credit experience in Canada, partially offset by lower investing activity gains in Canada and the U.S. During Q1'21, the impacts of foreign exchange translation decreased reported net income and underlying net income by $33 million and $31 million, respectively.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 93

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**L. Non-IFRS Financial Measures**

**i.Underlying Net Income and Underlying EPS**

Underlying net income (loss) and financial measures based on underlying net income (loss), including underlying EPS or underlying loss per share, and underlying ROE, are non-IFRS financial measures. Underlying net income (loss) removes from reported net income (loss) the impacts of the following items in our results under IFRS and when removed assist in explaining our results from period to period:

(a)market-related impacts that differ from our best estimate, which include: (i) impacts of returns in equity markets, net of hedging, for which our best estimate assumptions are approximately 2% per quarter. This also includes the impact of the basis risk inherent in our hedging program, which is the difference between the return on underlying funds of products that provide benefit guarantees and the return on the derivative assets used to hedge those benefit guarantees; (ii) the impacts of changes in interest rates in the reporting period and on the value of derivative instruments used in our hedging programs including changes in credit and swap spreads, and any changes to the assumed fixed income reinvestment rates in determining the actuarial liabilities; (iii) the impacts of changes in the fair value of investment properties in the reporting period; and (iv) tax-exempt investment income<sup>(1)</sup>;

(b)assumption changes and management actions, which include: (i) the impacts of revisions to the methods and assumptions used in determining our liabilities for insurance contracts and investment contracts; and (ii) the impacts on insurance contracts and investment contracts of actions taken by management in the current reporting period, referred to as management actions which include, for example, changes in the prices of in-force products, new or revised reinsurance on in-force business, and material changes to investment policies for assets supporting our liabilities; and

(c)other adjustments:

&nbsp;&nbsp;&nbsp;&nbsp;i.fair value adjustments on MFS' share-based payment awards that are settled with MFS' own shares and accounted for as liabilities and measured at fair value each reporting period until they are vested, exercised and repurchased - this adjustment enhances the comparability of MFS' results with publicly traded asset managers in the United States;

&nbsp;&nbsp;&nbsp;&nbsp;ii.acquisition, integration and restructuring costs - this adjustment enhances comparability of our results from period to period, by removing the impacts of costs, including the unwinding of the discount for certain liabilities related to acquisitions, that are not ongoing in nature and are incurred with the intent to generate benefits in future periods;

&nbsp;&nbsp;&nbsp;&nbsp;iii.certain hedges in Canada that do not qualify for hedge accounting - this adjustment enhances the comparability of our results from period to period, as it reduces volatility to the extent it will be offset over the duration of the hedges; and

&nbsp;&nbsp;&nbsp;&nbsp;iv.other items that are unusual or exceptional in nature.

All factors discussed in this document that impact our underlying net income are also applicable to reported net income. All EPS measures in this document refer to fully diluted EPS, unless otherwise stated. As noted below, underlying EPS excludes the dilutive impacts of convertible instruments.

**Underlying EPS (diluted).** This measure is used in comparing the profitability across multiple periods and is calculated by dividing underlying net income by weighted average common shares outstanding for diluted EPS, excluding the dilutive impact of convertible instruments. For additional information about the underlying net income, see above. For additional information about the composition of the EPS, please refer to Note 26 of our 2022 Annual Consolidated Financial Statements. For additional information about the SLEECS, please refer to Note 13 of our 2022 Annual Consolidated Financial Statements.

<sup>(1)</sup> The removal of tax-exempt investment income differing from our best estimate has been applied prospectively, effective Q4'22.

94 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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The following table sets out the post-tax amounts that were excluded from our underlying net income (loss) and underlying EPS and provides a reconciliation to our reported net income (loss) and EPS based on IFRS.

**Reconciliations of Select Net Income Measures**

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| | | |
|:---|:---|:---|
| ($ millions, unless otherwise noted) | **2022** | 2021 |
| Reported net income - Common shareholders | **3060** | 3934 |
| &nbsp;&nbsp;&nbsp;&nbsp;Market-related impacts |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity market impacts |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impacts from equity market changes | **(294)** | 278 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basis risk impacts | **51** | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity market impacts | **(243)** | 302 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest rate impacts<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impacts of interest rate changes | **(296)** | 74 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impacts of credit spread movements | **50** | (11) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impacts of swap spread movements | **(2)** | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest rate impacts | **(248)** | 71 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impacts of changes in the fair value of investment properties | **81** | 254 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts | **(410)** | 627 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Assumption changes and management actions | **62** | 74 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value adjustments on MFS' share-based payment awards | **106** | (186) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition, integration and restructuring<sup>(2)(3)(4)(5)(6)</sup> | **(338)** | (18) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other<sup>(7)(8)(9)(10)(11)(12)(13)</sup> | **(34)** | (96) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Total of other adjustments | **(266)** | (300) |
| Underlying net income | **3674** | 3533 |
| Reported EPS (diluted) ($) | **5.21** | 6.69 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts ($) | **(0.70)** | 1.06 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption changes and management actions ($) | **0.10** | 0.12 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value adjustments on MFS' share-based payment awards ($) | **0.18** | (0.32) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition, integration and restructuring ($) | **(0.56)** | (0.03) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other ($) | **(0.06)** | (0.16) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impact of convertible securities on diluted EPS ($) | **(0.02)** | (0.01) |
| Underlying EPS (diluted) ($) | **6.27** | 6.03 |

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<sup>(1)</sup> Our exposure to interest rates varies by product type, line of business, and geography. Given the long-term nature of our business, we have a higher degree of sensitivity in respect of interest rates at long durations.

<sup>(2)</sup> Amounts relate to acquisition costs for our SLC Management affiliates, BentallGreenOak, InfraRed Capital Partners and Crescent Capital Group LP, which include the unwinding of the discount for Other financial liabilities of $64 million in 2022 (2021 - $59 million).

<sup>(3)</sup> The restructuring charge of $57 million in 2021 related to our strategy for our workspace and redefining the role of the office.

<sup>(4)</sup> Reflects acquisition and integration costs associated with DentaQuest, acquired on June 1, 2022.

<sup>(5)</sup> Reflects the changes in estimated future payments for acquisition-related contingent considerations and options to purchase remaining ownership interests of SLC Management affiliates of $80 million in 2022 and $153 million in 2021.

<sup>(6)</sup> Reflects a realized gain of $297 million on the Initial Public Offering of Aditya Birla Sun Life Asset Management Company in Q4'21.

<sup>(7)</sup> Q3'22 reflects an impairment charge of $170 million (£108 million) pertaining to the attributed goodwill that is not expected to be recovered through the Sun Life UK sale. For more details, see section B - Overview - 4 - Acquisitions and Other in this document.

<sup>(8)</sup> Includes a charge of $55 million in Q3'22 reflecting the resolution of a matter related to reinsurance pricing for our U.S. In-force Management business.

<sup>(9)</sup> Q2'22 reflects a gain on the sale-leaseback of our Wellesley office in the U.S.

<sup>(10)</sup> Q3'21 reflects an adjustment for investment income and expense allocations between participating policyholders and shareholders for prior years.

<sup>(11)</sup> Q2'21 reflects the UK Finance Act that was signed into law on June 10, 2021, increasing the corporate tax rate from 19% to 25%, which will take effect for future tax periods beginning April 1, 2023. As a result, reported net income decreased by $11 million.

<sup>(12)</sup> On December 15, 2022, legislation implementing an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was enacted in Canada ("Canada Tax Rate Change"). This legislation applies retroactively to the Federal Budget date of April 7, 2022. As a result, reported net income increased by $127 million in the fourth quarter, reflected in ACMA and Other adjustments. Refer to section D - Profitability in this document for more information.

<sup>(13)</sup> Q4'22 includes the unwinding of an internal reinsurance agreement.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 95

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The following table shows the pre-tax amount of underlying net income adjustments:

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| | | |
|:---|:---|:---|
| ($ millions, unless otherwise noted) | **2022** | 2021 |
| Reported net income - Common shareholders (after-tax) | **3060** | 3934 |
| Underlying net income adjustments (pre-tax): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts | **(401)** | 849 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assumption changes and management actions | **83** | 66 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments<sup>(1)</sup> | **(419)** | (320) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total underlying net income adjustments (pre-tax) | **(737)** | 595 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Taxes related to underlying net income adjustments<sup>(1)</sup> | **123** | (194) |
| Underlying net income (after-tax) | **3674** | 3533 |

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<sup>(1)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

Taxes related to underlying net income adjustments may vary from the expected effective tax rate range reflecting the mix of business based on the Company's international operations.

**ii.Additional Non-IFRS Financial Measures**

Management also uses the following non-IFRS financial measures:

**After-tax profit margin for U.S. Group Benefits.** This ratio expresses U.S. Group Benefits underlying net income as a percentage of net premiums. It assists in explaining our results from period to period and measures profitability. This ratio is calculated by dividing underlying net income (loss) by net premiums for the trailing four quarters. There is no directly comparable IFRS measure.

**Assets under management.** AUM is a non-IFRS financial measure that indicates the size of our company's asset management, wealth, and insurance assets. There is no standardized financial measure under IFRS. In addition to the most directly comparable IFRS measures, which are the balance of General funds and Segregated funds on our Statements of Financial Position, AUM also includes Other AUM.

**Assumption changes and management actions.** In this document the impacts of ACMA on shareholders' net income (after-tax) is included in reported net income and is excluded from underlying net income, as described in section D - Profitability - 2 - Assumption changes and management actions in this document for details on ACMA.

Note 10.A of the Consolidated Financial Statements for the period ended December 31, 2022 shows the pre-tax impacts of method and assumption changes on shareholders' and participating policyholders' insurance contract liabilities net of reinsurance assets, excluding changes in other policy liabilities and assets. The view in this document of ACMA is the impacts on shareholders' reported net income (after-tax). The Consolidated Financial Statements view is a component of the change in total company liabilities.

The following table provides a reconciliation of the differences between the two measures.

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Impacts of method and assumption changes on insurance contract liabilities (pre-tax) | **57** | (273) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Participating policyholders<sup>(1)</sup> | **3** | (9) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Other items<sup>(2)</sup> | **(20)** |  |
| Impacts of method and assumption changes excluding participating policyholders (pre-tax) | **74** | (264) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Tax | **19** | (93) |
| Impacts of method and assumption changes excluding participating policyholders (after-tax) | **55** | (171) |
| &nbsp;&nbsp;&nbsp;&nbsp;Add: Management actions (after-tax)<sup>(3)</sup> | **7** | 247 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other (after-tax)<sup>(4)</sup> | **—** | (2) |
| Assumption changes and management actions (after-tax)<sup>(5)(6)</sup> | **62** | 74 |

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<sup>(1)</sup> Adjustment to remove the pre-tax impacts of method and assumption changes on amounts attributed to participating policyholders.

<sup>(2)</sup> Other includes a charge reflecting the resolution of a matter related to reinsurance pricing for our U.S. In-force Management business.

<sup>(3)</sup> Adjustment to include the impacts of management actions on insurance contract liabilities and investment contract liabilities which include, for example, changes in the prices of in-force products, new or revised reinsurance on in-force business, and material changes to investment policies for assets supporting our liabilities, on an after-tax basis. The pre-tax impact of management actions to Method and assumption changes on insurance contract liabilities was an increase of $9 million in 2022 (2021 - an increase of $331 million).

<sup>(4)</sup> Adjustments to include the impacts of method and assumption changes on investment contracts and other policy liabilities, on an after-tax basis. The pre-tax impact to Method and assumption changes on insurance contract liabilities was $nil in 2022 (2021 - a decrease of $2 million).

<sup>(5)</sup> Includes the tax impacts of ACMA on insurance contract liabilities and investment contract liabilities, reflecting the tax rates in the jurisdictions in which we do business.

<sup>(6)</sup> ACMA is included in reported net income and is excluded in calculating underlying net income, as described in section D - Profitability in this document.

**AUM not yet earning fees.** This measure represents the committed uninvested capital portion of total AUM not currently earning management fees. The amount depends on the specific terms and conditions of each fund. There is no directly comparable IFRS measure.

96 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**<br>Capital raising.** This measure consists of increases in SLC Management's commitments from fund raising activities for all real estate, infrastructure and alternative credit Clients excluding leverage. Investment-grade fixed income capital raising consists of sales made to new Clients. There is no directly comparable IFRS measure.

**Cash and other liquid assets.** This measure is comprised of cash, cash equivalents, short-term investments, and publicly traded securities, net of loans related to acquisitions that are held at SLF Inc. (the ultimate parent company), and its wholly owned holding companies. This measure represents available funds for capital re-deployment to support business growth.

---

| | | |
|:---|:---|:---|
| ($ millions) | **As at December 31, 2022** | As at December 31, 2021 |
| **Cash and other liquid assets (held at SLF Inc. and its wholly owned holding companies):** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash, cash equivalents & short-term securities | **423** | 2383 |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities<sup>(1)</sup> | **1408** | 1421 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity securities<sup>(2)</sup> | **102** | 861 |
| Sub-total<sup>(3)</sup> | **1933** | 4665 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Loans related to acquisitions (held at SLF Inc. and its wholly owned holding companies)<sup>(4)</sup> | **(883)** |  |
| Cash and other liquid assets (held at SLF Inc. and its wholly owned holding companies)<sup>(5)</sup> | **1050** | 4665 |

---

<sup>(1)</sup> Includes publicly traded bonds.

<sup>(2)</sup> Includes ETF Investments.

<sup>(3)</sup> Q4'21 amounts included $2.0 billion of proceeds from the subordinated debt offerings completed in November 2021, of which $1.5 billion did not qualify as LICAT capital at issuance as it was subject to contractual terms requiring us to redeem the underlying securities in full if the closing of the DentaQuest acquisition did not occur. We completed the acquisition of DentaQuest on June 1, 2022.

<sup>(4)</sup> Loans related to acquisitions have been included as an adjustment to Cash and other liquid assets, as they reflect funding for the DentaQuest acquisition.

<sup>(5)</sup> Represents available funds for capital re-deployment.

**Constant currency.** We remove the impacts of foreign exchange translation from certain IFRS and non-IFRS measures to assist in comparing our results from period to period. The impacts of foreign exchange translation is approximated by using the foreign exchange rates in effect during the comparative period, using the average or period end foreign exchange rates, as appropriate.

**Deployment.** This measure represents the amount of capital that has been invested in the period, including leverage where applicable. Deployment also includes capital committed in infrastructure deals to be invested in specific assets. There is no directly comparable IFRS measure.

**Earnings on Surplus.** This component of the Sources of Earnings ("SOE") represents the net income earned on a company's surplus funds. Earnings on Surplus is comprised of realized gains on available-for-sale assets, as well as net investment returns on surplus, such as investment income, gains (losses) on seed investments, investment properties mark-to-market, and interest on debt.

**Expected profit**. The portion of the consolidated pre-tax net income on business in-force at the start of the reporting period that was expected to be realized based on the achievement of the best estimate assumptions made at the beginning of the reporting period. Expected profit for asset management companies is set equal to their pre-tax net income.

**Experience-related items attributable to reported net income and underlying net income.** Pre-tax gains and losses that are due to differences between the actual experience during the reporting period and the best estimate assumptions at the start of the reporting period. Experience-related items are a part of the Sources of Earnings framework, and are calculated in accordance with OSFI Guideline D-9, Sources of Earnings Disclosures.

**Fee earning AUM.** FE AUM consists of assets managed by SLC Management, which are beneficially owned by Clients, to which we provide investment management, property management or advisory-related services on the basis of which we earn management fees pursuant to management or other fee agreements. There is no directly comparable IFRS measure.

**Fee-related earnings and Operating income. Fee-related earnings** represent profitability of SLC Management's fee-related portfolios, and is calculated as Fee-related revenue less Fee-related expenses. **Operating income** represents profit realized from our business operations, and is calculated as the sum of Fee-related earnings, Investment income (loss) and performance fees, and Interest and other. **Fee-related revenue** represents all fee income, with the exception of performance fees, generated from third-party investors. **Fee-related expenses** represent all expenses directly related to generating fee revenue from third-party investors. **Investment income (loss) and performance fees** represent total income or loss from our seed investments, net of the related expenses. **Interest and other** represents performance fee compensation, our net interest income or expense and income from managing the General Account assets.

**Fee-related earnings** and **Operating income** are non-IFRS financial measures within SLC Management's Supplemental Income Statement, which enhances the comparability of SLC Management's results with publicly traded alternative asset managers. For more details, see our Supplementary Financial Information package for the quarter.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 97

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The following table provides a reconciliation from Fee-related earnings and Operating income to SLC Management's Fee income and Total expenses based on IFRS.

---

| | | |
|:---|:---|:---|
| **SLC Management** | | |
| ($ millions) | **2022** | 2021 |
| &nbsp;&nbsp;&nbsp;&nbsp;Fee income (per IFRS) | **1412** | 1099 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Non-fee-related revenue adjustments<sup>(1)(2)</sup> | **435** | 231 |
| **Fee-related revenue** | **977** | 868 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total expenses (per IFRS) | **1405** | 1271 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Non-fee-related expense adjustments<sup>(2)(3)</sup> | **665** | 600 |
| **Fee-related expenses** | **740** | 671 |
| **Fee-related earnings** | **237** | 197 |
| &nbsp;&nbsp;&nbsp;&nbsp;Add: Investment income (loss) and performance fees<sup>(4)</sup> | **24** | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;Add: Interest and other<sup>(5)</sup> | **(50)** | (35) |
| **Operating income** | **211** | 196 |

---

<sup>(1)</sup> Includes Interest and other - fee income, Investment income (loss) and performance fees - fee income, and Other - fee income.

<sup>(2)</sup> Excludes the income and related expenses for certain property management agreements to provide more accurate metrics on our fee-related business.

<sup>(3)</sup> Includes Interest and other, Placement fees - other, Amortization of intangibles, Acquisition, integration and restructuring, and Other - expenses.

<sup>(4)</sup> Investment income (loss) and performance fee in SLC Management's Supplemental Income Statement relates to our seed investments, and as such, we have excluded the gains or losses of certain non-seed hedges that are reported under Net investment income (loss) under IFRS as follows (amounts have been adjusted for rounding):

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Net investment income (loss) (per IFRS) | **1** | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Other - Investment income (loss) | **(15)** | (3) |
| &nbsp;&nbsp;&nbsp;&nbsp;Add: Investment income (loss) and performance fees - fee income | **8** | 12 |
| Investment income (loss) and performance fees | **24** | 34 |

---

<sup>(5)</sup> Includes Interest and other reported under Fee income under IFRS, net of Interest and other reported under Total expenses under IFRS.

**Financial leverage ratio.** This total debt to total capital ratio is ratio of debt plus preferred shares to total capital, where debt consists of all capital qualifying debt securities. Capital qualifying debt securities consist of subordinated debt and innovative capital instruments. The ratio is an indicator of the Company's capital adequacy measured by its proportion of capital qualifying debt in accordance with OSFI guidelines.

**Impacts of foreign exchange translation**. To assist in comparing our results from period-to-period, the favourable or unfavourable impacts of foreign exchange translation are approximated using the foreign exchange rates, in effect during the comparative period, for several IFRS and Non-IFRS financial measures using the average or period end foreign exchange rates, as appropriate. Items impacting a reporting period, such as Revenue, Benefits and expenses, and Reported net income (loss) in our Consolidated Statements of Operations, as well as underlying net income (loss), and sales, are translated into Canadian dollars using average exchange rates for the appropriate daily, monthly, or quarterly period. For items as at a point in time, such as Assets and Liabilities in our Consolidated Statements of Financial Position, as well as the AUM and Expected profit component of our Sources of Earnings disclosure, period-end rates are used for currency translation purposes.

**Impact of new business.** The point-of-sale impact on pre-tax net income of writing new business during the reporting period. Issuing new business may produce a gain or loss at the point-of sale, primarily because valuation assumptions are different than pricing assumptions and/or actual acquisition expenses may differ from those assumed in pricing.

**Other AUM.** Other AUM is composed of retail, institutional and other-third party assets, as well as general fund and segregated fund assets managed by our joint ventures. In Canada, other AUM includes Client assets in retail mutual fund products of Sun Life Global Investments. In Asia, other AUM includes Client assets in Hong Kong managed fund products, International wealth products, Philippines mutual and managed fund products, Aditya Birla Sun Life AMC Limited equity and fixed income mutual fund products, Sun Life Everbright Asset Management products and our joint ventures' general fund and segregated fund assets based on our proportionate equity interest. In Asset Management, other AUM includes Client assets for retail and institutional Clients, as well as capital raising, such as uncalled commitments and fund leverage in SLC Management. There is no directly comparable IFRS financial measure.

Effective January 1, 2022, certain components of Other AUM were renamed to "Retail" and "Institutional and managed funds" to align with market naming conventions. Previously, these components were referred to as Mutual funds and Managed funds, respectively, in our interim and annual MD&A. While labeling changes have modified certain terminology, the composition of these components has not been affected.

**Pre-tax fee related earnings margin.** This ratio is a measure of SLC Management's profitability in relation to funds that earn recurring fee revenues, while excluding investment income and performance fees. The ratio is calculated by dividing fee-related earnings by fee-related revenues and is based on the last twelve months. There is no directly comparable IFRS measure.

**Pre-tax net operating margin.** This ratio is a measure of the profitability and there is no directly comparable IFRS measure. For MFS, this ratio is calculated by excluding the impact of fair value adjustments on MFS' share-based payment awards and certain commission expenses that are offsetting. These commission expenses are excluded in order to neutralize the impact these items have on the pre-tax net operating margin and have no impact on the profitability of MFS. For SLC Management, the ratio is calculated by dividing the total operating income by fee-related revenue plus investment Income (loss) and performance fees, and is based on the last twelve months.

98 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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Effective January 1, 2022, this measure was renamed to "Pre-tax net operating margin" to improve naming consistency within our Asset Management business. Previously, this measure was referred to as "Pre-tax net operating profit margin ratio for MFS" in our interim and annual MD&A. While labeling changes has modified certain terminology, the composition of the measure has not been affected.

The following table provides a reconciliation to calculate MFS' pre-tax net operating margin:

---

| | | |
|:---|:---|:---|
| **MFS** | Year-to-date | Year-to-date |
| (US$ millions) | **2022** | 2021 |
| **Revenue** |  |  |
| Fee income (per IFRS) | **3323** | 3779 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Commissions | **433** | 509 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Other<sup>(1)</sup> | **(53)** | (42) |
| **Adjusted revenue** | **2943** | 3312 |
| **Expenses** |  |  |
| Expenses (per IFRS) | **2162** | 2650 |
| Net investment (income)/loss (per IFRS) | **(17)** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Gross fair value adjustments on share-based payment awards<sup>(2)</sup> | **(38)** | 216 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Commissions | **433** | 509 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Other<sup>(1)</sup> | **(53)** | (42) |
| **Adjusted expenses** | **1803** | 1967 |
| **Pre-tax net operating margin** | **39%** | 41% |

---

<sup>(1)</sup> Other includes accounting basis differences, such as sub-advisory expenses and product allowances.

<sup>(2)</sup> For more information on this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

**Real estate market sensitivities.** Real estate market sensitivities are non-IFRS financial measures for which there are no directly comparable measures under IFRS so it is not possible to provide a reconciliation of these amounts to the most directly comparable IFRS measures.

**Return on equity.** IFRS does not prescribe the calculation of ROE and therefore a comparable measure under IFRS is not available. To determine reported ROE and underlying ROE, respectively, reported net income (loss) and underlying net income (loss) is divided by the total weighted average common shareholders' equity for the period. The ROE provides an indication of the overall profitability of the Company. The quarterly ROE is annualized.

**Sales and gross flows.** In Canada, insurance sales consist of sales of individual insurance and Sun Life Health products; wealth sales consist of sales of individual wealth products and sales in GRS. In the U.S., insurance sales consist of sales by Group Benefits. In Asia, insurance sales consist of the individual and group insurance sales by our subsidiaries and joint ventures and associates, based on our proportionate equity interest, in the Philippines, Indonesia, India, China, Malaysia, Vietnam, International, Hong Kong and Singapore; wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales by our India and China insurance joint ventures and associates, and Aditya Birla Sun Life AMC Limited's equity and fixed income mutual fund sales based on our proportionate equity interest, including sales as reported by our bank distribution partners. Asset Management gross flows includes funds from retail and institutional Clients; SLC Management gross flows include capital raising, such as uncalled capital commitments and fund leverage. In Canada and in Asia, net sales consist of gross wealth sales less redemptions. Asset Management net flows consist of gross flows less gross outflows; SLC Management's net flows do not include Client distributions from the sale of underlying assets in closed-end funds. To provide greater comparability across reporting periods, we exclude the impacts of foreign exchange translation from sales and gross flows. There is no directly comparable IFRS measure.

**Sources of Earnings ("SOE")**. The SOE is prepared in accordance with the OSFI Guideline D-9, *Sources of Earnings Disclosures* and is therefore not prescribed under IFRS. The preparation for the document and its components does not have a standard for preparation as it depends on the methodology, estimates, and assumptions used. The components of the SOE are: expected profit, impact of new business, experience gains and losses, management actions and changes in assumptions, and earnings on surplus. On a comparative period-over-period basis, this document refers to the change in expected profit as business growth.

**Total weighted premium income ("TWPI").** This measure consists of 100% renewal premiums, 100% of first year premiums, and 10% of single premiums. In contrast to sales, which only includes premiums from new business, TWPI includes renewal premiums, reflecting the strength of the in-force block and providing a better understanding of both new and existing business.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 99

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The following table provides a reconciliation to calculate Total weighted premium income for Asia:

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| **Gross premiums** | **3563** | 3595 |
| Less: Pension premiums | **28** | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adjustment for single premiums | **1268** | 1605 |
| Add: Premiums from segregated fund deposits | **935** | 997 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Premiums from joint ventures | **1696** | 1434 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments<sup>(1)</sup> | **(14)** | (28) |
| **Total weighted premium income (TWPI)** | **4884** | 4362 |

---

<sup>(1)</sup> Other includes small presentation adjustments.

**Underlying dividend payout ratio.** This is the ratio of dividends paid per share to diluted underlying EPS for the period. The ratio is utilized during the capital budgeting process to ensure that we are able to achieve our payout targets after factoring in our planned capital initiatives. We target an underlying dividend payout ratio of between 40% and 50% based on underlying EPS. For more information, see Section I - Capital and Liquidity Management in this document.

**Underlying effective tax rate.** This measure is calculated using the pre-tax underlying net income and the income tax expense associated with it. Our statutory tax rate is normally reduced by various tax benefits, such as lower taxes on income subject to tax in foreign jurisdictions, a range of tax-exempt investment income, and other sustainable tax benefits. Our effective tax rate helps in the analysis of the income tax impacts in the period.

**Value of New Business.** VNB represents the present value of our best estimate of future distributable earnings, net of the cost of capital, from new business contracts written in a particular time period, except new business in our Asset Management pillar. The assumptions used in the calculations are generally consistent with those used in the valuation of our insurance contract liabilities except that discount rates used approximate theoretical return expectations of an equity investor. Capital required is based on the higher of Sun Life Assurance's LICAT operating target and local (country specific) operating target capital. VNB is a useful metric to evaluate the present value created from new business contracts. There is no directly comparable IFRS measure.

**iii.Reconciliations of Select Non-IFRS Financial Measures**

**Reported Net Income to Underlying Net Income Reconciliation - Pre-tax by Business Group**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Q4'22** | **Q4'22** | **Q4'22** | **Q4'22** | **Q4'22** | **Q4'22** |
| ($ millions) | **Canada** | **U.S.** | **Asset<br>Management** | **Asia** | **Corporate** | **Total** |
| Reported net income (loss) - Common shareholders | **367** | **110** | **322** | **98** | **54** | **951** |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | **(110)** | **(79)** | **—** | **(87)** | **3** | **(273)** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | **47** | **4** | **—** | **16** | **—** | **67** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(2)</sup> | **(1)** | **(96)** | **9** | **17** | **(17)** | **(88)** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(2)</sup> | **107** | **41** | **—** | **—** | **107** | **255** |
| Underlying net income (loss) | **324** | **240** | **313** | **152** | **(39)** | **990** |
|  | Q4'21 | Q4'21 | Q4'21 | Q4'21 | Q4'21 | Q4'21 |
| Reported net income (loss) - Common shareholders | 356 | 85 | 140 | 446 | 51 | 1078 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | 71 | 51 |  | 29 | 2 | 153 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | 2 | (23) |  | (2) |  | (23) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(2)</sup> | (3) | (10) | (273) | 353 |  | 67 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(2)</sup> | 20 | (5) | 31 | (64) | 1 | (17) |
| Underlying net income (loss) | 266 | 72 | 382 | 130 | 48 | 898 |

---

<sup>(1)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

<sup>(2)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

100 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **2022** | **2022** | **2022** | **2022** | **2022** | **2022** |
| ($ millions) | **Canada** | **U.S.** | **Asset<br>Management** | **Asia** | **Corporate** | **Total** |
| Reported net income (loss) - Common shareholders | **1000** | **586** | **1141** | **515** | **(182)** | **3060** |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | **(300)** | **2** | **—** | **(82)** | **(21)** | **(401)** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | **98** | **(18)** | **—** | **(41)** | **44** | **83** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(2)</sup> | **(3)** | **(172)** | **(67)** | **10** | **(187)** | **(419)** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(2)</sup> | **(61)** | **46** | **4** | **1** | **133** | **123** |
| Underlying net income (loss) | **1266** | **728** | **1204** | **627** | **(151)** | **3674** |
|  | 2021 | 2021 | 2021 | 2021 | 2021 | 2021 |
| ($ millions) | Canada | U.S. | Asset<br>Management | Asia | Corporate | Total |
| Reported net income (loss) - Common shareholders | 1558 | 499 | 892 | 1075 | (90) | 3934 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | 669 | 117 |  | 67 | (4) | 849 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | 52 | (126) |  | 135 | 5 | 66 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(2)</sup> | (118) | (14) | (470) | 352 | (70) | (320) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(2)</sup> | (176) | 4 | 16 | (65) | 27 | (194) |
| Underlying net income (loss) | 1131 | 518 | 1346 | 586 | (48) | 3533 |

---

<sup>(1)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

<sup>(2)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

**Reported Net Income to Underlying Net Income Reconciliation - Pre-tax by Business Unit - Asset Management**

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Q4'22** | **Q4'22** | Q4'21 | Q4'21 |
| ($ millions) | **MFS** | **SLC<br>Management** | MFS | SLC<br>Management |
| Reported net income (loss) - Common shareholders | **303** | **19** | 295 | (155) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Other adjustments (pre-tax)<sup>(1)(2)</sup> | **33** | **(24)** | (48) | (225) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tax expense (benefit) on above items<sup>(2)</sup> | **(5)** | **5** | 1 | 30 |
| Underlying net income (loss) | **275** | **38** | 342 | 40 |

---

<sup>(1)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

<sup>(2)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **2022** | **2022** | 2021 | 2021 |
| ($ millions) | **MFS** | **SLC<br>Management** | MFS | SLC<br>Management |
| Reported net income (loss) - Common shareholders | **1195** | **(54)** | 1049 | (157) |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Other adjustments (pre-tax)<sup>(1)(2)</sup> | **123** | **(190)** | (188) | (282) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tax expense (benefit) on above items<sup>(2)</sup> | **(17)** | **21** | 2 | 14 |
| Underlying net income (loss) | **1089** | **115** | 1235 | 111 |

---

<sup>(1)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

<sup>(2)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 101

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**Reported Net Income to Underlying Net Income Reconciliation - Pre-tax in U.S. dollars**

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Q4'22** | **Q4'22** | Q4'21 | Q4'21 |
| (US$ millions) | **U.S.** | **MFS** | U.S. | MFS |
| Reported net income (loss) - Common shareholders | **81** | **223** | 68 | 234 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | **(58)** | **—** | 42 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | **3** | **—** | (19) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(2)</sup> | **(71)** | **24** | (8) | (39) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(2)</sup> | **30** | **(3)** | (3) | 1 |
| Underlying net income (loss) | **177** | **202** | 56 | 272 |

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<sup>(1)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

<sup>(2)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

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| | | | | |
|:---|:---|:---|:---|:---|
| | **2022** | **2022** | 2021 | 2021 |
| (US$ millions) | **U.S.** | **MFS** | U.S. | MFS |
| Reported net income (loss) - Common shareholders | **453** | **919** | 399 | 836 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(1)</sup> | **4** | **—** | 94 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | **(13)** | **—** | (101) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(1)(2)</sup> | **(129)** | **94** | (11) | (150) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items<sup>(2)</sup> | **34** | **(13)** | 4 | 1 |
| Underlying net income (loss) | **557** | **838** | 413 | 985 |

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<sup>(1)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

<sup>(2)</sup> Effective January 1, 2022, there was a change in presentation for the fair value adjustments on MFS' share-based payment awards. We have updated prior periods to reflect this change in presentation. The post-tax basis presentation was not affected.

**Reported Net Income to Underlying Net Income Reconciliation - U.S. Group Benefits - Pre-tax in U.S. dollars**

The following table sets out the amounts that were excluded from our underlying net income (loss) for U.S. Group Benefits, which is used to calculate the trailing four-quarter after-tax profit margin for U.S. Group Benefits.

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| | | |
|:---|:---|:---|
| (US$ millions) | **Q4'22** | Q4'21 |
| Reported net income (loss) - Common shareholders<sup>(1)</sup> | **110** | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(2)</sup> | **(5)** | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | **—** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(2)</sup> | **(1)** | (1) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items | **1** | (1) |
| Underlying net income (loss) for U.S. Group Benefits | **115** |  |

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<sup>(1)</sup> Effective Q2'22, we began reporting on the performance and results of our Dental business unit, which represents our existing dental and vision business within Group Benefits together with DentaQuest, acquired on June 1, 2022. We have updated prior periods to reflect this change in presentation.

<sup>(2)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

The following table sets out the amounts that were excluded from our underlying net income (loss) for U.S. Group Benefits, which is used to calculate the trailing four-quarter after-tax profit margin for U.S. Group Benefits.

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| | | |
|:---|:---|:---|
| (US$ millions) | **2022** | 2021 |
| Reported net income (loss) - Common shareholders<sup>(1)</sup> | **347** | 243 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Market-related impacts (pre-tax)<sup>(2)</sup> | **(12)** | 17 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACMA (pre-tax) | **(8)** | (4) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other adjustments (pre-tax)<sup>(2)</sup> | **(3)** | (4) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) on above items | **5** | (2) |
| Underlying net income (loss) for U.S. Group Benefits | **365** | 236 |

---

<sup>(1)</sup> Effective Q2'22, we began reporting on the performance and results of our Dental business unit, which represents our existing dental and vision business within Group Benefits together with DentaQuest, acquired on June 1, 2022. We have updated prior periods to reflect this change in presentation.

<sup>(2)</sup> For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

102 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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**M. Accounting and Control Matters**

**1. Critical Accounting Policies and Estimates**

Our significant accounting and actuarial policies are described in Notes 1, 2, 3, 5, 10, 11 and 20 of our 2022 Annual Consolidated Financial Statements. Management must make judgments involving assumptions and estimates, some of which may relate to matters that are inherently uncertain, under these policies. The estimates described below are considered particularly significant to understanding our financial performance. As part of our financial control and reporting, judgments involving assumptions and estimates are reviewed by the independent auditor and by other independent advisors on a periodic basis. Accounting policies requiring estimates are applied consistently in the determination of our financial results.

**Benefits to Policyholders**

***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 significant judgment and 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.

• 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 statement of financial position 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 at least as great as 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 uses 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 use 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 20% to 50% 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 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 mid-range, with the higher range used where there is greater uncertainty. 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

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 103

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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.

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.

**Critical Accounting Estimates** 

Significant factors affecting the determination of policyholders' benefits, the methodology by which they are determined, their significance to the Company's financial condition and results of operations are described below.

***Non-fixed Income Market Movements***

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 equity market risk associated with anticipated future fee income is not hedged.

The majority of non-fixed income assets that 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 asset values are largely offset by changes in insurance contract liabilities.

***Interest Rates***

We generally maintain distinct asset portfolios for each major line of business. In the valuation of insurance contract liabilities, 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.

For certain products, including participating insurance and certain forms of universal life policies and annuities, policyholders share investment performance through routine changes in the amount of dividends declared or in the rate of interest credited. These products generally have minimum interest rate guarantees.

Hedging programs are in place to help mitigate the impact of interest rate movements.

***Mortality***

Mortality refers to the rates at which death occurs for defined groups of people. Life insurance mortality assumptions are generally based on the past five to ten years of 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 based on recent trends in population mortality and our outlook for future trends.

***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 U.S. 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 U.S., our experience is used for both medical stop-loss and disability assumptions, with some consideration of industry experience.

***Policy Termination Rates***

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 overhead. 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.

104 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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***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 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 statement of financial position. The asset default provision included in the insurance contract liabilities is reassessed each reporting period in light of impairments, changes in asset quality ratings, and other events that occurred during the period.

**Sensitivities to Best Estimate Assumptions**

The sensitivities presented below are forward-looking statements. They include measures of our estimated shareholders' net income sensitivity to

changes in the best estimate assumptions in our insurance contract liabilities based on a starting point and business mix as at December 31, 2022 and as at December 31, 2021, reflecting the update of actuarial method and assumption changes described in this MD&A under the heading Assumption Changes and Management Actions and, where appropriate, taking into account hedging programs in place as at December 31, 2022 and December 31, 2021 described in this MD&A under the heading Market Risk. Different starting points best estimate assumptions and business mix will result in different estimated sensitivities. These sensitivities represent the Company's estimate of changes in best estimate assumptions that are reasonably likely based on the Company's and/or the industry's historical experience and industry standards and best practices as at December 31, 2022 and December 31, 2021.

The best estimate assumption sensitivities shown below reflect the IFRS 4 accounting standards. Adoption of IFRS 17 may result in changes to the magnitude or direction of the reported net income sensitivities. The sensitivities to insurance risk assumptions will include an impact on CSM, where applicable, in addition to net income.

The following table sets out the estimated immediate impact on, or sensitivity of, our common shareholders' net income attributable to certain changes in best estimate assumptions as at December 31, 2022 and December 31, 2021:

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| | | | |
|:---|:---|:---|:---|
| **Critical Accounting Estimate** | **Sensitivity** | **2022** | 2021 |
| ($ millions, after-tax) |  |  |  |
| Mortality | 2% increase in the best estimate assumption for insurance products | **(75)** | (25) |
|  | 2% decrease in the best estimate assumption for annuity products | **(120)** | (150) |
| Morbidity | 5% adverse change in the best estimate assumption | **(265)** | (255) |
| Policy Termination Rates | 10% decrease in the termination rate - where fewer terminations would be <br>financially adverse | **(270)** | (270) |
|  | 10% increase in the termination rate - where more terminations would be <br>financially adverse | **(235)** | (225) |
| Operating Expenses and Inflation | 5% increase in unit maintenance expenses | **(175)** | (165) |

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**Fair Value of Assets and Liabilities**

Debt securities, equity securities and certain other invested assets are designated as FVTPL or AFS and are recorded at fair value in our Consolidated Statements of Financial Position. Changes in fair value of assets designated as FVTPL, and realized gains and losses on sale of FVTPL assets are recorded in income. Changes in fair value of AFS assets are recorded 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. Net impairment losses and realized gains and losses on sale of AFS assets are reclassified from OCI to income.

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.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 105

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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 earnings multiples of comparable companies.

Mortgages and loans are carried at amortized cost. The fair value of mortgages and loans, for disclosure purposes, is determined by discounting the expected future cash flows using a current market interest rate applicable to financial instruments with a 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 risk-adjusted spreads are determined based on the borrower's credit and liquidity, as well as term and other loan-specific features. Long-term mortgages and loans are generally categorized in Level 3 of the fair value hierarchy. The significant unobservable input is a portion of these risk adjusted spreads at or beyond the 20 year point for mortgages and at or beyond the 10 year point for loans.

The fair value of other financial liabilities is determined by using the discounted cash flow methodology at the incremental borrowing rate or the effective interest rate. Other financial liabilities categorized as Level 3 represent the present value of the estimated price we would pay to acquire any remaining outstanding shares upon exercise of a put option and any mandatory income distributions. The fair value of the liabilities is based on the average earnings before income tax, depreciation and amortization ("EBITDA") for the preceding years before the options' exercise dates and EBITDA multiples in accordance with the put agreements as well as the expected amount of any mandatory income distributions. A change in EBITDA would impact the fair value of other financial liabilities and our net income (loss).

Derivative financial instruments are recorded at fair value with changes in fair value recorded in income unless the derivative is part of a qualifying hedging relationship for accounting purposes. 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 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 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 credit valuation adjustments 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 involve benchmark comparison. Valuation inputs primarily include projected future operating cash flows and earnings, dividends, market discount rates, and earnings multiples of comparable companies.

Investment properties are recorded at fair value with changes in fair value recorded in income. 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 and 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 significant assumptions that are consistent with current market conditions. The future rental rates are estimated based on the location, type and quality of the properties, and take into account market data and projections at the valuation date. The fair values are typically compared to market-based information for reasonability, including recent transactions involving comparable assets. 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 short-term securities is approximated by their carrying amount adjusted for credit risk where appropriate.

Due to their nature, the fair value of policy loans and cash are assumed to be equal to their carrying values, which is the amount these assets are recorded at in our Consolidated Statements of Financial Position.

Investments for accounts of segregated fund holders are recorded at fair value with changes in fair value recorded in net realized and unrealized gains (losses) within the segregated fund and are not recorded in our Consolidated Statements of Operations. 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 managers. The fair value of direct investments within investments for accounts of segregated fund holders, such as short-term securities and government and corporate debt securities, is determined according to valuation methodologies and inputs described above in the respective asset type sections. The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions as described above for asset-backed securities.

The methodologies and assumptions for determining the fair values of investment contract liabilities are included in Note 10.B of our 2022 Annual Consolidated Financial Statements.

We categorize our assets and liabilities 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 the unadjusted quoted prices for identical assets or liabilities in an active market. The types of assets and liabilities classified as Level 1 generally include cash and cash equivalents, certain U.S. government and agency securities, exchange-traded equity securities, and certain segregated and mutual fund units held for account of segregated fund holders.

106 December 31, 2022 Sun Life Financial Inc. &nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION & ANALYSIS &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

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Level 2: Fair value is based on quoted prices for similar assets or liabilities traded in active markets, or prices from valuation techniques that use significant observable inputs, or inputs that are derived principally from or corroborated with observable market data through correlation or other means. The types of assets and liabilities 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 assets and liabilities classified as Level 3 generally include certain corporate bonds, certain other invested assets, and investment properties.

As pricing inputs become more or less observable, assets are transferred between levels in the hierarchy. Total gains and losses in income 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 Level 3 reconciliation schedule in Note 5 of our 2022 Annual Consolidated Financial Statements. For transfers out of Level 3 during the reporting period, the change in fair value for the period is excluded from the Level 3 reconciliation schedule in Note 5 of our 2022 Annual Consolidated Financial Statements. 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 criteria at the reporting date. Transfers out of Level 3 occur when the pricing inputs become more transparent and satisfy the Level 1 or 2 criteria at the reporting date.

Transfers into and out of Level 3 for financial assets were $nil and $123 million for the year ended December 31, 2022, respectively, (December 31, 2021 - $nil and $140 million, respectively). The total amount of the net realized/unrealized gains (losses) related to financial instruments transferred out of Level 3 during the period, which were excluded from the Level 3 reconciliation, was a loss of $18 million as at December 31, 2022 (December 31, 2021 - gain of $1 million).

Additional information on the fair value measurement of investments can be found in Note 5 of our 2022 Annual Consolidated Financial Statements.

**Impairment**

Management assesses debt and equity securities, mortgages and loans and other invested assets for objective evidence of impairment at each reporting date. 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 that have 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 the financial assets. All equity instruments in an unrealized loss position are reviewed to determine if objective evidence of impairment exists. 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, and a significant or prolonged decline in the fair value of an equity instrument or other invested asset below its cost.

Additional information on the impairment of financial assets can be found in Notes 1 and 10 of our 2022 Annual Consolidated Financial Statements.

**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. Goodwill is carried at original cost less any impairment subsequently incurred. Goodwill is assessed for impairment annually or more frequently if events or circumstances occur that may result in the recoverable amount of a cash generating unit ("CGU") falling below its carrying value. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other groups of assets. The goodwill balances are allocated to either individual or groups of CGUs that are expected to benefit from the synergies of the business combination. Goodwill impairment is quantified by comparing a CGU's or a group of 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 cannot be reversed in future periods.

Impairment charges on goodwill of $170 million were recognized in 2022. We had a carrying value of $8,705 million in goodwill as at December 31, 2022. Additional information on goodwill can be found in Note 9 of our 2022 Annual Consolidated Financial Statements.

**Intangible Assets**

Intangible assets consist of finite life and indefinite life intangible assets. Finite life intangible assets are amortized on a straight-line basis or using a units-of-production method, over the useful economic lives which are varying periods of up to 40 years. Amortization is 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. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. 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. The recoverable amount of intangible assets is determined using various valuation models, which require management to make certain judgments and assumptions that could affect the estimates of the recoverable amount. Impairment charges on intangible assets of $18 million were recognized in 2022 (2021 - $9 million).

As at December 31, 2022, our finite life intangible assets had a carrying value of $3.6 billion, which reflected the value of the field force, asset administration contracts, and Client relationships acquired as part of the Clarica, CMG Asia, Genworth EBG, Ryan Labs, Prime Advisors, Bentall Kennedy, DentaQuest and the U.S. employee benefits business acquisitions, the ACB bancassurance partnership, and Crescent, as well as software costs. Our indefinite life intangible assets had a carrying value of $1.1 billion as at December 31, 2022. The value of the indefinite life intangible assets reflected fund management contracts of MFS, BGO, InfraRed and Crescent.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 107

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**Income Taxes**

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. Our provision for income taxes is calculated based on the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period.

As a multinational organization, we are subject to taxation in numerous jurisdictions. We seek to operate in a tax efficient manner while ensuring that we are in compliance with all laws and regulations. The determination of the required provision for current and deferred income taxes requires that we interpret tax legislation in the jurisdictions in which we operate and that we make assumptions about the expected timing of realization of deferred income tax assets and liabilities. Tax laws are complex and their interpretation requires significant judgment. The provision for income taxes reflects management's interpretation of the relevant tax laws and its best estimate of the income tax implications of the transactions and events during the period. We believe that our provisions for uncertain tax positions appropriately reflect the risk of tax positions that are under audit, dispute or appeal with tax authorities, or which are otherwise considered to involve uncertainty. The adequacy of our tax provision is reviewed at the end of each reporting period. To the extent that our interpretations differ from those of tax authorities or the timing of realization is not as expected, the provision for income taxes may increase or decrease in future periods to reflect actual experience. The amount of any increase or decrease cannot be reasonably estimated.

Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the temporary differences, unused tax losses and unused tax credits can be utilized. At each reporting period, we assess all available evidence, both positive and negative, to determine the amount of deferred income tax assets to be recorded. If it is probable that the benefit of tax losses and tax deductions will not be realized, a deferred income tax asset is not recognized. The assessment requires significant estimates and judgment about future events based on the information available at the reporting date.

From time to time, local governments, in countries in which we operate, enact changes to statutory corporate income tax rates. These changes require us to review and re-measure our deferred tax assets and liabilities as of the date of enactment. As at December 31, 2022, our net deferred tax asset in the Consolidated Statements of Financial Position was $1,652 million, primarily in Canada. Any future tax rate reductions in jurisdictions where we carry a net deferred tax asset, could result in a reduction in the carrying value of the deferred tax asset and a corresponding income tax expense at the time of substantial enactment of a rate reduction.

The Organisation for Economic Co-operation and Development's (OECD's) base erosion and profit shifting (BEPS) project has prompted governments around the world, including Canada, to consider wide-ranging tax reforms to address BEPS and transparency issues. The proposals include introducing a global minimum tax rate of 15% to ensure that large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate. The rules are expected to become effective in 2023; however, at this time, none of the jurisdictions where Sun Life has significant operations has enacted or substantively enacted tax legislation implementing these global minimum taxes. These changes to the global tax landscape could materially impact our tax expense. We are actively monitoring future developments on these proposals and their impact on Sun Life.

**Pension Plans and Other Post-Retirement Benefits**

The Company sponsors defined benefit pension plans and defined contribution plans for eligible employees. All of our material defined benefit plans worldwide are closed to new entrants with new hires participating in defined contribution plans. Our defined benefit pension plans offer benefits based on length of service and final average earnings and certain plans offer some indexation of benefits. We maintain certain supplementary non-contributory defined benefit pension arrangements for eligible employees, which are primarily for benefits which are in excess of local tax limits. In addition to these plans, in some countries the Company sponsors certain post-retirement benefit plans (for medical, dental and/or life insurance benefits) for eligible qualifying employees and their dependents who meet certain requirements.

In Canada, since January 1, 2009, all new employees participate in a defined contribution plan, while existing employees continue to accrue future benefits in the prior plan which provides a defined benefit plan and an optional contributory defined contribution plan.

With the closure of the Canadian defined benefit plans to new entrants, the volatility associated with future service accruals for active members has been limited and will decline over time. As at December 31, 2022, there are no active members in the UK and no active employees accruing future service benefits in the U.S. defined benefit plans.

The major risks remaining in relation to past service obligations are increases in liabilities due to a decline in discount rates, greater life expectancy than assumed and adverse asset returns. We have significantly de-risked the investments of our material defined benefit pension plans Company-wide by systematically shifting the pension asset mix towards liability matching investments. The target for our significant plans is to minimize volatility in funded status arising from changes in discount rates and exposure to equity markets.

Due to the long-term nature of these defined benefit plans, the calculation of benefit expenses and accrued benefit obligations depends on various assumptions, including discount rates, rates of compensation increases, health care cost trend rates, retirement ages, mortality rates and termination rates. Based upon consultation with external pension actuaries, management determines the assumptions used for these plans on an annual basis. The discount rate used for our material defined benefit plans is determined with reference to market yields of high-quality corporate bonds that are denominated in the same currency in which the benefits will be paid, and that have terms to maturity approximating the terms of obligations.

Actual experience may differ from that assumed, which would impact the valuation of defined benefit plans and the level of benefit expenses recognized in future years. Details of our pension and post-retirement benefit plans and the key assumptions used for the valuation these plans are included in Note 25 of our 2022 Annual Consolidated Financial Statements.

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**2. Changes in Accounting Policies**

We have included in this section a summary of changes in accounting policies. Where there are references to Notes, these are part of our 2022 Annual Consolidated Financial Statements.

**2. A New and Amended International Financial Reporting Standards Adopted in 2022** 

We adopted the following amendments on January 1, 2022:

In May 2020, the IASB issued *Reference to the Conceptual Framework*, which includes amendments to IFRS 3 *Business Combinations*. The amendments update an outdated reference to the Conceptual Framework in IFRS 3 without significantly changing the requirements in the standard. The adoption of this amendment did not have a material impact on our Consolidated Financial Statements.

In May 2020, the IASB issued *Property, Plant and Equipment - Proceeds before Intended Use*, which includes amendments to IAS 16 *Property, Plant and Equipment*. The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The amendments apply retrospectively to assets ready for use in the comparative period. The adoption of this amendment did not have a material impact on our Consolidated Financial Statements.

In May 2020, the IASB issued *Onerous Contracts - Cost of Fulfilling a Contract*, which includes amendments to IAS 37 *Provisions, Contingent Liabilities and Contingent Assets*. The amendments specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract'. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The adoption of this amendment did not have a material impact on our Consolidated Financial Statements.

In May 2020, the IASB issued *Annual Improvements to IFRS Standards 2018-2020*, which includes minor amendments to three IFRS standards applicable to our Consolidated Financial Statements. These amendments apply prospectively. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements.

**Interest Rate Benchmark Reform - Phase 2 Amendments**

In August 2020, the IASB issued the Interest Rate Benchmark Reform Phase 2, which includes amendments to IFRS 9, IAS 39, IFRS 7 *Financial Instruments: Disclosures* ("IFRS 7"), IFRS 4 and IFRS 16 *Leases* ("IFRS 16"). These amendments address issues that arise from the implementation of the reforms, including the replacement of a benchmark with an alternative one. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements.

Effective December 31, 2021, the publication of London Inter-Bank Offered Rate ("LIBOR") settings has ceased for all sterling, Japanese yen, Swiss franc, and euro settings as well as for the one-week and two-month USD LIBOR settings. The remaining USD LIBOR settings will cease to be provided or lose their representativeness immediately after June 30, 2023.

On May 16, 2022, Refinitiv Benchmark Services (UK) Limited ("RBSL"), the administrator of the Canadian Dollar Offered Rate ("CDOR"), announced that it will permanently cease the publication and calculation of all tenors of CDOR after June 28, 2024. Concurrently, Office of the Superintendent of Financial Institutions ("OSFI") published their expectation that Federally Regulated Financial Institutions ("FRFI's") transition all new derivatives and securities to an alternative benchmark rate by June 30, 2023, with no new CDOR exposure after that date, with limited exceptions for risk management requirements. OSFI also expects loans referencing CDOR to transition by June 28, 2024. FRFI's are also expected to prioritize system and model updates to accommodate the use of the Canadian Overnight Repo Rate Average prior to June 28, 2024.

We have created an Interbank Offered Rate ("IBOR") Transition Program (the "Program") to manage the transition from IBOR benchmarks (such as LIBOR and CDOR) to Alternative Reference Rates ("ARRs"). The Program is cross-functional in nature and comprises key stakeholders across our organization and operates with executive oversight. The Program is on track in executing its transition plan, and is mindful of incorporating market developments as they arise. We also actively participate in industry associations and incorporate best practice guidance from these industry associations, as well as regulatory bodies into the transition plan, such as reviewing all existing and new LIBOR contracts for appropriate fallback language. The Program addresses the risk and uncertainty relating to the transition to ARRs, the use of fallback language, and other factors relating to reform that could otherwise adversely affect our operations and cash flows and the value of and return on our investments that are LIBOR or IBOR-based. Our affiliated entities with IBOR exposure related to derivatives have adhered to the International Swaps and Derivatives Association IBOR Fallbacks Protocol facilitating the transition of legacy derivative contracts to ARRs, and all of our GBP LIBOR exposure has been transitioned to Sterling Overnight Index Average.

As at December 31, 2022, our exposure to USD LIBOR consists of non-derivative financial assets of $2,750 million (December 31, 2021 — $3,849 million), non-derivative financial liabilities of $77 million (December 31, 2021 — $70 million), and derivative notional of $1,683 million (December 31, 2021 — $9,417 million) that have not yet transitioned to an ARR, excluding financial instruments maturing by June 30, 2023. Our exposure to CDOR consists of non-derivative assets of $396 million (June 30, 2022 — $387 million), non-derivative financial liabilities of $5,892 million (June 30, 2022 — $6,286 million), and derivative notional of $11,725 million (June 30, 2022 — $10,748 million) that have not yet transitioned to an ARR, excluding financial instruments maturing by June 28, 2024.

**2. B New and Amended International Financial Reporting Standards to be Adopted in 2023** 

The following new and amended IFRS were issued by the IASB. We expect to adopt these in 2023:

**IFRS 17 and IFRS 9**

In May 2017, the IASB issued IFRS 17 *Insurance Contracts* ("IFRS 17"). This standard is to be applied using a retrospective approach, with at least one year of comparative results provided. If retrospective application to a group of insurance contracts is impracticable, a modified retrospective or fair

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value approach may be used. We have elected to use a fair value approach in instances where retrospective application is impracticable. IFRS 17 replaces IFRS 4 and impacts how we recognize, measure, present, and disclose our insurance contracts in our Consolidated Financial Statements.

In July 2014, the IASB issued the final version of IFRS 9 which replaces IAS 39. IFRS 9 includes guidance on the classification and measurement of financial instruments, impairment of financial assets and hedge accounting, and does not require restatement of comparative periods.

In June 2020, an amendment was issued to defer the effective date of IFRS 17 to annual periods beginning on or after January 1, 2023. Eligible insurers were also permitted the option of deferring the adoption of IFRS 9 to coincide with the adoption of IFRS 17. We have elected to apply this deferral option, and the effective date of both IFRS 17 and IFRS 9 will be January 1, 2023.

In December 2021, the IASB issued an amendment to IFRS 17 to allow for a transition option that permits insurers to present comparative information on financial assets as if IFRS 9 were applicable during the comparative period ("classification overlay"). We have elected to apply the classification overlay to our financial assets and their comparative period results as if IFRS 9 had been effective since January 1, 2022.

IFRS 17 establishes principles for the recognition, measurement, presentation, and disclosure of insurance contracts. The key principles of IFRS 17 are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance contracts are those under which an entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance contracts issued and reinsurance contracts held are divided into groups that will be separately recognized and measured.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Groups of insurance contracts are recognized and measured as the total of the following measurement components: a) the present value of future cash flows; b) a risk adjustment for non-financial risk; and c) the contractual service margin ("CSM"), an amount that represents the unearned profit of the group of contracts. These measurement components apply to groups of insurance contracts measured using the general measurement approach ("GMA") and the variable fee approach ("VFA"). The VFA applies to insurance contracts issued with direct participation features, which are substantially investment-related service contracts under which the policyholder is promised an investment return based on underlying items, such as segregated funds and certain participating insurance contracts. For short duration contracts, such as most of our group life and health business, a simplified measurement approach (the premium allocation approach or "PAA") is applied. Under the PAA, insurance contracts are measured based on unearned profits and do not include a CSM.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The profit from a group of insurance contracts is recognized into income over the period that insurance contract services are provided and as our risks related to servicing the contracts diminish over time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance revenue, insurance services expenses and insurance finance income or expenses are presented separately.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Disclosures are intended to enhance transparency and comparability of results.

The measurement of insurance contracts under IFRS 17 differs from the Canadian Asset Liability Method currently applied under IFRS 4. The most significant differences by measurement component are as follows:

Present value of future cash flows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The discount rates used to present value future cash flows under IFRS 17 are based on the characteristics of the insurance contracts. Under IFRS 4, discount rates are based on the portfolio of assets supporting the insurance contract liabilities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Estimates under IFRS 17 include the prevailing market view of the cost of financial guarantees, which requires a valuation consistent with market option prices. Under IFRS 4, the cost of financial guarantees is based on the amount required to fulfill the obligation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Expense cash flows under IFRS 17 are limited to those directly attributable to fulfillment of the obligations under insurance contracts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Future income taxes are excluded from future cash flows under IFRS 17.

Risk adjustment:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Measures the compensation required for uncertainty related to non-financial risk, such as mortality, morbidity, surrender and expenses under IFRS 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Provisions for uncertainty related to financial risk are included in the present value of future cash flows under IFRS 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• No amount is provided for asset-liability mismatch risk under IFRS 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Under IFRS 4, amounts provided for the risks listed above are reflected in a provision for adverse deviations included in insurance contract liabilities.

Contractual service margin:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• This is a new component of liabilities and necessitates the "grouping" of insurance contracts, which is not required under IFRS 4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The CSM represents unearned profits, which is discussed in more detail below.

The measurement approach under IFRS 17 and IFRS 4 is similar for insurance contracts measured using the PAA, such as our group life and health contracts. Differences arise mainly in the measurement of the Liability for Incurred Claims, where the discount rate and risk adjustment changes noted above apply.

We have highlighted in the following section certain impacts on our financial performance as a result of the differences between IFRS 17 and IFRS 4 described above:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• New business gains (unearned profits) are measured differently under IFRS 17, reflecting measurement differences on insurance contracts as discussed above. In addition, new business gains under IFRS 17 are deferred and recorded in the CSM and amortized into income as insurance contract services are provided. Losses on new business are also measured differently, but continue to be recognized in income immediately. Under IFRS 4, new business gains and losses are both recognized in income immediately.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Discount rates used in calculating the present value of insurance contract liabilities are based on the characteristics of the insurance contracts rather than the assets supporting the liabilities. Amongst other differences, this results in changes in the timing of when investment-related income emerges.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Under IFRS 17, changes related to financial risk (e.g. changes in the discount rate) continue to be recognized in income immediately, except for insurance contracts measured using the VFA, where the changes are recorded through the CSM. Assumption changes for non-

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financial risk, such as mortality, are reflected in the CSM and amortized into income as insurance contract services are provided. Under IFRS 4, assumption changes for both financial and non-financial risk variables are recognized in income immediately.

IFRS 9 includes guidance on the classification and measurement of financial instruments, impairment of financial assets, and hedge accounting. The classification of financial assets is based on the cash flow characteristics and the business model within which an asset is managed, and determines how the financial asset is measured. The classification and measurement of financial liabilities remain generally unchanged from IAS 39. IFRS 9 also introduces an impairment model for financial assets not measured at FVTPL. The model requires the recognition of an allowance for 12-month expected losses at the initial recognition of a financial asset, and the recognition of an allowance for lifetime expected losses if certain criteria are met. In addition, IFRS 9 introduces a new model for hedge accounting to better align with risk management activities.

Under IFRS 17, we are electing to recognize all insurance finance income or expense in income rather than other comprehensive income. Consequently, to avoid an accounting mismatch, we are electing under IFRS 9 to classify most of our fixed income assets supporting insurance contracts as FVTPL.

The adoption of IFRS 17 and IFRS 9 is expected to have a significant impact on our Consolidated Financial Statements, and estimates of the financial impacts are subject to change as we continue to finalize the implications of adopting both standards. The establishment of the CSM and other measurement changes upon transition at January 1, 2022, including the impacts of reflecting IFRS 9 as at the same date, would reduce total equity.

For more information, refer to Note 2 in our 2022 Consolidated Financial Statements for the period ended December 31, 2022.

**Other New and Amended Standards**

In May 2021, the IASB issued amendments to IAS 12 *Income Taxes* ("IAS 12"). The amendments, *Deferred Tax related to Assets and Liabilities arising from a Single Transaction,* narrow the scope of the recognition exemption in IAS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendment to IAS 12 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

In February 2021, the IASB issued amendments to IAS 1 *Presentation of Financial Statements* ("IAS 1") and IFRS Practice Statement 2 *Making Materiality Judgments* ("IFRS Practice Statement 2"). The amendments to IAS 1 require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures. The amendment to IAS 1 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

In February 2021, the IASB issued amendments to IAS 8 *Accounting Policies, Changes in Accounting Estimates and Errors* ("IAS 8"). The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. The amendment to IAS 8 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

**2. C New and Amended International Financial Reporting Standards to be Adopted in 2024 or Later**

We are currently assessing the impact that these amendments will have on our Consolidated Financial Statements:

In September 2022, the IASB issued amendments to IFRS 16 *Leases* ("IFRS 16") to add subsequent measurement requirements for sale and leaseback transactions that satisfy the requirements in IFRS 15 *Revenue from Contracts with Customers* to be accounted for as a sale. The amendments require a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognize any amount of the gain or loss that relates to the right of use it retains. The amendments to IFRS 16 will be effective for annual reporting periods beginning on or after January 1, 2024. The amendments apply retrospectively, with early application permitted.

**3. Disclosure Controls and Procedures**

The Company has established disclosure controls and procedures that are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Company's President and CEO, Executive Vice-President and Chief Financial Officer ("CFO"), and Executive Vice-President, Chief Legal Officer and Public Affairs, on a timely basis so that appropriate decisions can be made regarding public disclosure.

An evaluation of the effectiveness of our disclosure controls and procedures, as defined under rules adopted by the Canadian securities regulatory authorities and the SEC, as at December 31, 2022, was carried out under the supervision of and with the participation of the Company's management, including the CEO and the CFO. Based on our evaluation, the CEO and the CFO concluded that the design and operation of these disclosure controls and procedures were effective as at December 31, 2022.

**Management's Report on Internal Control over Financial Reporting**

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with IFRS.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Projections of any evaluation of the effectiveness of 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.

We conducted an assessment of the effectiveness of our internal control over financial reporting, as of December 31, 2022, based on the framework and criteria established in *Internal Control-Integrated Framework (2013)*, issued by the Committee of Sponsoring Organizations of the Treadway

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Commission.Based on that assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2022. Management excluded from its assessment the internal control over financial reporting for DentaQuest, acquired on June 1, 2022, whose total assets, net assets, revenues and net income constitute approximately 1%, 9%, 9% and 2%, respectively, of our Annual Consolidated Financial Statement amounts as of and for the year ended December 31, 2022.

Our internal control over financial reporting, as of December 31, 2022, has been audited by the Company's external auditor, Deloitte LLP, Independent Registered Public Accounting Firm, who also audited our Annual Consolidated Financial Statements for the year ended December 31, 2022. As stated in the Report of Independent Registered Public Accounting Firm, they have expressed an unqualified opinion on our internal control over financial reporting as of December 31, 2022.

**Changes in Internal Control over Financial Reporting**

No changes were made in our internal control over financial reporting for the period which began on January 1, 2022 and ended December 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

As described above, we excluded an assessment of the internal control over financial reporting of DentaQuest, acquired on June 1, 2022, from the assessment of our internal control over financial reporting as at December 31, 2022. We continue to integrate DentaQuest into our existing internal control over financial reporting, which may require modifications and additions as a result of this integration in future periods.

We will require modifications and additions to our existing internal control over financial reporting as a result of the adoption of IFRS 17 and IFRS 9, effective for periods beginning on or after January 1, 2023. The necessary technology and modifications implemented to our actuarial and accounting processes to comply with requirements under IFRS 17 and IFRS 9 significantly impact our internal controls over financial reporting.

For transition opening balances as at January 1, 2022 and for the year ended December 31, 2022, we have reviewed the governance framework and controls over the following implementation-related activities:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Process of adopting new accounting policies and its impact on stakeholders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Reconciliation between the January 1, 2022 opening balances prior to and after the adoption of IFRS 17 and IFRS 9;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Parallel-reporting processes for the 2022 reporting periods on an IFRS 17 and IFRS 9 basis; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The implementation of new systems and automated processes.

Going forward into 2023, we expect to modify and add to our internal controls over financial reporting as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Modify our risk assessment to fully address the impact of IFRS 17 and IFRS 9 requirements and their associated risks; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Implement controls over new or modified processes that address risks associated with the implementation of IFRS 17 and IFRS 9, including those related to the use of new technology.

**N. Legal and Regulatory Proceedings**

Information concerning legal and regulatory matters is provided in our Annual Consolidated Financial Statements and the AIF, in each case for the year ended December 31, 2022.

**O. Forward-looking Statements**

From time to time, the Company makes written or oral forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements contained in this document include statements (i) relating to our strategies; (ii) relating to our intention to divest Sun Life UK; (iii) relating to the distribution of our products under our bancassurance partnership in Hong Kong with Dah Sing Bank; (iv) relating to the expected impacts of the adoption of IFRS 17 and IFRS 9; (v) relating to our growth initiatives and other business objectives; (vi) relating to our targets and commitments (including with respect to our sustainability plan and net zero emissions); (vii) relating to the plans we have implemented in response to the COVID-19 pandemic and related economic conditions and their impact on the Company; (viii) relating to our expected tax range for future years; (ix) set out in this document under the heading J - Risk Management - Market Risk Sensitivities - Interest Rate Sensitivities; (x) that are predictive in nature or that depend upon or refer to future events or conditions; and (xi) that include words such as "achieve", "aim", "ambition", "anticipate", "aspiration", "assumption", "believe", "could", "estimate", "expect", "goal", "initiatives", "intend", "may", "objective", "outlook", "plan", "project", "seek", "should", "strategy", "strive", "target", "will", and similar expressions. Forward-looking statements include the information concerning our possible or assumed future results of operations. These statements represent our current expectations, estimates, and projections regarding future events and are not historical facts, and remain subject to change, particularly in light of the ongoing and developing COVID-19 pandemic and its impact on the global economy and its uncertain impact on our business.

Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Future results and shareholder value may differ materially from those expressed in these forward-looking statements. In addition, as Sun Life works to advance its climate goals, external factors outside of Sun Life's reasonable control may act as constraints on their achievement, including varying decarbonization efforts across economies, the need for thoughtful climate policies around the world, more and better data, reasonably supported methodologies, technological advancements, the evolution of consumer behaviour, the challenges of balancing interim emissions goals with an orderly and just transition, and other significant considerations such as legal and regulatory obligations. Other factors that may cause actual results and shareholder value to differ materially from those expressed in the forward-looking statements include the impact of the COVID-19 pandemic and related economic conditions on our operations, liquidity, financial conditions or results and the matters set out in this document under the headings D - Profitability - 5 - Income taxes, F - Financial Strength and J - Risk Management and in SLF Inc.'s 2022 AIF under the heading Risk Factors,

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and the factors detailed in SLF Inc.'s other filings with Canadian and U.S. securities regulators, which are available for review at <u>www.sedar.com</u> and <u>www.sec.gov</u>, respectively.

**Medium-Term Financial Objectives**

The Company's medium-term financial objectives set out in B - Overview - 2 - Financial Objectives are forward-looking non-IFRS financial measures. Our ability to achieve those objectives is dependent on our success in achieving growth initiatives and business objectives and on certain key assumptions that include: (i) no significant changes in the level of interest rates; (ii) average total equity market return of approximately 8-10% per annum; (iii) credit experience in line with best estimate actuarial assumptions; (iv) no significant changes in the level of our regulatory capital requirements; (v) no significant changes to our effective tax rate; (vi) no significant increase in the number of shares outstanding; (vii) other key assumptions include: no material changes to our hedging program, hedging costs that are consistent with our best estimate assumptions, no material assumption changes including updates to the economic scenario generator and no material accounting standard changes; and (viii) our best estimate actuarial assumptions used in determining our insurance and investment contract liabilities. Our underlying ROE is dependent upon capital levels and options for deployment of excess capital. Our medium-term financial objectives do not reflect the indirect effects of interest rate and equity market movements including the potential impacts on goodwill or the current valuation allowance on deferred tax assets as well as other items that may be non-operational in nature.

Our target dividend payout ratio of 40%-50% of our underlying net income assumes that economic conditions and our results will enable us to maintain our payout ratio in the target range, while maintaining a strong capital position. The declaration, amount and payment of dividends is subject to the approval of SLF Inc.'s Board of Directors and our compliance with the capital requirements in the *Insurance Companies Act* (Canada). Additional information on dividends is provided in the section I - Capital and Liquidity Management - 3 - Shareholder Dividends in this MD&A.

Although considered reasonable by the Company, we may not be able to achieve our medium-term financial objectives as the assumptions on which these objectives were based may prove to be inaccurate. Accordingly, our actual results could differ materially from our medium-term financial objectives as described in the section B - Overview - 2 - Financial Objectives in this MD&A. Our medium-term financial objectives do not constitute guidance.

**Risk Factors**

Important risk factors that could cause our assumptions and estimates, and expectations and projections to be inaccurate and our actual results or events to differ materially from those expressed in or implied by the forward-looking statements contained in this document, are set out below. The realization of our forward-looking statements, essentially depends on our business performance which, in turn, is subject to many risks. Factors that could cause actual results to differ materially from expectations include, but are not limited to: **market risks** - related to the performance of equity markets; changes or volatility in interest rates or credit spreads or swap spreads; real estate investments; fluctuations in foreign currency exchange rates; and inflation; **insurance risks** - related to policyholder behaviour; mortality experience, morbidity experience and longevity; product design and pricing; the impact of higher-than-expected future expenses; and the availability, cost and effectiveness of reinsurance; **credit risks** - related to issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties, other financial institutions and other entities; **business and strategic risks** - related to global economic and political conditions; the design and implementation of business strategies; changes in distribution channels or Client behaviour including risks relating to market conduct by intermediaries and agents; the impact of competition; the performance of our investments and investment portfolios managed for Clients such as segregated and mutual funds; shifts in investing trends and Client preference towards products that differ from our investment products and strategies; changes in the legal or regulatory environment, including capital requirements and tax laws; the environment, environmental laws and regulations; **operational risks** - related to breaches or failure of information system security and privacy, including cyber-attacks; our ability to attract and retain employees; legal, regulatory compliance and market conduct, including the impact of regulatory inquiries and investigations; the execution and integration of mergers, acquisitions, strategic investments and divestitures; our information technology infrastructure; a failure of information systems and Internet-enabled technology; dependence on third-party relationships, including outsourcing arrangements; business continuity; model errors; information management; **liquidity risks** - the possibility that we will not be able to fund all cash outflow commitments as they fall due; and **other risks** - COVID-19 matters, including its impact on the global economy, and its impact on Sun Life's business, financial condition and or results; risks associated with IFRS 17 *Insurance Contracts* and IFRS 9 *Financial Instruments*; our international operations, including our joint ventures; market conditions that affect our capital position or ability to raise capital; downgrades in financial strength or credit ratings; and tax matters, including estimates and judgements used in calculating taxes.

The following risk factors are related to our intention to divest Sun Life UK that could have a material adverse effect on our forward-looking statements: (1) the ability of the parties to complete the transaction; (2) the failure of the parties to obtain necessary consents and approvals or to otherwise satisfy the conditions to the completion of the transaction in a timely manner, or at all; (3) our ability to realize the financial and strategic benefits of the transaction; and (4) the impact of the announcement of the transaction and the dedication of our resources to completing the transaction. Each of these risks could have an impact on our business relationships (including with future and prospective employees, Clients, distributors and partners) and could have a material adverse effect on our current and future operations, financial conditions and prospects.

The Company does not undertake any obligation to update or revise its forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;** MANAGEMENT'S DISCUSSION & ANALYSIS Sun Life Financial Inc. December 31, 2022 113

## Exhibit 99.2

?xml version="1.0" ? slf-20221231_d2

**C O N S O L I D A T E D**

**F I N A N C I A L S T A T E M E N T S**

**A N D N O T E S**

![slf-20221231_g1.jpg](slf-20221231_g1.jpg)

---

| | | |
|:---|:---|:---|
| **FINANCIAL REPORTING RESPONSIBILITIES** | **FINANCIAL REPORTING RESPONSIBILITIES** | **[2](#i0c056ba505444919b81eb967bee99ab6_13)** |
| **APPOINTED ACTUARY'S REPORT** | **APPOINTED ACTUARY'S REPORT** | **[3](#i0c056ba505444919b81eb967bee99ab6_16)** |
| **INDEPENDENT AUDITOR'S REPORT** | **INDEPENDENT AUDITOR'S REPORT** | **4** |
| **REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** | **REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** | **[7](#i0c056ba505444919b81eb967bee99ab6_25)** |
| **CONSOLIDATED FINANCIAL STATEMENTS** | **CONSOLIDATED FINANCIAL STATEMENTS** | **[10](#i0c056ba505444919b81eb967bee99ab6_28)** |
| Consolidated Statements of Operations | Consolidated Statements of Operations | [10](#i0c056ba505444919b81eb967bee99ab6_28) |
| Consolidated Statements of Comprehensive Income (Loss) | Consolidated Statements of Comprehensive Income (Loss) | [11](#i0c056ba505444919b81eb967bee99ab6_31) |
| Consolidated Statements of Financial Position | Consolidated Statements of Financial Position | [12](#i0c056ba505444919b81eb967bee99ab6_34) |
| Consolidated Statements of Changes in Equity | Consolidated Statements of Changes in Equity | [13](#i0c056ba505444919b81eb967bee99ab6_37) |
| Consolidated Statements of Cash Flows | Consolidated Statements of Cash Flows | [14](#i0c056ba505444919b81eb967bee99ab6_40) |
| **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS** | **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS** | **[15](#i0c056ba505444919b81eb967bee99ab6_43)** |
| Significant Accounting Policies | Note 1 | [15](#i0c056ba505444919b81eb967bee99ab6_43) |
| Changes in Accounting Policies | Note 2 | [25](#i0c056ba505444919b81eb967bee99ab6_58) |
| Acquisitions and Other | Note 3 | [28](#i0c056ba505444919b81eb967bee99ab6_61) |
| Segmented Information | Note 4 | [30](#i0c056ba505444919b81eb967bee99ab6_79) |
| Total Invested Assets and Related Net Investment Income | Note 5 | [33](#i0c056ba505444919b81eb967bee99ab6_91) |
| Financial Instrument Risk Management | Note 6 | [40](#i0c056ba505444919b81eb967bee99ab6_157) |
| Insurance Risk Management | Note 7 | [52](#i0c056ba505444919b81eb967bee99ab6_160) |
| Other Assets | Note 8 | [55](#i0c056ba505444919b81eb967bee99ab6_163) |
| Goodwill and Intangible Assets | Note 9 | [55](#i0c056ba505444919b81eb967bee99ab6_166) |
| Insurance Contract Liabilities and Investment Contract Liabilities | Note 10 | [58](#i0c056ba505444919b81eb967bee99ab6_169) |
| Reinsurance | Note 11 | [64](#i0c056ba505444919b81eb967bee99ab6_214) |
| Other Liabilities | Note 12 | [65](#i0c056ba505444919b81eb967bee99ab6_229) |
| Senior Debentures and Innovative Capital Instruments | Note 13 | [66](#i0c056ba505444919b81eb967bee99ab6_238) |
| Subordinated Debt | Note 14 | [68](#i0c056ba505444919b81eb967bee99ab6_241) |
| Share Capital | Note 15 | [69](#i0c056ba505444919b81eb967bee99ab6_244) |
| Interests in Other Entities | Note 16 | [71](#i0c056ba505444919b81eb967bee99ab6_253) |
| Fee Income | Note 17 | [73](#i0c056ba505444919b81eb967bee99ab6_259) |
| Operating Expenses, Commissions, and Premium Taxes | Note 18 | [73](#i0c056ba505444919b81eb967bee99ab6_262) |
| Share-Based Payments | Note 19 | [74](#i0c056ba505444919b81eb967bee99ab6_265) |
| Income Taxes | Note 20 | [76](#i0c056ba505444919b81eb967bee99ab6_271) |
| Capital Management | Note 21 | [78](#i0c056ba505444919b81eb967bee99ab6_292) |
| Segregated Funds | Note 22 | [79](#i0c056ba505444919b81eb967bee99ab6_331) |
| Commitments, Guarantees and Contingencies | Note 23 | [80](#i0c056ba505444919b81eb967bee99ab6_343) |
| Related Party Transactions | Note 24 | [83](#i0c056ba505444919b81eb967bee99ab6_361) |
| Pension Plans and Other Post-Retirement Benefits | Note 25 | [83](#i0c056ba505444919b81eb967bee99ab6_364) |
| Earnings (Loss) Per Share | Note 26 | [86](#i0c056ba505444919b81eb967bee99ab6_370) |
| Accumulated Other Comprehensive Income (Loss) | Note 27 | [87](#i0c056ba505444919b81eb967bee99ab6_373) |
| Subsequent Events | Note 28 | [87](#i0c056ba505444919b81eb967bee99ab6_391) |

---

Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 1

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**Financial Reporting Responsibilities**

![slf-20221231_g1.jpg](slf-20221231_g1.jpg)

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 Consolidated Financial Statements.

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

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

Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting, as of December 31, 2022, based on the framework and criteria established in *Internal Control* - *Integrated Framework (2013)*, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2022.

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

The Office of the Superintendent of Financial Institutions, Canada conducts periodic examinations of the Company. These examinations are designed to evaluate compliance with provisions of the *Insurance Companies Act* (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 Company's 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* (Canada), and conducts the valuation of the Company's actuarial liabilities. The role of the Appointed Actuary is described in more detail in Note 10. The report of the Appointed Actuary accompanies these Consolidated Financial Statements.

The Company's external auditor, Deloitte LLP, Independent Registered Public Accounting Firm, has audited the Company's internal control over financial reporting as of December 31, 2022, in addition to auditing the Company's Consolidated Financial Statements for the years ended

December 31, 2022 and December 31, 2021. Its reports to the Board and shareholders express unqualified opinions and accompany these Consolidated Financial Statements. Deloitte LLP meets separately with both management and the Audit Committee to discuss the results of its audit.

---

| | |
|:---|:---|
| ![slf-20221231_g2.jpg](slf-20221231_g2.jpg) | ![slf-20221231_g3.jpg](slf-20221231_g3.jpg) |
| Kevin Strain, CPA, CA | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Manjit Singh, CPA, CA |
| President and Chief Executive Officer | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Financial Officer |

---

Toronto, Ontario, Canada

February 8, 2023

2 Sun Life Financial Inc. December 31, 2022 Consolidated Financial Statements

------

**Appointed Actuary's Report&nbsp;&nbsp;&nbsp;&nbsp;**

![slf-20221231_g1.jpg](slf-20221231_g1.jpg)

**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, 2022 and December 31, 2021 and their change in the Consolidated Statements of Operations for the year ended December 31, 2022 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.

![slf-20221231_g4.jpg](slf-20221231_g4.jpg)

Kevin Morrissey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Fellow, Canadian Institute of Actuaries&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Toronto, Ontario, Canada

February 8, 2023

Appointed Actuary's Report Sun Life Financial Inc. December 31, 2022 3

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4 Sun Life Financial Inc. December 31, 2022 Independent Auditor's Report

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Independent Auditor's Report Sun Life Financial Inc. December 31, 2022 5

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6 Sun Life Financial Inc. December 31, 2022 Independent Auditor's Report

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**Report of Independent Registered Public Accounting Firm**

To the Shareholders and the Board of Directors of Sun Life Financial Inc.

**Opinion on the Financial Statements** 

We have audited the accompanying consolidated statements of financial position of Sun Life Financial Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2022, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS").

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

**Basis for Opinion** 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matters** 

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

**Insurance Contract Liabilities - Refer to Notes 1 and 10 to the Financial Statements**

**Critical Audit Matter Description**

The Company has significant insurance contract liabilities representing the majority of its total liabilities. Application of different assumptions may result in different measurement of the insurance contract liabilities. There is insurance risk from the uncertainty of product performance due to differences between the actual experience and expected experience. The Company uses various actuarial models to determine insurance contract liabilities, some of which involve high levels of complexity.

While there are many assumptions which management makes, the assumptions with the greatest uncertainty are those related to mortality, including the impact, if any, of the COVID-19 pandemic, and lapse and other policyholder behaviour ("policyholder behaviour"). These assumptions required subjective and complex auditor judgment in certain circumstances, including where (i) there is limited Company and industry experience data, (ii) the historical experience may not be a good indicator of the future, and (iii) the policyholder behaviour may be irrational. Auditing of certain actuarial models, and mortality and policyholder behaviour assumptions required a high degree of auditor judgment and an increased extent of audit effort, including the need for the integral involvement of actuarial specialists.

**How the Critical Audit Matter Was Addressed in the Audit**

Our audit procedures related to actuarial models and assumptions of mortality and policyholder behaviour included the following, among others:

• We evaluated and tested the effectiveness of controls over actuarial models and the determination of the mortality and policyholder behaviour assumptions used in the calculation of insurance contract liabilities as well as access and change management controls over those actuarial models.

• With the assistance of actuarial specialists, we tested the reasonableness of key mortality and policyholder behaviour assumptions, by:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Evaluating management's methods and assumptions in accordance with actuarial principles and practices under the Canadian actuarial standards of practice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Testing experience studies and other inputs used in the determination of the mortality and policyholder behaviour assumptions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Analyzing management's interpretation of its experience study results, evaluating triggers and drivers for revisions of assumptions, assessing reasonably possible alternative assumptions, and considering industry and other external sources of data, where applicable.

• With the assistance of actuarial specialists, we tested the appropriateness of actuarial models used in the estimation process by:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Calculating an independent estimate of the insurance contract liability for a sample of insurance policies and comparing the results to the Company's results.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Testing the accuracy of a sample of actuarial models for changes in key assumptions.

**Valuation of Investment Properties - Refer to Notes 1 and 5 to the Financial Statements**

Report of Independent Registered Public Accounting Firm Sun Life Financial Inc. December 31, 2022 7

------

**Critical Audit Matter Description** 

Investment properties are accounted for at fair value. The fair values of investment properties are generally determined using property valuation models and are based on expected capitalization rates and models that discount expected future net cash flows at current market expected rates of return reflective of the characteristics, location, and market of each property. Expected future net cash flows include contractual and projected cash flows and forecasted operating expenses, and take into account discount, 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 significant assumptions that are consistent with current market conditions.

The assumptions with the greatest uncertainty are the discount rates, terminal capitalization rates, and future rental rates. Performing audit procedures to assess inputs required a high degree of auditor judgment and an increased extent of audit effort, including the need for the integral involvement of valuation specialists.

**How the Critical Audit Matter Was Addressed in the Audit**

Our audit procedures related to valuation models and assumptions including discount rates, terminal capitalization rates, and future rental rates included the following, among others:

• We evaluated and tested the effectiveness of controls over the fair value process for investment properties. These controls include an assessment and approval by senior management of the discount rates, terminal capitalization rates, and future rental rates assumptions used in the determination of the valuation of investment properties and the valuation conclusions relative to comparable properties.

• With the assistance of valuation specialists, we evaluated on a sample basis the reasonableness of management's discount rates, terminal capitalization rates, and future rental rates assumptions and valuation conclusions by comparing them to the discount rates, terminal capitalization rates, and future rental rates of market surveys and transactions in comparable properties.

**IFRS 17, *Insurance Contracts* to be Adopted in 2023 - Refer to Note 2 to the Financial Statements**

**Critical Audit Matter Description**

For the period beginning on January 1, 2023, the Company will be adopting IFRS 17, *Insurance Contracts* ("IFRS 17") which will impact how the Company recognizes, measures, presents and discloses insurance contracts. In accordance with IAS 8, *Accounting Policies, Changes in Accounting Estimates and Errors* ("IAS 8"), the Company disclosed the expected impacts of transition to the new standard, which remain subject to change as the Company continues to finalize its adoption of IFRS 17. The disclosures in the Company's 2022 consolidated financial statements are more limited than the disclosures to be included in the first year of adoption, being 2023.

Management was required to make certain judgments and estimates in determining the expected impacts of transition to IFRS 17 on the Company's Consolidated Statement of Financial Position at transition. This resulted in an increased extent of audit effort, including the involvement of various specialists.

**How the Critical Audit Matter Was Addressed in the Audit**

Our audit procedures related to the disclosures in the 2022 consolidated financial statements included the following, among others:

• We evaluated and tested the effectiveness of controls over the disclosures;

• With the assistance of various specialists, we evaluated management's key judgments to determine the accounting treatment at transition by analyzing the disclosures against IFRS 17 accounting guidance;

• With the assistance of various specialists, we assessed the appropriateness and reasonableness of key models and valuation methodologies, significant assumptions and other key inputs used in determining the estimated impacts at transition;

• We evaluated the disclosures against relevant accounting guidance.

When additional IFRS 17 disclosures are required in the December 31, 2023 consolidated financial statements, further procedures on the impacts of transition will be performed.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Ontario, Canada

February 8, 2023

We have served as the Company's auditor since 1875.

8 Sun Life Financial Inc. December 31, 2022 Report of Independent Registered Public Accounting Firm

------

**Report of Independent Registered Public Accounting Firm**

To the Shareholders and the Board of Directors of Sun Life Financial Inc.

**Opinion on Internal Control over Financial Reporting**

We have audited the internal control over financial reporting of Sun Life Financial Inc. and subsidiaries (the "Company") as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 8, 2023, expressed an unqualified opinion on those financial statements.

As described in Management's Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at DentaQuest Group, Inc. ("DentaQuest"), which was acquired on June 1, 2022, and whose financial statements constitute 9% and 1% of net and total assets, respectively, 9% of revenues, and 2% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2022. Accordingly, our audit did not include the internal control over financial reporting at DentaQuest.

**Basis for Opinion** 

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

**Definition and Limitations of Internal Control over Financial Reporting**

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. 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 International Financial Reporting Standards as issued by the International Accounting Standards Board, 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Ontario, Canada

February 8, 2023

Report of Independent Registered Public Accounting Firm Sun Life Financial Inc. December 31, 2022 9

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**CONSOLIDATED STATEMENTS OF OPERATIONS**

---

| | | | |
|:---|:---|:---|:---|
| For the years ended December 31, (in millions of Canadian dollars, except for per share amounts) | For the years ended December 31, (in millions of Canadian dollars, except for per share amounts) | **2022** | 2021 |
| **Revenue** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Premiums |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross |  | $**29160** | $25506 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Ceded |  | **2297** | 2453 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net premiums |  | **26863** | 23053 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net investment income (loss): |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and other investment income (Note 5) |  | **6152** | 6272 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value and foreign currency changes on assets and liabilities (Note 5) |  | **(17759)** | (1785) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gains (losses) on available-for-sale assets |  | **20** | 146 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net investment income (loss) |  | **(11587)** | 4633 |
| &nbsp;&nbsp;&nbsp;&nbsp;Fee income (Note 17) |  | **8046** | 8002 |
| **Total revenue** |  | **23322** | 35688 |
| **Benefits and expenses** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross claims and benefits paid (Note 10) |  | **22044** | 18722 |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in insurance contract liabilities (Note 10) |  | **(11107)** | 2437 |
| &nbsp;&nbsp;&nbsp;&nbsp;Decrease (increase) in reinsurance assets (Note 10) |  | **(951)** | 86 |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in investment contract liabilities (Note 10) |  | **(107)** | (22) |
| &nbsp;&nbsp;&nbsp;&nbsp;Reinsurance expenses (recoveries) (Note 11) |  | **(2140)** | (2425) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net transfer to (from) segregated funds (Note 22) |  | **(1149)** | (351) |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating expenses, commissions and premium taxes (Note 18) |  | **12364** | 11817 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense |  | **445** | 327 |
| **Total benefits and expenses** |  | **19399** | 30591 |
| **Income (loss) before income taxes** |  | **3923** | 5097 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Income tax expense (benefit) (Note 20) |  | **621** | 727 |
| **Total net income (loss)** |  | **3302** | 4370 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Net income (loss) attributable to participating policyholders (Note 21) |  | **116** | 335 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net income (loss) attributable to non-controlling interests |  | **56** |  |
| **Shareholders' net income (loss)** |  | **3130** | 4035 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Dividends on preferred shares and distributions on other equity instruments |  | **70** | 101 |
| **Common shareholders' net income (loss)** |  | $**3060** | $3934 |
| **Average exchange rates during the reporting periods:** | U.S. dollars | **1.30** | 1.25 |
| **Earnings (loss) per share (Note 26)** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic |  | $**5.22** | $6.72 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted |  | $**5.21** | $6.69 |
| **Dividends per common share** |  | $**2.760** | $2.310 |

---

The attached notes form part of these Consolidated Financial Statements.

10 Sun Life Financial Inc. December 31, 2022 Consolidated Financial Statements

------

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**<br>

---

| | | |
|:---|:---|:---|
| For the years ended December 31, (in millions of Canadian dollars) | **2022** | 2021 |
| **Total net income (loss)** | $**3302** | $4370 |
| **Other comprehensive income (loss), net of taxes:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Items that may be reclassified subsequently to income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in unrealized foreign currency translation gains (losses): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) | **934** | (202) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in unrealized gains (losses) on available-for-sale assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) | **(1270)** | (236) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications to net income (loss) | **(20)** | (130) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in unrealized gains (losses) on cash flow hedges: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) | **42** | 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications to net income (loss) | **(53)** | (19) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share of other comprehensive income (loss) in joint ventures and associates: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) | **(109)** | (14) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications to net income (loss) upon change in ownership interest (Note 16) | **—** | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total items that may be reclassified subsequently to income | **(476)** | (567) |
| &nbsp;&nbsp;&nbsp;&nbsp;Items that will not be reclassified subsequently to income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remeasurement of defined benefit plans | **168** | (39) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revaluation of property, plant and equipment | **(2)** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total items that will not be reclassified subsequently to income | **166** | (39) |
| Total other comprehensive income (loss) | **(310)** | (606) |
| **Total comprehensive income (loss)** | **2992** | 3764 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Participating policyholders' comprehensive income (loss) (Note 21) | **137** | 332 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-controlling interests' comprehensive income (loss) (Note 21) | **60** |  |
| **Shareholders' comprehensive income (loss)** | $**2795** | $3432 |

---

**INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS)**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, (in millions of Canadian dollars) | **2022** | 2021 |
| **Income tax benefit (expense):** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Items that may be reclassified subsequently to income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized foreign currency translation gains (losses) | $**4** | $1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) on available-for-sale assets | **304** | 66 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications to net income for available-for-sale assets | **2** | 15 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) on cash flow hedges | **6** | (11) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications to net income for cash flow hedges | **—** | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total items that may be reclassified subsequently to income | **316** | 79 |
| &nbsp;&nbsp;&nbsp;&nbsp;Items that will not be reclassified subsequently to income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remeasurement of defined benefit plans | **(75)** | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revaluation of property, plant and equipment | **(2)** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total items that will not be reclassified subsequently to income | **(77)** | 9 |
| **Total income tax benefit (expense) included in other comprehensive income (loss)** | $**239** | $88 |

---

The attached notes form part of these Consolidated Financial Statements.

Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 11

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**CONSOLIDATED STATEMENTS OF FINANCIAL POSITION**<br>

---

| | | |
|:---|:---|:---|
| As at December 31, (in millions of Canadian dollars) | **2022** | 2021 |
| **Assets** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash, cash equivalents and short-term securities (Note 5) | $**11219** | $12278 |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities (Notes 5 and 6) | **75902** | 88727 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity securities (Notes 5 and 6) | **7148** | 9113 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgages and loans (Notes 5 and 6) | **56261** | 51692 |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative assets (Notes 5 and 6) | **2095** | 1583 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other invested assets (Note 5) | **11215** | 8759 |
| &nbsp;&nbsp;&nbsp;&nbsp;Policy loans (Note 5) | **3350** | 3261 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment properties (Note 5) | **10102** | 9109 |
| &nbsp;&nbsp;&nbsp;&nbsp;Invested assets | **177292** | 184522 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other assets (Note 8) | **7810** | 5434 |
| &nbsp;&nbsp;&nbsp;&nbsp;Reinsurance assets (Notes 10 and 11) | **4801** | 3683 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred tax assets (Note 20) | **2282** | 1848 |
| &nbsp;&nbsp;&nbsp;&nbsp;Intangible assets (Note 9) | **4724** | 3370 |
| &nbsp;&nbsp;&nbsp;&nbsp;Goodwill (Note 9) | **8705** | 6517 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total general fund assets | **205614** | 205374 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investments for account of segregated fund holders (Note 22) | **125292** | 139996 |
| **Total assets** | $**330906** | $345370 |
| **Liabilities and equity** |  |  |
| **Liabilities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Insurance contract liabilities (Note 10) | $**140418** | $147811 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment contract liabilities (Note 10) | **3314** | 3368 |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative liabilities (Notes 5 and 6) | **2351** | 1392 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred tax liabilities (Note 20) | **630** | 322 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other liabilities (Note 12) | **22648** | 17783 |
| &nbsp;&nbsp;&nbsp;&nbsp;Senior debentures (Note 13) | **200** | 200 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated debt (Note 14) | **6676** | 6425 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total general fund liabilities | **176237** | 177301 |
| &nbsp;&nbsp;&nbsp;&nbsp;Insurance and investment contracts for account of segregated fund holders (Note 22) | **125292** | 139996 |
| **Total liabilities** | $**301529** | $317297 |
| **Equity** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued share capital and contributed surplus | $**10640** | $10615 |
| &nbsp;&nbsp;&nbsp;&nbsp;Shareholders' retained earnings and accumulated other comprehensive income | **16810** | 15699 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total shareholders' equity | **27450** | 26314 |
| &nbsp;&nbsp;&nbsp;&nbsp;Participating policyholders' equity | **1837** | 1700 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-controlling interests' equity | **90** | 59 |
| **Total equity** | $**29377** | $28073 |
| **Total liabilities and equity** | $**330906** | $345370 |
| **Exchange rates at the end of the reporting periods:** U.S. dollars  | **1.35** | 1.26 |

---

The attached notes form part of these Consolidated Financial Statements.

Approved on behalf of the Board of Directors on February 8, 2023.

---

| | |
|:---|:---|
| ![slf-20221231_g2.jpg](slf-20221231_g2.jpg) | ![slf-20221231_g5.jpg](slf-20221231_g5.jpg) |
| **Kevin Strain** | **Barbara G. Stymiest** |
| Chief Executive Officer | Director |

---

12 Sun Life Financial Inc. December 31, 2022 Consolidated Financial Statements

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**CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY**<br>

---

| | | |
|:---|:---|:---|
| For the years ended December 31, (in millions of Canadian dollars) | **2022** | 2021 |
| **Shareholders:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;**Preferred shares and other equity instruments (Note 15)** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | $**2239** | $2257 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued during the year | **—** | 1000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance costs, net of tax | **—** | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Redeemed during the year | **—** | (1025) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, end of year | **2239** | 2239 |
| &nbsp;&nbsp;&nbsp;&nbsp;**Common shares (Note 15)** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | **8305** | 8262 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock options exercised | **6** | 43 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, end of year | **8311** | 8305 |
| &nbsp;&nbsp;&nbsp;&nbsp;**Contributed surplus** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | **71** | 72 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based payments | **19** | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock options exercised | **—** | (7) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, end of year | **90** | 71 |
| &nbsp;&nbsp;&nbsp;&nbsp;**Retained earnings** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | **14713** | 12289 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) | **3130** | 4035 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Redemption of preferred shares | **—** | (20) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends on common shares | **(1614)** | (1351) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends on preferred shares and distributions on other equity instruments | **(70)** | (101) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes attributable to acquisition (Note 3) | **—** | (139) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, end of year | **16159** | 14713 |
| &nbsp;&nbsp;&nbsp;&nbsp;**Accumulated other comprehensive income (loss), net of taxes (Note 27)**  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | **986** | 1589 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) for the year | **(335)** | (603) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, end of year | **651** | 986 |
| **Total shareholders' equity, end of year** | $**27450** | $26314 |
| **Participating policyholders:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | $**1700** | $1368 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) (Note 21) | **116** | 335 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) for the year (Note 27)  | **21** | (3) |
| **Total participating policyholders' equity, end of year** | $**1837** | $1700 |
| **Non-controlling interests:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Balance, beginning of year | $**59** | $25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes attributable to acquisition (Note 3) | **—** | 15 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) | **56** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional contribution | **2** | 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) for the year (Note 27)  | **4** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distribution to non-controlling interests | **(31)** | (18) |
| **Total non-controlling interests' equity, end of year** | $**90** | $59 |
| **Total equity** | $**29377** | $28073 |

---

The attached notes form part of these Consolidated Financial Statements.

Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 13

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**CONSOLIDATED STATEMENTS OF CASH FLOWS**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, (in millions of Canadian dollars) | **2022** | 2021 |
| **Cash flows provided by (used in) operating activities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Income (loss) before income taxes | $**3923** | $5097 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense related to financing activities | **279** | 186 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in insurance and investment contract liabilities | **(11214)** | 2415 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease (increase) in reinsurance assets | **(951)** | 86 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realized and unrealized (gains) losses and foreign currency changes on invested assets | **17739** | 1639 |
| &nbsp;&nbsp;&nbsp;&nbsp;Sales, maturities and repayments of invested assets | **53535** | 55189 |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of invested assets | **(57153)** | (64592) |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes received (paid) | **(795)** | (1028) |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgage securitization (Note 5) | **151** | 95 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other operating activities | **(1203)** | (944) |
| Net cash provided by (used in) operating activities | **4311** | (1857) |
| **Cash flows provided by (used in) investing activities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net (purchase) sale of property and equipment | **71** | (81) |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment in and transactions with joint ventures and associates (Note 16) | **(69)** | (29) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends and other proceeds relating to joint ventures and associates (Note 16) | **27** | 382 |
| &nbsp;&nbsp;&nbsp;&nbsp;Acquisitions, net of cash and cash equivalents acquired (Note 3)<sup>(1)</sup> | **(2633)** | (412) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other investing activities | **(259)** | (663) |
| Net cash provided by (used in) investing activities | **(2863)** | (803) |
| **Cash flows provided by (used in) financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase in (repayment of) borrowed funds (Note 12) | **(34)** | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issuance of subordinated debt, net of issuance costs (Note 14) | **646** | 1992 |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase in (repayment of) borrowing from credit facility | **1786** | 108 |
| &nbsp;&nbsp;&nbsp;&nbsp;Redemption of preferred shares and other equity instruments (Note 21) | **—** | (1025) |
| &nbsp;&nbsp;&nbsp;&nbsp;Redemption of senior debentures and subordinated debt (Notes 13 and 14) | **(400)** | (650) |
| &nbsp;&nbsp;&nbsp;&nbsp;Issuance of preferred shares and other equity instruments, net (Note 21) | **—** | 987 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issuance of common shares on exercise of stock options | **6** | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;Transactions with non-controlling interests | **(25)** | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends paid on common and preferred shares | **(1671)** | (1428) |
| &nbsp;&nbsp;&nbsp;&nbsp;Payment of lease liabilities | **(136)** | (143) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest expense paid | **(270)** | (187) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other financing activities | **27** |  |
| Net cash provided by (used in) financing activities | **(71)** | (260) |
| Changes due to fluctuations in exchange rates | **302** | (35) |
| Increase (decrease) in cash and cash equivalents | **1679** | (2955) |
| Net cash and cash equivalents, beginning of year | **7693** | 10648 |
| Net cash and cash equivalents, end of year | **9372** | 7693 |
| Short-term securities, end of year (Note 5) | **1841** | 4452 |
| **Net cash, cash equivalents and short-term securities, end of year (Note 5)** | $**11213** | $12145 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Consists primarily of total cash consideration paid for the acquisition of DentaQuest of $3,267, less cash and cash equivalents acquired of $641 (2021 — total cash consideration paid of $446, less cash and cash equivalents acquired of $34).

The attached notes form part of these Consolidated Financial Statements.

14 Sun Life Financial Inc. December 31, 2022 Consolidated Financial Statements

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**Notes to the Consolidated Financial Statements**

(Amounts in millions of Canadian dollars, except for per share amounts and where otherwise stated. All amounts stated in U.S. dollars are in millions.)

**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* (Canada), and are regulated by the Office of the Superintendent of Financial Institutions, Canada ("OSFI"). SLF Inc. and its subsidiaries are collectively referred to as "us", "our", "ours", "we", or "the Company". We are an internationally diversified financial services organization providing savings, retirement and pension products, and life and health insurance to individuals and groups through our operations in Canada, the United States ("U.S."), Asia, and the United Kingdom ("UK"). We also operate mutual fund and investment management businesses, primarily in Canada, the U.S., 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 business 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.

**Estimates, Assumptions and Judgments** 

The application of our accounting policies requires estimates, assumptions and judgments as they relate to matters that are inherently uncertain. We have established procedures to ensure that our accounting policies are applied consistently and that the processes for changing methodologies for determining estimates are controlled and occur in an appropriate and systematic manner.

**Use of Estimates and Assumptions**

The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the application of our policies and the reported amounts of assets, liabilities, revenue and expenses. Key sources of estimation uncertainty include the measurement of insurance contract liabilities and investment contract liabilities, determination of fair value, impairment of financial instruments, determination and impairment of goodwill and intangible assets, determination of provisions and liabilities for pension plans, other post-retirement benefits, income taxes, and the determination of fair value of share-based payments. Actual results may differ from our estimates thereby impacting our Consolidated Financial Statements. Information on our use of estimates and assumptions are discussed in this Note.

**Judgments**

In preparation of these Consolidated Financial Statements, we use judgments to select assumptions and determine estimates as described above. We also use judgment when applying accounting policies and when determining the classification of insurance contracts, investment contracts and service contracts; the substance of whether our relationship with a structured entity, subsidiary, joint venture or associate constitutes control, joint control or significant influence; functional currencies; contingencies; acquisitions; deferred income tax assets; and the determination of cash generating unit ("CGU").

**COVID-19 Pandemic Considerations**

In early 2020, the world was impacted by COVID-19, which was declared a global pandemic by the World Health Organization. The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus and on actions taken by governments, businesses and individuals, which could vary by country and result in differing outcomes.

The application of our accounting policies requires estimates, assumptions and judgments as they relate to matters that are inherently uncertain. We have established procedures to ensure that our accounting policies are applied consistently and that the processes for changing methodologies for determining estimates are controlled and occur in an appropriate and systematic manner. For our insurance contract liabilities, no material COVID-19 specific provisions or adjustments to our long-term assumptions have been made, and we continue to monitor our experience and exposure to the COVID-19 pandemic.

Notes to the Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 15

------

Significant estimates and judgments have been made in the following areas and are discussed as noted:

---

| | |
|:---|:---|
| Insurance contract and investment contract assumptions and measurement | Note 1 Insurance Contract Liabilities and Investment Contract Liabilities<br>Note 10 Insurance Contract Liabilities and Investment Contract Liabilities |
| Determination of fair value | Note 1 Basis of Consolidation<br>Note 1 Determination of Fair Value <br>Note 3 Acquisitions and Other<br>Note 5 Total Invested Assets and Related Net Investment Income |
| Impairment of financial instruments | Note 1 Financial Assets Excluding Derivative Financial Instruments<br>Note 6 Financial Instrument Risk Management |
| Income taxes | Note 1 Income Taxes <br>Note 20 Income Taxes |
| Pension plans | Note 1 Pension Plans and Other Post-Retirement Benefits<br>Note 25 Pension Plans and Other Post-Retirement Benefits |
| Goodwill and intangible assets on acquisition and impairment | Note 1 Goodwill<br>Note 1 Intangible Assets<br>Note 3 Acquisitions and Other<br>Note 9 Goodwill and Intangible Assets |
| Determination of control for purpose of consolidation | Note 1 Basis of Consolidation<br>Note 16 Interests in Other Entities |
| Share-based payments | Note 19 Share-Based Payments |

---

**Basis of Consolidation**

Our Consolidated Financial Statements include the results of operations and the financial position of subsidiaries, which includes structured entities controlled by us, after intercompany balances and transactions have been eliminated. Subsidiaries are fully consolidated from the date we obtain control, and deconsolidated on the date control ceases. The acquisition method is used to account for the acquisition of a subsidiary from an unrelated party at the date that control is obtained, with the difference between the consideration transferred and the fair value of the subsidiary's net identifiable assets acquired recorded as goodwill. Judgment is required to determine fair value of the net identifiable assets acquired in a business combination. Interests in controlled entities held by external parties are reported as non-controlling interests ("NCI").

We control an entity when we have power over an entity, exposure to or rights to variable returns from our involvement with an entity, and the ability to affect our returns through our power over an entity. Power exists when we have rights that give us the ability to direct the relevant activities, which are those activities that could significantly affect the entity's returns. Power can be obtained through voting rights or other contractual arrangements. Judgment is required to determine the relevant activities and which party has power over these activities. When we have power over and variable returns from an entity, including an investment fund that we manage, we also apply significant judgment in determining whether we are acting as a principal or agent. To make this determination, we consider factors such as how much discretion we have regarding the management of the investment fund and the magnitude and extent of variability associated with our interests in the fund. If we determine we are the principal rather than the agent, we would consolidate the assets and liabilities of the fund. Interests held by external parties in investment funds that we consolidate are recorded as third-party interest in consolidated investment funds in Other liabilities. If we lose control of an entity, the assets and liabilities of that entity are derecognized from our Consolidated Statements of Financial Position at the date at which control is lost and any investment retained is remeasured to fair value.

A joint venture exists when SLF Inc., or one of its subsidiaries, has joint control of a joint arrangement and has rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control and exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which SLF Inc. or its subsidiaries are able to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an investee but not have control or joint control over those decisions. Significant influence is generally presumed to exist when SLF Inc. or its subsidiaries holds greater than 20% of the voting power of the investee but does not have control or joint control. The equity method is used to account for our interests in joint ventures and associates. A joint operation exists when SLF Inc., or one of its subsidiaries, has joint control of an arrangement that gives it rights to the assets and obligations for the liabilities of the operation, rather than the net assets of the arrangement. For joint operations, we record our share of the assets, liabilities, revenue and expenses of the joint operation. Judgment is required to determine whether contractual arrangements between multiple parties results in control, joint control or significant influence, with consideration of the relevant activities of the entity, voting rights, representation on boards of directors and other decision-making factors. Judgment is also required to determine if a joint arrangement is a joint venture or joint operation, with consideration of our rights and obligations and the structure and legal form of the arrangement.

**Determination of Fair Value** 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is measured using the assumptions that market participants would use when pricing an asset or liability. We determine fair value by using quoted prices in active markets for identical or similar assets or liabilities. When quoted prices in active markets are not available, fair value is determined using valuation techniques that maximize the use of observable inputs. When observable valuation inputs are not available, significant judgment is required to determine fair value by assessing the valuation techniques and valuation inputs. The use of alternative valuation techniques or valuation inputs may result in a different fair value. A description of the fair value methodologies, assumptions, valuation techniques, and valuation inputs by type of asset is included in Note 5.

16 Sun Life Financial Inc. December 31, 2022 Notes to the Consolidated Financial Statements

------

**Foreign Currency Translation**

**Translation of Transactions in Foreign Currencies**

The financial results 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.

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 using the exchange rate 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.

**Translation 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, 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 are 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:

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| | |
|:---|:---|
| 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 |

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Mortgages and loans include mortgages, 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 are measured at amortized cost or 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. Originated mortgages and loans are recognized in the Consolidated Statements of Financial Position on their funding dates.

*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.

Generally, 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. Because the carrying value of insurance contract liabilities is determined by reference to the assets

Notes to the Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 17

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supporting those liabilities, changes in the insurance contract liabilities generally offset changes in the fair value of debt securities classified as FVTPL, except for changes that are due to impairment. The majority of equity securities and other invested assets classified as FVTPL are held to support products where investment returns are passed through to policyholders and therefore, changes in the fair value of those assets are significantly offset by changes in insurance contract liabilities.

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 Fair value and foreign currency changes on 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.

*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 exchange differences calculated on 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 our Consolidated Statements of Operations.

*Loans and Receivables*

Loans and receivables are generally carried at amortized cost. 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.

*Solely Payments of Principal and Interest ("SPPI") Disclosures*

In September 2016, the IASB issued *Amendments to IFRS 4* to allow insurance entities whose predominant activities are to issue contracts within the scope of IFRS 4 *Insurance Contracts* ("IFRS 4") an optional temporary exemption from applying IFRS 9 *Financial Instruments* ("IFRS 9") ("deferral approach"). We qualify and have elected to take the deferral approach as our activities are predominantly connected with insurance and we will continue to apply IAS 39 *Financial Instruments: Recognition and Measurement* ("IAS 39"), the existing financial instrument standard.

To enable a comparison to entities applying IFRS 9 we disclose those invested assets that pass the SPPI test, excluding any that are managed and whose performance is evaluated on a fair value basis. Except for Debt securities designated as AFS and Mortgages and loans, our financial assets are managed and their performance is evaluated on a fair value basis. Please refer to Note 5.A.i for the related disclosure as at December 31, 2022 and 2021.

Financial assets that pass the SPPI test are assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

**ii) Derecognition**

Financial assets are derecognized when our rights to contractual cash flows expire, when we transfer substantially all our risks and rewards of ownership, or when we no longer retain control.

**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. Management exercises considerable judgment in assessing for objective evidence of impairment. Due to the inherent risks and uncertainties in our evaluation of assets or groups of assets for objective evidence of impairment, the actual impairment amount and the timing of the recognition of impairment may differ from management assessment. The impairment assessment process is discussed in Note 6.

*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 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 estimates of 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

18 Sun Life Financial Inc. December 31, 2022 Notes to the Consolidated Financial Statements

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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.

**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 hedge accounting purposes. Changes in (i) fair value of derivatives that are not designated for hedge accounting purposes, which are defined as derivative investments, and (ii) embedded derivatives that are bifurcated, are recorded in Fair value and foreign currency changes on 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 an investment in a foreign operation, or hedge accounting is discontinued. All hedging relationships are documented at inception and hedge effectiveness is assessed at inception and on a quarterly basis to determine whether the hedging instruments are highly effective in offsetting changes attributable to the hedged risk in the fair value or cash flows of the hedged items.

**Fair Value Hedges**

Certain interest rate swaps and foreign currency forwards are designated as hedging instruments in 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 our Consolidated Statements of Operations.

**Cash Flow Hedges**

Certain equity and foreign currency forwards are designated as hedging instruments in cash flow hedges for anticipated payments of awards under certain share-based payment plans and for anticipated foreign currency purchases of foreign operations. Changes in the fair value of derivatives for the effective portion of the hedge are recognized in OCI, while the ineffective portion of the hedge and any items excluded from the hedging relationship, such as the spot-to-forward differential, are recognized in Interest and other investment income in our Consolidated Statements of Operations. A portion of the amount recognized in OCI related to the equity forwards is reclassified to income as a component of Operating expenses as the liabilities for the share-based payment awards are accrued over the vesting period. A portion of the amounts recognized in OCI related to the foreign currency forwards would be reclassified to income upon disposal or impairment of the foreign operations. All amounts recognized in, or reclassified from, OCI are net of related taxes.

**Embedded Derivatives**

An embedded derivative is a component of a host contract that modifies the cash flows of the host contract 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 bifurcated for accounting purposes 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.

**Obligations for Securities Borrowing**

The obligation for the securities borrowing represents our commitment to deliver securities under short sale program. Under the program, we short sell the securities that we borrowed from a third party. The obligation to return the securities is not recognized in the Consolidated Statements of

Notes to the Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 19

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Financial Position, until they are sold, and the risks and rewards of the ownership have been transferred to us. Upon recognition, they are classified as HFT. The securities borrowings are returnable to the lender upon demand or at our discretion.

**Investment Properties**

Investment properties are real estate held to earn rental income, for capital appreciation, or both. 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, included in Other assets as described below. Expenditures related to ongoing maintenance of properties incurred subsequent to acquisition are expensed. Investment properties are initially recognized at cost in our Consolidated Statements of Financial Position. Various costs incurred associated with the acquisition of an investment property are either capitalized or expensed depending on whether or not the acquisition is considered a business combination. Investment properties are subsequently measured at fair value with changes in value recorded to Fair value and foreign currency changes on assets and liabilities in our Consolidated Statements of Operations.

When the use of a property changes from owner-occupied to investment property, any gain arising on the remeasurement of the property to fair value at the date of transfer is recognized in our Consolidated Statements of Operations to the extent that it reverses a previous impairment loss. Any remaining increase is recognized in OCI.

**Other Invested Assets - Non-Financial Assets**

Other invested assets also include non-financial assets such as investments in joint ventures and associates, which are accounted for using the equity method. Investments in joint ventures and associates are initially recorded at cost. The investment in joint ventures and associates is increased by our share of capital contributions and for purchases of additional interests and is reduced by distributions received. In addition, 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.

**Other Assets**

Other assets, which are measured at amortized cost, include accounts receivable, investment income due and accrued, deferred acquisition costs, property and equipment, and lessee's right-of-use assets. 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. Owner-occupied properties are amortized to their residual value over 25 to 49 years. Furniture, computers, other office equipment, and leasehold improvements are amortized to their residual value over 2 to 20 years. The right-of-use asset is subsequently depreciated on a straight-line basis over the lease term.

**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, represent 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.

**Leases**

At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For leases where we act as the lessee, we recognize a right-of-use asset and a lease liability at the commencement date of the lease. For leases where we act as the lessor, we assess whether the leases should be classified as finance or operating leases. Our leases are classified as operating leases. Operating leases are recognized into income on a straight-line basis.

The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability with certain adjustments, and subsequently depreciated using the straight-line method, with depreciation expense included in Operating expenses in the Consolidated Statements of Operations. The right-of-use asset is depreciated to the earlier of the lease term and its useful life. The right-of-use asset is assessed for impairment under IAS 36 *Impairment of Assets*. Right-of-use assets are assessed for indicators of impairment at each reporting period. If there is an indication that a right-of-use asset may be impaired, an impairment test is performed by comparing the asset's carrying amount to its recoverable amount. If an impairment loss has been incurred, the carrying value of the right-of-use asset is reduced with the corresponding amount recognized in income.

20 Sun Life Financial Inc. December 31, 2022 Notes to the Consolidated Financial Statements

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The lease liability is initially measured at the present value of lease payments over the term of the lease using a discount rate that is based on our incremental borrowing rate. The discount rate is specific to each lease and is determined by various factors, such as the lease term and currency. The lease term includes the non-cancellable period and the optional period where it is reasonably certain we will exercise an extension or termination option, considering various factors that create an economic incentive to do so. Subsequently, the lease liability is measured at amortized cost using the effective interest method, with interest charged to Interest expense in the Consolidated Statements of Operations. Lease liabilities and right-of-use assets are remeasured upon lease modifications. A lease modification is considered as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease.

**Intangible Assets**

Intangible assets consist of finite life and indefinite life intangible assets. Finite life intangible assets are amortized on a straight-line basis or using a units-of-production method, over the useful economic lives which are varying periods of up to 40 years. Amortization is charged through Operating expenses in the Consolidated Statements of Operation. 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. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. 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. The recoverable amount of intangible assets is determined using various valuation models, which require management to make certain judgments and assumptions that could affect the estimates of the recoverable amount.

**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 CGU or a group of CGUs 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 or a group of CGUs' carrying value to its recoverable amount, which is the higher of fair value less costs of disposal and value in use. Impairment losses are recognized immediately and cannot be reversed in future periods. Significant judgment is involved in estimating the model inputs used to determine the recoverable amount of our CGUs or group of CGUs, including those for discount rates, capital, the value of new business, expenses, cash flow projections, and market multiples, due to the uncertainty and the forward-looking nature of these inputs. The assumptions may differ from the actual experience, and estimates may change from period to period based on future events or revisions of assumptions. These key assumptions are discussed in Note 9.

**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. Judgment is required to determine the classification of a contract as an insurance contract, investment contract or a service contract.

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 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.

Significant judgment is required in determining our liabilities for insurance contracts including the assumptions required for their determination. Application of different assumptions may result in different measurement of the insurance contract liabilities. Actual experience may differ from assumptions, and estimates may change from period to period based on future events or revisions of assumptions. Key assumptions and considerations in choosing assumptions are discussed in Note 10 and sensitivities are discussed in Note 7.

Notes to the Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 21

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**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. 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. These liabilities are derecognized when the obligation of the contract is discharged, cancelled or expired.

As discussed in the Segregated Funds section of this Note, certain investment contracts under which the policyholder bears the risks associated with the underlying investments are classified as Investment contracts for account of segregated fund holders in the Consolidated Statements of Financial Position. The accounting for investment contracts that contain DPF is described in the Insurance Contract Liabilities section of this Note.

**Other Liabilities** 

Other liabilities which are measured at amortized cost, include accounts payable, lines of credit, repurchase agreements, accrued expenses and taxes, senior financing, provisions, lessee's lease liabilities and a deferred payment liability. Liabilities for provisions, other than insurance contract liabilities and investment contract liabilities, 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 lease liabilities are initially measured at the present value of lease payments over the term of the lease using a discount rate that is based on our incremental borrowing rate. Subsequently, the lease liabilities are measured at amortized cost using the effective interest method.

Other financial liabilities are initially measured at fair value, which is the present value of the expected cash outflow of the obligations, using our incremental borrowing rate. Subsequently, other financial liabilities are measured at amortized cost. If there is a change to the expected timing or amount of cash outflows, the carrying amount will be adjusted to reflect the revised estimates and will be recognized in the Consolidated Statements of Operations.

Further details on other financial liabilities, the put option and the deferred payment liability are included in Note 3.

**Senior Debentures and Subordinated Debt**

Senior debentures 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 to customers that do not transfer significant insurance risk and do not transfer financial risk from the customer to us, including contracts for investment management service, 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 risks 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 transfer to (from) segregated funds in our 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 and Investment 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

22 Sun Life Financial Inc. December 31, 2022 Notes to the Consolidated Financial Statements

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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 contract liabilities in our Consolidated Statements of Financial Position.

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 in general fund liabilities in Investment contract liabilities in our 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 in the current or previous period in OCI or directly in equity is accordingly recognized in OCI or equity and not in our Consolidated Statements of Operations. Interest and penalties payable to taxation authorities are recorded in Interest expense and Operating expenses, respectively, 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 of the probability that future taxable profit will be available against which these assets can be utilized. At each reporting period, we assess all available evidence, both positive and negative, to determine the amount of deferred income tax assets to be recognized. The recognition of deferred income tax assets requires estimates and significant judgment about future events, such as projections of future taxable profits, based on the information available at the reporting date.

The determination of the required provision for current and deferred income taxes requires that we interpret tax legislation in the jurisdictions in which we operate. For each reporting period, our income tax provision reflects our best estimate, based on the information available at the reporting date, of tax positions that are under audit or appeal by relevant tax authorities. To the extent that our estimate of tax positions or the timing of realization of deferred income tax assets or liabilities are not as expected, the provision for income taxes may increase or decrease in the future to reflect the actual experience.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, 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 taxable entity and the same taxation authority and we intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

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

**Pension Plans and Other Post-Retirement Benefits**

For defined benefit plans, the present value of the defined benefit obligation is calculated by independent actuaries using the projected unit credit method, and actuarial assumptions that represent best estimates of future variables that will affect the ultimate cost of these obligations. The discount rate used for our material defined benefit plans is determined with reference to market yields of high-quality corporate bonds that are denominated in the same currency in which the benefits will be paid, and that have terms to maturity approximating the terms of obligations. Plan assets are measured at fair value and are held in separate trustee administered funds or as qualifying insurance contracts. The difference between the fair value of the plan assets and the present value of the defined benefit obligation is recognized on the Consolidated Statements of Financial Position as an asset or liability in Other assets or Other liabilities, respectively.

Costs charged to our Consolidated Statements of Operations include current service cost, any past service costs, any gains or losses from curtailments or settlements, and interest on the net defined benefit liability (asset). Remeasurement of the net defined benefit liability (asset), which includes the impact of changes to the actuarial assumption underlying the liability calculations, liability experience gains or losses, the difference between the return on plan assets and the amount included in the interest on the net defined benefit liability (asset), is reflected immediately in OCI. The calculation of the defined benefit expenses and obligations requires judgment as the recognition is dependent on various actuarial assumptions such as discount rates, health care cost trend rates and projected compensation increases. These key assumptions are discussed in Note 25.

Notes to the Consolidated Financial Statements Sun Life Financial Inc. December 31, 2022 23

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**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 is generated from insurance contracts and service contracts.

Fee income from insurance contracts includes fees from segregated fund contracts, guarantee fees and other fees associated with insurance contracts and is typically recognized as revenue when services are rendered.

Fee income from service contracts represents fees associated with non-insurance contracts with customers and includes Distribution fees, Fund management and other asset-based fees, and Administrative services and other fees. Distribution fees includes fees earned from the distribution of investment products and other intermediary activities. Fund management and other asset-based fees includes fees earned from investment management services. Administrative services and other fees includes fees earned from contract administration and other management services. Fee income from service contracts is typically recognized as revenue when services are rendered at either a point in time or over time. The majority of fee income from service contracts is comprised of variable consideration which is based on a percentage of assets under management or another variable metric and is recognized as revenue when it is highly probable that a significant reversal in the amount of the revenue recognized will not occur.

**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 our 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 settled 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 MFS 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 in Operating expenses in our Consolidated Statements of Operations. The liabilities are settled 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.

24 Sun Life Financial Inc. December 31, 2022 Notes to the Consolidated Financial Statements

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**2. Changes in Accounting Policies**

**2. A New and Amended International Financial Reporting Standards Adopted in 2022**

We adopted the following amendments on January 1, 2022:

In May 2020, the IASB issued *Reference to the Conceptual Framework*, which includes amendments to IFRS 3 *Business Combinations*. The amendments update an outdated reference to the Conceptual Framework in IFRS 3 without significantly changing the requirements in the standard. The adoption of this amendment did not have a material impact on our Consolidated Financial Statements.

In May 2020, the IASB issued *Property, Plant and Equipment - Proceeds before Intended Use*, which includes amendments to IAS 16 *Property, Plant and Equipment*. The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The amendments apply retrospectively to assets ready for use in the comparative period. The adoption of this amendment did not have a material impact on our Consolidated Financial Statements.

In May 2020, the IASB issued *Onerous Contracts - Cost of Fulfilling a Contract*, which includes amendments to IAS 37 *Provisions, Contingent Liabilities and Contingent Assets*. The amendments specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract'. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The adoption of this amendment did not have a material impact on our Consolidated Financial Statements.

In May 2020, the IASB issued *Annual Improvements to IFRS Standards 2018-2020*, which includes minor amendments to three IFRS standards applicable to our Consolidated Financial Statements. These amendments apply prospectively. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements.

**Interest Rate Benchmark Reform - Phase 2 amendments**

In August 2020, the IASB issued the Interest Rate Benchmark Reform Phase 2, which includes amendments to IFRS 9, IAS 39, IFRS 7 *Financial Instruments: Disclosures* ("IFRS 7"), IFRS 4, and IFRS 16 *Leases* ("IFRS 16"). These amendments address issues that arise from the implementation of the reforms, including the replacement of a benchmark with an alternative one. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements

Effective December 31, 2021, the publication of London Inter-Bank Offered Rate ("LIBOR") settings has ceased for all sterling, Japanese yen, Swiss franc, and euro settings as well as for the one-week and two-month USD LIBOR settings. The remaining USD LIBOR settings will cease to be provided or lose their representativeness immediately after June 30, 2023.

On May 16, 2022, Refinitiv Benchmark Services (UK) Limited ("RBSL"), the administrator of the Canadian Dollar Offered Rate ("CDOR"), announced that it will permanently cease the publication and calculation of all tenors of CDOR after June 28, 2024. Concurrently, OSFI published their expectation that Federally Regulated Financial Institutions ("FRFI's") transition all new derivatives and securities to an alternative benchmark rate by June 30, 2023, with no new CDOR exposure after that date, with limited exceptions for risk management requirements. OSFI also expects loans referencing CDOR to transition by June 28, 2024. FRFI's are also expected to prioritize system and model updates to accommodate the use of the Canadian Overnight Repo Rate Average prior to June 28, 2024.

We have created an Interbank Offered Rate ("IBOR") Transition Program (the "Program") to manage the transition from IBOR benchmarks (such as LIBOR and CDOR) to Alternative Reference Rates ("ARRs"). The Program is cross-functional in nature and comprises key stakeholders across our organization and operates with executive oversight. The Program is on track in executing its transition plan, and is mindful of incorporating market developments as they arise. We also actively participate in industry associations and incorporate best practice guidance from these industry associations, as well as regulatory bodies into the transition plan, such as reviewing all existing and new LIBOR contracts for appropriate fallback language. The Program addresses the risk and uncertainty relating to the transition to ARRs, the use of fallback language, and other factors relating to reform that could otherwise adversely affect our operations and cash flows and the value of and return on our investments that are LIBOR or IBOR-based. Our affiliated entities with IBOR exposure related to derivatives have adhered to the International Swaps and Derivatives Association IBOR Fallbacks Protocol facilitating the transition of legacy derivative contracts to ARRs, and all of our GBP LIBOR exposure has been transitioned to Sterling Overnight Index Average.

As at December 31, 2022, our exposure to USD LIBOR consists of non-derivative financial assets of $2,750 (December 31, 2021 — $3,849), non-derivative financial liabilities of $77 (December 31, 2021 — $70), and derivative notional of $1,683 (December 31, 2021 — $9,417) that have not yet transitioned to an ARR, excluding financial instruments maturing by June 30, 2023. Our exposure to CDOR consists of non-derivative assets of $396 (June 30, 2022 — $387), non-derivative financial liabilities of $5,892 (June 30, 2022 — $6,286), and derivative notional of $11,725 (June 30, 2022 — $10,748) that have not yet transitioned to an ARR, excluding financial instruments maturing by June 28, 2024.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 25

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**2. B New and Amended International Financial Reporting Standards to be Adopted in 2023**

The following new and amended IFRS were issued by the IASB. We expect to adopt these in 2023:

**IFRS 17 and IFRS 9**

In May 2017, the IASB issued IFRS 17 *Insurance Contracts* ("IFRS 17"). This standard is to be applied using a retrospective approach, with at least one year of comparative results provided. If retrospective application to a group of insurance contracts is impracticable, a modified retrospective or fair value approach may be used. We have elected to use a fair value approach in instances where retrospective application is impracticable. IFRS 17 replaces IFRS 4 and impacts how we recognize, measure, present, and disclose our insurance contracts in our Consolidated Financial Statements.

In July 2014, the IASB issued the final version of IFRS 9 which replaces IAS 39. IFRS 9 includes guidance on the classification and measurement of financial instruments, impairment of financial assets and hedge accounting, and does not require restatement of comparative periods.

In June 2020, an amendment was issued to defer the effective date of IFRS 17 to annual periods beginning on or after January 1, 2023. Eligible insurers were also permitted the option of deferring the adoption of IFRS 9 to coincide with the adoption of IFRS 17. We have elected to apply this deferral option, and the effective date of both IFRS 17 and IFRS 9 will be January 1, 2023.

In December 2021, the IASB issued an amendment to IFRS 17 to allow for a transition option that permits insurers to present comparative information on financial assets as if IFRS 9 were applicable during the comparative period ("classification overlay"). We have elected to apply the classification overlay to our financial assets and their comparative period results as if IFRS 9 had been effective since January 1, 2022.

IFRS 17 establishes principles for the recognition, measurement, presentation, and disclosure of insurance contracts. The key principles of IFRS 17 are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance contracts are those under which an entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance contracts issued and reinsurance contracts held are divided into groups that will be separately recognized and measured.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Groups of insurance contracts are recognized and measured as the total of the following measurement components: a) the present value of future cash flows; b) a risk adjustment for non-financial risk; and c) the contractual service margin ("CSM"), an amount that represents the unearned profit of the group of contracts. These measurement components apply to groups of insurance contracts measured using the general measurement approach ("GMA") and the variable fee approach ("VFA"). The VFA applies to insurance contracts issued with direct participation features, which are substantially investment-related service contracts under which the policyholder is promised an investment return based on underlying items, such as segregated funds and certain participating insurance contracts. For short duration contracts, such as most of our group life and health business, a simplified measurement approach (the premium allocation approach or "PAA") is applied. Under the PAA, insurance contracts are measured based on unearned profits and do not include a CSM.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The profit from a group of insurance contracts is recognized into income over the period that insurance contract services are provided and as our risks related to servicing the contracts diminish over time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance revenue, insurance services expenses and insurance finance income or expenses are presented separately.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Disclosures are intended to enhance transparency and comparability of results.

The measurement of insurance contracts under IFRS 17 differs from the Canadian Asset Liability Method currently applied under IFRS 4. The most significant differences by measurement component are as follows:

Present value of future cash flows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The discount rates used to present value future cash flows under IFRS 17 are based on the characteristics of the insurance contracts. Under IFRS 4, discount rates are based on the portfolio of assets supporting the insurance contract liabilities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Estimates under IFRS 17 include the prevailing market view of the cost of financial guarantees, which requires a valuation consistent with market option prices. Under IFRS 4, the cost of financial guarantees is based on the amount required to fulfill the obligation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Expense cash flows under IFRS 17 are limited to those directly attributable to fulfillment of the obligations under insurance contracts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Future income taxes are excluded from future cash flows under IFRS 17.

Risk adjustment:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Measures the compensation required for uncertainty related to non-financial risk, such as mortality, morbidity, surrender and expenses under IFRS 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Provisions for uncertainty related to financial risk are included in the present value of future cash flows under IFRS 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• No amount is provided for asset-liability mismatch risk under IFRS 17.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Under IFRS 4, amounts provided for the risks listed above are reflected in a provision for adverse deviations included in insurance contract liabilities.

Contractual service margin:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• This is a new component of liabilities and necessitates the "grouping" of insurance contracts, which is not required under IFRS 4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The CSM represents unearned profits, which is discussed in more detail below.

The measurement approach under IFRS 17 and IFRS 4 is similar for insurance contracts measured using the PAA, such as our group life and health contracts. Differences arise mainly in the measurement of the Liability for Incurred Claims, where the discount rate and risk adjustment changes noted above apply.

We have highlighted in the following section certain impacts on our financial performance as a result of the differences between IFRS 17 and IFRS 4 described above:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• New business gains (unearned profits) are measured differently under IFRS 17, reflecting measurement differences on insurance contracts as discussed above. In addition, new business gains under IFRS 17 are deferred and recorded in the CSM and amortized into income as

26 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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insurance contract services are provided. Losses on new business are also measured differently, but continue to be recognized in income immediately. Under IFRS 4, new business gains and losses are both recognized in income immediately.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Discount rates used in calculating the present value of insurance contract liabilities are based on the characteristics of the insurance contracts rather than the assets supporting the liabilities. Amongst other differences, this results in changes in the timing of when investment-related income emerges.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Under IFRS 17, changes related to financial risk (e.g. changes in the discount rate) continue to be recognized in income immediately, except for insurance contracts measured using the VFA, where the changes are recorded through the CSM. Assumption changes for non-financial risk, such as mortality, are reflected in the CSM and amortized into income as insurance contract services are provided. Under IFRS 4, assumption changes for both financial and non-financial risk variables are recognized in income immediately.

IFRS 9 includes guidance on the classification and measurement of financial instruments, impairment of financial assets, and hedge accounting. The classification of financial assets is based on the cash flow characteristics and the business model within which an asset is managed, and determines how the financial asset is measured. The classification and measurement of financial liabilities remain generally unchanged from IAS 39. IFRS 9 also introduces an impairment model for financial assets not measured at FVTPL. The model requires the recognition of an allowance for 12-month expected losses at the initial recognition of a financial asset, and the recognition of an allowance for lifetime expected losses if certain criteria are met. In addition, IFRS 9 introduces a new model for hedge accounting to better align with risk management activities.

Under IFRS 17, we are electing to recognize all insurance finance income or expense in income rather than other comprehensive income. Consequently, to avoid an accounting mismatch, we are electing under IFRS 9 to classify most of our fixed income assets supporting insurance contracts as FVTPL.

The adoption of IFRS 17 and IFRS 9 is expected to have a significant impact on our Consolidated Financial Statements, and estimates of the financial impacts are subject to change as we continue to finalize the implications of adopting both standards. The establishment of the CSM and other measurement changes upon transition at January 1, 2022, including the impacts of reflecting IFRS 9 as at the same date, would reduce total equity.

Key financial items on our Consolidated Statement of Financial position are expected to be impacted as follows:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | As at January 1, 2022 | IFRS 9 Adjustments<sup>(1)</sup> | IFRS 17 Adjustments | Other<sup>(2)</sup> | As at January 1, 2022 subsequent to transition |
| Invested assets | $181261 | $4007 | $— | $— | $185268 |
| Policy loans<sup>(3)</sup> | 3261 |  | (3261) |  |  |
| Reinsurance contract held assets and Insurance contract assets<sup>(4)</sup> | 3683 |  | 4803 |  | 8486 |
| Other assets<sup>(3)</sup> | 157165 |  | (1157) | 1180 | 157188 |
| Total Assets | $345370 | $4007 | $385 | $1180 | $350942 |
| Insurance contract liabilities and Reinsurance contract held liabilities<sup>(5)</sup> | 147811 |  | 5301 |  | 153112 |
| Investment contract liabilities<sup>(6)</sup> | 3368 |  | 6546 |  | 9914 |
| Other liabilities<sup>(3)</sup> | 166118 |  | (412) |  | 165706 |
| Total liabilities | $317297 | $— | $11435 | $— | $328732 |
| Total equity<sup>(7)</sup> | $28073 | $4007 | $(11050) | $1180 | $22210 |
| Total liabilities and equity | $345370 | $4007 | $385 | $1180 | $350942 |

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<sup>(1)</sup> Primarily due to measurement impacts from IFRS 9 classification changes on Mortgages and loans.

<sup>(2)</sup> Due to tax impacts from IFRS 17 and IFRS 9 adoption.

<sup>(3)</sup> Certain balances, such as Policy loans and amounts related to premiums, that were previously presented separately or included in Other assets and Other liabilities, are included in the assets or liabilities for Insurance contracts issued or Reinsurance contracts held balances under IFRS 17.

<sup>(4)</sup> Increase primarily due to IFRS 17 remeasurement impacts and a requirement to present Insurance contract assets and Reinsurance contract held liabilities separately from Insurance contract liabilities and Reinsurance contract held assets.

<sup>(5)</sup> Increase in Insurance contract liabilities and Reinsurance contract held liabilities balances is primarily due to IFRS 17 remeasurement impacts, partially offset by IFRS 17 reclassification impacts. Remeasurement impacts are primarily due to the establishment of CSM of approximately $10 billion, the impact of discount rate changes under IFRS 17, and the release of certain reserves held under IFRS 4. Reclassification impacts are primarily offset in Policy loans and Investment contract liabilities.

<sup>(6)</sup> Certain contracts previously included in Insurance contract liabilities under IFRS 4 are reclassified to Investment contract liabilities under IFRS 17.

<sup>(7)</sup> Consists of a $4.5 billion reduction to Shareholders' equity and a $1.4 billion reduction to Equity in participating account.

**IAS 12**

In May 2021, the IASB issued amendments to IAS 12 *Income Taxes* ("IAS 12"). The amendments, Deferred Tax related to Assets and Liabilities arising from a Single Transaction, narrow the scope of the recognition exemption in IAS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendment to IAS 12 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

**IAS 1** 

In February 2021, the IASB issued amendments to IAS 1 *Presentation of Financial Statements* ("IAS 1") and IFRS Practice Statement 2 Making Materiality Judgments ("IFRS Practice Statement 2"). The amendments to IAS 1 require companies to disclose their material accounting policy

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 27

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information rather than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures. The amendment to IAS 1 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

**IAS 8**

In February 2021, the IASB issued amendments to IAS 8 *Accounting Policies, Changes in Accounting Estimates and Error*s ("IAS 8"). The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. The amendment to IAS 8 will be effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

**2. C New and Amended International Financial Reporting Standards to be Adopted in 2024 or Later**

We are currently assessing the impact of the following amendments on our Consolidated Financial Statements:

In September 2022, the IASB issued amendments to IFRS 16 *Leases* ("IFRS 16") to add subsequent measurement requirements for sale and leaseback transactions that satisfy the requirements in IFRS 15 *Revenue from Contracts with Customers* to be accounted for as a sale. The amendments require a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognize any amount of the gain or loss that relates to the right of use it retains. The amendments to IFRS 16 will be effective for annual reporting periods beginning on or after January 1, 2024. The amendments apply retrospectively, with early application permitted.

**3. Acquisitions and Other**

**SLF of Canada UK Limited Disposition**

On August 4, 2022, we entered into an agreement to sell SLF of Canada UK Limited ("Sun Life UK") for approximately $385 (£248). Sun Life UK manages life and pension policies as well as payout annuities blocks for UK Clients. Sun Life UK is closed to new sales and has operated as a run-off business since 2001. Under the agreement, we will retain our economic interest in the payout annuities business through a reinsurance treaty.

As of December 31, 2022, the net carrying value of assets and liabilities classified as held for sale is $403, which is in accordance with applicable measurement requirements. This year, we recognized an impairment charge of $170 pertaining to the goodwill that is not expected to be recovered through the sale. The charge is recorded in Operating expenses, commissions and premium taxes. Any further gains or losses from the disposal, including closing price adjustments, cumulative currency differences and tax adjustments, will be recognized upon the close of the sale.

The disposal will be included within our Corporate business segment. The transaction is expected to close in the first half of 2023, subject to regulatory approvals and customary closing conditions.

**Advisors Asset Management Inc.**

On September 1, 2022, we entered into an agreement with Advisors Asset Management Inc. ("AAM"), a leading independent U.S. retail distribution firm, to acquire a 51% interest, on a fully diluted basis, for cash consideration of approximately $280 (US$214) with an option to acquire the remaining interest starting in 2028. AAM will become the U.S. retail distribution arm for SLC Management, which is a part of our Asset Management business segment. The transaction is expected to close during the first half of 2023, subject to regulatory approvals and customary closing conditions.

**DentaQuest**

On June 1, 2022, we acquired DentaQuest, the second-largest provider of dental benefits in the United States by membership, for approximately $3,267 (US$2,584). Total consideration for the 100% acquisition of DentaQuest was paid with cash of $3,267, and primarily comprised of goodwill and intangibles, including contractual relationships, software, and brand. DentaQuest is reported in the Dental CGU of our U.S. business segment. The acquisition of DentaQuest aligns to our business strategy of being a leader in health and group benefits, with an increasing focus on health.

The fair values of the identifiable assets and liabilities acquired were:

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| | |
|:---|:---|
| As at June 1, 2022 | As at June 1, 2022 |
| Intangible assets | $1208 |
| Net assets | 255 |
| Deferred tax liabilities | $(226) |
| Total identifiable net assets at fair value | 1237 |
| Goodwill arising on acquisition<sup>(1)</sup> | 2030 |
| Total consideration | $3267 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Goodwill primarily reflects expected synergies from the combination of DentaQuest and our existing Dental and Vision business within the U.S. Group Benefits business, as well as the future growth potential of the DentaQuest business. Goodwill is not tax deductible.

The fair values of the identifiable assets and liabilities are subject to refinement and may be retroactively adjusted to reflect new information obtained about facts and circumstances that existed at the acquisition date during the measurement period.

28 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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Subsequent to the acquisition date of June 1, 2022, DentaQuest contributed total revenue of $2,061 to our U.S. business segment for the year ended December 31, 2022.

**Pinnacle Care International, Inc.** 

On July 1, 2021, we completed the acquisition of Pinnacle Care International, Inc. ("PinnacleCare"). Total consideration for the 100% acquisition of PinnacleCare was cash of $110, which mainly comprises of goodwill and intangibles. Goodwill of $45, recognized as a part of the acquisition, represents the value of synergies from the integration of PinnacleCare into the U.S. Group Benefits business. Intangible assets of $64, recognized as a part of the acquisition, represent the value of customer relationships acquired with the business.

PinnacleCare is a U.S. health-care navigation and medical intelligence service which expands our medical stop-loss business. The acquisition now forms part of our U.S. Group Benefits business. This acquisition will expand our medical stop-loss business by improving the care experience, costs and outcomes for both the employee and employer.

**Crescent Capital Group LP**

On January 5, 2021, we purchased 51% of Crescent Capital Group LP ("Crescent"), a U.S.-based global alternative credit investment manager, as well as the ability to acquire the remaining interest in the future. Crescent is reported in the SLC Management business unit within our Asset Management business segment. Consideration included $308 in cash and $6 of contingent consideration to the former owners of Crescent. The acquisition will extend SLC Management's solutions in alternative credit.

The fair values of the identifiable assets and liabilities acquired were:

---

| | |
|:---|:---|
| As at January 5, 2021 | As at January 5, 2021 |
| Intangible assets | $341 |
| Net liabilities | (119) |
| Total identifiable net assets at fair value | 222 |
| Non-controlling interest<sup>(1)</sup> | (317) |
| Goodwill arising on acquisition | 409 |
| Total consideration | $314 |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp; We have elected to measure NCI at fair value for this acquisition. The fair value was determined by calculating the proportionate share of the present value of future cash flows relating to NCI. Significant assumptions inherent in the valuation of NCI include the estimated after-tax cash flows expected to be received and an assessment of the appropriate discount rate.

Crescent minority shareholders also have the option to require us to purchase their shares ("put option") in 2026. We have a call option to acquire the remaining outstanding shares held by these minority shareholders commencing in 2026. The fair value of the put option liability was recognized in Other financial liabilities and any excess over the carrying amounts arising from transactions relating to non-controlling shareholders was recorded as a reduction to Retained earnings. Any changes to the carrying value of the financial liability after the acquisition date will be recognized in the Consolidated Statements of Operations. The agreement also includes a contingent payment based on the achievement of certain milestones.

At the date of acquisition, the impact to our assets, liabilities and equity is as follows:

---

| | | | |
|:---|:---|:---|:---|
| As at January 5, 2021 | Share purchase | Put option adjustments | Total |
| Cash consideration | $(308) | $— | $(308) |
| Intangible assets | 341 |  | 341 |
| Goodwill<sup>(1)</sup> | 409 |  | 409 |
| Total assets | $442 | $— | $442 |
| Net liabilities | $(119) | $— | $(119) |
| Other financial liabilities – Contingent consideration | (6) |  | (6) |
| Other financial liabilities – Put option |  | (441) | (441) |
| Total liabilities | $(125) | $(441) | $(566) |
| Non-controlling interest<sup>(2)</sup> | $(317) | $302 | $(15) |
| Retained earnings |  | 139 | 139 |
| Total equity | $(317) | $441 | $124 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup> Goodwill of $409 reflects non-contractual customer relationships and is tax deductible.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup> The remaining $15 represents specifically identifiable assets where the risks and rewards accrue to the minority shareholders of Crescent Capital Group, and the related NCI interests are not a party to the put option.

**Acquisitions and Other**

On April 5, 2022, we announced a deepening of our existing bancassurance partnership with PT Bank CIMB Niaga Tbk ("CIMB Niaga") in Indonesia. Under the new agreement, which will be effective in January 2025, we will be the provider of insurance solutions to CIMB Niaga customers across all distribution channels for a term of 15 years, further accelerating our long-term strategy of growing our distribution capacity in the region. The agreement also extends our existing relationship with CIMB Niaga by a term of six years up to 2039. An initial payment of $508 was made on

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 29

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June 30, 2022. $18 of the initial payment related to the existing bancassurance partnership was capitalized as an intangible asset. The remaining $490 will initially be recognized as a prepayment and capitalized as an intangible asset once the agreement becomes effective in 2025. Amortization of this intangible asset will begin in 2025.

On December 13, 2021, we announced that Canadian Premier Life Insurance Company ("Canadian Premier") has entered into an agreement to acquire our sponsored markets business. Sponsored markets include a variety of association & affinity, and group creditor clients. The transaction is expected to close in early 2023, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.

On February 1, 2021, the second stage of our acquisition of the pension business of FWD Life Insurance Company (Bermuda) Limited ("FWD") was completed for net proceeds of $17. Included in the acquisition were $480 in Invested assets and $480 of Investment contract liabilities.

Effective January 1, 2021 we entered into a 15-year exclusive bancassurance partnership with Asia Commercial Joint Stock Bank ("ACB"). The partnership significantly expands our distribution capabilities in Asia. An initial payment of $471 was made in January 2021, based on the contractual terms of the agreement. The initial payment was capitalized as an intangible asset and will be amortized over the life of the contract based on a units-of-production method.

**4. Segmented Information**

We have five reportable business segments: Canada, U.S., Asset Management, Asia and Corporate. These business segments operate in the financial services industry and reflect our management structure and internal financial reporting. Asset Management includes the results of our MFS and SLC Management business units. Corporate includes the results of our UK business unit and our Corporate Support operations, which include run-off reinsurance operations, as well as investment income, expenses, capital and other items not allocated to our other business groups.

Revenues from our business segments are derived primarily 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 at an arm's-length basis in a manner similar to transactions with third parties.

The expenses in each business segment may include costs or services directly incurred or provided on their behalf at the enterprise level. For other costs not directly attributable to one of our business segments, we use a management reporting framework that uses assumptions, judgments, and methodologies for allocating overhead costs and indirect expenses to our business segments.

Intersegment transactions consist primarily of internal financing agreements which are measured at fair values prevailing when the arrangements are negotiated. Intersegment investment income consists primarily of interest paid by U.S. to Corporate. Intersegment fee income is primarily asset management fees paid by our business segments to Asset Management. SLC Management collects fee income and incurs the operational expenses associated with the management of the general fund assets. Intersegment transactions are eliminated in the Consolidation adjustments column in the following tables.

Management considers its external Clients to be individuals and corporations. We are not reliant on any individual Client as none is individually significant to our operations.

30 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| For the years ended | **Canada** | **U.S.** | **Asset**<br>**Management** | **Asia** | **Corporate** | **Consolidation**<br>**adjustments** | **Total** |
| **December 31, 2022** |  |  |  |  |  |  |  |
| Gross premiums: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Annuities | $**3909** | $**1** | $**—** | $**26** | $**9** | $**—** | $**3945** |
| &nbsp;&nbsp;&nbsp;&nbsp;Life insurance | **6308** | **1515** | **—** | **3512** | **60** | **—** | **11395** |
| &nbsp;&nbsp;&nbsp;&nbsp;Health insurance | **6493** | **7298** | **—** | **25** | **4** | **—** | **13820** |
| Total gross premiums | **16710** | **8814** | **—** | **3563** | **73** | **—** | **29160** |
| Less: Ceded premiums | **1589** | **505** | **—** | **189** | **14** | **—** | **2297** |
| Net investment income (loss) | **(4864)** | **(2306)** | **28** | **(3242)** | **(1113)** | **(90)** | **(11587)** |
| Fee income | **1610** | **297** | **5729** | **620** | **106** | **(316)** | **8046** |
| Total revenue | **11867** | **6300** | **5757** | **752** | **(948)** | **(406)** | **23322** |
| Less: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total benefits and expenses | **10344** | **5571** | **4215** | **218** | **(543)** | **(406)** | **19399** |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax expense (benefit) | **363** | **143** | **345** | **63** | **(293)** | **—** | **621** |
| Total net income (loss) | $**1160** | $**586** | $**1197** | $**471** | $**(112)** | $**—** | $**3302** |
| Less: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) attributable to participating policyholders | **160** | **—** | **—** | **(44)** | **—** | **—** | **116** |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) attributable to non-controlling interests | **—** | **—** | **56** | **—** | **—** | **—** | **56** |
| Shareholders' net income (loss) | $**1000** | $**586** | $**1141** | $**515** | $**(112)** | $**—** | $**3130** |
| December 31, 2021 |  |  |  |  |  |  |  |
| Gross premiums: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Annuities | $3874 | $— | $— | $29 | $14 | $— | $3917 |
| &nbsp;&nbsp;&nbsp;&nbsp;Life insurance | 5848 | 1452 |  | 3542 | 83 |  | 10925 |
| &nbsp;&nbsp;&nbsp;&nbsp;Health insurance | 5989 | 4624 |  | 24 | 27 |  | 10664 |
| Total gross premiums | 15711 | 6076 |  | 3595 | 124 |  | 25506 |
| Less: Ceded premiums | 1533 | 705 |  | 201 | 14 |  | 2453 |
| Net investment income (loss) | 3069 | 546 | 20 | 1060 | 37 | (99) | 4633 |
| Fee income | 1611 | 81 | 5835 | 642 | 111 | (278) | 8002 |
| Total revenue | 18858 | 5998 | 5855 | 5096 | 258 | (377) | 35688 |
| Less: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total benefits and expenses | 16651 | 5375 | 4591 | 3838 | 513 | (377) | 30591 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income tax expense (benefit) | 384 | 124 | 372 | 113 | (266) |  | 727 |
| Total net income (loss) | $1823 | $499 | $892 | $1145 | $11 | $— | $4370 |
| Less: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) attributable to participating policyholders | 265 |  |  | 70 |  |  | 335 |
| Shareholders' net income (loss) | $1558 | $499 | $892 | $1075 | $11 | $— | $4035 |

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Assets and liabilities by segment are as follows:

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Canada** | **U.S.** | **Asset<br>Management** | **Asia** | **Corporate** | **Consolidation<br>adjustments** | **Total** |
| **As at December 31, 2022** | | | | | | | |
| Total general fund assets | $**110888** | $**37282** | $**11702** | $**37072** | $**9044** | $**(374)** | $**205614** |
| Investments for account of segregated fund holders | $**109058** | $**421** | $**—** | $**7111** | $**8702** | $**—** | $**125292** |
| Total general fund liabilities | $**100396** | $**30190** | $**9474** | $**29662** | $**6889** | $**(374)** | $**176237** |
| As at December 31, 2021 |  |  |  |  |  |  |  |
| Total general fund assets | $110499 | $33391 | $10024 | $37661 | $14187 | $(388) | $205374 |
| Investments for account of segregated fund holders | $121146 | $519 | $— | $7609 | $10722 | $— | $139996 |
| Total general fund liabilities | $100838 | $29553 | $8010 | $30884 | $8404 | $(388) | $177301 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 31

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The revenue and assets of our business segments differ from geographic segments primarily due to the geographic segmenting of our Asset Management and Corporate segments.

The following table shows revenue by country for Asset Management and Corporate:

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| | | | | |
|:---|:---|:---|:---|:---|
| | **&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Asset Management** | **&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Asset Management** | **&nbsp;&nbsp;&nbsp;&nbsp; Corporate** | **&nbsp;&nbsp;&nbsp;&nbsp; Corporate** |
| For the years ended December 31, | **2022** | 2021 | **2022** | 2021 |
| Revenue: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;United States | $**5173** | $5299 | $**61** | $112 |
| &nbsp;&nbsp;&nbsp;&nbsp;United Kingdom | **288** | 289 | **(1014)** | 74 |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **251** | 233 | **9** | 75 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other countries | **45** | 34 | **(4)** | (3) |
| Total revenue | $**5757** | $5855 | $**(948)** | $258 |

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The following table shows total assets by country for Asset Management and Corporate:

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| | | | | |
|:---|:---|:---|:---|:---|
| | **&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Asset Management** | **&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Asset Management** | **&nbsp;&nbsp;&nbsp;&nbsp; Corporate** | **&nbsp;&nbsp;&nbsp;&nbsp; Corporate** |
| As at December 31, | **2022** | 2021 | **2022** | 2021 |
| Total general fund assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;United States | $**9933** | $8203 | $**1536** | $2570 |
| &nbsp;&nbsp;&nbsp;&nbsp;United Kingdom | **940** | 1064 | **4827** | 6892 |
| &nbsp;&nbsp;&nbsp;&nbsp;Canada | **581** | 582 | **2500** | 4533 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other countries | **248** | 175 | **181** | 192 |
| Total general fund assets | $**11702** | $10024 | $**9044** | $14187 |
| Investment for account of segregated fund holders: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;United Kingdom | $**—** | $— | $**8702** | $10722 |
| Total investment for account of segregated fund holders | $**—** | $— | $**8702** | $10722 |

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32 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**5. Total Invested Assets and Related Net Investment Income**

**5. A Fair Value of Invested Assets**

**5. A.i Carrying Value and Fair Value of Financial Assets and Other Financial Liabilities**

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

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| | | | | |
|:---|:---|:---|:---|:---|
| As at | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 |
|  | **Carrying<br>value** | **Fair<br>value** | Carrying<br>value | Fair<br>value |
| Assets |  |  |  |  |
| &nbsp;&nbsp;Cash, cash equivalents and short-term securities | $**11219** | $**11219** | $12278 | $12278 |
| &nbsp;&nbsp;Debt securities - fair value through profit or loss | **62757** | **62757** | 75998 | 75998 |
| &nbsp;&nbsp;Debt securities - available-for-sale<sup>(1)</sup> | **13145** | **13145** | 12729 | 12729 |
| &nbsp;&nbsp;Equity securities - fair value through profit or loss | **6824** | **6824** | 7538 | 7538 |
| &nbsp;&nbsp;Equity securities - available-for-sale | **324** | **324** | 1575 | 1575 |
| &nbsp;&nbsp;Mortgages and loans<sup>(1)</sup> | **56261** | **51850** | 51692 | 55756 |
| &nbsp;&nbsp;Derivative assets | **2095** | **2095** | 1583 | 1583 |
| &nbsp;&nbsp;Other invested assets - fair value through profit or loss<sup>(2)</sup> | **5542** | **5542** | 4435 | 4435 |
| &nbsp;&nbsp;Other invested assets - available-for-sale<sup>(2)</sup> | **996** | **996** | 781 | 781 |
| &nbsp;&nbsp;Other invested assets - Collateralized Loan Obligations | **3044** | **2880** | 1865 | 1855 |
| &nbsp;&nbsp;Policy loans | **3350** | **3350** | 3261 | 3261 |
| Total financial assets<sup>(3)</sup> | $**165557** | $**160982** | $173735 | $177789 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>As at December 31, 2022, the fair value of invested assets that have contractual cash flows that qualify as SPPI include $12,829 of Debt securities - AFS (December 31, 2021 — $12,604), $48,614 of Mortgages and loans supporting insurance contract liabilities (December 31, 2021 — $51,249), and $3,229 of Mortgages and loans not supporting insurance contract liabilities (December 31, 2021 — $4,499).

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Other invested assets (FVTPL and AFS) include our investments in segregated funds, mutual funds and limited partnerships.

<sup>(3)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Invested assets on our Consolidated Statements of Financial Position of $177,292 (December 31, 2021 — $184,522) includes Total financial assets in this table, Investment properties of $10,102 (December 31, 2021 — $9,109), Other invested assets - non-financial assets of $1,633 (December 31, 2021 — $1,678).

Our mortgages and loans are carried at amortized cost. The fair value of mortgages and loans, for disclosure purposes, is determined based on the methodology and assumptions described in Note 5.A.ii. As at December 31, 2022, $44,681 and $7,169 are categorized in Level 2 and Level 3, respectively, of the fair value hierarchy described in this Note (December 31, 2021 — $43,488 and $12,268, respectively).

**Financial Liabilities**

Other financial liabilities are carried at amortized cost. The fair value of Other financial liabilities, for disclosure purposes, is determined based on the methodology and assumptions described in Note 5.A.ii. As at December 31, 2022, carrying value of $1,996 and fair value of $1,890 are categorized in Level 3 of the fair value hierarchy described in this Note (December 31, 2021 — $1,810 and $1,865, respectively).

Derivative liabilities with a fair value of $2,351 (December 31, 2021 — $1,392) are also included on the Consolidated Statements of Financial Position.

Obligations for securities borrowing are carried at a fair value of $73 (December 31, 2021 — $51).

Policy loans are carried at their unpaid principal balances. The fair value of policy loans, for disclosure purposes, is approximated by their carrying value, as policy loans are fully secured by policy values on which the loans are made and are categorized in Level 2 of the fair value hierarchy.

**Collateralized Loan Obligations**

Crescent, a subsidiary within our Asset Management business segment, issues and manages Collateralized Loan Obligations ("CLO"). Each CLO is a special purpose vehicle that owns a portfolio of investments, consisting primarily of senior secured loans, and issues various tranches of senior and subordinated notes to third parties for the purpose of financing the purchase of those investments. Assets of the special purpose vehicle are included in Other invested assets and the associated liabilities are included in Other liabilities. See Note 12 for the associated liabilities for the CLO.

As at December 31, 2022, the carrying value of the assets supporting the CLOs are $3,044 (December 31, 2021 — $1,865), which consists of cash and accounts receivable of $292 (December 31, 2021 — $319) and loans of $2,752 (December 31, 2021 — $1,546). Loans are measured at amortized cost. These underlying loans are mainly below investment grade. Our maximum contractual exposure to loss related to the CLOs is limited to our investment of $159 (December 31, 2021 — $104) in the most subordinated tranche.

The interest expense related to the CLOs was $71 for December 31, 2022 (December 31, 2021 — $11).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 33

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**5. A.ii Fair Value Methodologies and Assumptions**

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 earnings multiples of comparable companies.

The fair value of mortgages and loans is determined by discounting the expected future cash flows using a current market interest rate applicable to financial instruments with a 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 risk-adjusted spreads are determined based on the borrower's credit and liquidity, as well as term and other loan-specific features. Long-term mortgages and loans are generally categorized in Level 3 of the fair value hierarchy. The significant unobservable input is a portion of these risk-adjusted spreads at or beyond the 20-year point for mortgages and at or beyond the 10-year point for loans.

The fair value of other financial liabilities is determined by using the discounted cash flow methodology at the incremental borrowing rate or the effective interest rate. Other financial liabilities categorized as Level 3 represent the present value of the estimated price we would pay to acquire any remaining outstanding shares upon exercise of a put option and any mandatory income distributions. The fair value of the liabilities is based on the average earnings before income tax, depreciation and amortization ("EBITDA") for the preceding years before the options' exercise dates and EBITDA multiples in accordance with the put agreements as well as the expected amount of any mandatory income distributions. A change in EBITDA would impact the fair value of other financial liabilities and our net income (loss).

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 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 credit valuation adjustments 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 involve 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 and 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 significant assumptions that are consistent with current market conditions. The future rental rates are estimated based on the location, type, and quality of the properties, and take into account market data and projections at the valuation date. The fair values are typically compared to market-based information for reasonability, including recent transactions involving comparable assets. 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 short-term securities is approximated by their carrying amount, adjusted for credit risk where appropriate.

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

34 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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The fair value of obligations for securities borrowing is based on the fair value of the underlying borrowed debt securities. As these obligations are fully collateralized, the method used to determine fair value would be the same as that used for the relevant underlying debt securities.

The methodologies and assumptions for determining the fair values of investment contract liabilities are included in Note 10.B.

**5. A.iii Fair Value Hierarchy**

We categorize our assets and liabilities 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 the unadjusted quoted prices for identical assets or liabilities in an active market. The types of assets and liabilities classified as Level 1 generally include cash and cash equivalents, certain U.S. government and agency securities, 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 traded in active markets, or prices from valuation techniques that use significant observable inputs, or inputs that are derived principally from or corroborated with observable market data through correlation or other means. The types of assets and liabilities 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 assets and liabilities classified as Level 3 generally include certain corporate bonds, certain other invested assets and investment properties.

Our assets and liabilities that are carried at fair value on a recurring basis by hierarchy level are as follows:

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| As at | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** | Level 1 | Level 2 | Level 3 | Total |
| Assets |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash, cash equivalents and short-term securities | $**10622** | $**597** | $**—** | $**11219** | $10923 | $1355 | $— | $12278 |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities – fair value through profit or loss | **699** | **61661** | **397** | **62757** | 1503 | 74333 | 162 | 75998 |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities – available-for-sale | **723** | **12373** | **49** | **13145** | 770 | 11916 | 43 | 12729 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity securities – fair value through profit or loss | **3995** | **2731** | **98** | **6824** | 4429 | 3013 | 96 | 7538 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity securities – available-for-sale | **138** | **113** | **73** | **324** | 1414 | 87 | 74 | 1575 |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative assets | **37** | **2058** | **—** | **2095** | 26 | 1557 |  | 1583 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other invested assets | **789** | **194** | **5555** | **6538** | 1189 | 377 | 3650 | 5216 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment properties | **—** | **—** | **10102** | **10102** |  |  | 9109 | 9109 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total invested assets measured at fair value | $**17003** | $**79727** | $**16274** | $**113004** | $20254 | $92638 | $13134 | $126026 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investments for account of segregated fund holders | **23933** | **100728** | **631** | **125292** | 28637 | 110748 | 611 | 139996 |
| Total assets measured at fair value | $**40936** | $**180455** | $**16905** | $**238296** | $48891 | $203386 | $13745 | $266022 |
| Liabilities |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment contract liabilities | $**—** | $**—** | $**10** | $**10** | $— | $— | $9 | $9 |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative liabilities | **10** | **2341** | **—** | **2351** | 9 | 1383 |  | 1392 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other liabilities – obligations for securities borrowing | **—** | **73** | **—** | **73** |  | 51 |  | 51 |
| Total liabilities measured at fair value | $**10** | $**2414** | $**10** | $**2434** | $9 | $1434 | $9 | $1452 |

---

Debt securities - fair value through profit or loss consist of the following:

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| As at | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** | Level 1 | Level 2 | Level 3 | Total |
| Canadian federal government | $**—** | $**3869** | $**12** | $**3881** | $— | $4783 | $15 | $4798 |
| Canadian provincial and municipal government | **—** | **12638** | **—** | **12638** |  | 15930 |  | 15930 |
| U.S. government and agency | **699** | **109** | **—** | **808** | 1503 | 139 |  | 1642 |
| Other foreign government | **—** | **3852** | **11** | **3863** |  | 4747 | 7 | 4754 |
| Corporate | **—** | **34747** | **288** | **35035** |  | 41914 | 138 | 42052 |
| Asset-backed securities: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial mortgage-backed securities | **—** | **2028** | **56** | **2084** |  | 2221 | 2 | 2223 |
| &nbsp;&nbsp;&nbsp;&nbsp;Residential mortgage-backed securities | **—** | **2226** | **—** | **2226** |  | 2565 |  | 2565 |
| &nbsp;&nbsp;&nbsp;&nbsp;Collateralized debt obligations | **—** | **538** | **—** | **538** |  | 351 |  | 351 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **—** | **1654** | **30** | **1684** |  | 1683 |  | 1683 |
| Total | $**699** | $**61661** | $**397** | $**62757** | $1503 | $74333 | $162 | $75998 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 35

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Debt securities – available-for-sale consist of the following:

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| As at | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** | Level 1 | Level 2 | Level 3 | Total |
| Canadian federal government | $**—** | $**1730** | $**—** | $**1730** | $— | $2303 | $— | $2303 |
| Canadian provincial and municipal government | **—** | **1027** | **—** | **1027** |  | 1149 |  | 1149 |
| U.S. government and agency | **723** | **6** | **—** | **729** | 770 | 1 |  | 771 |
| Other foreign government | **—** | **761** | **—** | **761** |  | 756 | 1 | 757 |
| Corporate | **—** | **6234** | **41** | **6275** |  | 5473 | 41 | 5514 |
| Asset-backed securities: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial mortgage-backed securities | **—** | **793** | **—** | **793** |  | 761 | 1 | 762 |
| &nbsp;&nbsp;&nbsp;&nbsp;Residential mortgage-backed securities | **—** | **819** | **—** | **819** |  | 522 |  | 522 |
| &nbsp;&nbsp;&nbsp;&nbsp;Collateralized debt obligations | **—** | **508** | **—** | **508** |  | 505 |  | 505 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **—** | **495** | **8** | **503** |  | 446 |  | 446 |
| Total | $**723** | $**12373** | $**49** | $**13145** | $770 | $11916 | $43 | $12729 |

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During 2022 and 2021, we did not have any significant transfers between Level 1 and Level 2.

The following table provides a reconciliation of the beginning and ending balances for assets and liabilities that are categorized in Level 3:

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| For the years ended | Debt securities - fair value through profit or loss | Debt securities - available-for-sale | Equity securities - fair value through profit or loss | Equity securities - available-for-sale | Other<br> invested<br> assets | Investment<br> properties | Total<br> invested<br> assets<br> measured<br> at fair<br> value | Investments<br> for account<br> of segregated<br> fund holders | Total<br> assets<br> measured<br> at fair<br> value |
| **December 31, 2022** |  |  |  |  |  |  |  |  |  |
| Beginning balance | $**162** | $**43** | $**96** | $**74** | $**3650** | $**9109** | $**13134** | $**611** | $**13745** |
| Included in net income<sup>(1)(2)(3)</sup> | **(31)** | **1** | **—** | **5** | **322** | **625** | **922** | **(32)** | **890** |
| Included in OCI<sup>(2)</sup> | **—** | **(4)** | **—** | **—** | **12** | **—** | **8** | **—** | **8** |
| Purchases | **321** | **75** | **6** | **1** | **1843** | **664** | **2910** | **78** | **2988** |
| Sales / Payments | **—** | **(2)** | **(4)** | **(12)** | **(313)** | **(430)** | **(761)** | **(6)** | **(767)** |
| Settlements | **(1)** | **—** | **—** | **—** | **(47)** | **—** | **(48)** | **(1)** | **(49)** |
| Transfers (out) of Level 3<sup>(4)</sup> | **(59)** | **(64)** | **—** | **—** | **—** | **—** | **(123)** | **—** | **(123)** |
| Foreign currency translation<sup>(5)</sup> | **5** | **—** | **—** | **5** | **88** | **134** | **232** | **(19)** | **213** |
| Ending balance | $**397** | $**49** | $**98** | $**73** | $**5555** | $**10102** | $**16274** | $**631** | $**16905** |
| Gains (losses) included in earnings relating to instruments still held at the reporting date<sup>(1)</sup> | $**(31)** | $**—** | $**—** | $**—** | $**295** | $**612** | $**876** | $**(20)** | $**856** |
| December 31, 2021 |  |  |  |  |  |  |  |  |  |
| Beginning balance | $225 | $67 | $181 | $47 | $2645 | $7516 | $10681 | $550 | $11231 |
| Included in net income<sup>(1)(2)(3)</sup> | (6) |  | 10 | 5 | 392 | 1032 | 1433 | 23 | 1456 |
| Included in OCI<sup>(2)</sup> |  | (1) |  | 33 | 13 |  | 45 |  | 45 |
| Purchases | 29 | 5 | 8 | 15 | 1074 | 764 | 1895 | 65 | 1960 |
| Sales / Payments | (9) | (13) | (25) | (26) | (469) | (197) | (739) | (9) | (748) |
| Settlements | (15) | (3) | (5) |  |  |  | (23) | (1) | (24) |
| Transfers (out) of Level 3<sup>(4)</sup> | (57) | (10) | (73) |  |  |  | (140) |  | (140) |
| Foreign currency translation<sup>(5)</sup> | (5) | (2) |  |  | (5) | (6) | (18) | (17) | (35) |
| Ending balance | $162 | $43 | $96 | $74 | $3650 | $9109 | $13134 | $611 | $13745 |
| Gains (losses) included in earnings relating to instruments still held at the reporting date<sup>(1)</sup> | $(4) | $— | $11 | $5 | $382 | $1038 | $1432 | $27 | $1459 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Included in Net investment income (loss) for Total invested assets measured at fair value in our Consolidated Statements of Operations.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>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 an asset or liability 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.

<sup>(3)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Investment properties included in net income is comprised of fair value changes on investment properties of $667 (2021 — $1,070), net of amortization of leasing commissions and tenant inducements of $42 (2021 — $38). As at December 31, 2022, we have used assumptions that reflect known changes in the property values including changes in expected future cash flows.

<sup>(4)&nbsp;&nbsp;&nbsp;&nbsp;</sup>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.

<sup>(5)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Foreign currency translation relates to the foreign exchange impact of translating Level 3 assets and liabilities of foreign subsidiaries from their functional currencies to Canadian dollars.

36 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**Unobservable Inputs and Sensitivity for Level 3 Assets**

Our assets categorized in Level 3 of the fair value hierarchy are primarily Investment properties, Debt securities and Other invested assets.

The fair value of Investment properties is determined by using the discounted cash flow methodology as described in Note 5.A.ii. The key unobservable inputs used in the valuation of investment properties as at December 31, 2022 include the following:

• Estimated rental value: The estimated rental value is based on contractual rent and other local market lease transactions, net of reimbursable operating expenses. An increase (decrease) in the estimated rental value would result in a higher (lower) fair value. The estimated rental value varies depending on the property types, which include retail, office, and industrial properties. The estimated rental value (in dollars, per square foot, per annum) ranges from $12.00 to $76.00 for retail and office properties and from $3.00 to $21.50 for industrial properties.

• Rental growth rate: The rental growth rate is typically estimated based on expected market behaviour, which is influenced by the type of property and geographic region of the property. An increase (decrease) in the rental growth rate would result in a higher (lower) fair value. The rental growth rate (per annum) ranges from 0.00% to 3.00%, however the one- to two-year short-term rent curve is either below or above this range for select properties.

• Long-term vacancy rate: The long-term vacancy rate is typically estimated based on expected market behaviour, which is influenced by the type of property and geographic region of the property. An increase (decrease) in the long-term vacancy rate would result in a lower (higher) fair value. The long-term vacancy rate ranges from 2.00% to 10.00%.

• Discount rate: The discount rate is derived from market activity across various property types and geographic regions and is a reflection of the expected rate of return to be realized on the investment over the next 10 years. An increase (decrease) in the discount rate would result in a lower (higher) fair value. The discount rate ranges from 5.00% to 9.50%.

• Terminal capitalization rate: The terminal capitalization rate is derived from market activity across various property types and geographic regions and is a reflection of the expected rate of return to be realized on the investment over the remainder of its life after the 10-year period. An increase (decrease) in the terminal capitalization rate would result in a lower (higher) fair value. The terminal capitalization rate ranges from 3.63% to 8.00%.

Changes in the estimated rental value are positively correlated with changes in the rental growth rate. Changes in the estimated rental value are negatively correlated with changes in the long-term vacancy rate, the discount rate, and the terminal capitalization rate.

Our Debt securities categorized in Level 3, which are included in Debt securities - FVTPL and Debt securities - AFS in the Level 3 roll forward table, consist primarily of corporate bonds. The fair value of these corporate bonds is generally determined using broker quotes that cannot be corroborated with observable market transactions. Significant unobservable inputs for these corporate bonds would include issuer spreads, which are comprised of credit, liquidity, and other security-specific features of the bonds. An increase (decrease) in these issuer spreads would result in a lower (higher) fair value. Due to the unobservable nature of these broker quotes, we do not assess whether applying reasonably possible alternative assumptions would have an impact on the fair value of the Level 3 corporate bonds. The majority of our debt securities categorized in Level 3 are FVTPL assets supporting insurance contract liabilities. Changes in the fair value of these assets supporting insurance contract liabilities are largely offset by changes in the corresponding insurance contract liabilities under CALM. As a result, though using reasonably possible alternative assumptions may have an impact on the fair value of the Level 3 debt securities, it would not have a significant impact on our Consolidated Financial Statements.

The Other invested assets categorized in Level 3, which are included in Other invested assets - FVTPL and Other invested assets - AFS in the Level 3 roll forward table, consists primarily of limited partnership investments. The fair value of our limited partnership investments is based on net asset value ("NAV") provided by management of the limited partnership investments. Based on the unobservable nature of these NAVs, we do not assess whether applying reasonably possible alternative assumptions would have an impact on the fair value of the Level 3 limited partnership investments.

**Valuation Process for Level 3 Assets**

Our assets categorized in Level 3 of the fair value hierarchy are primarily Investment properties, Debt securities and limited partnership investments included in Other invested assets. Our valuation processes for these assets are as follows:

The fair value of investment properties are based on the results of appraisals performed annually and reviewed quarterly for material changes. The valuation methodology used to determine the fair value is in accordance with the standards of the Appraisal Institute of Canada, the U.S., and the UK. Investment properties are appraised externally at least once every three years. Investment properties not appraised externally in a given year are reviewed by qualified appraisers. A management committee, including investment professionals, reviews the fair value of investment properties for overall reasonability.

The fair value of Debt securities is generally obtained by external pricing services. We obtain an understanding of inputs and valuation methods used by external pricing services. When fair value cannot be obtained from external pricing services, broker quotes, or internal models subject to detailed review and validation processes are used. The fair value of debt securities is subject to price validation and review procedures to ensure overall reasonability.

The fair value of limited partnership investments, included in Other invested assets, is based on NAV. The financial statements used in calculating the NAV are generally audited annually. We review the NAV of the limited partnership investments and perform analytical and other procedures to ensure the fair value is reasonable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 37

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**5. B Interest and Other Investment Income**

Interest and other investment income presented in our Consolidated Statements of Operations consist of the following:

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Interest income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash, cash equivalents and short-term securities | $**166** | $25 |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities - fair value through profit or loss | **2596** | 2429 |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities - available-for-sale | **341** | 256 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgages and loans | **2234** | 2117 |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative investments | **115** | 107 |
| &nbsp;&nbsp;&nbsp;&nbsp;Policy loans | **167** | 160 |
| Total interest income | **5619** | 5094 |
| Equity securities - dividends on fair value through profit or loss | **236** | 209 |
| Equity securities - dividends on available-for-sale | **8** | 5 |
| Investment properties rental income<sup>(1)</sup> | **593** | 543 |
| Investment properties expenses | **(248)** | (235) |
| Other income | **235** | 922 |
| Investment expenses and taxes | **(291)** | (266) |
| Total interest and other investment income | $**6152** | $6272 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Includes operating lease rental income from investment properties.

**5. C Fair Value and Foreign Currency Changes on Assets and Liabilities**

Fair value and foreign currency changes on assets and liabilities presented in our Consolidated Statements of Operations consist of the following:

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Fair value change: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash, cash equivalents and short-term securities | $**4** | $(3) |
| &nbsp;&nbsp;&nbsp;&nbsp;Debt securities | **(15959)** | (3892) |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity securities | **(1125)** | 825 |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative investments | **(2148)** | 191 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other invested assets | **152** | 444 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other liabilities - obligations for securities borrowing | **15** | (2) |
| Total change in fair value through profit or loss assets and liabilities | **(19061)** | (2437) |
| Fair value changes on investment properties | **667** | 1070 |
| Foreign exchange gains (losses)<sup>(1)</sup> | **535** | (418) |
| Realized gains (losses) on property and equipment<sup>(2)</sup> | **100** |  |
| Fair value and foreign currency changes on assets and liabilities | $**(17759)** | $(1785) |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Primarily arises from the translation of foreign currency denominated AFS monetary assets and mortgage and loans. Any offsetting amounts arising from foreign currency derivatives are included in the fair value change on derivative investments.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>In June 2022, we sold and leased back our Wellesley office in the U.S. The transaction qualified as a sale and operating lease and as a result, we recognized a pre-tax gain of $100 for the year ended December 31, 2022 (2021 — $nil).

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

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

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Cash | $**3068** | $2297 |
| Cash equivalents | **6310** | 5529 |
| Short-term securities | **1841** | 4452 |
| Cash, cash equivalents and short-term securities | **11219** | 12278 |
| Less: Bank overdraft, recorded in Other liabilities | **6** | 133 |
| Net cash, cash equivalents and short-term securities | $**11213** | $12145 |

---

38 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**5. E Derivative Financial Instruments and Hedging Activities**

The fair values of derivative financial instruments by major class of derivatives are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | 2021 | 2021 |
|  | **Fair value** | **Fair value** | Fair value | Fair value |
|  | **Assets** | **Liabilities** | Assets | Liabilities |
| Interest rate contracts | $**704** | $**(1138)** | $942 | $(366) |
| Foreign exchange contracts | **1300** | **(1203)** | 527 | (1018) |
| Other contracts | **91** | **(10)** | 114 | (8) |
| Total derivatives | $**2095** | $**(2351)** | $1583 | $(1392) |

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The following table presents the fair values of derivative assets and liabilities categorized by type of hedge for accounting purposes and derivative investments:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Total notional amount** | **Fair value** | **Fair value** | Total notional amount | Fair value | Fair value |
|  | **Total notional amount** | **Assets** | **Liabilities** | Total notional amount | Assets | Liabilities |
| Derivative investments<sup>(1)</sup> | $**68417** | $**2077** | $**(2330)** | $64761 | $1536 | $(1390) |
| Fair value hedges | **59** | **—** | **(1)** | 414 | 1 | (2) |
| Cash flow hedges | **1292** | **18** | **(20)** | 791 | 46 |  |
| Total derivatives | $**69768** | $**2095** | $**(2351)** | $65966 | $1583 | $(1392) |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Derivative investments are derivatives that have not been designated as hedges for accounting purposes.

We did not have any net investment hedges in 2022 or 2021.

Hedge ineffectiveness recognized in Interest and other investment income consists of the following:

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Gains (losses) on the hedged items attributable to the hedged risk | $**(2)** | $(6) |
| Gains (losses) on the hedging derivatives | **3** | 8 |
| Net ineffectiveness on fair value hedges | $**1** | $2 |

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For cash flow hedges, we had hedge ineffectiveness of $1 in 2022 (2021 — $2). We expect to reclassify a gain of $1 (2021 — $7) from accumulated OCI to net income within the next 12 months that relates to cash flow hedges of anticipated award payments under certain share-based payment plans that are expected to occur in 2023, 2024, and 2025 and cash flow hedges which hedge against foreign exchange exposure. The reclassification of accumulated OCI to income relating to these foreign currency forwards occurs upon disposal or impairment of the foreign operation.

**5. F Transfers of Financial Assets**

We enter into transactions, including mortgage securitization, repurchase agreements and securities lending, where we transfer financial assets while retaining the risks and rewards of ownership of the assets. These transferred financial assets are not derecognized and remain on our Consolidated Statements of Financial Position. The carrying value of the transferred assets and the associated liabilities are described in the sections below.

**5. F.i Mortgage Securitization**

We securitize certain insured fixed-rate commercial mortgages through the creation of mortgage-backed securities under the National Housing Act Mortgage-Backed Securities ("NHA MBS") Program sponsored by the Canada Mortgage and Housing Corporation ("CMHC"). The NHA MBS are then sold to Canada Housing Trust, a government-sponsored security trust that issues securities to third-party investors under the Canadian Mortgage Bond ("CMB") program. The securitization of these assets does not qualify for derecognition as we have not transferred substantially all of the risks and rewards of ownership. Specifically, we continue to be exposed to pre-payment and interest rate risk associated with these assets. There are no expected credit losses on the securitized mortgages, as the mortgages were already insured by the CMHC prior to securitization. These assets continue to be recognized as Mortgages and loans in our Consolidated Statements of Financial Position. Proceeds from securitization transactions are recognized as secured borrowings and included in Other liabilities in our Consolidated Statements of Financial Position.

Receipts of principal on the securitized mortgages are deposited into a principal reinvestment account ("PRA") to meet our repayment obligation upon maturity under the CMB program. The assets in the PRA are typically comprised of cash and cash equivalents and certain asset-backed securities. We are exposed to reinvestment risk due to the amortizing nature of the securitized mortgages relative to our repayment obligation for the full principal amount due at maturity. We mitigate this reinvestment risk using interest rate swaps.

The carrying value and fair value of the securitized mortgages as at December 31, 2022 are $1,926 and $1,793, respectively (December 31, 2021 — $1,856 and $1,882, respectively). The carrying value and fair value of the associated liabilities as at December 31, 2022 are $2,158 and $2,018, respectively (December 31, 2021 — $2,007 and $2,043, respectively). The carrying value of securities in the PRA as at December 31, 2022 is $244 (December 31, 2021 — $164). There are $nil cash and cash equivalents in the PRA as at December 31, 2022 (December 31, 2021 — $4).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 39

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The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions for asset-backed securities described in Note 5A.ii. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at December 31, 2022 and 2021.

**5. F.ii Repurchase Agreements**

We enter into repurchase agreements for operational funding and liquidity purposes. Repurchase agreements have maturities ranging from 4 to 365 days, averaging 110 days, and bear interest at an average rate of 3.90% as at December 31, 2022 (December 31, 2021 — 0.35%). The carrying values of the transferred assets and the obligations related to their repurchase, which approximate their fair values, are $2,725 as at December 31, 2022 (December 31, 2021 — $2,324). These liabilities are categorized in Level 2 of the fair value hierarchy. Collateral primarily consists of cash and cash equivalents as well as government guaranteed securities. Details on the collateral pledged are included in Note 6.A.ii.

**5. F.iii Securities Lending**

The Company engages in securities lending to generate additional income. Certain securities from its portfolio are lent to other institutions for short periods. Collateral exceeding the fair value of the securities lent 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 securities lent is monitored on a daily basis with additional collateral obtained or refunded as the fair values fluctuate. Collateral primarily consists of Canadian federal and provincial government securities and cash and cash equivalents. Certain arrangements allow us to invest the cash collateral received for the securities lent. The carrying values of the securities lent approximate their fair values. The carrying values of the securities lent and the related collateral held are $2,202 and $2,322, respectively, as at December 31, 2022 (December 31, 2021 — $2,257 and $2,372, respectively). Of the collateral held, we held cash collateral of $215 as at December 31, 2022 (December 31, 2021 — $51), which is recognized on our Consolidated Statements of Financial Position.

**6. Financial Instrument Risk Management**

The significant risks related to financial instruments are credit risk, market risk (including equity risk, interest rate and spread risk, and foreign currency risk) and liquidity risk. The following sections describe how we manage 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, 2022. The shaded text and tables in the Risk Management section of the MD&A represent part of our disclosures on credit, market and liquidity risks and include a description of how we measure our risk and our objectives, policies and methodologies for managing these risks. Therefore, the shaded text and tables in our MD&A are an integral part of these Consolidated Financial Statements.

We use derivative instruments to manage market risks related to equity market, interest rate 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 using derivative instruments, where appropriate. We use models and techniques to measure the effectiveness of our risk management strategies.

**6. A Credit Risk**

**Risk Description**

Credit risk is the possibility of loss from amounts owed by our borrowers or financial counterparties. We are subject to credit risk in connection with issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties (including derivative, repurchase agreement and securities lending counterparties), other financial institutions 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, any underlying security that may be used as collateral for the debt obligation. Credit risk can occur 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 may cause an increase in our provisions for asset default, adversely impacting earnings.

**Credit Risk Management Governance and Control**

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

• Credit risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Risk appetite limits have been established for credit risk.

• Income and regulatory capital sensitivities are monitored, managed and reported against pre-established risk limits.

• Comprehensive Investment and Credit Risk Management Policy, guidelines and practices are in place.

• Specific investment diversification requirements are in place, such as defined investment limits for asset class, geography, and industry.

• Risk-based credit portfolio, counterparty, and sector exposure limits have been established.

• Mandatory use of credit quality ratings for portfolio investments has been established and is reviewed regularly. These internal rating decisions for new fixed income investments and ongoing review of existing rating decisions are independently adjudicated by Corporate Risk Management.

• Comprehensive due diligence processes and ongoing credit analyses are conducted.

• Regulatory solvency requirements include risk-based capital requirements and are monitored regularly.

• Comprehensive compliance monitoring practices and procedures including reporting against pre-established investment limits are in place.

• Reinsurance exposures are monitored to ensure that no single reinsurer represents an undue level of credit risk.

40 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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• Stress-testing techniques, such as Financial Condition Testing ("FCT"), are used to measure the effects of large and sustained adverse credit developments.

• Insurance contract liabilities are established in accordance with Canadian actuarial standards of practice.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

**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, | **2022** | 2021 |
| Off-balance sheet item: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Loan commitments<sup>(1)</sup> | $**2217** | $2402 |

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<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Loan commitments include commitments to extend credit under commercial and multi-family 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**

We invest in financial assets which may be secured by real estate properties, pools of financial assets, third-party financial guarantees, credit insurance, and other arrangements.

For OTC derivatives, collateral is collected from and pledged to counterparties to manage credit exposure according to the Credit Support Annex ("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.

For 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.

For repurchase agreements and reverse repurchase agreements, assets are sold or purchased with a commitment to resell or repurchase at a future date. Additional collateral may be pledged to or collected from 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.

In the case of securities lending or borrowing, assets are lent or borrowed with a commitment from or to the counterparty to return at a future date. For securities lending, cash or securities are received as collateral from the counterparty; for securities borrowing, debt securities are pledged as collateral to the counterparty. In the event of default by the counterparty, we are entitled to liquidate the assets we hold as collateral to offset against obligations to the same counterparty.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 41

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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.

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 | 2021 |
|  | **Financial**<br>**instruments**<br>**presented**<br>**in the**<br>**Consolidated**<br>**Statements**<br>**of Financial**<br>**Position**<sup>(1)</sup> | **Financial**<br>**instruments**<br>**presented**<br>**in the**<br>**Consolidated**<br>**Statements**<br>**of Financial**<br>**Position**<sup>(1)</sup> | **Related amounts not set off in the Consolidated Statements of Financial Position** | **Related amounts not set off in the Consolidated Statements of Financial Position** |  | Financial<br>instruments<br>presented<br>in the<br>Consolidated<br>Statements<br>of Financial<br>Position<sup>(1)</sup> | Related amounts not set off in the Consolidated Statements of Financial Position | Related amounts not set off in the Consolidated Statements of Financial Position |  |
|  | **Financial**<br>**instruments**<br>**presented**<br>**in the**<br>**Consolidated**<br>**Statements**<br>**of Financial**<br>**Position**<sup>(1)</sup> | **Financial**<br>**instruments**<br>**presented**<br>**in the**<br>**Consolidated**<br>**Statements**<br>**of Financial**<br>**Position**<sup>(1)</sup> | **Financial instruments subject to master netting or similar agreements** | **Financial collateral (received) pledged**<sup>(2)</sup> | **Net amount** | Financial<br>instruments<br>presented<br>in the<br>Consolidated<br>Statements<br>of Financial<br>Position<sup>(1)</sup> | Financial instruments subject to master netting or similar agreements | Financial collateral (received) pledged<sup>(2)</sup> | Net amount |
| Financial assets: |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative assets (Note 6.A.v) |  | $**2095** | $**(1088)** | $**(923)** | $**84** | $1583 | $(828) | $(558) | $197 |
| &nbsp;&nbsp;&nbsp;&nbsp;Reverse repurchase agreements (Note 8) | &nbsp;&nbsp;&nbsp;&nbsp;Reverse repurchase agreements (Note 8) | **14** | **(14)** | **—** | **—** |  |  |  |  |
| Total financial assets |  | $**2109** | $**(1102)** | $**(923)** | $**84** | $1583 | $(828) | $(558) | $197 |
| Financial liabilities: |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Derivative liabilities |  | $**(2351)** | $**1088** | $**1136** | $**(127)** | $(1392) | $828 | $550 | $(14) |
| &nbsp;&nbsp;&nbsp;&nbsp;Repurchase agreements (Note 5.F.ii) |  | **(2725)** | **14** | **2711** | **—** | (2324) |  | 2324 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash collateral on securities lent (Note 5.F.iii) | &nbsp;&nbsp;&nbsp;&nbsp;Cash collateral on securities lent (Note 5.F.iii) | **(215)** | **—** | **203** | **(12)** | (51) |  | 48 | (3) |
| &nbsp;&nbsp;&nbsp;&nbsp;Obligations for securities borrowing |  | **(73)** | **—** | **73** | **—** | (51) |  | 51 |  |
| Total financial liabilities |  | $**(5364)** | $**1102** | $**4123** | $**(139)** | $(3818) | $828 | $2973 | $(17) |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Net amounts of the financial instruments presented in our 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.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;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 $1,061 (December 31, 2021 — $678), received on reverse repurchase agreements was $14 (December 31, 2021 — $nil), pledged on derivative liabilities was $2,068 (December 31, 2021 — $1,616), and pledged on repurchase agreements was $2,725 (December 31, 2021 — $2,324).

**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. Related issuers may 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, U.S. or UK and issuers for which the Risk Committee have granted specific approval. Mortgages are collateralized by the related property, and generally do not exceed 75% of the value of the property at the time the original loan is made. Our mortgages and loans are diversified by type and location and, for mortgages, by borrower. Loans provide diversification benefits (name, industry and geography) and often provide stronger covenants and collateral than public debt securities, thereby providing both better credit protection and potentially higher recoveries in the event of default. The following tables provide details of the debt securities, mortgages and loans held by issuer country, geographic location and industry sector, where applicable.

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

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Fair value<br>through<br>profit or loss** | **Available-<br>for-sale** | **Total debt<br>securities** | Fair value<br>through<br>profit or loss | Available-<br>for-sale | Total debt<br>securities |
| Canada | $**27816** | $**4861** | $**32677** | $33028 | $5135 | $38163 |
| United States | **21412** | **5058** | **26470** | 26678 | 4552 | 31230 |
| United Kingdom | **2914** | **583** | **3497** | 4196 | 562 | 4758 |
| Other | **10615** | **2643** | **13258** | 12096 | 2480 | 14576 |
| Total debt securities | $**62757** | $**13145** | $**75902** | $75998 | $12729 | $88727 |

---

42 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Fair value<br>through<br>profit or loss** | **Available-<br>for-sale** | **Total debt<br>securities** | Fair value<br>through<br>profit or loss | Available-<br>for-sale | Total debt<br>securities |
| Debt securities issued or guaranteed by: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Canadian federal government | $**3881** | $**1730** | $**5611** | $4798 | $2303 | $7101 |
| &nbsp;&nbsp;&nbsp;&nbsp;Canadian provincial and municipal government | **12638** | **1027** | **13665** | 15930 | 1149 | 17079 |
| &nbsp;&nbsp;&nbsp;&nbsp;U.S. government and agency | **808** | **729** | **1537** | 1642 | 771 | 2413 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other foreign government | **3863** | **761** | **4624** | 4754 | 757 | 5511 |
| Total government issued or guaranteed debt securities | **21190** | **4247** | **25437** | 27124 | 4980 | 32104 |
| Corporate debt securities by industry sector: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Financials | **9377** | **1978** | **11355** | 10258 | 1690 | 11948 |
| &nbsp;&nbsp;&nbsp;&nbsp;Utilities | **5979** | **697** | **6676** | 7414 | 778 | 8192 |
| &nbsp;&nbsp;&nbsp;&nbsp;Industrials | **4762** | **813** | **5575** | 5791 | 805 | 6596 |
| &nbsp;&nbsp;&nbsp;&nbsp;Energy | **3069** | **273** | **3342** | 3992 | 287 | 4279 |
| &nbsp;&nbsp;&nbsp;&nbsp;Communication services | **2937** | **392** | **3329** | 3534 | 352 | 3886 |
| &nbsp;&nbsp;&nbsp;&nbsp;Real estate | **1920** | **586** | **2506** | 2334 | 354 | 2688 |
| &nbsp;&nbsp;&nbsp;&nbsp;Health care | **1682** | **352** | **2034** | 2081 | 346 | 2427 |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer staples | **1677** | **301** | **1978** | 2047 | 231 | 2278 |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer discretionary | **1395** | **441** | **1836** | 1814 | 306 | 2120 |
| &nbsp;&nbsp;&nbsp;&nbsp;Information technology | **1130** | **254** | **1384** | 1426 | 209 | 1635 |
| &nbsp;&nbsp;&nbsp;&nbsp;Materials | **1107** | **188** | **1295** | 1361 | 156 | 1517 |
| Total corporate debt securities | **35035** | **6275** | **41310** | 42052 | 5514 | 47566 |
| Asset-backed securities | **6532** | **2623** | **9155** | 6822 | 2235 | 9057 |
| Total debt securities | $**62757** | $**13145** | $**75902** | $75998 | $12729 | $88727 |

---

The carrying value of mortgages and loans by geographic location and type is shown in the following tables. 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.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **As at December 31, 2022** | **Canada** | **Canada** | **United States** | **United Kingdom** | **Other** | **Total** |
| Mortgages: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Retail |  | $**1546** | $**1455** | $**—** | $**—** | $**3001** |
| &nbsp;&nbsp;&nbsp;&nbsp;Office |  | **1762** | **1522** | **—** | **—** | **3284** |
| &nbsp;&nbsp;&nbsp;&nbsp;Multi-family residential |  | **4025** | **1245** | **—** | **—** | **5270** |
| &nbsp;&nbsp;&nbsp;&nbsp;Industrial and land |  | **1779** | **1104** | **—** | **—** | **2883** |
| &nbsp;&nbsp;&nbsp;&nbsp;Other |  | **780** | **113** | **29** | **—** | **922** |
| Total mortgages<sup>(1)</sup> |  | $**9892** | $**5439** | $**29** | $**—** | $**15360** |
| Loans |  | $**13143** | $**17238** | $**4923** | $**5597** | $**40901** |
| Total mortgages and loans | Total mortgages and loans | $**23035** | $**22677** | $**4952** | $**5597** | $**56261** |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>$4,174 of mortgages in Canada are insured by the CMHC.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, 2021 | Canada | Canada | United States | United Kingdom | Other | Total |
| Mortgages: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Retail |  | $1765 | $1623 | $— | $— | 3388 |
| &nbsp;&nbsp;&nbsp;&nbsp;Office |  | 1892 | 1639 |  |  | 3531 |
| &nbsp;&nbsp;&nbsp;&nbsp;Multi-family residential |  | 4138 | 1589 |  |  | 5727 |
| &nbsp;&nbsp;&nbsp;&nbsp;Industrial and land |  | 1094 | 941 |  |  | 2035 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other |  | 680 | 115 | 9 |  | 804 |
| Total mortgages<sup>(1)</sup> |  | $9569 | $5907 | $9 | $— | $15485 |
| Loans |  | $12885 | $14596 | $4111 | $4615 | $36207 |
| Total mortgages and loans | Total mortgages and loans | $22454 | $20503 | $4120 | $4615 | $51692 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>$4,218 of mortgages in Canada are insured by the CMHC.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 43

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**6. A.iv Contractual Maturities**

The contractual maturities of debt securities are shown in the following table. 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.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Fair value<br>through<br>profit or loss** | **Available-<br>for-sale** | **Total debt<br>securities** | Fair value<br>through<br>profit or loss | Available-<br>for-sale | Total debt<br>securities |
| Due in 1 year or less | $**2426** | $**1334** | $**3760** | $2505 | $1373 | $3878 |
| Due in years 2-5 | **10972** | **5919** | **16891** | 10475 | 4971 | 15446 |
| Due in years 6-10 | **9889** | **2969** | **12858** | 11328 | 3350 | 14678 |
| Due after 10 years | **39470** | **2923** | **42393** | 51690 | 3035 | 54725 |
| Total debt securities | $**62757** | $**13145** | $**75902** | $75998 | $12729 | $88727 |

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

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Due in 1 year or less | $**1350** | $884 |
| Due in years 2-5 | **6312** | 6172 |
| Due in years 6-10 | **5210** | 5979 |
| Due after 10 years | **2568** | 2530 |
| Total mortgages | $**15440** | $15565 |

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

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| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Due in 1 year or less | $**2893** | $1772 |
| Due in years 2-5 | **7237** | 7108 |
| Due in years 6-10 | **8726** | 7393 |
| Due after 10 years | **22157** | 19986 |
| Total loans | $**41013** | $36259 |

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44 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 | 2021 |
|  | **Term to maturity** | **Term to maturity** | **Term to maturity** | **Term to maturity** | Term to maturity | Term to maturity | Term to maturity | Term to maturity |
|  | **Under<br>1 Year** | **1 to 5<br>Years** | **Over 5<br>Years** | **Total** | Under<br>1 Year | 1 to 5<br>Years | Over 5<br>Years | Total |
| Over-the-counter contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest rate contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $**7** | $**—** | $**—** | $**7** | $94 | $6 | $— | $100 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Swap contracts | **1193** | **4089** | **12233** | **17515** | 1273 | 3434 | 13042 | 17749 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options purchased | **1512** | **2080** | **1253** | **4845** | 878 | 3297 | 1674 | 5849 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options written<sup>(1)</sup> | **135** | **224** | **—** | **359** |  | 461 |  | 461 |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | **17243** | **—** | **—** | **17243** | 10824 | 3097 |  | 13921 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Swap contracts | **806** | **2598** | **18138** | **21542** | 725 | 2654 | 16494 | 19873 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options purchased | **338** | **—** | **—** | **338** | 271 | 8 |  | 279 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | **145** | **168** | **—** | **313** | 154 | 163 |  | 317 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Swap contracts | **441** | **—** | **—** | **441** | 446 |  |  | 446 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Credit derivatives | **302** | **1058** | **—** | **1360** | 322 | 513 |  | 835 |
| Exchange-traded contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest rate contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Futures contracts | **3005** | **—** | **—** | **3005** | 3818 |  |  | 3818 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity contracts: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Futures contracts | **2481** | **—** | **—** | **2481** | 2105 |  |  | 2105 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options purchased | **189** | **78** | **—** | **267** | 213 |  |  | 213 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options written | **52** | **—** | **—** | **52** |  |  |  |  |
| Total notional amount | $**27849** | $**10295** | $**31624** | $**69768** | $21123 | $13633 | $31210 | $65966 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>These are covered short derivative positions that may include interest rate options, swaptions, or floors.

The following table provides the fair value of derivative instruments outstanding by term to maturity:

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 | 2021 |
|  | **Term to maturity** | **Term to maturity** | **Term to maturity** | **Term to maturity** | Term to maturity | Term to maturity | Term to maturity | Term to maturity |
|  | **Under <br>1 Year** | **1 to 5<br> Years** | **Over 5<br> Years** | **Total** | Under <br>1 Year | 1 to 5<br> Years | Over 5<br> Years | Total |
| Derivative assets | $**167** | $**351** | $**1577** | $**2095** | $139 | $249 | $1195 | $1583 |
| Derivative liabilities | $**(379)** | $**(196)** | $**(1776)** | $**(2351)** | $(97) | $(184) | $(1111) | $(1392) |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 45

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**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 99% investment grade based on carrying value as at December 31, 2022 (December 31, 2021 — 99%). The credit risk ratings were established in accordance with the internal rating process described in the Credit Risk Management Governance and Control section.

The following table summarizes our debt securities by credit quality:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Fair value<br>through<br>profit or loss** | **Available-<br>for-sale** | **Total debt<br>securities** | Fair value<br>through<br>profit or loss | Available-<br>for-sale | Total debt<br>securities |
| Debt securities by credit rating: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AAA | $**10400** | $**4862** | $**15262** | $12811 | $5294 | $18105 |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **9545** | **1765** | **11310** | 11510 | 1502 | 13012 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **24144** | **3552** | **27696** | 29984 | 3282 | 33266 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **17947** | **2721** | **20668** | 20710 | 2484 | 23194 |
| &nbsp;&nbsp;&nbsp;&nbsp;BB and lower | **721** | **245** | **966** | 983 | 167 | 1150 |
| Total debt securities | $**62757** | $**13145** | $**75902** | $75998 | $12729 | $88727 |

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**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.

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

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Mortgages by credit rating: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Insured | $**4174** | $4218 |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **1769** | 1640 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **5917** | 4979 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **2911** | 3814 |
| &nbsp;&nbsp;&nbsp;&nbsp;BB and lower | **589** | 822 |
| &nbsp;&nbsp;&nbsp;&nbsp;Impaired | **—** | 12 |
| Total mortgages | $**15360** | $15485 |

---

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Loans by credit rating: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AAA | $**274** | $192 |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | **5712** | 4994 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **16891** | 14231 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **15920** | 14632 |
| &nbsp;&nbsp;&nbsp;&nbsp;BB and lower | **2071** | 2139 |
| &nbsp;&nbsp;&nbsp;&nbsp;Impaired | **33** | 19 |
| Total loans | $**40901** | $36207 |

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**Derivative Financial Instruments by Counterparty Credit Rating**

Derivative instruments consist of bilateral OTC contracts negotiated directly between counterparties, OTC contracts cleared through central clearing houses or exchange-traded contracts. Since a 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 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 derivative contracts. 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. Exchange-traded and cleared OTC derivatives require the posting of initial margin, as well as daily cash settlement of variation margin. The terms and conditions related to the use of the collateral are consistent with industry practice.

46 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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Further details on collateral held and pledged as well as the impact of netting arrangements are included in Note 6.A.ii.

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

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Gross positive replacement cost**<sup>(2)</sup> | **Impact of master netting agreements**<sup>(3)</sup> | &nbsp;&nbsp;&nbsp;&nbsp;**Net replacement cost**<sup>(4)</sup> | Gross positive replacement cost<sup>(2)</sup> | Impact of <br>master netting <br>agreements<sup>(3)</sup> | &nbsp;&nbsp;&nbsp;&nbsp;Net replacement cost<sup>(4)</sup> |
| Over-the-counter contracts: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | $**482** | $**(254)** | $**228** | $402 | $(219) | $183 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **1560** | **(834)** | **726** | 1080 | (598) | 482 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **15** | **—** | **15** | 74 | (11) | 63 |
| Total over-the-counter derivatives<sup>(1)</sup> | $**2057** | $**(1088)** | $**969** | $1556 | $(828) | $728 |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Exchange-traded derivatives with a positive fair value of $38 in 2022 (2021 — $27) 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.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>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.

<sup>(3)</sup> &nbsp;&nbsp;&nbsp;&nbsp;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.

<sup>(4)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Net replacement cost is positive replacement cost less the impact of master netting agreements.

**Credit Default Swaps by Underlying Financial Instrument Credit Rating**

Credit default swaps ("CDS") are OTC contracts that transfer credit risk related to an underlying referenced financial instrument from one counterparty to another. The purchaser receives protection against the decline in the value of the referenced financial instrument as a result of specified credit events such as default or bankruptcy. The seller receives a periodic premium in return for payment contingent on a credit event affecting the referenced financial instrument. CDS index contracts are those where the underlying referenced financial instruments are a group of assets. The Company enters into credit derivatives to replicate credit exposure of an underlying reference security and enhance investment returns. The credit risk ratings of the underlying reference securities for single name contracts were established in accordance with the internal rating process described in the Credit Risk Management Governance and Control section.

The following table provides a summary of the credit default swap protection sold by credit rating of the underlying reference security:

---

| | | | | |
|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | 2021 | 2021 |
|  | **Notional<br>amount** | **Fair<br>value** | Notional<br>amount | Fair<br>value |
| Single name credit default swap contracts: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | $**20** | $**—** | $38 | $1 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **587** | **4** | 347 | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **706** | **5** | 431 | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;BB | **47** | **7** | 19 |  |
| Total single name credit default swap contracts | $**1360** | $**16** | $835 | $14 |
| Total credit default swap contracts sold | $**1360** | $**16** | $835 | $14 |

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**Reinsurance Assets by Credit Rating**

The table below presents the distribution of Reinsurance assets by credit rating:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Gross exposure** | **Collateral** | **Net exposure** | Gross exposure | Collateral | Net exposure |
| Reinsurance assets by credit rating: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;AA | $**2409** | $**—** | $**2409** | $2170 | $— | $2170 |
| &nbsp;&nbsp;&nbsp;&nbsp;A | **1308** | **30** | **1278** | 928 | 28 | 900 |
| &nbsp;&nbsp;&nbsp;&nbsp;BBB | **133** | **118** | **15** | 139 | 117 | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;BB | **2046** | **2000** | **46** | 1861 | 1825 | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;B | **3** | **—** | **3** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;CCC | **237** | **237** | **—** | 197 | 194 | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;Not rated | **105** | **97** | **8** | 136 | 131 | 5 |
| Total | $**6241** | $**2482** | $**3759** | $5431 | $2295 | $3136 |
| Less: Negative reinsurance assets | **1440** |  |  | 1748 |  |  |
| Total Reinsurance assets | $**4801** |  |  | $3683 |  |  |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 47

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**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 either performing or into one of the following 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.

Our approach to determining whether there is objective evidence of impairment varies by asset type. However, 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 the 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.

Asset-backed securities are assessed for objective evidence of impairment. Specifically, we periodically update our best estimate of cash flows over the life of the security. In the event that there is an adverse change in the expected cash flows, the asset is impaired. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral. Losses incurred on the respective mortgage-backed securities portfolios are based on loss models using assumptions about key systematic risks, such as unemployment rates and housing prices, and loan-specific information such as delinquency rates and loan-to-value ratios.

*Equity Securities and Other Invested Assets*

Objective evidence of impairment for equity securities and 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 objective evidence of impairment exists, we consider a number of factors including, but not limited to, the financial condition of the borrower and, for collateral dependent mortgages and loans, the fair 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, timelines 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.

48 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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In addition to specific allowances, circumstances may warrant a collective allowance based on objective evidence of impairment for a group of mortgages and loans. We consider regional economic conditions, developments for various property types, and significant exposure to struggling tenants in determining whether there is objective evidence of impairment for certain collateral dependent mortgages and loans, even though it is not possible to identify specific mortgages and loans that 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**

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 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 estimates of future cash flows.

**Impairment of Available-for-Sale Assets**

We recognized net impairment losses on AFS assets of $8 for the year ended December 31, 2022 (2021 — $11).

We did not reverse any impairment on AFS debt securities during 2022 and 2021.

**Past Due and Impaired Mortgages and Loans** 

The distribution of mortgages and loans past due or impaired is shown in the following tables:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Gross carrying value** | **Gross carrying value** | **Gross carrying value** | **Allowance for losses** | **Allowance for losses** | **Allowance for losses** |
| **As at December 31, 2022** | **Mortgages** | **Loans** | **Total** | **Mortgages** | **Loans** | **Total** |
| Not past due | $**15360** | $**40868** | $**56228** | $**—** | $**—** | $**—** |
| Impaired | **80** | **145** | **225** | **80** | **112** | **192** |
| Total | $**15440** | $**41013** | $**56453** | $**80** | $**112** | $**192** |
|  | Gross carrying value | Gross carrying value | Gross carrying value | Allowance for losses | Allowance for losses | Allowance for losses |
| As at December 31, 2021 | Mortgages | Loans | Total | Mortgages | Loans | Total |
| Not past due | $15473 | $36188 | $51661 | $— | $— | $— |
| Impaired | 92 | 71 | 163 | 80 | 52 | 132 |
| Total | $15565 | $36259 | $51824 | $80 | $52 | $132 |

---

**Changes in Allowances for Losses**

The changes in the allowances for losses are as follows:

---

| | | | |
|:---|:---|:---|:---|
| | **Mortgages** | **Loans** | **Total** |
| Balance, January 1, 2021 | $66 | $49 | $115 |
| Provision for (reversal of) losses | 15 | 5 | 20 |
| Write-offs, net of recoveries, and other adjustments |  | (2) | (2) |
| Foreign exchange rate movements | (1) |  | (1) |
| Balance, December 31, 2021 | $80 | $52 | $132 |
| Provision for (reversal of) losses | **(2)** | **57** | **55** |
| Foreign exchange rate movements | **2** | **3** | **5** |
| **Balance, December 31, 2022** | $**80** | $**112** | $**192** |

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**6. B Market Risk**

**Risk Description**

We are exposed to financial and capital market risk, which is defined as 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 equity, interest rate and spread, real estate, foreign currency, and inflation risks.

**Market Risk Management Governance and Control**

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

• Market risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Risk appetite limits have been established for equity, interest rate, real estate and foreign currency risks.

• Income and regulatory capital sensitivities are monitored, managed and reported against pre-established risk limits.

• Comprehensive asset-liability management and hedging policies, programs and practices are in place.

• Regulatory solvency requirements include risk-based capital requirements and are monitored regularly.

• Product Design and Pricing Policy requires a detailed risk assessment and pricing provisions for material risks.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse market movements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 49

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• Insurance contract liabilities are established in accordance with Canadian actuarial standards of practice.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

Specific market risks and our risk management strategies are discussed below in further detail.

**6. B.i Equity Risk**

Equity risk is the potential for financial loss arising from declines or volatility in equity market prices. We are exposed to equity risk from a number of sources. A portion of our exposure to equity risk arises in connection with benefit guarantees on segregated fund products. These benefit guarantees may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing these guarantees is uncertain and depends upon a number of factors, including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impacts on net income and capital.

We generate revenue in our asset management businesses and from certain insurance and annuity contracts where fees are levied on account balances that are affected directly by equity market levels. Accordingly, we have further exposure to equity risk as adverse fluctuations in the market value of such assets will 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) in these businesses, 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 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 table:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Fair value<br>through<br>profit or loss** | **Available-<br>for-sale** | **Total<br>equities** | Fair value<br>through<br>profit or loss | Available-<br>for-sale | Total<br>equities |
| Canada | $**2981** | $**57** | $**3038** | $3301 | $62 | $3363 |
| United States | **1732** | **192** | **1924** | 2010 | 1405 | 3415 |
| United Kingdom | **150** | **4** | **154** | 186 | 6 | 192 |
| Other | **1961** | **71** | **2032** | 2041 | 102 | 2143 |
| Total equities | $**6824** | $**324** | $**7148** | $7538 | $1575 | $9113 |

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**6. B.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.

A 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 or equity market 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 our risk appetite 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, potentially forcing us to liquidate 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.

50 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**6. C Liquidity Risk** 

**Risk Description**

Liquidity risk is the possibility that we will not be able to fund all cash outflow commitments and collateral requirements as they fall due. This includes the risk of being forced to sell assets at depressed prices resulting in realized losses on sale. This risk also includes restrictions on our ability to efficiently allocate capital among our subsidiaries due to various market and regulatory constraints on the movement of funds. Our funding obligations arise in connection with the payment of policyholder benefits, expenses, reinsurance settlements, asset purchases, investment commitments, interest on debt, and dividends on common and preferred shares. Sources of available cash flow include general fund premiums and deposits, investment related inflows (such as maturities, principal repayments, investment income and proceeds of asset sales), proceeds generated from financing activities, and dividends and interest payments from subsidiaries. We have various financing transactions and derivative contracts under which we may be required to pledge collateral or to make payments to our counterparties for the decline in market value of specified assets. The amount of collateral or payments required may increase under certain circumstances (such as changes to interest rates, credit spreads, equity markets or foreign exchange rates), which could adversely affect our liquidity.

**Liquidity Risk Management Governance and Control**

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

• Liquidity risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Liquidity is managed in accordance with our Asset Liability Management Policy and operating guidelines.

• Liquidity contingency plans are maintained for the management of liquidity in a liquidity event.

• Stress testing is performed by comparing liquidity coverage risk metrics under a one-month stress scenario to our policy thresholds. These liquidity coverage risk metrics are measured and managed at the enterprise and legal entity levels.

• Stress testing of our collateral is performed by comparing collateral coverage ratios to our policy thresholds.

• 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.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

• We actively manage and monitor our capital and asset levels, and the diversification and credit quality of our investments.

• Various credit facilities for general corporate purposes are maintained.

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 properly 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 51

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**7. Insurance Risk Management**

**7. A Insurance Risk** 

**Risk Description**

Insurance risk is the uncertainty of product performance due to actual experience emerging differently than expected in the areas of policyholder behaviour, mortality, morbidity and longevity. In addition, product design and pricing, expense and reinsurance risks impact multiple risk categories, including insurance risk.

**Insurance Risk Management Governance and Control**

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

• Insurance risk governance practices are in place, including independent monitoring and review and reporting to senior management and the Risk Committee.

• Income and regulatory capital sensitivities are monitored, managed and reported against pre-established risk appetite limits for policyholder behaviour, mortality, morbidity and longevity risks.

• Comprehensive Insurance Risk Policy, guidelines and practices are in place.

• The global underwriting manual aligns underwriting practices with our corporate risk management standards and ensures a consistent approach in insurance underwriting.

• Board-approved maximum retention limits are in place. Amounts issued in excess of these limits are reinsured.

• Detailed procedures, including criteria for approval of risks and for claims adjudication are established and monitored for each business segment.

• Underwriting and risk selection standards and procedures are established and overseen by the corporate underwriting and claims risk management function.

• Diversification and risk pooling is managed by aggregation of exposures across product lines, geography and distribution channels.

• We use reinsurance to limit losses, minimize exposure to significant risks and to provide additional capacity for growth.

• The Insurance Risk Policy and Investment & Credit Risk Policy establish acceptance criteria and protocols to monitor the level of reinsurance ceded to any single reinsurer or group of reinsurers.

• Reinsurance counterparty risk is monitored, including annual reporting of reinsurance exposure to the Risk Committee.

• Concentration risk exposure is monitored on group policies in a single location to avoid a catastrophic event occurrence resulting in a significant impact.

• Various limits, restrictions and fee structures are introduced into plan designs in order to establish a more homogeneous policy risk profile and limit potential for anti-selection.

• Regulatory solvency requirements include risk-based capital requirements and are monitored regularly.

• The Product Design and Pricing Policy requires detailed risk assessment and pricing provision for material risks.

• Company specific and industry level experience studies and sources of earnings analysis are monitored and factored into valuation, renewal and new business pricing processes.

• Stress-testing techniques, such as FCT, are used to measure the effects of large and sustained adverse movements in insurance risk factors.

• Insurance contract liabilities are established in accordance with Canadian actuarial standards of practice.

• Internal capital targets are established at an enterprise level to cover all risks and are above minimum regulatory and supervisory levels. Actual capital levels are monitored to ensure they exceed internal targets.

Our Insurance Risk Policy sets maximum global retention limits and related management standards and practices that are applied to reduce our exposure to large claims. Amounts in excess of the Board-approved maximum retention limits are reinsured. On a single life or joint-first-to-die basis retention limit is $40 in Canada and US $40 outside of Canada. For survivorship life insurance, our maximum global retention limit is $50 in Canada and US $50 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.

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. This includes performing periodic due diligence on our reinsurance counterparties as well as internal credit assessments on counterparties with which we have material exposure. While reinsurance arrangements provide for the recovery of claims arising from the liabilities ceded, we retain primary responsibility to the policyholders.

Specific insurance risks and our risk management strategies are discussed below in further detail. The sensitivities provided below reflect the impact of any applicable ceded reinsurance arrangements.

**7. A.i Policyholder Behaviour Risk**

**Risk Description**

We can incur losses due to adverse policyholder behaviour relative to the 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 the financial and capital markets, 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.

52 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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For individual life insurance products where fewer terminations would be financially adverse to us, shareholders' net income and equity would be decreased by about $270 (2021 — $270) if the termination rate assumption were reduced by 10%. For products where more terminations would be financially adverse to us, shareholders' net income and equity would be decreased by about $235 (2021 — $225) if the termination rate assumption were increased by 10%. These sensitivities reflect the impact of any applicable ceded reinsurance arrangements and the IFRS 4 accounting standards. Adoption of IFRS 17 may result in changes to the magnitude or direction of the reported net income sensitivities.

**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 that 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 Clients can select and the frequency with which they can change funds.

• Policyholder behaviour risk is also mitigated through reinsurance on some insurance contracts.

Internal experience studies are used to monitor, review and update policyholder behaviour assumptions as needed, which could result in updates to policy liabilities.

**7. A.ii 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, as a result of a pandemic, 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.

External factors could adversely affect our life insurance, health insurance, critical illness, disability, long-term care insurance and annuity businesses. Morbidity experience could be unfavourably impacted by external events, such as pandemics, increases in disability claims during economic slowdowns and increases in high medical treatment costs and growth in utilization of specialty drugs. This introduces the potential for adverse financial volatility in our financial results.

For life insurance products, a 2% increase in the best estimate assumption would decrease shareholders' net income and equity by about $75 (2021 — $25). This sensitivity reflects the impact of any applicable ceded reinsurance arrangements and the IFRS 4 accounting standards. Adoption of IFRS 17 may result in changes to the magnitude or direction of the reported net income sensitivities.

For products where morbidity is a significant assumption, a 5% adverse change in the assumptions would reduce shareholders' net income and equity by about $265 (2021 — $255). This sensitivity reflects the impact of any applicable ceded reinsurance arrangements and the IFRS 4 accounting standards. Adoption of IFRS 17 may result in changes to the magnitude or direction of the reported net income sensitivities.

**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.

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

The Insurance Risk Policy approved by the Risk Committee includes limits on the maximum amount of insurance that may be issued under one policy and the maximum amount that may be retained. These limits vary by geographic region and amounts in excess of limits are reinsured to ensure there is no exposure to unreasonable concentration of risk.

**7. A.iii Longevity Risk** 

**Risk Description**

Longevity risk is the potential for economic loss, accounting loss or volatility in earnings arising from 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 medical breakthroughs that significantly extend life expectancy. Longevity risk affects contracts where benefits or costs are based upon the likelihood of survival and higher than expected improvements in policyholder life expectancy could therefore increase the ultimate cost of these benefits (for example, annuities, pensions, pure endowments, reinsurance, segregated funds, and specific types of health contracts). Additionally, our longevity risk exposure is increased for certain annuity products such as guaranteed annuity options by an increase in equity market levels.

For annuities products for which lower mortality would be financially adverse to us, a 2% decrease in the mortality assumption would decrease shareholders' net income and equity by about $120 (2021 — $150). These sensitivities reflect the impact of any applicable ceded reinsurance arrangements and the IFRS 4 accounting standards. Adoption of IFRS 17 may result in changes to the magnitude or direction of the reported net income sensitivities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 53

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**Longevity Risk Management Governance and Control** 

To improve management of longevity risk, we monitor research in the fields that could result in a change in expected mortality improvement. 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.

**7. A.iv 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. This could have an adverse effect on our profitability and capital position.

**Product Design and Pricing Governance and Control** 

Our Product Design and Pricing Policy, approved by the Risk Committee, 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 significance of the initiative. Each initiative is subject to a risk assessment process to identify key risks and risk mitigation requirements, and is reviewed by multiple stakeholders. Additional governance and control procedures are listed below:

• 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, 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.

**7. A.v Expense Risk**

**Risk Description**

Expense risk is the risk that future expenses are higher than the assumptions used in the pricing and valuation of products. This risk can arise from general economic conditions, unexpected increases in inflation, slower than anticipated growth, or reduction in productivity leading to increases in unit expenses. Expense risk occurs in products where we cannot or will not pass increased costs onto the Client 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 shareholders' net income and equity of about $175 (2021 — $165). These sensitivities reflect the impact of any applicable ceded reinsurance arrangements and the IFRS 4 accounting standards. Adoption of IFRS 17 may result in changes to the magnitude or direction of the reported net income sensitivities.

**Expenses Risk Management Governance and Control** 

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

**7. A.vi Reinsurance 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 reinsurance capacity, with adverse impacts on our business strategies, profitability and financial position. There is a possibility of rate increases or renegotiation of some of the legacy reinsurance contracts by a few of our reinsurers, as they continue to review and optimize their business models. In addition, changes to the regulatory treatment of reinsurance arrangements could have an adverse impact on our capital position.

**Reinsurance Risk Management Governance and Control** 

We have an Insurance Risk Policy and an Investment & Credit Risk Policy approved by the Risk Committee, which set acceptance criteria and processes to monitor the level of reinsurance ceded to any single reinsurer. These policies also set minimum criteria for determining which reinsurance companies qualify as suitable reinsurance counterparties having the capability, expertise, governance practices and financial capacity to assume the risks being considered. Additionally, these policies require 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. Periodic due diligence is performed on the reinsurance counterparties with which we do business and internal credit assessments are performed on reinsurance counterparties with which we have material exposure. Reinsurance counterparty credit exposures are monitored closely and reported annually to the Risk Committee.

54 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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New sales of our products can be discontinued or changed to reflect developments in the reinsurance markets. Rates for our in-force reinsurance treaties can be either guaranteed or adjustable for the life of the ceded policy. In order to diversify reinsurance risk, there is generally more than one reinsurer supporting a reinsurance pool.

**8. Other Assets**

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Accounts receivable | $**2833** | $1632 |
| Investment income due and accrued | **1315** | 1104 |
| Property and equipment | **607** | 612 |
| Right-of-use assets | **753** | 695 |
| Deferred acquisition costs<sup>(1)</sup> | **158** | 172 |
| Prepaid expenses | **1089** | 406 |
| Premium receivable | **842** | 637 |
| Accrued post-retirement benefit assets (Note 25) | **98** | 83 |
| Other | **115** | 93 |
| Total other assets | $**7810** | $5434 |

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<sup>(1)</sup> <sup>&nbsp;&nbsp;&nbsp;&nbsp;</sup>Amortization of deferred acquisition cost charged to income during the year amounted to $53 in 2022 (2021 — $23).

**9. Goodwill and Intangible Assets**

**9. A Goodwill**

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

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Canada** | **U.S.** | **Asia** | **Asset<br>Management** | **Corporate** | **Total** |
| Balance, January 1, 2021 | $2607 | $1062 | $665 | $1551 | $187 | $6072 |
| Acquisitions (Note 3) |  | 53 | 3 | 423 |  | 479 |
| Foreign exchange rate movements |  | (7) | (9) | (15) | (3) | (34) |
| Balance, December 31, 2021 | $2607 | $1108 | $659 | $1959 | $184 | $6517 |
| Acquisitions (Note 3) | **—** | **2030** | **—** | **—** | **—** | **2030** |
| Impairment<sup>(1)</sup> | **—** | **—** | **—** | **—** | **(170)** | **(170)** |
| Foreign exchange rate movements | **—** | **226** | **41** | **75** | **(14)** | **328** |
| **Balance, December 31, 2022** | $**2607** | $**3364** | $**700** | $**2034** | $**—** | $**8705** |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>The sale of Sun Life UK resulted in an impairment charge of $170 for the UK CGU within Corporate. See Note 3 for details.

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

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Canada | $**2607** | $2607 |
| U.S.<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Group Benefits | **1132** | 1108 |
| &nbsp;&nbsp;&nbsp;&nbsp;Dental | **2232** |  |
| Asia | **700** | 659 |
| Asset Management |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;MFS | **513** | 483 |
| &nbsp;&nbsp;&nbsp;&nbsp;SLC Management | **1521** | 1476 |
| Corporate |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;UK | **—** | 184 |
| Total | $**8705** | $6517 |

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<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Reflects a change in presentation in our U.S. business segment as two CGU groups effective June 1, 2022.

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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 55

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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 costs of disposal and value in use. We use fair value less costs of disposal as the recoverable amount.

We use the best evidence of fair value less costs of disposal as the price obtainable for the sale of a CGU, or group of CGUs. Fair value less costs of disposal 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 or asset management companies) or a valuation multiples methodology. The fair value measurements are categorized in Level 3 of the fair value hierarchy.

The most recent calculations from 2018 for certain CGUs and groups of CGUs were carried forward and used in the impairment test in the current period as: (i) the recoverable amount for these CGUs and groups of CGUs exceeded the carrying amount by a substantial margin, (ii) the assets and liabilities making up the CGUs and groups of CGUs had not changed significantly, and (iii) the likelihood that the carrying value would exceed the recoverable amount was remote, based on an analysis of events that have occurred and circumstances that have changed. The key drivers impacting the recoverable amount from 2018 are consistent with the key assumptions below.

Under the appraisal methodology, fair value is assessed based on best estimates of future income, expenses, level and cost of capital over the lifetime of the policies and, where appropriate, adjusted for items such as transaction costs. The value ascribed to new business is based on sales anticipated in our business plans, sales projections for the valuation period based on reasonable growth assumptions, and anticipated levels of profitability of that new business. In calculating the value of new business, future sales are projected for 10 to 15 years . In some instances, market multiples are used to approximate the explicit projection of new business.

The discount rates applied reflect the nature of the environment for that CGU. The discount rates used range from 9.25% to 12.50% (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.

Under the valuation multiples methodology, fair value is assessed with reference to multiples or ratios of comparable businesses. For life insurers and asset managers, these valuation multiples and ratios may include price-to-earnings or price-to-assets-under-management measures. This assessment takes into consideration a variety of relevant factors and assumptions, including expected growth, risk, and market conditions among others. The price-to-earnings multiples used range from 10.5 to 11.5. The price-to-assets-under-management ratios used range from 1.3% to 2.0%.

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.

In considering the sensitivity of the key assumptions above, management determined that there is no reasonably possible change in any of the above that would result in the recoverable amount of any of the CGUs to be less than its carrying amount.

56 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**9. B Intangible Assets**

Changes in intangible assets are as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Finite life** | **Finite life** | | |
| | **Internally<br>generated<br>software** | **Other** | **Indefinite<br>life** | **Total** |
| Gross carrying amount |  |  |  |  |
| Balance, January 1, 2021 | $1070 | $1634 | $938 | $3642 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additions | 219 | 471 |  | 690 |
| &nbsp;&nbsp;&nbsp;&nbsp;Acquisitions |  | 271 | 153 | 424 |
| &nbsp;&nbsp;&nbsp;&nbsp;Disposals | (24) |  |  | (24) |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movements |  | (9) | (10) | (19) |
| Balance, December 31, 2021 | $1265 | $2367 | $1081 | $4713 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additions | **206** | **23** | **—** | **229** |
| &nbsp;&nbsp;&nbsp;&nbsp;Acquisitions | **232** | **999** | **—** | **1231** |
| &nbsp;&nbsp;&nbsp;&nbsp;Disposals | **(1)** | **—** | **—** | **(1)** |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movements | **59** | **153** | **36** | **248** |
| **Balance, December 31, 2022** | $**1761** | $**3542** | $**1117** | $**6420** |
| Accumulated amortization and impairment losses |  |  |  |  |
| Balance, January 1, 2021 | $(561) | $(590) | $(14) | $(1165) |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization charge for the year | (79) | (114) |  | (193) |
| &nbsp;&nbsp;&nbsp;&nbsp;Disposals | 24 |  |  | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;Impairment of intangible assets |  |  | (9) | (9) |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movements | 1 | (1) |  |  |
| Balance, December 31, 2021 | $(615) | $(705) | $(23) | $(1343) |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization charge for the year | **(113)** | **(174)** | **—** | **(287)** |
| &nbsp;&nbsp;&nbsp;&nbsp;Disposals | **1** | **—** | **—** | **1** |
| &nbsp;&nbsp;&nbsp;&nbsp;Impairment of intangible assets | **(16)** | **(2)** | **—** | **(18)** |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movements | **(22)** | **(25)** | **(2)** | **(49)** |
| **Balance, December 31, 2022** | $**(765)** | $**(906)** | $**(25)** | $**(1696)** |
| Net carrying amount, end of period: |  |  |  |  |
| As at December 31, 2021 | $650 | $1662 | $1058 | $3370 |
| **As at December 31, 2022** | $**996** | $**2636** | $**1092** | $**4724** |

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The components of the intangible assets are as follows:

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| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Finite life intangible assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Distribution, sales potential of field force | $**281** | $295 |
| &nbsp;&nbsp;&nbsp;&nbsp;Client relationships and asset administration contracts | **2355** | 1367 |
| &nbsp;&nbsp;&nbsp;&nbsp;Internally generated software | **996** | 650 |
| Total finite life intangible assets | **3632** | 2312 |
| Indefinite life intangible assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Fund management contracts<sup>(1)</sup> | **1092** | 1058 |
| Total indefinite life intangible assets | **1092** | 1058 |
| Total intangible assets | $**4724** | $3370 |

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<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Fund management contracts are attributable to Asset Management, where its competitive position in, and the stability of, its markets support their classification as indefinite life intangible assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 57

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**10. Insurance Contract Liabilities and Investment Contract Liabilities**

**10. A Insurance Contract Liabilities**

**10. A.i Description of Business** 

The company sells a variety of insurance contracts that 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.

**10. A.ii Methods and Assumptions** 

**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 ("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 significant judgment and 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

• 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 statement of financial position 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 at least as great as 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 uses 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 use 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 20% to 50% 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 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 mid-range, with the higher range used where there is greater uncertainty. 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.

58 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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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 the past five to ten years of 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 based on recent trends in population mortality and our outlook for future trends.

**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 U.S. 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 U.S., our experience is used for both medical stop-loss and disability assumptions, with some consideration of industry experience.

**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 overhead. 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. In the valuation of insurance contract liabilities, 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 equity market risk associated with anticipated future fee income is not hedged.

The majority of non-fixed income assets that 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 asset 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 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 59

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the statement of financial position. The asset default provision included in the insurance contract liabilities is reassessed each reporting period in light of impairments, changes in asset quality ratings, and other events that occurred during the period.

**10. A.iii Insurance Contract Liabilities** 

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **As at December 31, 2022** | **Canada** | **U.S.** | **Asia** | **Corporate**<sup>(1)</sup> | **Total** |
| Individual participating life | $**27394** | $**5060** | $**11574** | $**634** | $**44662** |
| Individual non-participating life and health | **13681** | **12808** | **11397** | **266** | **38152** |
| Group life and health | **11693** | **5599** | **33** | **(5)** | **17320** |
| Individual annuities | **8384** | **18** | **6** | **3074** | **11482** |
| Group annuities | **19716** | **1** | **67** | **—** | **19784** |
| Insurance contract liabilities before other policy liabilities | **80868** | **23486** | **23077** | **3969** | **131400** |
| Add: Other policy liabilities<sup>(2)</sup> | **3583** | **2487** | **2702** | **246** | **9018** |
| Total insurance contract liabilities | $**84451** | $**25973** | $**25779** | $**4215** | $**140418** |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Primarily business from the UK and run-off reinsurance operations. Includes UK business of $563 for Individual participating life, $154 for Individual non-participating life and health, $2,918 for Individual annuities, and $200 for Other policy liabilities.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| As at December 31, 2021 | Canada | U.S. | Asia | Corporate<sup>(1)</sup> | Total |
| Individual participating life | $28205 | $5150 | $12982 | $860 | $47197 |
| Individual non-participating life and health | 15735 | 14196 | 11774 | 329 | 42034 |
| Group life and health | 11682 | 5580 | 34 | 17 | 17313 |
| Individual annuities | 9538 | 16 | 5 | 4729 | 14288 |
| Group annuities | 18765 | 5 | 69 |  | 18839 |
| Insurance contract liabilities before other policy liabilities | 83925 | 24947 | 24864 | 5935 | 139671 |
| Add: Other policy liabilities<sup>(2)</sup> | 3559 | 1847 | 2523 | 211 | 8140 |
| Total insurance contract liabilities | $87484 | $26794 | $27387 | $6146 | $147811 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Primarily business from the UK and run-off reinsurance operations. Includes UK business of $771 for Individual participating life, $207 for Individual non-participating life and health, $4,546 for Individual annuities, and $164 for Other policy liabilities.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.

**10. A.iv Changes in Insurance Contract Liabilities and Reinsurance Assets**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| For the years ended December 31, | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Insurance<br> contract<br> liabilities** | **Reinsurance<br>assets** | **Net** | Insurance<br> contract<br> liabilities | Reinsurance<br>assets | Net |
| Balances before Other policy liabilities and assets as at January 1, | $**139671** | $**2905** | $**136766** | $137733 | $3126 | $134607 |
| Change in balances on in-force policies | **(15530)** | **(137)** | **(15393)** | (1642) | (18) | (1624) |
| Balances arising from new policies | **3473** | **81** | **3392** | 3948 | 74 | 3874 |
| Method and assumption changes | **950** | **1007** | **(57)** | 131 | (142) | 273 |
| Increase (decrease) in Insurance contract liabilities and Reinsurance assets | **(11107)** | **951** | **(12058)** | 2437 | (86) | 2523 |
| Other<sup>(1)</sup> | **(2)** | **—** | **(2)** |  | (109) | 109 |
| Foreign exchange rate movements | **2838** | **213** | **2625** | (499) | (26) | (473) |
| Balances before Other policy liabilities and assets | **131400** | **4069** | **127331** | 139671 | 2905 | 136766 |
| Other policy liabilities and assets | **9018** | **732** | **8286** | 8140 | 778 | 7362 |
| Total Insurance contract liabilities and Reinsurance assets, December 31 | $**140418** | $**4801** | $**135617** | $147811 | $3683 | $144128 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Recapture of reinsurance contracts.

60 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**10. A.v Impact of Method and Assumption Changes**

Impacts of method and assumption changes on Insurance contract liabilities, net of Reinsurance assets, are as follows:

---

| | | |
|:---|:---|:---|
| **For the year ended December 31, 2022** | **Net increase (decrease) before income taxes** | **Description** |
| Mortality / Morbidity | $**(96)** | Updates to reflect mortality/morbidity experience in all jurisdictions. The largest items were favourable mortality impacts in the UK in Corporate and in Group Retirement Services in Canada offset partially by adverse morbidity impacts in Sun Life Health in Canada. |
| Policyholder behaviour | **71** | Updates to lapse and policyholder behaviour in all jurisdictions. The largest item was an adverse lapse impact in Vietnam in Asia. |
| Expenses | **9** | Updates to reflect expense experience. |
| Investment returns | **13** | Updates to various investment-related assumptions. |
| Model enhancements and other | **(54)** | Various enhancements and methodology changes. |
| Total impact | $**(57)** |  |

---

---

| | | |
|:---|:---|:---|
| For the year ended December 31, 2021 | Net increase (decrease) before income taxes | Description |
| Mortality / Morbidity | $(89) | Updates to reflect mortality/morbidity experience in all jurisdictions. |
| Policyholder behaviour | 219 | Updates to policyholder behaviour in all jurisdictions. The largest item was in U.S. In-force Management. |
| Expenses | (202) | Updates to reflect expense experience and margins in all jurisdictions. The largest item was a reduction in expense margins. |
| Investment returns | 416 | Updates to various investment-related assumptions across the Company. The largest items were the updates to promulgated Ultimate Reinvestment Rate, promulgated maximum net credit spreads, and a reduction to the best estimate real estate assumption in all jurisdictions. |
| Model enhancements and other | (71) | Various enhancements and methodology changes across all jurisdictions. |
| Total impact | $273 |  |

---

**10. B Investment Contract Liabilities**

**10. B.i Description of Business** 

The following are the types of investment contracts in-force:

• Term certain payout annuities in Canada

• Guaranteed Investment Contracts in Canada

• Unit-linked products issued in the UK and Hong Kong

• Non-unit-linked pensions contracts issued in the UK and Hong Kong

**10. B.ii Methods and Assumptions** 

**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-unit-linked contracts, the fair value liability is equal to the present value of 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 present value of future cash flows discounted at the effective interest rate where the effective interest rate is the rate that equates the discounted cash flows to the liability at the date of initial recognition.

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**10. B.iii Investment Contract Liabilities** 

---

| | | | | |
|:---|:---|:---|:---|:---|
| **As at December 31, 2022** | **Canada** | **Asia** | **Corporate** | **Total** |
| Individual participating life | $**—** | $**—** | $**4** | $**4** |
| Individual non-participating life and health | **—** | **187** | **2** | **189** |
| Individual annuities | **2550** | **—** | **35** | **2585** |
| Group annuities | **—** | **536** | **—** | **536** |
| Total investment contract liabilities | $**2550** | $**723** | $**41** | $**3314** |

---

For the year ended December 31, 2022, Investment contract liabilities of $3,314 are comprised of investment contracts with DPF of $754, investment contracts without DPF measured at amortized cost of $2,550, and investment contracts without DPF measured at fair value of $10.

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| | | | | |
|:---|:---|:---|:---|:---|
| As at December 31, 2021 | Canada | Asia | Corporate | Total |
| Individual participating life | $— | $— | $4 | $4 |
| Individual non-participating life and health |  | 235 | 2 | 237 |
| Individual annuities | 2487 | 1 | 37 | 2525 |
| Group annuities |  | 602 |  | 602 |
| Total investment contract liabilities | $2487 | $838 | $43 | $3368 |

---

For the year ended December 31, 2021, Investment contract liabilities of $3,368 are comprised of investment contracts with DPF of $872, investment contracts without DPF measured at amortized cost of $2,487, and investment contracts without DPF measured at fair value of $9.

**10. B.iv Changes in Investment Contract Liabilities** 

Changes in investment contract liabilities without DPF are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| For the years ended December 31, | **2022** | **2022** | 2021 | 2021 |
|  | **Measured at<br>fair value** | **Measured at<br> amortized cost** | Measured at<br>fair value | Measured at<br> amortized cost |
| Balance as at January 1 | $**9** | $**2487** | $2 | $2690 |
| Deposits | **—** | **443** |  | 303 |
| Interest | **—** | **57** |  | 60 |
| Withdrawals | **—** | **(444)** |  | (570) |
| Fees | **—** | **(5)** |  | (7) |
| Change in fair value | **1** | **—** | 7 |  |
| Other | **—** | **12** |  | 10 |
| Foreign exchange rate movements | **—** | **—** |  | 1 |
| Balance as at December 31 | $**10** | $**2550** | $9 | $2487 |

---

Changes in investment contract liabilities with DPF are as follows:

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Balance as at January 1 | $**872** | $497 |
| Change in liabilities on in-force policies | **(165)** | (89) |
| Increase (decrease) in liabilities | **(165)** | (89) |
| Acquisitions (Note 3) | **—** | 471 |
| Foreign exchange rate movements | **47** | (7) |
| Balance as at December 31 | $**754** | $872 |

---

**10. C Gross Claims and Benefits Paid**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Maturities and surrenders | $**3750** | $3205 |
| Annuity payments | **2124** | 2017 |
| Death and disability benefits | **4950** | 4876 |
| Health benefits | **9588** | 7246 |
| Policyholder dividends and interest on claims and deposits | **1632** | 1378 |
| Total gross claims and benefits paid | $**22044** | $18722 |

---

62 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**10. D Total Assets Supporting Liabilities and Equity**

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

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **As at December 31, 2022** | **Debt<br>securities** | **Equity<br>securities** | **Mortgages<br>and loans** | **Investment<br>properties** | **Other** | **Total** |
| Individual participating life | $**23513** | $**4836** | $**10802** | $**6345** | $**4885** | $**50381** |
| Individual non-participating life and health | **17438** | **1804** | **15029** | **3103** | **11160** | **48534** |
| Group life and health | **7057** | **24** | **10412** | **117** | **4252** | **21862** |
| Individual annuities | **7822** | **34** | **6573** | **—** | **819** | **15248** |
| Group annuities | **9046** | **100** | **10444** | **109** | **1469** | **21168** |
| Equity and other | **11026** | **350** | **3001** | **428** | **33616** | **48421** |
| Total assets | $**75902** | $**7148** | $**56261** | $**10102** | $**56201** | $**205614** |
| As at December 31, 2021 | Debt<br>securities | Equity<br>securities | Mortgages<br>and loans | Investment<br>properties | Other | Total |
| Individual participating life | $26715 | $5374 | $9559 | $5932 | $4801 | $52381 |
| Individual non-participating life and health | 23716 | 1947 | 13885 | 2614 | 8310 | 50472 |
| Group life and health | 7598 | 30 | 9556 | 92 | 3677 | 20953 |
| Individual annuities | 10314 | 40 | 6435 |  | 907 | 17696 |
| Group annuities | 9612 | 111 | 9198 | 24 | 1305 | 20250 |
| Equity and other | 10772 | 1611 | 3059 | 447 | 27733 | 43622 |
| Total assets | $88727 | $9113 | $51692 | $9109 | $46733 | $205374 |

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**10. E Changes in Insurance Contract Liabilities, Investment Contract Liabilities, Reinsurance Assets, and Segregated Funds**

Changes in the balances of our insurance contract liabilities and investment contract liabilities, including the net transfers to (from) segregated funds, as well as changes in our reinsurance assets, consist of the following:

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Increase (decrease) in insurance contract liabilities | $**(11107)** | $2437 |
| Decrease (increase) in reinsurance assets | **(951)** | 86 |
| Increase (decrease) in investment contract liabilities | **(107)** | (22) |
| Net transfer to (from) segregated funds | **(1149)** | (351) |
| Total changes in insurance contract liabilities, investment contract liabilities, reinsurance assets, and segregated funds | $**(13314)** | $2150 |

---

**10. F 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 and reinsurance recoverables are in accordance with accepted actuarial practice in Canada, applicable legislation, and associated regulations or directives.

The Appointed Actuary is required to provide an opinion regarding the appropriateness of the policy liabilities, net of reinsurance recoverables, at the statement dates to meet all policy obligations 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, net of reinsurance recoverables, are important elements of the work required to form this opinion.

The Appointed Actuary is required each year to investigate the financial condition of the Company and prepare a report for the Board. The 2022 analysis tested our capital adequacy until December 31, 2026, under various adverse economic and business conditions. The Appointed Actuary reviews the calculation of our Life Insurance Capital Adequacy Test ("LICAT") Ratios.

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**11. 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.

**11. 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, 2022** | **Canada** | **Canada** | **U.S.** | **Asia** | **Corporate**<sup>(1)</sup> | **Total** |
| Individual participating life |  | $**21** | $**18** | $**179** | $**—** | $**218** |
| Individual non-participating life and health |  | **(282)** | **1598** | **38** | **13** | **1367** |
| Group life and health |  | **267** | **2212** | **7** | **—** | **2486** |
| Individual annuities |  | **—** | **—** | **—** | **1** | **1** |
| Group annuities |  | **(3)** | **—** | **—** | **—** | **(3)** |
| Reinsurance assets before other policy assets | Reinsurance assets before other policy assets | **3** | **3828** | **224** | **14** | **4069** |
| Add: Other policy assets<sup>(2)</sup> |  | **98** | **478** | **117** | **39** | **732** |
| Total Reinsurance assets |  | $**101** | $**4306** | $**341** | $**53** | $**4801** |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Primarily business from the UK and run-off reinsurance operations. Includes UK business of $13 for Individual non-participating life and health, and $1 for Individual annuities.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, 2021 | Canada | Canada | U.S. | Asia | Corporate<sup>(1)</sup> | Total |
| Individual participating life |  | $— | $7 | $214 | $— | $221 |
| Individual non-participating life and health |  | (547) | 838 | 33 | 16 | 340 |
| Group life and health |  | 284 | 2018 | 5 |  | 2307 |
| Individual annuities |  |  |  |  | 15 | 15 |
| Group annuities |  | 22 |  |  |  | 22 |
| Reinsurance assets before other policy assets | Reinsurance assets before other policy assets | (241) | 2863 | 252 | 31 | 2905 |
| Add: Other policy assets<sup>(2)</sup> |  | 95 | 563 | 81 | 39 | 778 |
| Total Reinsurance assets |  | $(146) | $3426 | $333 | $70 | $3683 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Primarily business from the UK and run-off reinsurance operations. Includes UK business of $16 for Individual non-participating life and health, and $15 for Individual annuities.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.

There was no impairment of Reinsurance assets in 2022 or 2021. Changes in Reinsurance assets are included in Note 10.A.iv.

**11. B Reinsurance (Expenses) Recoveries**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | **2021** |
| Recovered claims and benefits | $**1961** | $2233 |
| Commissions | **73** | 65 |
| Reserve adjustments | **22** | 45 |
| Operating expenses and other | **84** | 82 |
| Total reinsurance (expenses) recoveries | $**2140** | $2425 |

---

**11. C Reinsurance Gains or Losses**

We did not enter into reinsurance arrangements that resulted in a gain or loss on inception in 2022 or 2021.

64 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**12. Other Liabilities**

**12. A Composition of Other Liabilities**

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Accounts payable | $**2639** | $1866 |
| Bank overdrafts and cash pooling | **6** | 133 |
| Repurchase agreements (Note 5) | **2725** | 2324 |
| Accrued expenses and taxes | **4213** | 4265 |
| Credit facilities | **2339** | 441 |
| Borrowed funds<sup>(1)</sup> | **403** | 432 |
| Accrued post-retirement benefit liability (Note 25) | **268** | 528 |
| Secured borrowings from mortgage securitization (Note 5) | **2158** | 2007 |
| Lease liabilities | **952** | 850 |
| Other financial liabilities (Note 5)<sup>(2)</sup> | **1996** | 1810 |
| Obligations for securities borrowing | **73** | 51 |
| Collateralized loan obligation (Note 5) | **2816** | 1726 |
| Deferred payments liability | **299** | 330 |
| Other | **1761** | 1020 |
| Total other liabilities | $**22648** | $17783 |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;The change in Borrowed funds relates to net cash flow changes of $(34) in 2022 (2021 — $31) and foreign exchange rate movements of $8 in 2022 (2021 — $nil).

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Comprises financial liabilities related to acquisitions, including put option liabilities and financial liabilities due to NCI. Interest expense related to financial liabilities are $68 in 2022 (2021 — $64).

Other financial liabilities include contingent consideration payments and obligations to purchase remaining outstanding shares of certain SLC Management subsidiaries. These amounts are initially measured at fair value. For obligations to purchase remaining outstanding shares, the fair value is based on the expected average EBITDA using multiples in accordance with contractual terms as described in Note 5.A.ii During the year, these amounts were revised to reflect the change in expected cash flows, resulting in an increase in our liability of $96 (2021 — $187), which has been recognized in the Consolidated Statements of Operations.

**12. B Borrowed Funds**

Borrowed funds include the following:

---

| | | | | |
|:---|:---|:---|:---|:---|
| As at December 31, | Currency of<br>borrowing | Maturity | **2022** | 2021 |
| Encumbrances on real estate | Cdn. dollars | Current - 2032 | $**326** | $323 |
| Encumbrances on real estate | U.S. dollars | 2023 - 2027 | **77** | 109 |
| Total borrowed funds |  |  | $**403** | $432 |

---

Interest expense for the borrowed funds was $67 and $22 for 2022 and 2021, respectively. The aggregate maturities of borrowed funds are included in Note 6.

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**13. Senior Debentures and Innovative Capital Instruments**

**13. A Senior Debentures**<sup>(1)</sup>

The following obligations are included in Senior debentures as at December 31:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | Interest<br>rate | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Earliest par call or<br>redemption date | Maturity | **2022** | 2021 |
| Sun Life Assurance senior debentures:<sup>(2)</sup> |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued to Sun Life Capital Trust ("SLCT I") |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series B issued June 25, 2002 | 7.09% | June 30, 2032<sup>(3)</sup> | 2052 | $**200** | $200 |
| Fair value |  |  |  | $**215** | $271 |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;All senior debentures are unsecured.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Redemption is subject to regulatory approval.

<sup>(3)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Redeemable in whole or in part on any interest payment date or in whole upon the occurrence of a Regulatory Event or Tax Event, as described in the debenture. Prior to June 30, 2032, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.32%; from June 30, 2032, the redemption price is par.

Fair value is determined based on quoted market prices for identical or similar instruments. When quoted market prices are not available, fair value is determined from observable market data by dealers that are typically the market makers. The fair value is categorized in Level 2 of the fair value hierarchy.

Interest expense for senior debentures was $14 and $23 for 2022 and 2021, respectively.

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

**13. B Innovative Capital Instruments**

Innovative capital instruments consist of Sun Life ExchangEable Capital Securities ("SLEECS"), which were issued by SLCT I, established as a trust under the laws of Ontario. SLCT I issued Sun Life ExchangEable Capital Securities - Series B ("SLEECS B"), which are units representing an undivided beneficial ownership interest in the assets of that trust. SLEECS B are non-voting except in certain limited circumstances. Holders of the SLEECS B are eligible to receive semi-annual non-cumulative fixed cash distributions.

The proceeds of the issuance of the SLEECS B were used by SLCT I to purchase senior debentures of Sun Life Assurance. SLCT I is not consolidated by us. As a result, the innovative capital instruments are not reported on our Consolidated Financial Statements. However, the senior debentures issued by Sun Life Assurance to SLCT I are reported on our Consolidated Financial Statements.

The SLEECS B are structured to achieve 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 SLCT I on the SLEECS B 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 (each, a "Missed Dividend Event"). 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 SLCT I fails to pay in cash the semi-annual interest payments or distributions on the SLEECS B 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 unit 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 capital ratios fall below applicable thresholds; 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 B automatically exchanged ("Automatic Exchange Event"). Upon an Automatic Exchange Event, former holders of the SLEECS B will cease to have any claim or entitlement to distributions, interest or principal against SLCT I and will rank as preferred shareholders of Sun Life Assurance in a liquidation of Sun Life Assurance.

66 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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The table below presents additional significant terms and conditions of the SLEECS:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| Issuer | Issuance date | Distribution or interest<br>payment dates | Annual<br>yield | Redemption date at<br>the issuer's option | Conversion date at<br>the holder's option | Principal<br>amount |
| Sun Life Capital Trust ("SLCT I")<sup>(1)(2)(3)(4)</sup> | Sun Life Capital Trust ("SLCT I")<sup>(1)(2)(3)(4)</sup> |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;SLEECS B | June 25, 2002 | June 30, December 31 | 7.093% | June 30, 2007 | Any time | $200 |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Subject to regulatory approval, SLCT I may (i) redeem any outstanding SLEECS, in whole or in part, on the redemption date specified above or on any distribution date thereafter and (ii) may redeem all, but not part of any class of SLEECS upon occurrence of a Regulatory Event or a Tax Event, prior to the redemption date specified above.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;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 is 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 is 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.

<sup>(3)</sup> &nbsp;&nbsp;&nbsp;&nbsp;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.

<sup>(4)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Holders of SLEECS B may exchange, at any time, all or part of their SLEECS B units for non-cumulative perpetual preferred shares of Sun Life Assurance at an exchange rate 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 67

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**14. Subordinated Debt**

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

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | Interest rate | Earliest par call date<sup>(1)</sup> | | Maturity | **2022** | 2021 |
| Sun Life Assurance: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued May 15, 1998<sup>(2)</sup> | 6.30% | n/a |  | 2028 | $**150** | $150 |
| Sun Life Financial Inc.: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued May 29, 2007<sup>(3)</sup> | 5.40% | May 29, 2037 | <sup>(4)</sup> | 2042 | **398** | 398 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued September 19, 2016<sup>(5)</sup> | 3.05% | September 19, 2023 |  | 2028 | **999** | 998 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued November 23, 2017<sup>(6)</sup> | 2.75% | November 23, 2022 |  | 2027 | **—** | 400 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued August 13, 2019<sup>(7)</sup> | 2.38% | August 13, 2024 |  | 2029 | **749** | 748 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued May 8, 2020<sup>(8)</sup> | 2.58% | May 10, 2027 |  | 2032 | **996** | 995 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued October 1, 2020<sup>(9)</sup> | 2.06% | October 1, 2030 |  | 2035 | **746** | 746 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued November 18, 2021<sup>(10)</sup> | 2.46% | November 18, 2026 |  | 2031 | **498** | 497 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued November 18, 2021<sup>(11),(13)</sup> | 2.80% | November 21, 2028 |  | 2033 | **996** | 995 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued November 18, 2021<sup>(12),(13)</sup> | 3.15% | November 18, 2031 |  | 2036 | **498** | 498 |
| &nbsp;&nbsp;&nbsp;&nbsp;Issued August 10, 2022<sup>(14)</sup> | 4.78% | August 10, 2029 |  | 2034 | **646** |  |
| Total subordinated debt |  |  |  |  | $**6676** | $6425 |
| Fair value |  |  |  |  | $**6106** | $6675 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Subject to regulatory approval all obligations are redeemable 5-years after issuance date. From the date noted, the redemption price is par and redemption may only occur on a scheduled interest payment date.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;6.30% Debentures, Series 2, due 2028, issued by The Mutual Life Assurance Company of Canada, which subsequently changed its name to Clarica Life Insurance Company ("Clarica") and was amalgamated with Sun Life Assurance. These debentures are redeemable at any time. Prior to May 15, 2028, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.16%.

<sup>(3)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Series 2007-1 Subordinated Unsecured 5.40% Fixed/Floating Debentures due 2042. From May 29, 2037, interest is payable at 1.00% over CDOR.

<sup>(4)&nbsp;&nbsp;&nbsp;&nbsp;</sup>For redemption of the 2007 debentures 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 plus 0.25%.

<sup>(5)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Series 2016-2 Subordinated Unsecured 3.05% Fixed/Floating Debentures due 2028. From September 19, 2023, interest is payable at 1.85% over CDOR. Between September 19, 2021 and September 19, 2023, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.52%.

<sup>(6)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2017-1 Subordinated Unsecured 2.75% Fixed/Floating Debentures due 2027. From November 23, 2022, interest is payable at 0.74% over CDOR. On November 23, 2022, SLF Inc. redeemed all of the outstanding $400 principal amount of these debentures in accordance with the redemption terms attached to such debentures.

<sup>(7)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating Debentures due 2029. From August 13, 2024, interest is payable at 0.85% over CDOR.

<sup>(8) &nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2020-1 Subordinated Unsecured 2.58% Fixed/Floating Debentures due 2032. From May 10, 2027, interest is payable at 1.66% over CDOR. Between May 10, 2025 and May 10, 2027, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.52%.

<sup>(9)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2020-2 Subordinated Unsecured 2.06% Fixed/Floating Debentures due 2035. From October 1, 2030, interest is payable at 1.03% over CDOR. Between October 1, 2025 and October 1, 2030, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.38%.

<sup>(10)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2021-1 Subordinated Unsecured 2.46% Fixed/Floating Debentures due 2031. From November 18, 2026, interest is payable at 0.44% over CDOR.

<sup>(11)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2021-2 Subordinated Unsecured 2.80% Fixed/Floating Debentures due 2033. From November 21, 2028, interest is payable at 0.69% over CDOR. Between November 21, 2026 and November 21, 2028, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.285%.

<sup>(12)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2021-3 Subordinated Unsecured 3.15% Fixed/Floating Debentures due 2036. From November 18, 2031, interest is payable at 0.91% over CDOR. Between November 18, 2026 and November 18, 2031, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.335%.

<sup>(13)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Subject to contractual terms requiring us to redeem the underlying securities, in full, if the closing of the DentaQuest acquisition does not occur.

<sup>(14)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Series 2022-1 Subordinated Unsecured 4.78% Fixed/Floating Debentures due 2034. From August 10, 2029, interest is payable at 1.96% over the Canadian Overnight Repo Rate Average ("CORRA").

Fair value is determined based on quoted market prices for identical or similar instruments. When quoted market prices are not available, fair value is determined from observable market data by dealers that are typically the market makers. The fair value is categorized in Level 2 of the fair value hierarchy.

Interest expense on subordinated debt was $198 and $141 for 2022 and 2021, respectively.

68 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

------

**15. 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 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 14 series of Class A non-voting preferred shares, 8 of which are outstanding.

The common and preferred shares of SLF Inc. qualify as capital for Canadian regulatory purposes. See Note 21.

**Dividends and Restrictions on the Payment of Dividends**

Under the *Insurance Companies Act* (Canada), SLF Inc. and Sun Life Assurance are each prohibited from declaring or paying a dividend on any of its shares if there are reasonable grounds for believing that it is, or by paying the dividend would be, in contravention of: (i) the requirement that it maintains adequate capital and adequate and appropriate forms of liquidity, (ii) any regulations under the *Insurance Companies Act* (Canada) in relation to capital and liquidity, and (iii) any order by which OSFI directs it to increase its capital or provide additional liquidity.

SLF Inc. and Sun Life Assurance have each covenanted that, if a distribution is not paid when due on any outstanding SLEECS issued by SLCT I, 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 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, 2022, 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 Sun Life Assurance's minimum regulatory capital ratio falls below the applicable threshold.

In addition, under the terms of SLF Inc.'s outstanding preferred shares, SLF Inc. cannot pay dividends on its common shares without the approval of the holders of those 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.

**15. A Common Shares**

Changes in common shares issued and outstanding for the years ended December 31 were as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **2022** | **2022** | 2021 | 2021 |
| Common shares (in millions of shares) | **Number of<br> shares** | **Amount** | Number of<br> shares | Amount |
| Balance, beginning of period | **586.0** | $**8305** | 585.1 | $8262 |
| Stock options exercised (Note 19) | **0.4** | **6** | 0.9 | 43 |
| Balance, end of period | **586.4** | $**8311** | 586.0 | $8305 |

---

**15. B Preferred Shares and Other Equity Instruments**

There were no changes in preferred shares issued and outstanding for the year ended December 31, 2022.

On June 30, 2021, SLF Inc. issued $1,000 principal amount of 3.60% Limited Recourse Capital Notes Series 2021-1 Subordinated Debentures ("Series 2021-1 Notes"), maturing on June 30, 2081. The Series 2021-1 Notes bear interest at a fixed rate of 3.60% payable semi-annually, until June 30, 2026. On June 30, 2026 and every five years thereafter until June 30, 2076, the interest rate on the Series 2021-1 Notes will be reset at an interest rate equal to the five-year Government of Canada yield as defined in the prospectus, plus 2.604%. The net proceeds were used for general corporate purposes, which included investments in subsidiaries, repayment of indebtedness and other strategic investments.

In connection with the issuance of the Series 2021-1 Notes, SLF Inc. issued 1 million Class A Non-Cumulative Rate Reset Preferred Shares Series 14 (the "Series 14 Shares") to be held by Computershare Trust Company of Canada as trustee of a newly formed trust (the "Limited Recourse Trust"). The Series 14 Shares are eliminated on SLF Inc.'s Consolidated Statements of Financial Position while being held within the Limited Recourse Trust. In case of non-payment of interest on or principal of the Series 2021-1 Notes when due, the recourse of each noteholder will be limited to that holder's proportionate share of the Limited Recourse Trust's assets, which will consist of Series 14 Shares except in limited circumstances. Holders of Series 14 Shares are entitled to receive non-cumulative preferential cash dividends on a semi-annual basis, as and when declared by the Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 69

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On September 29, 2021, SLF Inc. redeemed all of the $400 principal amount of Class A Non-Cumulative Preferred Shares Series 1 issued on February 25, 2005 and all of the $325 principal amount of Class A Non-Cumulative Preferred Shares Series 2 issued on July 15, 2005, in accordance with the terms attached to the two series of preferred shares. The redemptions were funded from existing cash and other liquid assets in SLF Inc.

On September 30, 2021, 0.5 million of the 6.9 million Class A Non-cumulative Rate Reset Preferred Shares Series 10R (the "Series 10R Shares") were converted into Class A Non-cumulative Floating Rate Preferred Shares 11QR (the "Series 11QR Shares") on a one-for-one basis and 0.4 million of the 1.1 million Series 11QR were converted into Series 10R on a one-for-one basis. As a result, as of September 30, 2021, SLF Inc. has approximately 6.8 million Series 10R Shares and 1.2 million Series 11QR Shares issued and outstanding.

On December 31, 2021, SLF Inc. redeemed all of the $300 Class A Non-Cumulative Rate Reset Preferred Shares Series 12R issued on November 10, 2011, in accordance with the terms attached to the series of preferred shares. The redemptions were funded from existing cash and other liquid assets in SLF Inc.

Further information on the preferred shares outstanding, as at December 31, 2022, is as follows:

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **<br>(in millions of shares)** | **Issue date** | **Annual<br>dividend<br>rate** | **Annual<br>dividend<br>per share** | **Annual<br>dividend<br>per share** | **Earliest par call or**<br>**redemption date**<sup>(1)</sup> | **Earliest par call or**<br>**redemption date**<sup>(1)</sup> | **Number<br>of shares** | **Face<br>amount** | **Net**<br>**amount**<sup>(2)</sup> |
| **Class A Preferred shares** | **Class A Preferred shares** | | | | | | | | |
| Series 3 | January 13, 2006 | 4.45% |  | $1.11 |  | Any time | **10.0** | **250** | **245** |
| Series 4 | October 10, 2006 | 4.45% |  | $1.11 |  | Any time | **12.0** | **300** | **293** |
| Series 5 | February 2, 2007 | 4.50% |  | $1.13 |  | Any time | **10.0** | **250** | **245** |
| Series 8R<sup>(3)</sup> | May 25, 2010 | 1.825% | <sup>(3)</sup> | $0.46 |  | June 30, 2025<sup>(4)</sup> | **6.2** | **155** | **152** |
| Series 9QR<sup>(5)</sup> | June 30, 2015 | Floating | <sup>(6)</sup> | Floating |  | June 30, 2025<sup>(7)</sup> | **5.0** | **125** | **122** |
| Series 10R<sup>(3)</sup> | August 12, 2011 | 2.967% | <sup>(3)</sup> | $0.74 | <sup>(8)</sup> | September 30, 2026<sup>(4)</sup> | **6.8** | **171** | **167** |
| Series 11QR<sup>(5)</sup> | September 30, 2016 | Floating | <sup>(6)</sup> | Floating |  | September 30, 2026<sup>(7)</sup> | **1.2** | **29** | **28** |
| **Other Equity Instruments** | **Other Equity Instruments** |  |  |  |  |  |  |  |  |
| Series 2021-1<sup>(9)</sup> | June 30, 2021 | 3.600% |  | n/a |  | June 30, 2026 | **1.0** | **1000** | **987** |
| Total preferred shares and other equity instruments | Total preferred shares and other equity instruments | Total preferred shares and other equity instruments |  |  |  |  | **52.2** | $**2280** | $**2239** |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Redemption of all preferred shares and other equity instruments is subject to regulatory approval.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Net of after-tax issuance costs.

<sup>(3)</sup> &nbsp;&nbsp;&nbsp;&nbsp;On the earliest redemption date and every five years thereafter, the dividend rate will reset to an annual rate equal to the 5-year Government of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Canada bond yield plus a spread specified for each series. The specified spread for Class A shares is: Series 8R - 1.41% and Series 10R - 2.17%. On the earliest redemption date and every five years thereafter, holders will have the right, at their option, to convert their shares into the series that is one number higher than their existing series.

<sup>(4)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Redeemable on the redemption date and every five years thereafter, in whole or in part, at $25.00 per share.

<sup>(5)</sup> &nbsp;&nbsp;&nbsp;&nbsp;On the earliest redemption date and every five years thereafter, holders will have the right, at their option, to convert those shares into the series that is one number lower than their existing series.

<sup>(6)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Holders are entitled to receive quarterly floating rate non-cumulative dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus a spread specified for each series. The specified spread for Class A shares is: Series 9QR - 1.41% and Series 11QR - 2.17%.

<sup>(7)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Redeemable on the redemption date and every five years thereafter, in whole or in part, at $25.00 per share, and on any other date at $25.50 per share.

<sup>(8)&nbsp;&nbsp;&nbsp;&nbsp;</sup>The annual dividend per share in the table above is the amount paid per share in 2022.

<sup>(9)&nbsp;&nbsp;&nbsp;&nbsp;</sup>On the earliest redemption date and every five years thereafter, the interest rate will reset to an annual rate equal to the Government of Canada bond yield plus 2.604%.

70 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**16. Interests in Other Entities**

**16. A Subsidiaries** 

Our principal subsidiaries are Sun Life Assurance and Sun Life Global Investments Inc. Sun Life Assurance is our principal operating insurance company and holds our insurance operations in Canada, the U.S., the UK, the Philippines, Hong Kong, Indonesia and Vietnam. These insurance operations are operated directly by Sun Life Assurance or through other subsidiaries. Sun Life Global Investments Inc. is a non-operating holding company that holds our asset management businesses, including MFS and the group of companies under SLC Management.

We are required to comply with various regulatory capital and solvency requirements in the jurisdictions in which we operate that may restrict our ability to access or use the assets of the group and to pay dividends. Further details on these restrictions are included in Notes 15 and 21.

**16. B Joint Ventures and Associates** 

We have interests in various joint ventures and associates that principally operate in India, Malaysia, China, and the Philippines. We also have interests in joint ventures related to certain real estate investments in Canada. Our interests in these joint ventures and associates range from 24.99% to 50%. The following table summarizes, in aggregate, the financial information of these joint ventures and associates:

---

| | | |
|:---|:---|:---|
| As at or for the years ended December 31, | **2022** | 2021 |
| Carrying amount of interests in joint ventures and associates | $**1594** | $1652 |
| Our share of: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) | **(5)** | 122 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive income (loss) | **(109)** | (14) |
| Total comprehensive income (loss) | $**(114)** | $108 |

---

On October 12, 2021, our India joint venture, Aditya Birla Sun Life AMC Limited ("ABSLAMC") completed an Initial Public Offering ("IPO"). As a result of the IPO, our ownership interest was reduced by 12.5% and we generated gross proceeds of $430, which included a realized gain of $362 (post-tax $297). After the IPO, we retained ownership of the listed entity of 36.5%. We also reclassified $9 of accumulated OCI to net income as part of this transaction.

In 2022, we increased our investment in our joint ventures and associates by $69 (2021 — $29), primarily in Canada. During 2022, we received dividends and other proceeds relating to our joint ventures and associates of $27 (2021 — $382). We also incurred rental expenses of $17 (2021 — $17) related to leases with our joint ventures and associates, with the remaining future rental payments payable to our joint ventures and associates totaling $167 over 10 years.

**16. C Joint Operations** 

We invest jointly in investment properties and owner-occupied properties which are co-managed under contractual relationships with the other investors. We share in the revenues and expenses generated by these properties in proportion to our investment. The carrying amount of these jointly controlled assets, which is included in Investment properties and in Other Assets for owner-occupied properties, is $2,228 as at

December 31, 2022 (December 31, 2021 — $2,185). The fair value of these jointly controlled assets is $2,306 as at December 31, 2022 (December 31, 2021 — $2,278).

**16. D Unconsolidated Structured Entities** 

SLF Inc. and its subsidiaries have interests in various structured entities that are not consolidated by us. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. We have an interest in a structured entity when we have a contractual or non-contractual involvement that exposes us to variable returns from the performance of the entity. Our interest includes investments held in securities or units issued by these entities and fees earned from management of the assets within these entities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 71

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Information on our interests in unconsolidated structured entities is as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| As at December 31, |  |  | **2022** | **2022** | 2021 | 2021 |
| **Type of structured entity** | **Type of investment held** | **Consolidated Statements<br>of Financial Position<br>line item** | **Carrying<br>amount** | **Maximum**<br>**exposure to**<br>**loss**<sup>(1)</sup> | Carrying<br>amount | Maximum<br>exposure to<br>loss<sup>(1)</sup> |
| &nbsp;&nbsp;Securitization entities - third-party managed | Debt securities | Debt securities | $**9155** | $**9155** | $9057 | $9057 |
| &nbsp;&nbsp;Securitization entities - third-party managed | Short-term securities | Cash, cash equivalents and short-term <br>securities | $**790** | $**790** | $1084 | $1084 |
| &nbsp;&nbsp;Investment funds - third-party managed | Investment fund units | Equity securities | $**5766** | $**5766** | $7411 | $7411 |
| &nbsp;&nbsp;Investment funds - company managed<sup>(2)</sup> | Investment fund units and Limited partnership units | Equity securities and Other invested assets | $**3365** | $**3365** | $2978 | $2978 |
| &nbsp;&nbsp;Limited partnerships - third-party managed | Limited partnership units | Other invested assets | $**2786** | $**2786** | $2391 | $2391 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>The maximum exposure to loss is the maximum loss that we could record through comprehensive income as a result of our involvement with these entities.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Includes investments in funds managed by our joint ventures with a carrying amount of $82 (2021 — $156).

**16. D.i Securitization Entities** 

Securitization entities are structured entities that are generally financed primarily through the issuance of debt securities that are backed by a pool of assets, such as mortgages or loans.

**Third-Party Managed**

Our investments in third-party managed securitization entities consist of asset-backed securities, such as commercial mortgage-backed securities, residential mortgage-backed securities, collateralized debt obligations ("CDOs"), and commercial paper. These securities are generally large-issue debt securities designed to transform the cash flows from a specific pool of underlying assets into tranches providing various risk exposures for investment purposes. We do not provide financial or other support to these entities other than our original investment and therefore our maximum exposure to loss on these investments is limited to the carrying amount of our investment. We do not have control over these investments since we do not have power to direct the relevant activities of these entities, regardless of the level of our investment.

**Company Managed**

We provide collateral management services to various securitization entities, primarily CDOs, from which we earn a fee for our services. The financial support provided to these entities is limited to the carrying amount of our investment in these entities. We provide no guarantees or other contingent support to these entities. We have not consolidated these entities since we do not have significant variability from our interests in these entities and we do not have any investment in these entities.

**16. D.ii Investment Funds and Limited Partnerships** 

Investment funds and limited partnerships are investment vehicles that consist of a pool of funds collected from a group of investors for the purpose of investing in assets such as money market instruments, debt securities, equity securities, real estate, and other similar assets. The preceding table includes our investments in all investment funds, including mutual funds, exchange-traded funds, and segregated funds, and our investments in certain limited partnerships. Some of these investment funds and limited partnerships are structured entities. For all investment funds and limited partnerships, our maximum exposure to loss is equivalent to the carrying amount of our investment in the fund or partnership. Investment funds and limited partnerships are generally financed through the issuance of investment fund units or limited partnership units.

**Third-Party Managed**

We hold units in investment funds and limited partnerships managed by third-party asset managers. Our investments in fund units and limited partnership units generally give us an undivided interest in the investment performance of a portfolio of underlying assets managed or tracked to a specific investment mandate for investment purposes. We do not have control over investment funds or limited partnerships that are structured entities since we do not have power to direct their relevant activities.

**Company Managed**

We hold units in Company managed investment funds and limited partnerships. We generally have power over Company managed investment funds and limited partnerships that are structured entities since we have power to direct the relevant activities of the funds and limited partnerships. However, we have not consolidated these funds and limited partnerships since we do not have significant variability from our interests in these funds and limited partnerships. We earn management fees from the management of these investment funds and limited partnerships that are commensurate with the services provided and are reported in Fee income. Management fees are generally based on the value of the assets under management. Therefore, the fees earned are impacted by the composition of the assets under management and fluctuations in financial markets. The fee income earned is included in Fund management and other asset based fees in Note 17. We also hold units in investment funds and limited partnerships managed by our joint ventures. Our share of the management fees earned is included as part of the Net income (loss) reported in Note 16.B.

72 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**16. E Consolidated Structured Entities**

We control and consolidate structured entities related to the CLOs described in more detail in Note 5.A.i. and investment funds managed by SLC Management and its affiliate managers which invest primarily in investment properties and entities which invest in renewable energy projects.

**17. Fee Income**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Fee income from insurance contracts | $**1169** | $1175 |
| Fee income from service contracts: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Distribution fees | **868** | 959 |
| &nbsp;&nbsp;&nbsp;&nbsp;Fund management and other asset-based fees | **4922** | 4981 |
| &nbsp;&nbsp;&nbsp;&nbsp;Administrative service and other fees | **1087** | 887 |
| Total fee income | $**8046** | $8002 |

---

Distribution fees and Fund management and other asset-based fees are primarily earned in the Asset Management segment. Administrative service and other fees are primarily earned in the Canada segment. The fee income by business segment is presented in Note 4.

**18. Operating Expenses, Commissions, and Premium Taxes**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Operating expenses: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Employee expenses<sup>(1)</sup> | $**5107** | $5102 |
| &nbsp;&nbsp;&nbsp;&nbsp;Premises and equipment | **216** | 182 |
| &nbsp;&nbsp;&nbsp;&nbsp;Capital asset depreciation | **241** | 245 |
| &nbsp;&nbsp;&nbsp;&nbsp;Service fees | **1152** | 1101 |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangible assets (Note 9) | **287** | 193 |
| &nbsp;&nbsp;&nbsp;&nbsp;Impairment of intangible assets (Note 9) | **18** | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;Impairment of goodwill (Note 9) | **170** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Other expenses | **1850** | 1747 |
| Operating expenses | $**9041** | $8579 |
| Commissions | **2836** | 2809 |
| Premium taxes | **487** | 429 |
| Total operating expenses, commissions and premium taxes | $**12364** | $11817 |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;See table below for further details.

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

---

| | | |
|:---|:---|:---|
| | **2022** | 2021 |
| Salaries, bonus, employee benefits | $**4846** | $4320 |
| Share-based payments (Note 19)  | **227** | 757 |
| Other personnel costs | **34** | 25 |
| Total employee expenses | $**5107** | $5102 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 73

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**19. Share-Based Payments**

**19. A Stock Option Plans**

SLF Inc. has granted stock options to eligible employees under the Executive Stock Option Plan. These options are granted at the closing price of the common shares on the Toronto Stock Exchange ("TSX") on the grant date. The options granted under the stock option plans vest over a four-year period. All options have a maximum exercise period of 10 years. The maximum number of common shares that may be issued under the Executive Stock Option Plan is 29,525,000 shares.

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

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **2022** | **2022** | 2021 | 2021 |
| | **Number of stock options (thousands)** | **Weighted average exercise price** | Number of <br>stock options (thousands) | Weighted average <br>exercise price |
| Balance, January 1, | **3042** | $**55.85** | 3173 | $49.65 |
| Granted | **709** | $**68.12** | 769 | $63.39 |
| Exercised | **(115)** | $**45.94** | (900) | $40.44 |
| Forfeited | **(47)** | $**62.38** |  | $— |
| Balance, December 31, | **3589** | $**58.51** | 3042 | $55.85 |
| Exercisable, December 31, | **1785** | $**53.33** | 1223 | $50.22 |

---

The average share price at the date of exercise of stock options for the year ended December 31, 2022 was $64.00 (2021 — $64.86).

Compensation expense for stock options was $7 for the year ended December 31, 2022 (2021 — $6).

The stock options outstanding as at December 31, 2022, by exercise price, are as follows:

---

| | | | |
|:---|:---|:---|:---|
| Range of exercise prices | **Number of stock options (thousands)** | **Weighted average remaining contractual life (years)** | **Weighted average exercise price** |
| $36.98 to $45.00 | **206** | **1.96** | $**39.80** |
| $45.01 to $55.00 | **1228** | **4.14** | $**51.21** |
| $55.01 to $65.00 | **1257** | **6.85** | $**62.19** |
| $65.01 to $68.12 | **898** | **8.98** | $**67.64** |
| Total stock options | **3589** | **6.18** | $**58.51** |

---

The weighted average fair values of the stock options, calculated using the Black-Scholes option pricing model, granted during the year ended December 31, 2022 was $9.64 (2021 — $8.73). 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 | **2022** | 2021 |
| Risk-free interest rate | **1.8%** | 0.9% |
| Expected volatility | **23.7%** | 24.9% |
| Expected dividend yield | **4.0%** | 4.0% |
| Expected life of the option (in years) | **6.3** | 6.3 |
| Exercise price | $**68.12** | $63.39 |

---

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.

**19. B Employee Share Ownership Plan**

In Canada, we match eligible employees' contributions to the Sun Life Financial Employee Stock Plan. Employees may elect to contribute from 1% to 20% of their target annual compensation to the Sun Life Financial Employee Stock Plan. Under this plan the match is provided for employees who have met one year 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. Our contributions vest immediately and are expensed.

In the U.S., the Sun Life Financial U.S. Employee Stock Purchase Plan allows eligible employees to buy shares of SLF Inc. at a 10% discount at the end of six-month offering periods. Under this plan, employees who enroll can contribute from 1% to 10% of their base salary. At the end of each period,

74 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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accumulated employee amounts are used to purchase stock, with the Company financing the 10% discount. The total annual contribution, including the company discount, is limited to U.S. twenty-five thousand dollars based on its fair market value on the offering date.

We recorded an expense of $9 for the year ended December 31, 2022 (2021 — $9).

**19. 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 short-term incentive award in the form of DSUs. Each DSU is equivalent in value to one common share and earns dividend equivalents in the form of additional DSUs at the same rate as the dividends on common shares. The designated executives must elect to participate in the plan prior to the beginning of the plan year and this election is irrevocable. Awards generally vest immediately; however, participants are not permitted to redeem the DSUs until after 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 Share") Plan:** 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 the date of grant. Participants generally 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. Under this plan, some units are performance-based that may vest or become payable if we meet specified threshold performance targets. The plan provides for performance factors to motivate participants to achieve a higher return for shareholders (performance factors are 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 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 recognized for these units in our Consolidated Statements of Financial Position are summarized in the following table:

---

| | | | |
|:---|:---|:---|:---|
| Number of units (in thousands) | **Sun Shares** | **DSUs** | **Total** |
| Units outstanding December 31, 2022 | **4675** | **710** | **5385** |
| Units outstanding December 31, 2021 | 4817 | 929 | 5746 |
| Liability accrued as at December 31, 2022 | $**188** | $**44** | $**232** |
| Liability accrued as at December 31, 2021 | $314 | $63 | $377 |

---

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 and DSUs due to changes in the fair value of the common shares and the accruals of the Sun Shares liabilities over the vesting period, and exclude any adjustment in expenses due to the impact of hedging.

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Compensation expense | $**43** | $213 |
| Income tax expense (benefit) | $**(9)** | $(54) |

---

**19. D Share-Based Payment Plans of MFS**

Share-based payment awards within MFS are based on their own shares. Restricted share awards are settled in MFS shares and restricted stock unit awards are settled in cash. Restricted share awards and restricted stock unit awards generally vest over a four-year period and continued employment is generally the only service requirement for these awards. Holders of restricted share awards and restricted stock unit awards are entitled to receive non-forfeitable dividend equivalent payments during the vesting period at the same rate as the dividends on MFS's shares.

Although restricted share awards are settled in shares, all of the MFS share-based awards, including outstanding MFS shares, are accounted for as cash-settled share-based payment awards due to the fact that MFS has a practice of repurchasing its outstanding shares after a specified holding period. The fair value of restricted share awards, restricted stock unit awards, and outstanding MFS shares are estimated using a market consistent share valuation model. The amount of periodic compensation expense recognized is impacted by grants of new awards, vesting, and forfeiture of unvested awards, share repurchases, changes in fair value of awards, and outstanding MFS shares. The total liability accrued attributable to all MFS share-based payment plans as at December 31, 2022 was $1,020 (December 31, 2021 — $1,088) which includes a liability of $811&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(December 31, 2021 — $848) for the restricted shares and outstanding MFS shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 75

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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, | **2022** | 2021 |
| Compensation expense | $**168** | $529 |
| Income tax expense (benefit) | $**(49)** | $(79) |

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**20. Income Taxes**

**20. A Deferred Income Taxes** 

The following represents the deferred tax assets and liabilities in the Consolidated Statements of Financial Position:

---

| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Deferred tax assets<sup>(1)</sup> | $**2282** | $1848 |
| Deferred tax liabilities<sup>(1)</sup> | **630** | 322 |
| Net deferred tax asset | $**1652** | $1526 |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Our deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority.

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

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Investments** | **Investments** | **Policy**<br>**liabilities**<sup>(1)</sup> | **Deferred<br>acquisition<br>costs** | **Losses<br>available<br>for carry<br>forward** | **&nbsp;&nbsp;&nbsp;&nbsp; Pension<br>and other<br>employee<br>benefits** | **Other**<sup>(2)</sup> | **Total** |
| As at December 31, 2021 | $**(1178)** | $**1727** | $**74** | $**853** | $**301** | $**(251)** | $**1526** |
| Acquisitions (disposals) through business combinations <sup>(3)</sup> | **1** | **10** | **—** | **32** | **8** | **(277)** | **(226)** |
| Charged to statement of operations | **492** | **(380)** | **4** | **(10)** | **(6)** | **(7)** | **93** |
| Charged to other comprehensive income | **135** | **85** | **—** | **92** | **(75)** | **—** | **237** |
| Charged to equity, other than other comprehensive income | **—** | **—** | **—** | **15** | **—** | **—** | **15** |
| Foreign exchange rate movements and Other | **13** | **(19)** | **6** | **4** | **14** | **(11)** | **7** |
| **As at December 31, 2022** | $**(537)** | $**1423** | $**84** | $**986** | $**242** | $**(546)** | $**1652** |

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<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Consists of Insurance contract liabilities and Investment contract liabilities, net of Reinsurance assets.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Includes unused tax credits.

<sup>(3)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Refer to Note 3.

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| Investments | Investments | Policy<br>liabilities<sup>(1)</sup> | Deferred<br>acquisition<br>costs | Losses<br>available<br>for carry<br>forward | Pension<br>and other<br>employee<br>benefits | Other<sup>(2)</sup> | Total |
| As at December 31, 2020 | $(1240) | $1621 | $82 | $708 | $322 | $(242) | $1251 |
| Charged to statement of operations | 53 | 48 | (9) | 125 | (14) | (7) | 196 |
| Charged to other comprehensive income | 25 | 30 |  | 17 | 9 | 4 | 85 |
| Foreign exchange rate movements and Other | (16) | 28 | 1 | 3 | (16) | (6) | (6) |
| As at December 31, 2021 | $(1178) | $1727 | $74 | $853 | $301 | $(251) | $1526 |

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<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Consists of Insurance contract liabilities and Investment contract liabilities, net of Reinsurance assets.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Includes unused tax credits.

We have accumulated non-capital tax losses, primarily in Canada, the UK, Indonesia and Vietnam, totaling $4,349 (2021 — $3,758). The benefit of these tax losses has been recognized to the extent that it is probable that the benefit will be realized. In addition, we have net capital losses of $10 (2021 — $7) in the U.S. and $nil in Canada (2021 —$13) for which a deferred tax asset of $2 (2021 — $3) has been recognized. Unused tax losses for which a deferred tax asset has not been recognized amount to $696 as of December 31, 2022 (2021 — $499) primarily in the UK, Indonesia and Vietnam. We also have capital losses of $434 in the UK (2021 — $452) and $275 in Canada (2021 — $178) for which a deferred tax asset of $181 (2021 — $137) has not been recognized.

We will realize the benefit of 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.

76 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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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 rely on projections of future taxable profits, and we also consider tax planning opportunities that will create taxable income in the period in which the unused tax losses can be utilized.

The non-capital losses carried forward in Canada expire beginning in 2030 and the capital losses can be carried forward indefinitely. The operating and capital losses in the UK can be carried forward indefinitely. The non-capital losses in Indonesia and Vietnam can be carried forward five years. The capital losses in the U.S. can be carried forward five years.

We recognize a deferred tax liability on all temporary differences associated with investments in subsidiaries, branches, joint ventures and associates 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, 2022, temporary differences associated with investments in subsidiaries, branches, joint ventures and associates for which a deferred tax liability has not been recognized amount to $5,711 (2021 — $5,452).

**20. B Income Tax Expense (Benefit)**

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

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| | | |
|:---|:---|:---|
| | **2022** | 2021 |
| Current income tax expense (benefit): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Current year | $**781** | $964 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments in respect of prior years, including resolution of tax disputes | **(67)** | (41) |
| Total current income tax expense (benefit) | **714** | 923 |
| Deferred income tax expense (benefit): |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Origination and reversal of temporary differences | **(67)** | (204) |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments in respect of prior years, including resolution of tax disputes | **48** | (8) |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax expense (benefit) arising from unrecognized tax losses | **18** | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax rate and other legislative changes | **(92)** | 10 |
| Total deferred income tax expense (benefit) | **(93)** | (196) |
| Total income tax expense (benefit) | $**621** | $727 |

---

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

---

| | | |
|:---|:---|:---|
| | **2022** | 2021 |
| Recognized in other comprehensive income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Current income tax benefit (expense) | $**2** | $3 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax benefit (expense) | **237** | 85 |
| Total recognized in other comprehensive income | **239** | 88 |
| Recognized in equity, other than other comprehensive income: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax benefit (expense) | **15** |  |
| Total income tax benefit (expense) recorded in equity, including tax benefit (expense) recorded in Other comprehensive income | $**254** | $88 |

---

**20. B.iii** Our effective income tax rate differs from the combined Canadian federal and provincial statutory income tax rate as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| For the years ended December 31, | **2022** | **2022** | 2021 | 2021 |
|  |  | **%** |  | % |
| Total net income (loss) | $**3302** |  | $4370 |  |
| Add: Income tax expense (benefit) | **621** |  | 727 |  |
| Total net income (loss) before income taxes | $**3923** |  | $5097 |  |
| Taxes at the combined Canadian federal and provincial statutory income tax rate | $**1089** | **27.8** | $1338 | 26.3 |
| Increase (decrease) in rate resulting from: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Higher (lower) effective rates on income subject to taxation in foreign jurisdictions | **(286)** | **(7.4)** | (231) | (4.5) |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax-exempt investment (income) loss | **(128)** | **(3.3)** | (345) | (6.8) |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments in respect of prior periods, including resolution of tax disputes | **(19)** | **(0.5)** | (49) | (1.0) |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax (benefit) cost of unrecognized tax losses and tax credits | **18** | **0.5** | 6 | 0.1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax rate and other legislative changes | **(92)** | **(2.3)** | 10 | 0.2 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **39** | **1.0** | (2) |  |
| Total income tax expense (benefit) and effective income tax rate | $**621** | **15.8** | $727 | 14.3 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 77

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In the 2022 Canadian Federal Budget, an additional surtax of 1.5% applicable to banks and life insurers' taxable income in excess of $100 million was introduced ("Canada Tax Rate Change"). This legislation became enacted on December 15, 2022, and applies retroactively to April 7, 2022. As a result, our statutory tax rate has increased from 26.25% to 27.75% (rounded to 26.3% and 27.8%, respectively, in the table above).

Statutory income tax rates in other jurisdictions in which we conduct business range from 0% to 25%, 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. Generally, earnings arising in tax jurisdictions with statutory rates lower than 27.75% reduce our tax expense and these differences are reported in Higher (lower) effective rates on income subject to taxation in foreign jurisdictions. The benefit reported in 2022 included higher income in jurisdictions with low statutory income tax rates compared to 2021.

Tax-exempt investment (income) loss includes tax rate differences related to various types of investment income or losses that are taxed at rates lower than our statutory income tax rate. Examples include, but are not limited to, dividend income, capital gains arising in Canada and changes in market values including those resulting from fluctuations in foreign exchange rates.

Adjustments in respect of prior periods, including the resolution of tax disputes, relate mainly to the resolution of Canadian tax matters and the finalization of the prior year's Canadian, U.S. and U.K. tax filings.

Tax (benefit) cost of unrecognized tax losses and tax credits primarily reflects unrecognized losses in Asia and the U.K. In 2021, it mainly reflected unrecognized losses in Asia.

Tax rate and other legislative changes includes a benefit relating to the remeasurement of our deferred tax balances of $86 as a result of the Canada Tax Rate Change. In 2021, tax rate and other legislative changes included a remeasurement of our deferred tax balances in the UK due to an enacted corporate tax rate increase from 19% to 25%, which takes effect April 1, 2023.

Other primarily reflects the tax impact of the non-deductible goodwill impairment charge relating to the sale of Sun Life UK. Also included in Other are withholding taxes on distributions from our foreign subsidiaries, the benefit relating to investments in joint ventures in Asia, and the reversal of withholding taxes no longer expected to be paid. In 2021, Other primarily reflected withholding taxes on distributions from our foreign subsidiaries, the benefit relating to investments in joint ventures in Asia, and the impact of taxable income attributable to NCI.

**21. 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 the 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 of Directors of SLF Inc. is responsible for the annual review and approval of the Company's capital plan and capital risk policy. Management oversight of our capital programs and position is provided by the Company's 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 Committee of the Board of Directors. 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 Committee on a quarterly basis. The Board of Directors is responsible for the approval of the dividend recommendations.

The capital risk 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. SLF Inc. manages its capital in a manner commensurate with its risk profile and control environment.

SLF Inc. is a non-operating insurance company and is subject to the LICAT guideline. As at December 31, 2022, SLF Inc.'s LICAT ratio exceeded the regulatory minimum target as set out by the OSFI.

Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary in Canada, is also subject to the LICAT guideline. With a LICAT Ratio of 127% as at December 31, 2022, Sun Life Assurance's LICAT Ratio is above OSFI's Supervisory Target Total Ratio of 100% and minimum Total Ratio of 90%.

OSFI may intervene and assume control of 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. Sun Life Assurance exceeded levels that would require regulatory or corrective action as at December 31, 2022 and December 31, 2021.

The Company's regulated subsidiaries must comply with the capital adequacy requirements imposed in the jurisdictions in which they operate. In certain jurisdictions, the payment of dividends from our subsidiaries is subject to maintaining capital levels exceeding regulatory targets and/or receiving regulatory approval. We maintained capital levels above minimum local requirements as at December 31, 2022 and December 31, 2021.

78 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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In the U.S., Sun Life Assurance operates through a branch which is subject to U.S. regulatory supervision and it exceeded the levels under which regulatory action would be required as at December 31, 2022 and December 31, 2021. In the U.S., we use captive reinsurance arrangements to provide efficient financing of U.S. statutory reserve requirements in excess of those required under IFRS. Under two such arrangements, the funding of these reserve requirements is supported by a guarantee from SLF Inc.

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

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| | | |
|:---|:---|:---|
| As at December 31, | **2022** | 2021 |
| Subordinated debt | $**6676** | $6425 |
| Innovative capital instruments<sup>(1)</sup> | **200** | 200 |
| Equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Preferred shares and other equity instruments | **2239** | 2239 |
| &nbsp;&nbsp;&nbsp;&nbsp;Common shareholders' equity<sup>(2)</sup> | **25211** | 24075 |
| &nbsp;&nbsp;&nbsp;&nbsp;Participating policyholders' equity | **1837** | 1700 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-controlling interests' equity | **90** | 59 |
| Total capital | $**36253** | $34698 |

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<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Innovative capital instruments are SLEECS issued by SLCT I (Note 13). SLCT I is not consolidated by us.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Common shareholders' equity is equal to Total shareholders' equity less Preferred shares and other equity instruments

**22. Segregated Funds**

We have segregated fund products, including variable annuities, unit-linked products and universal life insurance policies, in Canada, the U.S., the UK, and Asia. Under these contracts, the benefit amount is contractually linked to the fair value of the investments in the particular segregated fund. Policyholders can select from a variety of categories of segregated fund investments. 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 funds' investment performance. Therefore, net realized gains and losses, other net investment income earned, and expenses incurred on the segregated funds are attributable to policyholders and not to us. However, certain contracts include guarantees from us. We are exposed to equity market risk and interest rate risk as a result of these guarantees. Further details on these guarantees and our risk management activities related to these guarantees are included in the Risk Management section of the MD&A.

We derive fee income from segregated funds. Market value movements in the investments held for segregated fund holders impact the management fees earned on these funds.

The segregated fund types offered, by percentage of total investments for account of segregated fund holders, were within the following ranges as at December 31, 2022 and 2021:

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| | |
|:---|:---|
| **Type of fund** | **%** |
| Money market | 1 to 5 |
| Fixed income | 5 to 10 |
| Balanced | 40 to 45 |
| Equity | 45 to 50 |

---

Money market funds include investments that have a term to maturity of less than one year. Fixed income funds are funds that invest primarily in investment grade fixed income securities and where less than 25% can be invested in diversified equities or high-yield bonds. Balanced funds are a combination of fixed income securities with a larger equity component. The fixed income component is greater than 25% of the portfolio. Equity consists primarily of broad-based diversified funds that invest in a well-diversified mix of Canadian, U.S. or global equities. Other funds in this category include low volatility funds, intermediate volatility funds, and high volatility funds.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 79

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**22. 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, | **2022** | 2021 |
| Segregated and mutual fund units | $**113070** | $125944 |
| Equity securities | **8251** | 9963 |
| Debt securities | **2858** | 3410 |
| Cash, cash equivalents and short-term securities | **805** | 778 |
| Investment properties | **438** | 446 |
| Mortgages | **17** | 19 |
| Other assets | **130** | 141 |
| Total assets | $**125569** | $140701 |
| Less: Liabilities arising from investing activities | **277** | 705 |
| Total investments for account of segregated fund holders | $**125292** | $139996 |

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**22. B Changes in Insurance Contracts and Investment Contracts for Account of Segregated Fund Holders**

---

| | | |
|:---|:---|:---|
| For the years ended December 31, | **2022** | 2021 |
| Balance as at January 1 | $**139996** | $125921 |
| Additions to segregated funds: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deposits | **14266** | 13509 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net transfer (to) from general funds | **(1149)** | (351) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net realized and unrealized gains (losses) | **(18669)** | 9516 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other investment income | **4959** | 6558 |
| Total additions | $**(593)** | $29232 |
| Deductions from segregated funds: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Payments to policyholders and their beneficiaries | **12218** | 12966 |
| &nbsp;&nbsp;&nbsp;&nbsp;Management fees | **1188** | 1276 |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxes and other expenses | **392** | 435 |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movements | **313** | 480 |
| Total deductions | $**14111** | $15157 |
| Net additions (deductions) | **(14704)** | 14075 |
| Balance as at December 31 | $**125292** | $139996 |

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**23. Commitments, Guarantees and Contingencies**

**23. 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 $1,000 (December 31, 2021 — $950). The future rental payments by year of payment are included in the MD&A as described in Note 6.

**23. 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, 2022, we had a total of $5,070 of contractual commitments outstanding (December 31, 2021 — $4,211). The expected maturities of these commitments are included in the MD&A as described in Note 6.

**23. C Letters of Credit**

We issue commercial letters of credit in the normal course of business. As at December 31, 2022, we had credit facilities of $889 available for the issuance of letters of credit (December 31, 2021 — $839), from which a total of $110 in letters of credit were outstanding &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(December 31, 2021 — $105).

**23. D Commission on Release**

Commissions on Release ("CORe") is a program designed to facilitate the transfer of blocks of business between advisors in order to provide ongoing service and advice to our Clients. We facilitate and administer these transactions including payment and collection streams. Under the CORe

80 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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program, when an eligible advisor releases Clients they are servicing, we are contractually obligated to pay them the associated CORe value, based on a specified formula as stipulated in the advisor contract. The value of the CORe commitment will vary for blocks of business which have not been released by an active advisor. The occurrence of future events that will trigger an advisor to release their block of business and the value of the related CORe commitment at that future release date is difficult to predict. As a result of uncertainty in the timing of the triggering event, we cannot reliably estimate our commitment under the CORe program. Due to the nature of the program, in the normal course of business, the commitment related to the future payment to advisors on release of a block of business would be expected to be matched or partially matched by a corresponding amount related to the receivable on the assignment of blocks of business to new advisors, resulting in an immaterial impact to earnings and liquidity in any reporting period.

**23. E 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 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.

In the normal course of our business, we have entered into purchase and sale agreements that include indemnities in favour of third parties. 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. As at December 31, 2022, we are not aware of any breaches in representations that would result in any payment required under these indemnities that would have a material impact on our Consolidated Financial Statements.

Guarantees made by us that can be quantified are included in Note 6.A.i.

**23. F Guarantees of Sun Life Assurance Preferred Shares and Subordinated Debentures**

SLF Inc. has provided a guarantee on the $150 of 6.30% subordinated debentures due 2028 issued by Sun Life Assurance. Claims under this guarantee will rank equally with all other subordinated indebtedness of SLF Inc. SLF Inc. has also provided a subordinated guarantee of preferred shares issued from time to time by Sun Life Assurance, other than such preferred shares which are 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):

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| For the years ended | **SLF Inc.(unconsolidated)** | **Sun Life<br>Assurance<br>(consolidated)** | **Other<br>subsidiaries of<br>SLF Inc.<br>(combined)** | **Consolidation<br>adjustments** | **SLF Inc.<br>(consolidated)** |
| **December 31, 2022** |  |  |  |  |  |
| Revenue | $**603** | $**12608** | $**9618** | $**493** | $**23322** |
| Shareholders' net income (loss) | $**3135** | $**1825** | $**968** | $**(2798)** | $**3130** |
| December 31, 2021 |  |  |  |  |  |
| Revenue | $320 | $27527 | $9060 | $(1219) | $35688 |
| Shareholders' net income (loss) | $4035 | $2823 | $1062 | $(3885) | $4035 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 81

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| Assets and liabilities as at | **SLF Inc.(unconsolidated)** | **Sun Life<br>Assurance<br>(consolidated)** | **Other<br>subsidiaries of<br>SLF Inc.<br>(combined)** | **Consolidation<br>adjustments** | **SLF Inc.<br>(consolidated)** |
| **December 31, 2022** |  |  |  |  |  |
| Invested assets | $**31897** | $**167638** | $**12495** | $**(34738)** | $**177292** |
| Total other general fund assets | $**6594** | $**26400** | $**22791** | $**(27463)** | $**28322** |
| Investments for account of segregated fund holders | $**—** | $**125242** | $**50** | $**—** | $**125292** |
| Insurance contract liabilities | $**—** | $**140415** | $**8530** | $**(8527)** | $**140418** |
| Investment contract liabilities | $**—** | $**3314** | $**—** | $**—** | $**3314** |
| Total other general fund liabilities | $**9916** | $**24638** | $**17766** | $**(19815)** | $**32505** |
| December 31, 2021 |  |  |  |  |  |
| Invested assets | $30984 | $174777 | $13006 | $(34245) | $184522 |
| Total other general fund assets | $12462 | $24580 | $32525 | $(48715) | $20852 |
| Investments for account of segregated fund holders | $— | $139929 | $67 | $— | $139996 |
| Insurance contract liabilities | $— | $147989 | $10105 | $(10283) | $147811 |
| Investment contract liabilities | $— | $3368 | $— | $— | $3368 |
| Total other general fund liabilities | $16020 | $24249 | $27702 | $(41849) | $26122 |

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**23. G Legal and Regulatory Proceedings**

We are regularly involved in legal actions, both as a defendant and as a plaintiff. Legal actions naming us as a defendant ordinarily involve our activities as a provider of insurance protection and wealth management products, as an investor and investment advisor, and as an employer. In addition, government and regulatory bodies in Canada, the U.S., the UK, and Asia, including federal, provincial, and state securities and insurance regulators and government authorities, 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.

Provisions for legal proceedings related to insurance contracts, such as for disability and life insurance claims and the cost of litigation, are included in Insurance contract liabilities in our Consolidated Statements of Financial Position. Other provisions are established outside of the Insurance contract liabilities if, in the opinion of management, it is both probable that a payment will be required and a reliable estimate can be made of the amount of the obligation. Management reviews the status of all proceedings on an ongoing basis and exercises judgment in resolving them in such manner as management believes to be in our best interest.

Two class action lawsuits have been filed against Sun Life Assurance in connection with sales practices relating to, and the administration of, individual policies issued by the Metropolitan Life Insurance Company ("MLIC"). These policies were assumed by Clarica when Clarica acquired the bulk of MLIC's Canadian operations in 1998 and subsequently assumed by Sun Life Assurance as a result of its amalgamation with Clarica. One of the lawsuits (*Fehr et al v Sun Life Assurance Company of Canada*) is issued in Ontario and the other (*Alamwala v Sun Life Assurance Company of Canada*) is in British Columbia. The *Fehr* action has been certified as a class action and notice has been made to class members. Sun Life Assurance has brought a motion for summary judgment seeking to dismiss all of the claims. The other action (*Alamwala v Sun Life Assurance Company of Canada*) has remained largely dormant since it was commenced in 2011 and has not been certified. We will continue to vigorously defend against the claims in these actions. In connection with the acquisition of the Canadian operations of MLIC, MLIC agreed to indemnify Clarica for certain losses, including those incurred relating to the sales of its policies. Should either of the *Fehr* or the *Alamwala* lawsuits result in a loss, Sun Life Assurance will seek recourse against MLIC under that indemnity through arbitration.

Management does not believe that the probable conclusion of any current legal or regulatory matter, either individually or in the aggregate, will have a material adverse effect on the Consolidated Statements of Financial Position or the Consolidated Statements of Operations.

82 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

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**24. Related Party Transactions**

SLF Inc. and its subsidiaries, joint ventures and associates transact business worldwide. All transactions between SLF Inc. and its subsidiaries have been eliminated on consolidation. Transactions with joint ventures and associates, which are also related parties, are disclosed in Note 16. 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.

**24. A Transactions with Key Management Personnel, Remuneration and Other Compensation**

Key management personnel refers to the executive team and Board of Directors of SLF Inc. 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:

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| | | | | |
|:---|:---|:---|:---|:---|
| For the years ended December 31, | **2022** | **2022** | 2021 | 2021 |
|  | **Executive team** | **Directors** | Executive team | Directors |
| Number of individuals | **13** | **11** | 14 | 13 |
| Base salary and annual incentive compensation | $**19** | $**—** | $22 | $— |
| Additional short-term benefits and other | $**1** | $**—** | $1 | $1 |
| Share-based long-term incentive compensation | $**32** | $**3** | $36 | $2 |
| Value of pension and post-retirement benefits | $**2** | $**—** | $6 | $— |
| Severance | $**—** | $**—** | $6 | $— |

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**24. B 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. We also hold units of investment funds managed by certain of our joint ventures. The carrying amount of our investment in these funds is included in Note 16.D.

**25. Pension Plans and Other Post-Retirement Benefits**

We sponsor defined benefit pension plans and defined contribution plans for eligible employees. All of our material defined benefit plans worldwide are closed to new entrants with new hires participating in defined contribution plans. Material defined benefit plans are located in Canada, the U.S., and the UK. 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 defined benefit pension arrangements for eligible employees, which are primarily for benefits which are in excess of local tax limits. As at December 31, 2014, there are no active members in the UK and the U.S. defined benefit plans continuing to accrue future service benefits. On January 1, 2009, the Canadian defined benefit plans were closed to new employees. Canadian employees hired before January 1, 2009 continue to earn future service benefits in the previous plans, which includes both defined benefit and defined contribution components, while new hires since then are eligible to join a defined contribution plan. In addition, one small defined benefit plan in the Philippines remains open to new hires.

Our funding policy for defined benefit pension plans is to make at least the minimum annual contributions required by regulations in the countries in which the plans are offered. Our UK defined benefit pension scheme is governed by pension trustees. In other countries in which we operate, the defined benefit pension arrangements are governed by local pension committees. Significant plan changes require the approval of the Board of Directors of the sponsoring subsidiary of SLF Inc.

We also established defined contribution plans for eligible employees. Our contributions to these defined contribution pension plans may be subject to certain vesting requirements. Generally, our contributions are a set percentage of employees' annual income and may be a set percentage of employee contributions, up to specified levels.

In addition to our pension plans, in Canada and the U.S., we provide certain post-retirement health care and life insurance benefits to eligible employees and to their dependents upon meeting certain requirements. Eligible retirees may be required to pay a portion of the premiums for these benefits and, in general, deductible amounts and co-insurance percentages apply to benefit payments. These post-retirement benefits are not pre-funded. In Canada, certain post-retirement health care and life insurance benefits are provided for eligible employees who retired before December 31, 2015. Eligible employees in Canada who retire after December 31, 2015 will have access to voluntary retiree-paid health care coverage. In the U.S., certain post-retirement health care and life insurance benefits are provided to eligible retirees. In the U.S., employees who were not age 50 with 10 years of service as of December 31, 2015 only have access to subsidized retiree health care coverage until eligible for Medicare. Eligible existing and future retirees and covered dependents eligible for Medicare receive an annual contribution to a health reimbursement account to be applied against individual coverage and other eligible expenses.

**25. A Risks Associated with Employee Defined Benefit Plans**

With the closure of the material defined benefit pension and retiree benefit plans to new entrants, the volatility associated with future service accruals for active members has been limited and will decline over time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 83

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The major risks remaining in relation to past service obligations are increases in liabilities due to a decline in discount rates, greater life expectancy than assumed and adverse asset returns. We have significantly de-risked the investments of our material defined benefit pension plans Company-wide by shifting the pension asset mix away from equities and into more fixed income and liability-matching investments. In 2018 and 2021, the risk in our UK pension plan was reduced through buy-in insurance contracts protecting the majority of pensioner benefits. The target for our material funded defined benefit plans is to minimize volatility in funded status arising from changes in discount rates and exposure to equity markets.

**25. B Defined Benefit Pension and Other Post-Retirement Benefit Plans**

The following tables set forth the status of the defined benefit pension and other post-retirement benefit plans:

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
| | **Pension** | **Pension** | **Other post-retirement** | **Total** | Pension | Other post-retirement | Total |
| Change in defined benefit obligations: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Defined benefit obligation, January 1 |  | $**3836** | $**252** | $**4088** | $4060 | $277 | $4337 |
| &nbsp;&nbsp;&nbsp;&nbsp;Current service cost |  | **49** | **7** | **56** | 59 | 7 | 66 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest cost |  | **106** | **8** | **114** | 98 | 7 | 105 |
| &nbsp;&nbsp;&nbsp;&nbsp;Actuarial losses (gains) |  | **(1027)** | **(51)** | **(1078)** | (169) | (23) | (192) |
| &nbsp;&nbsp;&nbsp;&nbsp;Benefits paid |  | **(194)** | **(14)** | **(208)** | (192) | (15) | (207) |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movement |  | **(7)** | **4** | **(3)** | (20) | (1) | (21) |
| Defined benefit obligation, December 31 |  | $**2763** | $**206** | $**2969** | $3836 | $252 | $4088 |
| Change in plan assets: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Fair value of plan assets, January 1 |  | $**3643** | $**—** | $**3643** | $3909 | $— | $3909 |
| &nbsp;&nbsp;&nbsp;&nbsp;Administrative expense |  | **(1)** | **—** | **(1)** | (1) |  | (1) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest income on plan assets |  | **101** | **—** | **101** | 92 |  | 92 |
| &nbsp;&nbsp;&nbsp;&nbsp;Return on plan assets (excluding amounts included in net interest expense) |  | **(825)** | **—** | **(825)** | (234) |  | (234) |
| &nbsp;&nbsp;&nbsp;&nbsp;Employer contributions |  | **85** | **14** | **99** | 94 | 15 | 109 |
| &nbsp;&nbsp;&nbsp;&nbsp;Benefits paid |  | **(194)** | **(14)** | **(208)** | (192) | (15) | (207) |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movement |  | **(10)** | **—** | **(10)** | (25) |  | (25) |
| Fair value of plan assets, December 31 |  | $**2799** | $**—** | $**2799** | $3643 | $— | $3643 |
| Amounts recognized on Statement of Financial Position: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Fair value of plan assets |  | $**2799** | $**—** | $**2799** | $3643 | $— | $3643 |
| &nbsp;&nbsp;&nbsp;&nbsp;Defined benefit (obligation) | &nbsp;&nbsp;&nbsp;&nbsp;Defined benefit (obligation) | **(2763)** | **(206)** | **(2969)** | (3836) | (252) | (4088) |
| Net recognized (liability) asset, December 31 |  | $**36** | $**(206)** | $**(170)** | $(193) | $(252) | $(445) |
| Components of net benefit expense recognized: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Current service cost |  | $**49** | $**7** | $**56** | $59 | $7 | $66 |
| &nbsp;&nbsp;&nbsp;&nbsp;Administrative expense |  | **1** | **—** | **1** | 1 |  | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net interest expense (income) |  | **5** | **8** | **13** | 6 | 7 | 13 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other long-term employee benefit losses (gains) |  | **—** | **(6)** | **(6)** |  | (3) | (3) |
| Net benefit expense |  | $**55** | $**9** | $**64** | $66 | $11 | $77 |
| Remeasurement of net recognized (liability) asset: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Return on plan assets (excluding amounts included in net interest expense) |  | $**(825)** | $**—** | $**(825)** | $(234) | $— | $(234) |
| &nbsp;&nbsp;&nbsp;&nbsp;Actuarial gains (losses) arising from changes in demographic assumptions |  | **18** | **—** | **18** | 2 |  | 2 |
| &nbsp;&nbsp;&nbsp;&nbsp;Actuarial gains (losses) arising from changes in financial assumptions |  | **1027** | **45** | **1072** | 187 | 13 | 200 |
| &nbsp;&nbsp;&nbsp;&nbsp;Actuarial gains (losses) arising from experience adjustments |  | **(18)** | **—** | **(18)** | (20) | 7 | (13) |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movement | &nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange rate movement | **(1)** | **(3)** | **(4)** | (3) |  | (3) |
| Components of defined benefit costs recognized in Other comprehensive income (loss) | Components of defined benefit costs recognized in Other comprehensive income (loss) | $**201** | $**42** | $**243** | $(68) | $20 | $(48) |

---

84 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

------

**25. C Principal Assumptions for Significant Plans**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
| | **Canada %** | **UK %** | **U.S. %** | Canada % | UK % | U.S. % |
| To determine defined benefit obligation at end of year: | To determine defined benefit obligation at end of year: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Discount rate for pension plans | **5.00** | **4.75** | **5.55** | 3.00 | 1.90 | 3.00 |
| &nbsp;&nbsp;&nbsp;&nbsp;Rate of compensation increase | **2.75** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | 2.80 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a |
| &nbsp;&nbsp;&nbsp;&nbsp;Pension increases | **0.00-0.05** | **3.05** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | 0.00-0.05 | 3.30 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a |
| To determine net benefit expense for year: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Discount rate for pension plans | **3.00** | **1.90** | **3.00** | 2.70 | 1.30 | 2.65 |
| &nbsp;&nbsp;&nbsp;&nbsp;Rate of compensation increase | **2.80** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | 2.80 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a |
| &nbsp;&nbsp;&nbsp;&nbsp;Pension increases | **0.00-0.05** | **3.30** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | 0.00-0.05 | 2.95 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a |
| Health care trend rates: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Initial health care trend rate | **5.16** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | **7.00** | 5.10 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a | 6.50 |
| &nbsp;&nbsp;&nbsp;&nbsp;Ultimate health care trend rate | **4.00** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | **5.00** | 4.00 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a | 5.00 |
| &nbsp;&nbsp;&nbsp;&nbsp;Year ultimate health care trend rate reached | **2040** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n/a** | **2031** | 2040 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n/a | 2025 |
|  | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
|  | **Canada** | **UK** | **U.S.** | Canada | UK | U.S. |
| Mortality rates: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Life expectancy (in years) for individuals currently at age 65: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Male | **23** | **23** | **22** | 23 | 23 | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Female | **25** | **25** | **23** | 25 | 25 | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;Life expectancy (in years) at 65 for individuals currently at age 45: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Male | **24** | **25** | **23** | 24 | 24 | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Female | **26** | **27** | **25** | 26 | 27 | 25 |
| Average duration (in years) of pension obligation | **13.2** | **12.9** | **10.0** | 16.9 | 17.4 | 12.2 |

---

**Discount Rate, Rate of Compensation Increase and Health Care Cost**

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 for material plans is determined by reference to the market yields, as of December 31, of high-quality corporate bonds that have terms to maturity approximating the terms of the related obligation. In countries where a deep corporate market does not exist, government bonds are used. Compensation and health care trend assumptions are based on expected long-term trend assumptions which may differ from actual results.

**25. D Sensitivity of Key Assumptions**

The following table provides the potential impact of changes in key assumptions on the defined benefit obligation for pension and other post-retirement benefit plans as at December 31, 2022. 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** | **Post-retirement<br>benefits** |
| Interest/discount rate sensitivity:<sup>(1)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;1% decrease | $**391** | $**20** |
| &nbsp;&nbsp;&nbsp;&nbsp;1% increase | $**(309)** | $**(17)** |
| Rate of compensation increase assumption: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;1% decrease | $**(39)** | **n/a** |
| &nbsp;&nbsp;&nbsp;&nbsp;1% increase | $**44** | **n/a** |
| Health care trend rate assumption: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;1% decrease | **n/a** | $**(10)** |
| &nbsp;&nbsp;&nbsp;&nbsp;1% increase | **n/a** | $**12** |
| Mortality rates:<sup>(2)</sup> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;10% decrease | $**64** | $**3** |

---

<sup>(1)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Represents a parallel shift in interest rates across the entire yield curve, resulting in a change in the discount rate assumption.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Represents 10% decrease in mortality rates at each age.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 85

------

**25. E Fair Value of Plan Assets**

Composition of fair value of plan assets, December 31:

---

| | | |
|:---|:---|:---|
| | **2022** | 2021 |
| Equity investments | **3%** | 3% |
| Fixed income investments | **65%** | 64% |
| Real estate investments | **11%** | 9% |
| Qualifying insurance contract | **15%** | 19% |
| Other | **6%** | 5% |
| Total composition of fair value of plan assets | **100%** | 100% |

---

The fair value of our equity investments in 2022 and 2021 are consistent with Level 1 or Level 2 fair value hierarchy. In 2022, 2% of our fixed income investments (2021 — 4%) are determined based on valuation techniques consistent with Level 1 of the fair value hierarchy.

The assets of the defined benefit pension plans are primarily held in trust for plan members, and are managed within the provisions of each plan's investment policies and procedures. Diversification of the investments is used to limit credit, market, and foreign currency risks. We have significantly de-risked the investments of our material defined benefit pension plans by shifting the pension asset mix away from equities and into more fixed income and liability-matching investments. In 2018 and in 2021, the risk in our UK pension plan was reduced through buy-in insurance contracts, protecting the majority of pensioner benefits. The long-term investment objectives of the defined benefit pension plans are to equal or exceed the rate of growth of the liabilities. Over shorter periods, the objective of the defined benefit pension plan investment strategy is to minimize volatility in the funded status. Liquidity is managed with consideration to the cash flow requirements of the liabilities.

**25. F Future Cash Flows**

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 | $70 | $16 | $86 |

---

**Expected Future Benefit Payments**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 to 2032 |
| Pension | $158 | $159 | $167 | $171 | $174 | $911 |
| Post-retirement | 16 | 17 | 17 | 18 | 18 | 97 |
| Total | $174 | $176 | $184 | $189 | $192 | $1008 |

---

 **25. G Defined Contribution Plans**

We expensed $160 in 2022 (2021 — $142) with respect to defined contribution plans.

**26. 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, | **2022** | 2021 |
| Common shareholders' net income (loss) for basic earnings per share | $**3060** | $3934 |
| Add: Increase in income due to convertible instruments<sup>(1)</sup> | **10** | 10 |
| Common shareholders' net income (loss) on a diluted basis | $**3070** | $3944 |
| Weighted average number of common shares outstanding for basic earnings per share (in millions) | **586** | 586 |
| Add: Dilutive impact of stock options<sup>(2)</sup> (in millions) | **—** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dilutive impact of convertible instruments<sup>(1)</sup> (in millions) | **3** | 4 |
| Weighted average number of common shares outstanding on a diluted basis (in millions) | **589** | 590 |
| Basic earnings (loss) per share | $**5.22** | $6.72 |
| Diluted earnings (loss) per share | $**5.21** | $6.69 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>The convertible instruments are the SLEECS B issued by SLCT I.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;Excludes the impact of 1 million stock options for the year ended December 31, 2022 (December 31, 2021 — 1 million) because these stock options were anti-dilutive for the year.

86 Sun Life Financial Inc. December 31, 2022&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements

------

**27. Accumulated Other Comprehensive Income (Loss)**

Changes in accumulated other comprehensive income (loss), net of taxes, are as follows:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **2022** | **2022** | **2022** | **2022** | 2021 | 2021 | 2021 |
| For the years ended December 31, | **Balance,**<br>**beginning**<br>**of period** | **Balance,**<br>**beginning**<br>**of period** | **Other<br>comprehensive<br>income (loss)** | **Balance,<br>end of<br> period** | Balance,<br>beginning<br>of period | Other <br>comprehensive<br> income (loss) | Balance,<br> end of<br>period |
| Items that may be reclassified subsequently to income: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Unrealized foreign currency translation gains (losses), net of hedging activities |  | $**953** | $**934** | $**1887** | $1155 | $(202) | $953 |
| &nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) on available-for-sale assets |  | **266** | **(1290)** | **(1024)** | 632 | (366) | 266 |
| &nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains (losses) on cash flow hedges |  | **(7)** | **(11)** | **(18)** | (13) | 6 | (7) |
| &nbsp;&nbsp;&nbsp;&nbsp;Share of other comprehensive income (loss) in joint ventures and associates |  | **(47)** | **(109)** | **(156)** | (42) | (5) | (47) |
| Items that will not be reclassified subsequently to income: | Items that will not be reclassified subsequently to income: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Remeasurement of defined benefit plans |  | **(322)** | **168** | **(154)** | (283) | (39) | (322) |
| &nbsp;&nbsp;&nbsp;&nbsp;Revaluation of property, plant and equipment |  | **145** | **(2)** | **143** | 145 |  | 145 |
| Total |  | $**988** | $**(310)** | $**678** | $1594 | $(606) | $988 |
| Total attributable to: |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Participating policyholders |  | $**2** | $**21** | $**23** | $5 | $(3) | $2 |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-controlling interest |  | **—** | **4** | **4** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Shareholders |  | **986** | **(335)** | **651** | 1589 | (603) | 986 |
| Total |  | $**988** | $**(310)** | $**678** | $1594 | $(606) | $988 |

---

**28. Subsequent Events**

On January 20, 2023, we entered into a 15-year exclusive bancassurance partnership with Dah Sing Bank, Limited effective July 1, 2023. The partnership significantly expands our distribution in Asia. An initial payment of approximately $260 will be made on July 1, 2023, based on the contractual terms of the agreement.

Effective February 1, 2023, we completed the sale of our sponsored markets business to Canadian Premier. Our sponsored markets business includes a variety of association & affinity, and group creditor clients.

On February 1, 2023, we completed the acquisition of AAM. AAM minority shareholders also have the option to require us to purchase their shares in 2028. We have a call option to acquire the remaining interest held by these minority shareholders commencing in 2028. Due to the recent close of this transaction, the purchase accounting has not been completed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to the Consolidated Financial Statements &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sun Life Financial Inc. December 31, 2022 87

## Exhibit 99.3

*Annual Information Form*

Sun Life Financial Inc.

For the Year Ended December 31, 2022

February 8, 2023

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

**Table of Contents**

---

| | | | |
|:---|:---|:---|:---|
| | **Annual Information Form** | **Management's Discussion & Analysis**<sup>(1)</sup> | **Consolidated Financial Statements and Notes**<sup>(1)</sup> |
| Corporate Structure | 3 |  |  |
| Development of the Business | 3 | Section B |  |
| Business of Sun Life | 5 | Section B |  |
| Financial Performance |  | Section C | Notes 8 – 12 |
| Investments |  | Section H | Note 5 |
| Risk Management |  | Section J | Note 6 |
| Capital Structure | 8 | Section I | Note 15 |
| Dividends | 12 | Section I | Note 15 |
| Security Ratings | 12 | Section F |  |
| Transfer Agents and Registrar | 15 |  |  |
| Directors and Executive Officers | 16 |  |  |
| Code of Conduct | 20 |  |  |
| Principal Accountant Fees and Services | 20 |  |  |
| Interests of Experts | 21 |  |  |
| Regulatory Matters | 21 | Section B |  |
| Risk Factors | 35 |  |  |
| Legal and Regulatory Proceedings | 53 |  |  |
| Additional Information | 53 |  |  |
| Appendix A - Charter of the Audit Committee | 54 |  |  |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>As indicated, parts of the Company's MD&A, consolidated financial statements and accompanying notes for the year ended December 31, 2022 are incorporated by reference in this AIF. The 2022 MD&A (as defined below) and the 2022 Consolidated Financial Statements (as defined below) may be accessed at <u>www.sedar.com</u> and <u>www.sec.gov</u>, respectively.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1

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The following defined terms are used in this document.

---

| | | | |
|:---|:---|:---|:---|
| **Abbreviation** | **Description** | **Abbreviation** | **Description** |
| **AIF** | Annual Information Form | **OSFI** | Office of the Superintendent of Financial Institutions, Canada |
| **Board** | The Board of Directors of SLF Inc. | **SEC** | United States Securities and Exchange Commission |
| **IFRS** | International Financial Reporting Standards | **Sun Life Assurance** | Sun Life Assurance Company of Canada |
| **LICAT** | Life Insurance Capital Adequacy Test | **SLF Inc.** | Sun Life Financial Inc. |
| **MD&A** | Management's Discussion & Analysis | **Superintendent** | The Superintendent under the Office of the Superintendent of Financial Institutions Act |
| **NAIC** | National Association of Insurance Commissioners, United States | | |

---

**Presentation of Information** 

In this AIF, SLF Inc. and its consolidated subsidiaries are collectively referred to as "Sun Life", the "Company", "we", "us" or "our" and also includes, where applicable, our joint ventures and associates.

Unless otherwise indicated, all information in this AIF is presented as at and for the year ended December 31, 2022, and amounts are expressed in Canadian dollars. Financial information is presented in accordance with IFRS and the accounting requirements of OSFI.

**Documents Incorporated by Reference** 

The following documents are incorporated by reference in and form part of this AIF:

(i)SLF Inc.'s MD&A for the year ended December 31, 2022 (our "2022 MD&A"), and

(ii)SLF Inc.'s Consolidated Financial Statements and accompanying notes for the year ended December 31, 2022 (our "2022 Consolidated Financial Statements").

These documents have been filed with securities regulators in Canada and with the SEC and may be accessed at <u>www.sedar.com</u> and <u>www.sec.gov</u>, respectively.

**Forward-looking Statements**

From time to time, the Company makes written or oral forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Certain statements in this AIF and the documents incorporated by reference herein including, (i) statements relating to our strategies, (ii) statements that are predictive in nature, (iii) statements that depend upon or refer to future events or conditions, and (iv) statements that include words such as "achieve", "aim", "ambition", "anticipate", "aspiration", "assumption", "believe", "continue", "could", "estimate", "expect", "goal", "initiatives", "intend", "may", "objective", "outlook", "plan", "potential", "project", "seek", "should", "strategy", "strive", "target", "will" and similar expressions are forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations. These statements represent our current expectations, estimates and projections regarding future events and are not historical facts, and remain subject to change, particularly in light of the ongoing and developing COVID-19 pandemic and its impact on the global economy and its uncertain impact on our business. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Future results and shareholder value may differ materially from those expressed in these forward-looking statements due to, among other factors, the matters set out in this AIF under the heading Risk Factors and in our annual MD&A under the heading Forward-Looking Statements, and the factors detailed in our annual and interim financial statements and other filings with Canadian and U.S. securities regulators, which are available for review at <u>www.sedar.com</u> and <u>www.sec.gov</u>, respectively.

Important risk factors that could cause our assumptions and estimates, and expectations and projections to be inaccurate and our actual results or events to differ materially from those expressed in or implied by the forward-looking statements contained in this document, are set out below. The realization of our forward-looking statements, essentially depends on our business performance which, in turn, is subject to many risks. Factors that could cause actual results to differ materially from expectations include, but are not limited to: **market risks** - related to the performance of equity markets; changes or volatility in interest rates or credit spreads or swap spreads; real estate investments; fluctuations in foreign currency exchange rates; and inflation; **insurance risks** - related to policyholder behaviour; mortality experience, morbidity experience and longevity; product design and pricing; the impact of higher-than-expected future expenses; and the availability, cost and effectiveness of reinsurance; **credit risks** - related to issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties, other financial institutions and other entities; **business and strategic risks** - related to global economic and political conditions; the design and implementation of business strategies; changes in distribution channels or Client behaviour including risks relating to market conduct by intermediaries

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2

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and agents; the impact of competition; the performance of our investments and investment portfolios managed for Clients such as segregated and mutual funds; shifts in investing trends and Client preference towards products that differ from our investment products and strategies; changes in the legal or regulatory environment, including capital requirements and tax laws; the environment, environmental laws and regulations; **operational risks** - related to breaches or failure of information system security and privacy, including cyber-attacks; our ability to attract and retain employees; legal, regulatory compliance and market conduct, including the impact of regulatory inquiries and investigations; the execution and integration of mergers, acquisitions, strategic investments and divestitures; our information technology infrastructure; a failure of information systems and Internet-enabled technology; dependence on third-party relationships, including outsourcing arrangements; business continuity; model errors; information management; **liquidity risks** - the possibility that we will not be able to fund all cash outflow commitments as they fall due; and **other risks** - COVID-19 matters, including its impact on the global economy, and its impact on Sun Life's business, financial condition and or results; risks associated with IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments; our international operations, including our joint ventures; market conditions that affect our capital position or ability to raise capital; downgrades in financial strength or credit ratings; and tax matters, including estimates and judgments used in calculating taxes.

The Company does not undertake any obligation to update or revise its forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

**Corporate Structure** 

SLF Inc. was incorporated under the Insurance Companies Act, Canada (the "Insurance Act") on August 5, 1999, to become the holding company of Sun Life Assurance in connection with the demutualization of Sun Life Assurance.

Sun Life Assurance was incorporated in 1865 as a stock insurance company and was converted into a mutual insurance company in 1962. On March 22, 2000, Sun Life Assurance implemented a plan of demutualization under which it converted back to a stock company pursuant to Letters Patent of Conversion issued under the Insurance Act. Under this plan of demutualization, Sun Life Assurance became a wholly-owned subsidiary of SLF Inc.

The head and registered office of SLF Inc. is located at 1 York Street, Toronto, Ontario, M5J 0B6.

SLF Inc. conducts its business worldwide through direct and indirect operating subsidiaries, joint ventures and associates. SLF Inc.'s principal subsidiaries are included in the subsidiaries listed in SLF Inc.'s annual report and that list of subsidiaries is incorporated herein by reference. That list includes the percentage of voting shares owned by SLF Inc., directly or indirectly, and where those companies are incorporated, continued, formed or organized. SLF Inc.'s current annual report is accessible on <u>www.sedar.com</u>, <u>www.sec.gov</u> and <u>www.sunlife.com</u>.

We manage our operations and report our financial results in five business segments: Canada, United States ("U.S."), Asset Management, Asia and Corporate.

**Development of the Business**

Sun Life is a leading international financial services organization providing insurance, health, wealth and asset management solutions to individual and corporate Clients. Sun Life has operations in a number of markets worldwide, including Canada, the United States, the United Kingdom ("UK"), Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of December 31, 2022, Sun Life had total assets under management of $1.33 trillion.

**Three Year History: Acquisitions, Disposals, and Other Developments**

We assess our businesses and corporate strategies on an ongoing basis to ensure that we make optimal use of our capital and maximize shareholder value. The following summary outlines our major acquisitions, dispositions and other developments over the past three years across our business segments. Additional information is provided in Note 3 to SLF Inc.'s 2022 Consolidated Financial Statements.

Kevin Strain was appointed as President and a member of the Board, effective February 15, 2021, and upon the retirement of Dean Connor on August 6, 2021, was appointed as the Chief Executive Officer. On March 29, 2021, Manjit Singh was appointed as Executive Vice-President and Chief Financial Officer. William Anderson retired as Chair and from the Board of Directors following the 2022 Annual Meeting and was succeeded as Chair by Scott Powers following his re-election as a director at that meeting.

In early 2020, the world was impacted by COVID-19, which was declared a pandemic by the World Health Organization. The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus and on actions taken by governments and individuals, which could vary by country and result in differing outcomes. Given the extent of the circumstances, it is difficult to reliably measure or predict the potential impact of this uncertainty on our future financial results. Additional

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3

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information can be found in our 2022 MD&A under the heading "COVID-19 Pandemic Considerations", which section is incorporated by reference herein.

**Canada**

On February 1, 2023, we completed the sale of our sponsored markets business from Sun Life Assurance to Canadian Premier Life Insurance Company. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

On December 1, 2021, we increased our investment in Dialogue Health Technologies Inc. ("Dialogue"), a Canadian telemedicine provider supporting Sun Life Health and Lumino Health Virtual Care.

In 2020, we made strategic investments in connection with commercial collaborations, including with Dialogue, and with GoRendezvous, an online booking software company that allows Clients to connect with paramedical service providers digitally and schedule appointments.

**U.S.** 

On June 1, 2022, we completed the acquisition of DentaQuest Group, Inc. ("DentaQuest"), the second-largest dental benefits provider in the U.S. by membership. The acquisition advances our strategy of being a leader in health and benefits in the U.S. while contributing to fee-based earnings and businesses which generate higher return on equity ("ROE"). For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

On July 1, 2021, we completed the acquisition of Pinnacle Care International, Inc., a U.S. health-care navigation and medical intelligence provider. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

**Asset Management**

On February 1, 2023, we completed the acquisition of a majority stake in Advisors Asset Management, Inc. ("AAM"), a leading independent retail distribution firm in the U.S. AAM provides access to U.S. retail distribution for SLC Management, and will allow SLC Management to meet the growing demand for alternative assets among U.S. high-net-worth investors. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

On January 5, 2021, we completed the acquisition of a majority stake in Crescent Capital Group LP ("Crescent"), a global alternative credit investment manager, forming the alternative credit investing business of SLC Management. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

On July 1, 2020, we acquired 80% of InfraRed Capital Partners ("InfraRed"), a UK-based global infrastructure and real estate investment manager, as well as the ability to acquire the remaining interest in the future. For additional information, refer to Note 3 of our 2021 Consolidated Financial Statements.

**Asia**

On January 20, 2023, we announced a 15-year exclusive bancassurance partnership in Hong Kong with Dah Sing Bank ("Dah Sing"). Under this partnership, Sun Life will be the exclusive provider of life insurance solutions to Dah Sing's 570,000 retail banking customers, helping to fulfill their savings and protection needs at different life stages. Following the completion of regulatory processes and approvals, distribution of Sun Life products is anticipated to start in July 2023. For additional information, refer to Note 28 of our 2022 Consolidated Financial Statements.

On April 5, 2022, we announced a deepening of our bancassurance partnership between PT Sun Life Financial Indonesia ("Sun Life Indonesia"), a subsidiary of SLF Inc., and PT Bank CIMB Niaga Tbk ("CIMB Niaga"). The new agreement makes Sun Life Indonesia the provider of insurance solutions to CIMB Niaga customers through all distribution channels for a term of 15 years starting in January 2025 and extends the term of our existing relationship by six years to 2039. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

In October 2021, we reduced our stake in our India asset management joint venture, Aditya Birla Sun Life AMC Limited, from 49% to 36.5% through an initial public offering.

Effective January 1, 2021, we launched an exclusive 15-year bancassurance partnership with Asia Commercial Joint Stock Bank for the exclusive distribution of life insurance products of Sun Life Vietnam Insurance Company Limited ("Sun Life Vietnam").

In February 2020, we sold our ownership interest in Crescent Asia Limited, the holding company of Global Online Financial Solutions Limited, which operates TIMO, Vietnam's first digital bank. The previously disclosed arrangement with TIMO to offer life and health insurance products of Sun Life Vietnam to TIMO's membership base is still in effect.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4

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In January 2020, we combined our International business and Hong Kong business into a new management structure called "International Hubs", to leverage the High Net Worth opportunities in Asia and offer our Clients and distribution partners best-in-class product and service offerings across all geographies. "Local Markets" is comprised of the Philippines, Indonesia, India, China, Malaysia and Vietnam. "International Hubs" is comprised of International, Hong Kong and Singapore.

**UK**

On August 4, 2022, we entered into an agreement to sell SLF of Canada UK Limited ("Sun Life UK") to Phoenix Group Holdings plc ("Phoenix Group"). We will retain our economic interest in Sun Life UK's payout annuities business. As part of the sale, we will establish a long-term partnership to become a strategic asset management partner to Phoenix Group. For additional information, refer to Note 3 of our 2022 Consolidated Financial Statements.

**Business of Sun Life**

Information about our business and operating segments, our strategy, products and methods of distribution, risk management policies and investment activities is included in the 2022 MD&A, which is incorporated by reference in this AIF.

The global financial services industry continues to evolve in response to demographic, economic, and technological trends. Specific trends that have an impact on our businesses include:

**Demographic**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Major demographic shifts in developed markets include the aging of baby boomers and the growth of millennials as a client segment. Aging baby boomers are generating greater demand for retirement solutions and health solutions as they retire, while millennials seek holistic financial advice and solutions, including protection and wealth accumulation products in preparation for major life events.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The number of High Net Worth Individuals ("HNWI") and their pool of wealth continues to expand. Within this segment, Asia has witnessed the fastest growth, surpassing North America as the region with the largest share of wealth held by HNWI. Opportunities exist for financial service providers as HNWI seek solutions that enable them to optimally transfer wealth to future generations. HNWI are also increasingly allocating more assets to alternatives in order to generate yield, increase total returns, and enhance diversification. Alternative asset managers are evolving their product and distribution capabilities to serve this heightened demand.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Growing prosperity in Asia is resulting in the rise of the young middle class in many Asian countries, although the pace of growth has slowed due to economic disruption caused by the COVID-19 pandemic. Growth of the middle class is expected over the long-term and a larger middle class will increase demand for a wide variety of financial products, including insurance, savings and investment vehicles. Low financial literacy has also increased the importance of financial education and advice in this region. These markets have low penetration rates and are expected to grow much faster than industrialized countries. In certain Asian markets, such as Hong Kong and China, the aging population is creating a growing opportunity for retirement and health solutions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Consumers are more proactively managing both physical and mental health and wellness, leading to an increased demand for accessible and affordable solutions across their health journey. Additionally, the COVID-19 pandemic continues to have a negative impact on the mental health and well-being of people around the world. This has led to increased demand for tools and products to support mental health and well-being.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Consumers have a heightened interest in sustainability. They are increasingly aligning their buying, investing, and employment decisions with companies that are leaders in sustainability. This has resulted in rising demand for sustainable investments and has influenced how companies invest as part of their investment strategy.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Desire for greater transparency and focus on value for money spent on products and services, such as financial advice, has contributed to increased demand for low-cost asset management products, such as index funds.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The trend of governments and employers downloading responsibility to individuals continues. This has created demand for protection, group benefits and group retirement solutions as individuals seek to fill the gaps. To help them make some of these decisions, consumers are seeking financial advice and assistance with financial planning.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Changes in the nature of work and the continued rise of the gig economy, where work is temporary, contractual or project-based, has created an opportunity to provide solutions to workers who are left unsupported across key life needs (e.g., savings, benefits, and protection).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The COVID-19 pandemic has led to shifting workforce expectations and business needs that are altering the balance of power between employees and employers. Employees are demanding more holistic offerings including a hybrid and flexible way of working, and an emphasis on health and well-being, values, purpose, and culture. Companies will have to offer a unique value proposition to win and retain top talent.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5

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**Economic**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Macroeconomic conditions continue to be challenging as global inflation is exacerbated by an uncertain geopolitical climate and labour market and supply chain disruptions. Higher inflation and interest rates are leading to dampened spending and economic growth, overall market contraction, and increasing the risk of a moderate recession in 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• We are aware that there will be long-term effects from the fiscal and monetary support governments enacted during the COVID-19 pandemic and in response to rising geopolitical conflict. This may include elevated government debt to GDP ratios, prolonged periods of higher interest rates, potential for sustained inflation/stagflation and possible tax adjustments. We are monitoring the situation continuously and are ready to take actions as needed to minimize impact.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Rising inflation and interest rates will have meaningful implications on how businesses operate and perform. Higher inflation will reduce buyer purchasing power, potentially reducing the demand for insurance, while also increasing controllable expenses impacting business profitability. Higher interest rates should generally lead to improvements in investment income for many financial institutions in the longer term, but may reduce available capital for some institutions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Rising inflation and interest rates are leading to changing investor sentiment and strategies. Many investors are looking towards traditional fixed income products given rising yields, and others are seeking inflationary protection through inflation-hedged investments or alternatives.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Equity market volatility, which can be attributed to several factors such as economic growth, higher inflation, and interest rates changes, can lead to impacts on net flows and assets under management for asset management and wealth businesses. Generally, when global equity markets decline, asset management and wealth businesses also experience declines in earnings.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Businesses have accelerated the use of digital technology to allow for remote and hybrid work. Companies may rely more heavily on these digital tools and shift more of their workforce to remote work. This, in turn, may have an impact on the commercial real estate market.

**Technological**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Digital adoption continues to grow rapidly as consumers spend an increasing amount of time online for everyday needs (e.g., social, shopping, and banking). An increase in mobile usage is an especially important part of this shift. The COVID-19 pandemic has also accelerated this shift to digital in many industries, including financial services. Omni-channel capabilities are important to create a consistent Client experience across channels and to serve Clients in their channel of choice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The trend of increasing personalization using data and analytics is allowing companies to create a frictionless digital user experience as they are able to better engage with Clients and meet their needs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Consumers continue to transfer expectations from technology companies to financial services. A seamless digital experience and personalization of advice and services is increasingly important in creating better experiences and outcomes for Clients.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Consumers are becoming more concerned about the protection and use of their data in an environment of increasing collection and data use, and data breaches. Meeting those Client concerns and expectations will be key to maintaining their trust.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The COVID-19 pandemic has also accelerated the adoption of digital health technologies, including telehealth and virtual care, as well as the shift towards hybrid, flexible working models, that are heavily reliant on technology to replicate the "in-office experience".

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• A desire for a more transparent and accessible financial services experience has led to the rise of digital currencies, smart contracts, and decentralized finance ("DeFi"). Central Banks and financial institutions are exploring the use of digital currencies which may lead to disruption of the traditional banking sector. Increased demand for DeFi may increase competition from new/existing players, offering more accessible products through new distribution channels.

**Competition**

The markets in which Sun Life participates are highly competitive. We compete against other insurance companies, banks, asset managers, mutual fund companies, financial planners, managed care companies, and other financial services and benefits providers. Frequently, competition is based on factors including price, the ability to provide value-added products and services, financial strength and consistent delivery of an excellent experience to distributors and Clients through both traditional and more innovative digital channels.

Evolving regulatory requirements, economic volatility, and the evolution of Client needs and requirements continue to be challenges for our industry and have forced insurers and financial services providers to review their businesses, re-focus their operations and, in some cases, discontinue or divest non-core lines of business, as well as acquire businesses with higher growth potential.

We face increased competition from new market entrants, including non-traditional service providers such as insurtech, healthtech and fintech companies. The acceleration of digital brought by the COVID-19 pandemic led to an increase in this trend, and a further rise of new market entrants with disruptive digital business models. In addition, incumbents are increasingly partnering with start-ups to compete in new and innovative ways. Both of these trends could challenge existing insurance, health, asset management and

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6

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wealth management business models. Furthermore, certain large technology companies have selectively entered the financial services and health care markets by leveraging their large customer base, strong user experience capabilities, deep pools of data and digital ecosystems offering interconnected services. In response to these trends, Sun Life continues to explore new business models and seek strategic partnerships that will drive our businesses forward.

In Canada, open banking is emerging as a potential disruptor for banks and other financial institutions. Under open banking, clients of banks, fintechs or other financial institutions would be able to ask for their personal data to be securely transferred or made available to an authorized third-party service provider, such as a fintech or another financial institution. The federal government's goal is to begin to implement an initial open banking framework by September 2023. We are continuing to monitor how this development will affect the financial services landscape and Sun Life.

In addition to closely monitoring potential business disruptors, we also continuously adapt by making investments in technology and advanced analytics, building digital services and tools, and through the extension of our product offerings. Below are some examples of how we are adapting in these areas:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Digitizing current interactions and processes: Web and mobile functionality (e.g., e-Applications, e-claims); facilitating virtual interactions (e.g., video meetings, e-signatures); digital benefits enrollment in the U.S. and for small businesses in Canada; digitally enabled distribution (e.g., digitally empowered Advisors and Bancassurance in Asia, Direct to Consumer digital in Canada through *Prospr*).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Using data and analytics to be personal, predictive and proactive: Digital coach Ella in Canada; Maxwell Health, a digital benefits marketplace in the U.S.; predictive models for advisor recruiting and Client retention in Asia

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Building new business models: Lumino Health, which allows all Canadians to access provider search and discover innovative health solutions; working with bancassurance partners in Asia to offer digital sales; further expanding our role in the health care ecosystem in the U.S. through the acquisition of PinnacleCare

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Building a partnership ecosystem: Making strategic investments and collaborations (e.g., Dialogue, a leading virtual health care provider in Canada; Bowtie, Hong Kong's first online-only insurer); investing in technologies to connect with partners and drive global growth.

The markets in which we compete are diverse and at different stages of development:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In Canada, the financial services industry is relatively mature and the three largest life insurance companies serve more than two-thirds of the Canadian life insurance and group benefits markets. In the wealth space, we also face competition from Canadian retail banks and investment dealers and from emerging disruptors such as "robo-advisors".

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In the United States, the largest insurance market in the world, the market is more fragmented and characterized by a large number of competitors. We face strong competition from established players in the group life and disability, dental, vision, stop-loss, and voluntary markets, all of which are markets with a number of competitors. In the turnkey disability market, there is one other primary competitor and competition is expected to remain stable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In Asia, the life insurance markets in countries where we participate are still evolving. The growth potential for insurance in Asian markets has created strong competition from both domestic and international insurers. We are observing the larger pan-Asian insurers grow at the fastest rate, with consolidation occurring in many markets. Additionally, some of the Asian markets that we operate in have foreign ownership restrictions, which may place constraints on our ability to operate or grow in these markets. In the international High Net Worth ("HNW") life insurance market (which for Sun Life operates out of our Asia business group), competition is increasing from the main competitors who operate in this business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In Asset Management, despite some consolidation, we face strong competition from a variety of players including large global asset managers, small local managers specializing in niche markets/products, multi-national and local banks as well as other insurance companies. In addition, there has been a trend among retail and institutional investors towards lower-cost passive investment products, including index and other types of exchange-traded funds, which has led to a decreased allocation of investor assets to active investment strategies. At the same time, there has been an increased demand for fixed-income, liability-driven investing and yield-oriented alternative products among institutional and HNW investors. To meet the increased demand for alternative assets, traditional asset managers are increasingly acquiring alternative assets, while alternative managers are deepening focus on the retail HNW market.

**Seasonality**

Some of our businesses are subject to seasonal factors. In Canada, sales of investment products spike during the first quarter of the year due to a contribution deadline for Registered Retirement Savings Plans. Timing of sales campaigns also influences sales of individual products in Canada and Asia. In the U.S., the sales pattern of our group life and health business largely reflects the renewal timing of employee benefit plans of our corporate Clients, many of which begin on January 1 each year. This often results in higher sales in the fourth quarter. In India, the sales of individual insurance products usually peak in the first quarter of each year due to tax planning by Clients. Overall, the impact of seasonal trends is not material to Sun Life.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7

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**Number of Employees** 

As at December 31, 2022, we had 29,169 full-time equivalent employees across our operations excluding joint ventures and associates.

---

| | |
|:---|:---|
| **Business Segment** | **Employees**<sup>(1)(2)</sup> |
| Canada | 7445 |
| U.S. | 6420 |
| Asset Management | 4362 |
| Asia | 5265 |
| Corporate<sup>(3)</sup> | 5678 |

---

<sup>(1)&nbsp;&nbsp;&nbsp;&nbsp;</sup>As at December 31, 2022, we had approximately 50,719 employees across our operations, including our Asia joint ventures.

<sup>(2)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Excludes temporary staff.

<sup>(3)&nbsp;&nbsp;&nbsp;&nbsp;</sup>Corporate includes the operations of our UK business unit and enterprise services.

**Sustainability Commitment**

Our sustainability ambition is to maximize our positive impact on society and the environment over the long-term, while creating value and competitive advantage for our business. Being *Sustainability Driven* is a cornerstone of our Client Impact strategy we believe is essential to our long-term business success. Our Purpose is to help our Clients achieve lifetime financial security and live healthier lives. Our commitment to sustainability brings our Purpose to life.

Building from a long-standing foundation as a trusted and responsible business, our sustainability plan focuses on the areas where we have the greatest opportunity to drive positive impact on society while creating competitive advantage for Sun Life:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Increasing financial security,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Fostering healthier lives, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Advancing sustainable investing.

Our sustainability commitment is guided by the United Nations Sustainable Development Goals ("SDGs"). We focus primarily on supporting the five SDGs where we believe we can have the greatest impact. These are: #3 Good health & well-being, #5 Gender equality, #7 Affordable and clean energy, #8 Decent work and economic growth and #13 Climate action.

We aspire to increase the lifetime financial security of our Clients, employees and communities. We're advancing financial security through innovative products and services, proactive education and improved access to and use of insurance and wealth products. For example in Canada, we introduced *Prospr* by Sun Life, a hybrid advice solution combining a best-in-class digital platform with a team of licensed advisors, to meet Canadians' personalized and holistic financial planning needs. *Prospr* by Sun Life makes it easier for Canadians to select, prioritize and track their goals all in one place. Recognizing that Canadians build families in different ways, in 2022, we launched a new Family Building Program as an optional benefit that will provide plan members with medical and non-medical coverage for fertility treatments, surrogacy arrangements and adoption. These benefits help with the costs of alternative ways of building families and can support employers' commitments to a diverse workforce. In the U.S. we also launched Bill Resolve, a medical cost advocacy and negotiation service to assist U.S. members in understanding the cost of their care, as well as negotiate the cost of their medical services.

We aspire to improve health and wellness outcomes for all. We're advancing this aspiration by offering Clients and employees products, services and tools to help them live healthier lives. We positively impact health and wellness outcomes in society through our focus on increasing access to health care and health and disability insurance. We also invest in community health and thought leadership. In the U.S. in 2022, we partnered with *AbleTo*, a virtual behavioral health therapy and coaching program to offer convenient mental health services to our U.S. disability and critical illness members with a cancer diagnosis. Medical outcomes can be improved when people have opportunities to manage their mental wellness at the same time as their physical recovery. In Canada, we launched Mental Health Bright Papers to share success stories of companies that implemented mental health strategies to support employee well-being.

We aspire to deliver sustainable returns for Clients and drive the transition to a low-carbon, inclusive economy. To pursue our aspiration, we manage capital with environmental, social and governance ("ESG") factors embedded in our investment process, offer our Clients sustainable investing opportunities and invest assets to support a low-carbon and more inclusive economy. Sun Life built on its position as a leader in sustainable investing in 2022. We made good progress towards our goal of an $20 billion in new sustainable investments from 2021 to 2025 across General Account and Client investments, which are managed by SLC Management. Investments include, but are not limited to, renewable energy, energy efficiency, sustainable buildings, clean transportation, water management, and social infrastructure projects. We ended 2021 with $6.8 billion invested towards this target and will report 2022 progress in our annual Sustainability Report, available at sunlife.com/sustainability in March 2023. BGO was awarded the 2022 ENERGY STAR Partner of the Year – Sustained Excellence Award by the U.S. Environmental Protection Agency and the U.S. Department of Energy ("DOE") for the 12th consecutive year, and Gold Recognition in the 2022 Green Lease Leaders

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8

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program organized by the Institute for Market Transformation and the DOE's Better Buildings Alliance. In Hong Kong, we launched Stellar, the first ESG-focused savings plan<sup>(1)</sup> in the market that actively integrates ESG concepts into investment strategies.

Consistent with our foundational commitment to operate as a trusted and responsible business, we recognize climate change as one of the defining issues of our time and commit to working together across industries, with our Clients, investees and other stakeholders to contribute to solving this global challenge. We believe it is incumbent upon us to respond and to take actions that support the goal of the Paris Agreement to limit the global temperature increase in this century to well below 2 degrees Celsius compared to pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels.

Sun Life has set a goal to achieve net-zero greenhouse gas ("GHG") emissions by 2050 for both its investments and operations. As an asset owner, Sun Life plans to achieve net-zero GHG emissions in its General Account. Sun Life's other asset management companies will also drive net-zero efforts. MFS, SLGI Asset Management, and SLC Management companies SLC Fixed Income, InfraRed and BGO, are members of the Net Zero Asset Managers ("NZAM") initiative, an international group of asset managers committed to supporting the goal of net-zero emissions by 2050 or sooner. These businesses are setting interim targets and working towards the 2050 goal. They expect to communicate their targets following finalization with NZAM. Updated interim targets and a summary of our other commitments and progress towards net-zero emissions are available at <u>www.sunlife.com/sustainability</u>. Sun Life is targeting a 50% absolute reduction of GHG emissions in its operations by 2030, relative to 2019. This target includes emissions reductions from Sun Life's offices and corporate travel<sup>(2)</sup>.

Sun Life is a supporter of the Task Force on Climate-related Financial Disclosures ("TCFD"), a member of the United Nations Environment Programme Finance Initiative and signatory to the UN-supported Principles for Responsible Investment. We also support and participate in several other sustainability-related forums, meetings and discussions with a range of external stakeholders. Sun Life ranked among the 2023 Global 100 Most Sustainable Corporations in the World<sup>(3)</sup>. This was the 14th consecutive year Sun Life was named to the ranking, and we were the highest ranked insurance company on the list. Sun Life was also included on the Dow Jones Sustainability Index - North America, and continues to be a constituent in the FTSE4Good Index.

To have a resilient, sustainable business, diversity and inclusion must serve as a catalyst. In 2020, Sun Life reinforced its commitment to diversity, equity and inclusion by taking a firm stance for equality, social change and justice to support under-represented communities. Sun Life continues to work towards its goals of 25% underrepresented ethnicities in Vice-President (VP)+ roles in North America, and gender parity in VP+ roles globally, by 2025. In 2021, Sun Life became the first major insurance company to pursue the Progressive Aboriginal Relations ("PAR") certification a program of the Canadian Council for Aboriginal Business. Having completed Phase 1 and with Phase 2 in progress, we are well on our path to obtain Bronze Certification in 2023. SLC Management, in partnership with BGO and Crescent Capital, became founding signatories to the Diversity, Equity, and Inclusion Code for the Investment Profession in the United States and Canada by the CFA Institute. Signatories commit to a six metrics-based Principles, and to accelerate and amplify the impact of their commitment by making the economic, business, and moral case for diversity, equity, and inclusion.

Our commitment to sustainability is set out in our Sustainability Policy and in our Code of Conduct which applies to all employees and directors. The Governance, Investment & Conduct Review Committee of the Board provides oversight of our enterprise-wide Sustainability Policy and sustainability program, including reviewing and recommending approval of the annual Sustainability Report and sustainability plan to the Board. At the management level, in 2021, Sun Life appointed its first Chief Sustainability Officer, reporting directly to the CEO. In 2022, Sun Life appointed our Vice-President, Climate Change and Environmental Impact, who reports directly to the Chief Sustainability Officer and oversees the development and implementation of the enterprise-wide climate change strategy, climate risk and climate performance and reporting functions. In addition, our International Sustainability Council is composed of senior representatives from a diverse range of geographic regions, business groups and functions. This Council supports the implementation of our sustainability plan, through the areas of focus that align with their business. They champion, influence and drive action. The Council works closely with the Sustainability team on strategy and policy development and monitoring, and risk escalation. The Council meets regularly and reports progress to our senior executive management and to the Governance, Investment and Conduct Review Committee.

Additional details on our sustainability plan, and our most recent Sustainability Report, can be found on our website at <u>www.sunlife.com/Sustainability</u>. Additional climate-related disclosures, guided by the TCFD recommendations, can be found under

<sup>(1)</sup> This is based on market conditions as of April 12, 2022 and comparison among other savings plans for new Composite and Long Term Businesses as defined by the Insurance Authority in the Register of Authorized Insurers.

<sup>(2)</sup> Emissions resulting from global corporate offices and data centres as well as from corporate travel, inclusive of majority-owned Sun Life affiliate companies. DentaQuest corporate offices are excluded for the 2022 reporting cycle. All emissions reporting is aligned to the GHG Protocol Corporate Accounting and Reporting Standard using the financial control approach.

<sup>(3)</sup> To determine the Global 100 ranking, Corporate Knights transparently analyzed 6,720 companies against global industry peers on a suite of up to 25 quantitative key performance indicators, weighted to reflect each industry's impact profile. The full 2023 methodology can be found at <u>www.corporateknights.com/resources/global-100/</u>.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9

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the heading "Environmental and Social Risk" in our 2022 MD&A, which is incorporated by reference herein. For more information on our commitment to promote diversity and inclusion, please visit <u>www.sunlife.com/en/about-us/diversity-and-inclusion/</u>.

**Capital Structure**

**General**

SLF Inc.'s authorized capital consists of unlimited numbers of Common Shares, Class A Shares and Class B Shares, each without nominal or par value.

The Class A Shares and Class B Shares may be issued in series as determined by SLF Inc.'s Board. The Board is authorized to fix the number, consideration per share, designation and rights and restrictions attached to each series of shares. The holders of Class A Shares and Class B Shares are not entitled to any voting rights except as described below or as otherwise provided by law. Additional information concerning our capital structure is included in SLF Inc.'s 2022 MD&A under the heading Capital and Liquidity Management and in Notes 13-15 and 21 to the 2022 Consolidated Financial Statements.

**Common Shares**

SLF Inc.'s Common Shares are listed on the Toronto, New York and Philippines stock exchanges, under the ticker symbol "SLF". Each Common Share is entitled to one vote at meetings of the shareholders of SLF Inc., except for meetings at which only holders of another specified class or series of shares are entitled to vote separately as a class or series.

Common Shares are entitled to receive dividends if and when declared by the Board. Dividends must be declared and paid in equal amounts per share on all Common Shares, subject to the rights of holders of the Class A Shares and Class B Shares. Holders of Common Shares will participate in any distribution of the net assets of SLF Inc. upon its liquidation, dissolution or winding-up on an equal basis per share, subject to the rights of the holders of the Class A Shares and Class B Shares. There are no pre-emptive, redemption, purchase or conversion rights attaching to the Common Shares.

**Class A Shares**

The Class A Shares of each series rank on parity with the Class A Shares of each other series with respect to the payment of dividends and the return of capital on the liquidation, dissolution or winding-up of SLF Inc. The Class A Shares are entitled to preference over the Class B Shares, the Common Shares and any other shares ranking junior to the Class A Shares with respect to the payment of dividends and the return of capital. The special rights and restrictions attaching to the Class A Shares as a class may not be amended without such approval as may then be required by law, subject to a minimum requirement of approval by the affirmative vote of at least two-thirds of the votes cast at a meeting of the holders of Class A Shares held for that purpose.

The following table provides information on SLF Inc.'s issued and outstanding Class A Shares (the "Class A Preferred Shares"). These Class A Preferred Shares are listed on the Toronto Stock Exchange ("TSX"), with the exception of Series 14.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| Series | Number of <br>Shares Issued | TSX Ticker Symbol | Quarterly Dividend ($) | Redemption Date | Prospectus Date |
| Series 3 | 10000000 | SLF.PR.C | 0.278125 | Any time | January 6, 2006 |
| Series 4 | 12000000 | SLF.PR.D | 0.278125 | Any time | October 2, 2006 |
| Series 5 | 10000000 | SLF.PR.E | 0.28125 | Any time | January 25, 2007 |
| Series 8R | 6217331 | SLF.PR.G | 0.114063 | June 30, 2025 | May 13, 2010 |
| Series 9QR | 4982669 | SLF.PR.J | Floating | June 30, 2025 | May 13, 2010 |
| Series 10R | 6838672 | SLF.PR.H | 0.185438 | September 30, 2026 | August 5, 2011 |
| Series 11QR | 1161328 | SLF.PR.K | Floating | September 30, 2026 | August 5, 2011 |
| Series 14 | 1000000 | n.a. | n.a. | June 30, 2026 | June 24, 2021 |

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With the exception of Series 14, the shares in each series of Class A Preferred Shares were issued for $25 per share and holders are entitled to receive the non-cumulative quarterly dividends outlined in the preceding table. Subject to regulatory approval, SLF Inc. may redeem: (i) the Series 3, 4 or 5 shares at any time; (ii) the Series 8R, 9QR, 10R and 11QR on the redemption date noted above and every five years thereafter for $25 per share; and (iii) the Series 9QR and 11QR at any other time for $25.50 per share, in each case in whole or in part. The Series 14 shares were issued as part of the offering of 3.60% Limited Recourse Capital Notes Series 2021-1 (the "Series 2021-1 Notes"), for $1,000 per share and are held by a consolidated trust (the "Limited Recourse Trust") as trust assets in connection with the Series 2021-1 Notes. Series 2021-1 Notes are classified as equity in SLF Inc.'s 2022 Consolidated Financial Statements. In case of non-payment of interest on or principal of the Series 2021-1 Notes when due, the recourse of each noteholder will be limited to that holder's proportionate share of the Limited Recourse Trust's assets, which will consist of the Series 14 shares (except in limited circumstances). At this time the limited recourse trustee, as trustee of the Limited Recourse Trust, has waived its right to receive any and all dividends on the Series 14 shares. Accordingly, no dividends are expected to be declared or paid on the Series 14 shares while the Series 14 shares are held by the Limited Recourse Trust. Additional information concerning

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10

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these shares is contained in the Investor Relations section of <u>www.sunlife.com</u> and in the prospectus and prospectus supplement under which the shares were issued, which may be accessed at <u>www.sedar.com</u>.

**Class B Shares**

The Class B Shares of each series rank on a parity with the Class B Shares of each other series with respect to the payment of dividends and the return of capital on the liquidation, dissolution or winding-up of SLF Inc. The Class B Shares are entitled to preference over the Common Shares and any other shares ranking junior to the Class B Shares with respect to the payment of dividends and the return of capital, but are subordinate to the Class A Shares and any other shares ranking senior to the Class B Shares with respect to the payment of dividends and return of capital. The special rights and restrictions attaching to the Class B Shares as a class may not be amended without such approval as may then be required by law, subject to a minimum requirement of approval by the affirmative vote of at least two-thirds of the votes cast at a meeting of the holders of Class B Shares held for that purpose. No Class B Shares have been issued.

**Constraints on Shares**

The Insurance Act contains restrictions on the purchase or other acquisition, issue, transfer and voting of the shares of SLF Inc. and Sun Life Assurance. Information on those restrictions can be found in this AIF under the heading Regulatory Matters - Canada - Restrictions on Ownership.

**Market for Securities** 

The following tables set out the price range and trading volumes of SLF Inc.'s Common Shares and Class A Preferred Shares on the TSX during 2022:

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| | | | | |
|:---|:---|:---|:---|:---|
| **Common Shares** | **Common Shares** | **Common Shares** | **Common Shares** | **Common Shares** |
|  | Price ($) | Price ($) | Price ($) | Trading volume |
|  | High | Low | Close | (thousands) |
| January | 72.85 | 68.32 | 71.99 | 28225 |
| February | 74.22 | 65.53 | 66.66 | 57088 |
| March | 71.28 | 64.62 | 69.80 | 53685 |
| April | 70.54 | 63.63 | 63.91 | 23180 |
| May | 65.33 | 60.19 | 61.78 | 81264 |
| June | 63.57 | 57.21 | 58.98 | 57282 |
| July | 60.37 | 56.14 | 59.46 | 30004 |
| August | 62.44 | 57.67 | 57.86 | 62749 |
| September | 60.27 | 54.11 | 54.93 | 30402 |
| October | 58.35 | 52.97 | 57.86 | 29871 |
| November | 63.91 | 57.01 | 63.74 | 63673 |
| December | 64.64 | 61.77 | 62.85 | 37702 |

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** | **Class A Preferred Shares** |
| Series 3 | Series 3 | Series 3 | Series 3 | Series 3 | Series 4 | Series 4 | Series 4 | Series 4 |
|  | Price ($) | Price ($) | Price ($) | Trading volume | Price ($) | Price ($) | Price ($) | Trading volume |
|  | High | Low | Close | (thousands) | High | Low | Close | (thousands) |
| January | 25.04 | 24.34 | 24.62 | 85 | 25.15 | 24.39 | 24.69 | 82 |
| February | 24.88 | 23.13 | 23.89 | 90 | 24.92 | 23.06 | 24.00 | 102 |
| March | 24.38 | 22.27 | 22.28 | 219 | 24.35 | 22.22 | 22.28 | 193 |
| April | 22.65 | 19.86 | 20.24 | 146 | 23.15 | 19.95 | 20.41 | 179 |
| May | 21.49 | 19.72 | 21.38 | 110 | 21.85 | 19.93 | 21.85 | 162 |
| June | 21.70 | 19.01 | 19.42 | 121 | 22.13 | 18.95 | 19.34 | 296 |
| July | 19.98 | 18.88 | 19.75 | 107 | 19.84 | 18.79 | 19.74 | 145 |
| August | 20.45 | 18.96 | 18.98 | 64 | 20.35 | 18.90 | 18.92 | 137 |
| September | 19.07 | 17.52 | 17.70 | 104 | 18.94 | 17.62 | 17.75 | 189 |
| October | 18.31 | 17.11 | 17.99 | 161 | 18.22 | 17.12 | 17.98 | 290 |
| November | 18.51 | 17.49 | 18.30 | 246 | 18.35 | 17.40 | 18.19 | 242 |
| December | 18.72 | 17.80 | 18.36 | 218 | 18.62 | 17.86 | 18.14 | 353 |

---

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| Series 5 | Series 5 | Series 5 | Series 5 | Series 5 | Series 8R | Series 8R | Series 8R | Series 8R |
|  | Price ($) | Price ($) | Price ($) | Trading volume | Price ($) | Price ($) | Price ($) | Trading volume |
|  | High | Low | Close | (thousands) | High | Low | Close | (thousands) |
| January | 25.35 | 24.49 | 24.87 | 92 | 19.08 | 17.85 | 18.21 | 76 |
| February | 25.24 | 23.36 | 23.95 | 128 | 18.30 | 16.99 | 17.03 | 58 |
| March | 24.41 | 22.25 | 22.43 | 102 | 18.14 | 16.63 | 17.45 | 43 |
| April | 22.49 | 20.03 | 20.51 | 187 | 17.50 | 14.65 | 15.34 | 102 |
| May | 21.91 | 19.96 | 21.91 | 94 | 16.17 | 14.55 | 15.88 | 41 |
| June | 22.25 | 19.17 | 20.02 | 119 | 16.11 | 14.51 | 14.51 | 37 |
| July | 20.00 | 19.17 | 19.80 | 85 | 15.00 | 13.71 | 14.37 | 99 |
| August | 20.90 | 19.19 | 19.19 | 181 | 14.99 | 14.25 | 14.50 | 17 |
| September | 19.25 | 18.07 | 18.10 | 85 | 14.50 | 12.98 | 13.26 | 173 |
| October | 18.76 | 17.46 | 18.30 | 123 | 13.35 | 12.52 | 12.75 | 58 |
| November | 18.80 | 17.67 | 18.80 | 109 | 13.67 | 12.69 | 13.61 | 67 |
| December | 18.89 | 18.09 | 18.30 | 155 | 13.70 | 12.68 | 12.68 | 96 |
| Series 9QR | Series 9QR | Series 9QR | Series 9QR | Series 9QR | Series 10R | Series 10R | Series 10R | Series 10R |
|  | Price ($) | Price ($) | Price ($) | Trading volume | Price ($) | Price ($) | Price ($) | Trading volume |
|  | High | Low | Close | (thousands) | High | Low | Close | (thousands) |
| January | 18.50 | 16.71 | 18.06 | 189 | 23.47 | 22.51 | 23.29 | 451 |
| February | 18.45 | 17.94 | 18.17 | 162 | 23.25 | 21.38 | 21.55 | 181 |
| March | 18.17 | 17.05 | 17.68 | 83 | 21.74 | 20.90 | 21.48 | 136 |
| April | 17.65 | 15.54 | 15.80 | 34 | 21.50 | 18.08 | 18.67 | 50 |
| May | 16.24 | 15.25 | 15.78 | 18 | 19.88 | 18.29 | 19.87 | 52 |
| June | 16.84 | 15.65 | 15.76 | 50 | 20.31 | 17.45 | 17.52 | 66 |
| July | 15.76 | 14.50 | 14.80 | 41 | 17.61 | 16.88 | 17.23 | 249 |
| August | 15.75 | 15.01 | 15.56 | 93 | 18.47 | 16.81 | 17.82 | 43 |
| September | 15.95 | 14.75 | 15.24 | 65 | 17.99 | 15.82 | 16.40 | 46 |
| October | 15.38 | 14.81 | 15.32 | 61 | 16.31 | 14.51 | 15.29 | 37 |
| November | 15.98 | 15.28 | 15.30 | 84 | 15.87 | 14.50 | 15.87 | 241 |
| December | 15.95 | 14.95 | 15.30 | 46 | 16.00 | 15.06 | 15.07 | 59 |
| Series 11QR | Series 11QR | Series 11QR | Series 11QR | Series 11QR |  |  |  |  |
|  | Price ($) | Price ($) | Price ($) | Trading volume |  |  |  |  |
|  | High | Low | Close | (thousands) |  |  |  |  |
| January | 22.20 | 21.70 | 21.70 | 4 |  |  |  |  |
| February | 22.00 | 21.10 | 21.10 | 1 |  |  |  |  |
| March | 21.15 | 20.65 | 20.65 | 6 |  |  |  |  |
| April | 21.00 | 19.60 | 19.60 | 5 |  |  |  |  |
| May | 20.00 | 19.60 | 20.00 | 2 |  |  |  |  |
| June | 20.50 | 19.35 | 19.36 | 5 |  |  |  |  |
| July | 19.36 | 17.70 | 17.70 | 1 |  |  |  |  |
| August | 19.00 | 17.70 | 19.00 | 6 |  |  |  |  |
| September | 19.24 | 18.50 | 18.50 | 2 |  |  |  |  |
| October | 18.50 | 17.00 | 17.70 | 7 |  |  |  |  |
| November | 18.35 | 17.80 | 18.15 | 4 |  |  |  |  |
| December | 18.20 | 17.80 | 17.80 | 6 |  |  |  |  |

---

**Sales of Unlisted Securities**

SLF Inc. has issued the following unlisted securities since January 1, 2022:

On August 10, 2022, SLF Inc. issued $650 million principal amount of Series 2022-1 Subordinated Unsecured 4.78% Fixed/Floating Debentures due 2034.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12

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**Dividends** 

The declaration, amount and payment of dividends by SLF Inc. is subject to the approval of its Board and is dependent on our results of operations, financial condition, cash requirements, regulatory and contractual restrictions and other factors considered by the Board.

The dividends declared by SLF Inc. in the three years ended December 31, 2022 are set out in the 2022 MD&A under the heading Capital and Liquidity Management - Shareholder Dividends, which is incorporated by reference in this AIF.

The Insurance Act prohibits the declaration or payment of dividends on shares of an insurance company if there are reasonable grounds for believing a company does not have, or the payment of the dividend would cause the company not to have, adequate capital or liquidity, or upon any direction made by the Superintendent. The Insurance Act also requires that an insurance company notify the Superintendent of the declaration of a dividend at least fifteen days before the dividend payment date. On March 13, 2020, OSFI set the expectation for all federally regulated financial institutions that dividend increases should be halted for the time being. On November 4, 2021, OSFI removed its expectations that federally regulated financial institutions halt dividend increases.

As a holding company, SLF Inc. depends primarily on the receipt of funds from its subsidiaries to pay shareholder dividends, interest payments and operating expenses. The source of these funds is primarily dividends and capital repayments that SLF Inc. receives from its subsidiaries. The inability of its subsidiaries to pay dividends or return capital in the future may materially impair SLF Inc.'s ability to pay dividends to shareholders or to meet its cash obligations. Additional information concerning legislation regulating the ability of SLF Inc.'s subsidiaries in Canada, the U.S., the UK and Asia to pay dividends or return capital can be found in this AIF under the heading Regulatory Matters.

SLF Inc. and Sun Life Assurance have each covenanted that, if a distribution is not paid when due on any outstanding Sun Life ExchangEable Capital Securities ("SLEECS") issued by Sun Life Capital Trust, Sun Life Assurance will not pay dividends on its Public Preferred Shares, if any are outstanding. If Sun Life Assurance does not have any Public Preferred Shares, then SLF Inc. will not pay dividends on its preferred shares or Common Shares until the twelfth month following the failure to pay the required distribution in full, unless the required distribution is paid to the holders of the 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 million. Sun Life Assurance has not issued any shares that qualify as Public Preferred Shares as at the date of this AIF.

The terms of SLF Inc.'s outstanding Class A Preferred Shares provide that for so long as Sun Life Assurance is a subsidiary, no dividends on such preferred shares may be declared or paid if Sun Life Assurance's minimum regulatory capital ratio falls below the applicable threshold.

**Security Ratings** 

SLF Inc.'s Class A Preferred Shares, senior unsecured debentures, and subordinated unsecured debentures are rated by independent rating agencies. Security ratings assigned to securities by the rating agencies may be subject to revision or withdrawal at any time by the applicable rating agency and are not a recommendation to purchase, hold or sell these securities as such ratings do not comment as to market price or suitability for a particular investor. Security ratings are intended to provide investors with an independent measure of the credit quality of an issue of securities.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13

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The table below provides the security ratings for SLF Inc.'s securities as at February 8, 2023. All rating agencies currently have stable outlooks on SLF Inc. issuer credit ratings:

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| Security Ratings | Security Ratings | Security Ratings | Security Ratings | Security Ratings | Security Ratings | Security Ratings |  |  |
|  | A.M. Best<sup>(1)</sup> | A.M. Best<sup>(1)</sup> | DBRS<sup>(2)</sup> | DBRS<sup>(2)</sup> | Fitch<sup>(3)</sup> | Fitch<sup>(3)</sup> | S&P<sup>(4)</sup> | S&P<sup>(4)</sup> |
|  | Rating | Rank | Rating | Rank | Rating | Rank | Rating | Rank |
| Subordinated Unsecured Debentures: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Series 2007-1, 2016-2, 2019-1, 2020-1, 2020-2, 2021-1, 2021-2, 2021-3 and 2022-1 | a- | 7 of 21 | A | 6 of 26 | A- | 7 of 21 | A | 6 of 22 |
| Limited Recourse Capital Notes ("LRCNs"): |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp; Series 2021-1 | NR<sup>(5)</sup> | - | A (low) | 7 of 26 | BBB | 9 of 21 | A- | 7 of 22 |
| &nbsp;&nbsp;&nbsp;Class A Preferred Shares:<br>&nbsp;&nbsp;&nbsp;&nbsp;Series 3 - 5, 8R, 9QR, 10R, <br>&nbsp;&nbsp;&nbsp;&nbsp;and 11QR | bbb+ | 8 of 21 | Pfd-2 (high) | 4 of 16 | BBB | 9 of 21 | <br>&nbsp;&nbsp;&nbsp;&nbsp;P-1(low)<br>/A-<sup>(6)</sup> | <br>3 of 18/ 5 of 20<sup>(6)</sup> |

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<sup>(1) &nbsp;&nbsp;&nbsp;&nbsp;</sup>A.M. Best Company, Inc.

<sup>(2)</sup> &nbsp;&nbsp;&nbsp;&nbsp;DBRS Limited, part of DBRS Morningstar group, a wholly-owned subsidiary of Morningstar, Inc.

<sup>(3) &nbsp;&nbsp;&nbsp;&nbsp;</sup>Fitch Ratings, Inc., part of Fitch Group, is majority owned by Hearst. We do not participate in Fitch's ratings process, or provide additional information to Fitch Ratings, beyond our available public disclosures.

<sup>(4)</sup> &nbsp;&nbsp;&nbsp;&nbsp;S&P Global Inc. (NYSE: SPGI).

<sup>(5) &nbsp;&nbsp;&nbsp;&nbsp;</sup>Not Rated.

<sup>(6) &nbsp;&nbsp;&nbsp;&nbsp;</sup>The Canadian scale rating/global scale rating for preferred shares.

SLF Inc. has made payments in the ordinary course to DBRS and Standard and Poor's ("S&P") in connection with the assignment of ratings on the securities of SLF Inc. In addition, SLF Inc. has made customary payments to A.M. Best, DBRS, Moody's and S&P in respect of certain other services provided to SLF Inc. by the applicable rating agencies during the last two years.

The descriptions of the ratings below are sourced from public information as disclosed by each rating agency.

**A.M. Best**

A.M. Best's issue credit rating ("IR") provides an opinion of credit quality assigned to issues that gauges the ability to meet the terms of the obligations and can be issued on a long- or short-term basis. An IR assigned to a specific issue is A.M. Best's opinion of the issuer's ability to meet the ongoing financial obligations to security holders when due. As such, an IR is an opinion regarding the relative future credit risk. Credit risk is the risk that a debt issuer may not meet its contractual financial obligations as they come due. The rating does not address any other risk, including, but not limited to, liquidity risk, market value risk or price volatility of rated obligations.

A.M. Best assigns long-term IR in a range of rating categories from "aaa" to "c". Ratings from "aa" to "ccc" may be enhanced with a "+" (plus) or "-" (minus) to indicate whether credit quality is near the top or bottom of a category. The absence of either a plus or minus designation indicates the rating is in the middle of the category.

SLF Inc.'s Subordinated Unsecured Debentures have been assigned "a-" ratings. An "a" rating denotes an issuer's excellent ability to meet the terms of the obligation.

SLF Inc.'s Class A Preferred Shares have been assigned "bbb+" ratings. A "bbb" rating denotes an issuer's good ability to meet the terms of the obligation, however, the issue is more susceptible to changes in economic and other conditions.

**DBRS**

The DBRS long-term rating scale provides an opinion on the risk of default. That is, the risk that an issuer will fail to satisfy its financial obligations in accordance with the terms under which an obligation has been issued. Ratings are based on quantitative and qualitative considerations relevant to the issuer, and the relative ranking of claims. DBRS assigns long-term ratings in a range from AAA to D, and "(high)" and "(low)" designations indicate standing within the major rating categories. The absence of either a "(high)" or "(low)" designation indicates the rating is in the middle of the category. There are no "(high)" or "(low)" designations for AAA and D ratings.

SLF Inc.'s Subordinated Unsecured Debentures and LRCNs have been assigned A and A (low) ratings, respectively. A ratings, reflecting a good credit quality, are assigned to issues when the capacity for the payment of financial obligations is substantial, but of lesser credit quality than AA, and the issue may be vulnerable to future events, but qualifying negative factors are considered manageable.

DBRS assigns ratings for preferred shares in a range from Pfd-1 to D. Reference to "high" and "low" designations indicate standing within the major rating categories. The absence of either a "(high)" or "(low)" designation indicates the rating is in the middle of the

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

category. There are no "(high)" or "(low)" designations for D ratings. The DBRS preferred share rating scale is used in the Canadian securities market and is meant to give an indication of the risk that a borrower will not fulfill its full obligations in accordance with the terms under which the relevant preferred shares were issued, with respect to both dividend and principal commitments. SLF Inc.'s Class A Preferred Shares have been assigned a Pfd-2 (high) rating, the second highest among rating categories used by DBRS. Preferred shares rated Pfd-2 are generally of good credit quality. Protection of dividends and principal is still substantial, but earnings, the balance sheet and coverage ratios are not as strong as Pfd-1 rated companies.

**Fitch**

Fitch's ratings of individual securities or financial obligations of a corporate issuer address relative vulnerability to default on an ordinal scale.

Fitch assigns long-term ratings for debt and preferred shares in a range from AAA to C. The modifiers + or - may be appended to a rating to denote relative status within major rating categories. The absence of either a plus or minus designation indicates the rating is in the middle of the category. Such modifiers are not added to the AAA rating or to ratings below CCC.

SLF Inc.'s Subordinated Unsecured Debentures have been assigned A- ratings. An A rating denotes expectations of low credit risk and the capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings. SLF Inc.'s LRCNs and Class A Preferred Shares have been assigned a BBB rating. A BBB rating indicates that expectations of credit risk are currently low and the capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

**Standard & Poor's**

An S&P issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation. The opinion reflects S&P's view of the obligor's capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.

S&P's long-term credit ratings for securities are based, in varying degrees, on S&P's analysis of the following considerations:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Nature of and provisions of the obligation and the promise imputed by S&P; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.

These ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy.

S&P assigns long-term ratings in a range from AAA to D. The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. The absence of either a plus or minus designation indicates the rating is in the middle of the category.

SLF Inc.'s Subordinated Unsecured Debentures and LRCNs have been assigned A and A- ratings, respectively. An A rating category indicates that the obligor's capacity to meet its financial commitment on the obligation is strong.

S&P has Canadian and global rating scales for preferred shares. S&P assigns ratings for Canadian preferred shares in a range from P-1 to D on the Canadian scale and from AA to D on the global rating scale. S&P uses "high" and "low" designations to indicate standing within the major rating categories on the Canadian rating scale and plus or minus designations to indicate the relative standing of securities within a particular rating category on the global rating scale. The absence of either a "high" and "low" or a plus or minus designation indicates the rating is in the middle of the category. There are no plus and minus or "high" and "low" designations for rating categories below P-5/CCC, and no plus designation for an AA rating category.

S&P's preferred share rating on the Canadian scale is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific preferred share obligation issued in the Canadian market, relative to preferred shares issued by other issuers in the Canadian market. There is a direct correspondence between the specific ratings assigned on the Canadian preferred share scale and the various rating levels on the global debt rating scale of S&P. S&P presents an issuer's preferred share ratings on both the global rating scale and on the Canadian national scale when listing the ratings for a particular issuer.

SLF Inc.'s Class A Preferred Shares have been assigned a P-1 (low) rating on the Canadian scale, which corresponds to an A- rating on the global scale. An A rating category indicates that the obligor's capacity to meet its financial commitment on the obligation is strong.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

**Transfer Agents and Registrars**

**Common Shares** 

TSX Trust Company is the principal transfer agent and the registrar for SLF Inc.'s Common Shares. The central securities register is maintained in Toronto, Ontario, Canada. The transfer agent and co-transfer agents for SLF Inc.'s Common Shares are as follows (opposite their applicable jurisdictions):

---

| | |
|:---|:---|
| Transfer Agent | Transfer Agent |
| Canada | TSX Trust Company<br>1 Toronto Street, Suite 1200<br>Toronto, Ontario <br>Canada M5C 2V6 |
| Co-Transfer Agents |  |
| United States | American Stock Transfer & Trust Company, LLC<br>6201 15<sup>th</sup> Avenue<br>Brooklyn, NY 11219<br>United States |
| United Kingdom | Link Asset Services<br>10<sup>th</sup> Floor, Central Square<br>29 Wellington Street<br>Leeds LS1 4DL<br>United Kingdom |
| Philippines | Rizal Commercial Banking Corporation<br>RCBC Stock Transfer Processing Section<br>Ground Floor, West Wing<br>GPL (Grepalife) Building<br>221 Senator Gil Puyat Avenue<br>Makati City, Philippines |
| Hong Kong | Computershare Hong Kong Investor Services Limited<br>17M Floor, Hopewell Centre<br>183 Queen's Road East<br>Wanchai, Hong Kong |

---

**Preferred Shares and Debentures**

TSX Trust Company is the transfer agent and the registrar for SLF Inc.'s Class A Preferred Shares, and BNY Trust Company of Canada is the trustee and the registrar for SLF Inc.'s senior unsecured debentures, and its subordinated unsecured debentures, Series 2007-1, 2016-2, 2019-1, 2020-1, 2020-2, 2021-1, 2021-2, 2021-3 and 2022-1. Computershare Trust Company of Canada is the trustee and registrar for SLF Inc.'s LRCNs. The registers for those securities are maintained in Toronto, Ontario, Canada.

**Directors and Executive Officers**

**Board of Directors**

As of the date of this AIF, the Board of SLF Inc. had four standing committees: Audit Committee, Governance, Investment & Conduct Review Committee, Management Resources Committee and Risk Committee.

The following table sets out the directors of SLF Inc. as of the date of this AIF and, for each director, the province or state and country of his or her residence, principal occupation, years as a director, and membership on Board committees. The term of each director expires at the close of business of the Annual Meeting in 2023. Each director of SLF Inc. is an independent director as defined in the Company's Director Independence Policy, except Mr. Strain, the President & Chief Executive Officer of SLF Inc.

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---

| | | | |
|:---|:---|:---|:---|
| **Name and**<br>**Province/State and Country of Residence** | **<br>Principal<br>Occupation** | **Director Since** | **Board Committee Membership** |
| Deepak Chopra<br>Ontario, Canada | Corporate Director | 2021 | Audit <br>Governance, Investment & Conduct Review |
| Stephanie L. Coyles<br>Ontario, Canada | Corporate Director | 2017 | Governance, Investment & Conduct Review<br>Management Resources |
| Ashok K. Gupta<br>London, England | Corporate Director | 2018 | Management Resources<br>Risk |
| M. Marianne Harris<br>Ontario, Canada | Corporate Director | 2013 | Audit<br>Governance, Investment & Conduct Review |
| David H. Y. Ho<br>Shenzhen, China | Chairman and Founder, Kiina Investment Limited | 2021 | Governance, Investment & Conduct Review<br>Management Resources |
| Laurie G. Hylton<br>Massachusetts, U.S.A. | Corporate Director | 2022 | Audit<br>Risk |
| Helen M. Mallovy Hicks<br>Ontario, Canada | Corporate Director | 2021 | Audit <br>Risk |
| Marie-Lucie Morin<br>Ontario, Canada | Corporate Director | 2021 | Management Resources<br>Risk  |
| Joseph M. Natale<br>Ontario, Canada | Corporate Director | 2023 | Management Resources Risk |
| Scott F. Powers<br>Massachusetts, U.S.A. | Chair of the Board, SLF Inc. and Sun Life Assurance | 2015 |  |
| Kevin D. Strain<br>Ontario, Canada | President & Chief Executive Officer, <br>SLF Inc. and Sun Life Assurance | 2021 |  |
| Barbara G. Stymiest<br>Ontario, Canada | Corporate Director | 2012 | Audit <br>Risk |

---

Each director of SLF Inc. has been engaged for more than five years in his or her present principal occupation or in other capacities with the company or organization (or predecessor thereof) in which he or she currently holds his or her principal occupation, except:

(i)Mr. Chopra, who from 2011 to 2018 was President and Chief Executive Officer, Canada Post Corporation;

(ii)Ms. Mallovy Hicks, who from 1999 to 2021 held various executive positions at PricewaterhouseCoopers LLP, including most recently as Global Valuation Business Line Leader;

(iii)Mr. Ho, who from 2010 to 2018 was a senior advisor, Permira Advisors LLC, and from 2017 to 2019 was Chairman and founding partner, CRU Capital;

(iv)Ms. Hylton, who from 1994 to 2021 held various senior positions at Eaton Vance Corp., including most recently as Chief Financial Officer; and

(v)Mr. Natale, who from 2017 to 2021 was President and Chief Executive Officer, Rogers Communications Inc.

**Audit Committee**

The responsibilities and duties of the Audit Committee are set out in its charter, a copy of which is attached as Appendix A. The Board has determined that each member of its Audit Committee is independent as defined in the Company's Director Independence Policy and is financially literate. In the Board's judgment, a member of the Committee is financially literate if, after seeking and receiving any explanations or information from senior financial management of the Company or the auditors of the Company that the member requires, the member is able to read and understand the consolidated financial statements of the Company to the extent sufficient to be able to intelligently ask, and to evaluate the answers to, probing questions about the material aspects of those financial statements.

The members of the Audit Committee as of the date of this AIF and their qualifications and education are set out below:

Barbara G. Stymiest (Chair), is a corporate director and a Chartered Professional Accountant. She was a member of the Group Executive at Royal Bank of Canada, an international banking and financial services organization, from 2004 to 2011; Royal Bank's Group Head, Strategy, Treasury and Corporate Services from 2010 to 2011; and Chief Operating Officer from 2004 to 2009. Prior to that Ms. Stymiest held senior positions in the financial services sector including Chief Executive Officer, TSX Group Inc., Executive Vice-President and Chief Financial Officer, BMO Nesbitt Burns, and Partner, Financial Services Group, Ernst & Young LLP. She joined the Board of Directors, and the Risk Committee (formerly the Risk Review Committee and Risk & Conduct Review Committee) of SLF Inc. and Sun Life Assurance in May 2012. Ms. Stymiest was a member of the Management Resources Committee from her

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appointment until May 2015. She became a member of the Audit Committee (formerly the Audit & Conduct Review Committee) and Chair of the Risk Committee (formerly the Risk Review Committee and Risk & Conduct Review Committee) in May 2015. Ms. Stymiest ceased to be Chair of the Risk Committee and became Chair of the Audit Committee in May 2021. She is a Fellow of the Chartered Professional Accountants of Ontario and received an Award of Outstanding Merit from that organization in 2011. Ms. Stymiest is a director and Chair of the audit committee of George Weston Limited. She also serves as a director of President's Choice Bank, a director of the Canadian Institute for Advanced Research, the Vice-Chair of AGE-WELL NCE Inc. and Chair of its finance & audit committee and a member of the Advisory Board of AgeTech Catalyst Fund. Ms. Stymiest was formerly a director of BlackBerry Limited from 2007 to June 2022 and Chair of its audit and risk management committee from 2007 to 2021. She holds an Honours Business Administration degree. Ms. Stymiest was named to the National Association of Corporate Directors Directorship 100 in 2018 and became a member of the Order of Canada in 2021.

Deepak Chopra is a corporate director and most recently served as the President and Chief Executive Officer of Canada Post Corporation from 2011 to 2018. He has more than 30 years of global experience in the financial services, technology, logistics and supply-chain industries. Prior to joining Canada Post, he held various senior positions during his 23-year career with Pitney Bowes Inc., a NYSE-traded technology company known for postage meters, mail automation and location intelligence services, including President & Chief Executive Officer, Canada & Latin America, President, Asia Pacific & Middle East and Vice-President & Chief Financial Officer, Europe, Africa & Middle East. Mr. Chopra joined the Board of Directors, the Audit Committee and the Governance, Investment & Conduct Review Committee of SLF Inc. and Sun Life Assurance in May 2021. He is currently a director and a member of the audit committee of Celestica Inc., a director and a member of the audit committee of The Descartes Systems Group Inc., and a director of The North West Company Inc. and was a member of its audit committee from 2018 to 2021. Mr. Chopra has previously served on the boards of Canada Post Corporation, Purolator Inc., SCI Group, the Canada Post Community Foundation, the Toronto Region Board of Trade and the Conference Board of Canada. He is a Fellow of the Institute of Chartered Professional Accountants of Canada and holds a Bachelor's degree in Commerce (Honours) and a Post Graduate Diploma in Business Management.

M. Marianne Harris is a corporate director. She was Managing Director and President, Corporate and Investment Banking, Merrill Lynch Canada, Inc., an international banking and financial services organization, until 2013. She held progressively senior positions during her 13-year career with Merrill Lynch and affiliated companies in Canada and the U.S., including President, Global Markets and Investment Banking, Canada, Head of Financial Institutions Group, Americas and Head of Financial Institutions, Canada. Before joining Merrill Lynch, Ms. Harris held various investment banking positions with RBC Capital Markets from 1984 to 2000, including Head of the Financial Institutions Group. She joined the Board of Directors of SLF Inc. and Sun Life Assurance in December 2013. Ms. Harris was a member of the Audit Committee (formerly the Audit & Conduct Review Committee) from her appointment to May 2015, the Governance, Investment & Conduct Review Committee (formerly the Governance, Nomination and Investment Committee) from her appointment to May 2016, and the Risk Committee (formerly the Risk Review Committee and Risk & Conduct Review Committee) from May 2016 to October 2021. She became a member of the Management Resources Committee in May 2015 and Chair of that committee in May 2016, and became a member of the Governance, Investment & Conduct Review Committee in October 2021 and Chair of that committee in May 2022. Ms. Harris ceased to be a member and Chair of the Management Resources Committee and became a member of the Audit Committee in May 2022. She is currently a director and member of the audit committee of each of Public Sector Pension Investment Board, George Weston Limited and Loblaw Companies Limited, and a director of President's Choice Bank. Ms. Harris is also a member of the Dean's Advisory Council for the Schulich School of Business, and a member of the Advisory Council for the Hennick Centre for Business and Law. She was formerly a director and member of the audit committee of Agrium Inc. from 2014 to 2015, and the finance and audit committee of Investment Industry Regulatory Organization of Canada from 2012 to 2018. Ms. Harris holds a Master of Business Administration degree and a Juris Doctorate.

Laurie G. Hylton is a corporate director. She was a senior finance executive with more than 30 years of global experience in asset management, banking and public accounting. Prior to her retirement in March 2021, Ms. Hylton held various senior positions during her 27-year career with Eaton Vance Corp. (Eaton Vance), most recently served as Vice-President & Chief Financial Officer, a key part of the executive team leading the company's strategic planning and business transformations, and had regular exposure to its board and audit committee. Prior to that, she was Vice President & Chief Accounting Officer and Head of Internal Audit, where she was responsible for internal controls and management of finance functions, and oversaw complex integrations of these functions in major acquisitions. Prior to joining Eaton Vance, Ms. Hylton was a Senior Auditor with Deloitte & Touche, where she covered financial services companies. She joined the Board of Directors, the Audit Committee and the Risk Committee of SLF Inc. and Sun Life Assurance in December 2022. Ms. Hylton is currently a director and a member of the finance committee of Theater In the Open, and a director of Newburyport Art Association. She was formerly a director and Chair of the finance committee of The Pike School. Ms. Hylton holds a Master of Business Administration degree and was a Certified Public Accountant from 1994 to June 2022.

Helen M. Mallovy Hicks is a corporate director. Prior to her retirement in 2021, she was a partner of PricewaterhouseCoopers LLP (PwC) with over 30 years of global business management and advisory experience. She most recently served as PwC's Global Valuation Business Line Leader from 2016 to 2021 and prior to that held various executive positions, including, Canada GTA Deals Leader, Canada Valuation Leader and Deals Valuation Partner. She has advised boards and executives on complex transactions, value creation, capital allocation, business transformation and restructuring matters. Ms. Mallovy Hicks joined the Board of Directors, the Audit Committee and the Risk Committee of SLF Inc. and Sun Life Assurance in October 2021. She is currently a director and member of the audit committee of Northland Power Inc. and a director and member of the audit committee and investment committee of

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Public Sector Pension Investment Board, and a director and Chair of the audit & risk committee of The Princess Margaret Cancer Foundation. Ms. Mallovy Hicks was formerly a director and Chair of the finance, audit & risk committee of Canadian Partnership Against Cancer, a trustee of Toronto Symphony Foundation, and a director of the Canadian Partnership Board of PwC and the Toronto Symphony Orchestra. She is a Fellow of the Canadian Institute of Chartered Business Valuators and a Fellow of the Chartered Professional Accountants of Ontario and holds a Bachelor of Commerce degree.

SLF Inc.'s Board has determined that Deepak Chopra, Laurie G. Hylton, Helen M. Mallovy Hicks and Barbara G. Stymiest are the Audit Committee Financial Experts as defined by the SEC. The SEC has indicated that the designation of a person as an Audit Committee Financial Expert does not make that person an "expert" for any purpose, or impose any duties, obligations or liabilities on that person that are greater than those imposed on members of the audit committee and the Board who do not carry this designation or affect the duties, obligations or liabilities of any other member of the Audit Committee or the Board. Each of Mr. Chopra, Ms. Laurie G. Hylton, Ms. Mallovy Hicks and Ms. Stymiest is "independent" within the meaning of the listing standards of the New York Stock Exchange and Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended.

**Executive Officers**

The following table sets out the executive officers of SLF Inc. as of the date of this AIF:

---

| | | |
|:---|:---|:---|
| **Name** | **Province/State and** <br>**Country of Residence**  | **Position** |
| Kevin D. Strain | Ontario, Canada | President & Chief Executive Officer |
| Linda M. Dougherty | Ontario, Canada | Executive Vice-President, Chief Strategy and Enablement Officer |
| Daniel R. Fishbein | Maine, USA | President, Sun Life U.S. |
| Colm J. Freyne | Ontario, Canada | Executive Vice-President, Special Advisor to the CEO |
| Jacques Goulet | Ontario, Canada | President, Sun Life Canada |
| Ingrid G. Johnson | Hong Kong, China | President, Sun Life Asia |
| Melissa J. Kennedy | Ontario, Canada | Executive Vice-President, Chief Legal Officer & Public Affairs |
| Laura A. Money | Ontario, Canada | Executive Vice-President, Chief Information and Technology Innovation Officer |
| Thomas P. Murphy | Massachusetts, USA | Executive Vice-President and Chief Risk Officer |
| Helena J. Pagano | Ontario, Canada | Executive Vice-President, Chief People and Culture Officer |
| Stephen C. Peacher | Massachusetts, USA | President, SLC Management |
| Manjit Singh | Ontario, Canada | Executive Vice-President & Chief Financial Officer |
| Christopher B. Wei | Singapore | Executive Vice-President, Chief Client and Innovation Officer |

---

Each executive officer of SLF Inc. has held his or her current position or other senior positions with the Company during the past five years with the following exceptions:

(i)Prior to joining the Company in October 2021, Ms. Johnson was Group Finance Director, Old Mutual plc until June 2018;

(ii)Ms. Money held the following positions with Canadian Imperial Bank of Commerce: Senior Vice-President and Chief Information Officer Corporate Centre Technology, from November 2018 to May 2020 and Senior Vice President, Enterprise Programs & Deliver Excellence, from April 2016 to October 2018;

(iii)Prior to September 2018, Mr. Murphy was the Head of U.S. Wealth Business, Mercer;

(iv)Mr. Singh held the following positions with The Toronto-Dominion Bank: Executive Vice President, Finance, Enterprise Finance, TD Bank Group, from August 2019 to March 2021 and Executive Vice President, TD Bank Group and Chief Financial Officer, TD Bank, America's Most Convenient Bank, from June 2015 to August 2019; and

(v)Mr. Wei held the following positions with Aviva plc: Global Chairman, Aviva Digital and Executive Chairman, Aviva Asia & Friends Provident International, from October 2014 to July 2021.

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**Cease Trade Orders, Bankruptcies, Penalties and Sanctions**

To the best of SLF Inc.'s knowledge, as at the date of this AIF, except as set out below, no director or executive officer of SLF Inc.:

(i)is or has been, in the last ten years, a director, chief executive officer or chief financial officer of a company (including SLF Inc.) that, while that person was acting in that capacity,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) was the subject of a cease trade or similar order or an order that denied the company access to any exemption under Canadian securities legislation, for a period of more than 30 consecutive days, or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) was subject to an event that resulted, after that person ceased to be a director, chief executive officer or chief financial officer, in the company being the subject of a cease trade or similar order or an order that denied the company access to any exemption under Canadian securities legislation, for a period of more than 30 consecutive days.

(ii) &nbsp;&nbsp;&nbsp;&nbsp;is or has been, in the last ten years, a director or executive officer of a company (including SLF Inc.) that, while that person was acting in that capacity or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets,

(iii) &nbsp;&nbsp;&nbsp;&nbsp;has, within the last ten years, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director or executive officer; and

(iv) &nbsp;&nbsp;&nbsp;&nbsp;has been subject to (a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;regulatory authority or has entered into a settlement agreement with a securities regulatory authority or (b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

Ms. Coyles was a director of Postmedia Network Canada Corp. while it completed a restructuring following an arrangement plan under the Canada Business Corporation Act in October 2016. Ms. Coyles is no longer a director of Postmedia Network Canada Corp.

**Shareholdings of Directors and Executive Officers**

To the knowledge of SLF Inc., as at December 31, 2022, SLF Inc.'s directors and executive officers, as a group, owned, directly or indirectly, or had voting control or direction over 122,104 Common Shares of SLF Inc., or less than 1% of the total Common Shares outstanding.

**Code of Conduct**

We have built a strong corporate culture founded on ethical behaviour, high business standards, integrity and respect. The Board establishes the "tone from the top" and makes every effort to ensure that Senior Management consists of people who create and sustain a culture of integrity throughout the organization. Questions about this culture are included in our Board's, committee and peer effectiveness surveys.

The Board has established our Code of Conduct (the "Code") that applies to every Director, Officer and employee, with no exception. All receive annual training and are required to complete a declaration of compliance with the Code.

Our Code promotes speaking up and outlines our commitment against retaliation. Our Code also requires employees and Board members to report all known and suspected breaches. Our Ethics Hotline empowers our employees to play an active role in protecting the organization. They can use the Ethics Hotline to report allegations of misconduct anonymously or if they feel their concerns have not been resolved using other reporting methods.

Communications that accompanied the Code in 2022 continued to reinforce our expectations of behaviours in the workplace; emphasizing the importance of speaking up, fostering a workplace that is free of harassment of any kind and promoting diversity, equity and inclusion.

The Governance, Investment and Conduct Review Committee of the Board is responsible for reviewing the effectiveness of the Code, monitoring compliance and reporting the results of its review to the Board annually. On a quarterly basis, the Chief Compliance Officer reports on breaches of the Code and reviews our controls and compliance with the Governance, Investment and Conduct Review Committee. No waivers of the Code for directors or executive officers have been granted.

The most recent copy of the Code is available on our website (<u>www.sunlife.com</u>). The Code has been filed with the Canadian Securities Administrators ("CSA") in Canada on SEDAR (<u>www.sedar.com)</u> and with the SEC in the United States on EDGAR (<u>www.sec.gov/EDGAR)</u>.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20

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**Principal Accountant Fees and Services**

The following table shows the fees related to services provided by the Company's external auditors, Deloitte LLP, for the past two years:

---

| | | |
|:---|:---|:---|
| ($ millions) | **2022** | 2021 |
| Audit Services | **30.3** | 19.3 |
| Audit-Related Services | &nbsp;&nbsp;&nbsp;&nbsp;**1.5** | 1.2 |
| Tax Services | &nbsp;&nbsp;&nbsp;&nbsp;**0.0** | 0.2 |
| Other Services | &nbsp;&nbsp;&nbsp;&nbsp;**0.2** | 0.2 |

---

**Audit fees** relate to professional services rendered by the auditors for the audit of our Annual Consolidated Financial Statements, the statements for our segregated funds and services related to statutory and regulatory filings. Audit fees of $21.9 million (2021: $13.0 million) relates to the audit of the Consolidated Financial Statements of SLF and its subsidiaries to support the audit opinions expressed in the Independent Auditor's Report; the remaining Audit Services fees of $8.4 million (2021: $6.3 million) relates to audit of the statements of segregated funds and statutory and regulatory filings.

**Audit-related fees** include assurance services not directly related to performing the audit of the Annual Consolidated Financial Statements of the Company. These include internal control reviews, specified procedure audits and employee benefit plan audits.

**Tax fees** relate to tax compliance, tax advice and tax planning.

**All other fees** relate to products and services other than audit, audit-related and tax as described above.

**Pre-Approval Policies and Procedures**

The Audit Committee of SLF Inc. and Sun Life Assurance have adopted a policy restricting the use of the external auditor (the "Policy"). The objective of the Policy is to ensure that the independence of the external auditor is not compromised by certain engagements. The Policy is based on the following principles, which specify that the external auditor cannot:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• function in the role of management of the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• audit its own firm's work; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• serve in an advocacy role for the Company.

The Policy requires that any services to be provided by the external auditor be pre-approved by the Audit Committees of SLF Inc. and/or Sun Life Assurance, as applicable, and the audit committee of any affected subsidiary that is itself directly subject to the Sarbanes-Oxley Act of 2002. If a service has not been pre-approved by the Audit Committee, specific approval must be obtained from the committee before an engagement letter can be issued and the related work commenced. The committee has, subject to reporting requirements, pre-approved certain audit, audit-related and other permissible non-audit services that are consistent with maintaining the independence of the external auditor. These pre-approved services are reviewed annually by the committee. The Policy prohibits engaging the external auditor to provide certain services, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• bookkeeping or other services related to accounting records or financial statements;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• financial information systems design or implementation services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• appraisal or valuation services, fairness opinions or contribution in kind reports;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• actuarial services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• internal audit outsourcing services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• management functions or human resources services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• broker or dealer, investment adviser, underwriting, securities or investment banking services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• legal services and expert services unrelated to an audit;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• any service for which no fee is payable unless a specific result is obtained;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• any non-audit tax services that recommend the Company engage in confidential transactions or aggressive tax position transactions, as defined by the U.S. Public Company Accountability Oversight Board; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• any other service that governing regulators or professional bodies determine to be impermissible.

Fees paid to SLF Inc.'s external auditors have been approved by the Audit Committee of the Board of SLF Inc. or otherwise in accordance with the Policy. None of the services provided by the Company's external auditors described above were approved pursuant to a waiver of pre-approval provisions under SEC rules (paragraph (c)(7)(i)(C) of Rule 2 - 01 of Regulation S-X).

**Interests of Experts**

Deloitte LLP is the auditor of SLF Inc. and is independent of SLF Inc. within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario and within the meaning of the U.S. Securities Act of 1933, as amended, and the

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21

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applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States) ("PCAOB").

Kevin Morrissey, the Appointed Actuary of SLF Inc., has provided an opinion on the value of policy liabilities and reinsurance recoverables for SLF Inc.'s statements of financial position as at December 31, 2022 and 2021 and the change in the consolidated statement of operations for the years ended December 31, 2022 and 2021. Mr. Morrissey owned beneficially, directly or indirectly, less than 1% of all outstanding securities or other property of SLF Inc. or its affiliates when he prepared that opinion, and after that opinion was prepared, and he does not expect to receive any such securities or other property in excess of that amount in the future.

**Regulatory Matters**

Sun Life is subject to regulation and supervision by government authorities in the jurisdictions in which it does business.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. In the early days of the pandemic, various regulators introduced new measures or adjustments to respond to the evolving situation with the COVID-19 pandemic. Information on the impact of COVID-19 and certain other regulatory developments affecting Sun Life are described in our 2022 MD&A under the heading "Risk Management" and is incorporated herein by reference.

**Canada**

**Regulation of Insurance Operations**

SLF Inc. is incorporated under and governed by the Insurance Act. OSFI administers the Insurance Act and supervises the activities of SLF Inc. SLF Inc. has all the powers and restrictions applicable to life insurance companies governed by the Insurance Act, which permits insurance companies to offer, directly or through subsidiaries or networking arrangements, a broad range of financial services, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance and reinsurance;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Investment counselling and portfolio management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Mutual funds and segregated funds;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Trust services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Banking services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Real property brokerage and appraisal; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Merchant banking services.

The Insurance Act requires the filing of annual and other reports on the financial condition of insurance companies, provides for periodic examinations of insurance companies' affairs, imposes restrictions on transactions with related parties, and sets out requirements governing certain aspects of insurance companies' businesses.

OSFI supervises SLF Inc. on a consolidated basis to ensure that it has an overview of activities of SLF Inc. and its consolidated subsidiaries. This consolidated supervision includes the ability to review insurance and non-insurance operations of SLF Inc. and subsidiaries and supervisory power to bring about corrective action. OSFI has extensive powers to intervene in the affairs of regulated insurance companies, including the power to request information or documents, to conduct investigations, to require that appropriate actions are taken to address issues identified by OSFI and to levy fines. OSFI may intervene and assume control of an insurance company governed by the Insurance Act if OSFI deems that the amount of the company's available capital is not sufficient.

***Investment Powers***

Under the Insurance Act, a life insurance company must maintain a prudent portfolio of investments, subject to certain overall limitations on the amount it may invest in certain classes of investments, such as commercial loans, real estate and stocks. Additional restrictions (and, in some cases, the need for regulatory approvals) limit the type of investments which SLF Inc. can make in excess of 10% of the voting rights or 25% of the equity of any entity, subject to certain available exceptions under the Insurance Act.

***Capital and Surplus Requirements***

SLF Inc. and Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary in Canada, are subject to OSFI's LICAT capital framework.

The LICAT Guideline uses a risk-based approach for measuring specific life insurer risks and for aggregating the results to calculate the amount of a life insurer's regulatory required capital to support these risks. LICAT measures the capital adequacy of an insurer using a Total Ratio and a Core Ratio and is one of several indicators used by OSFI to assess an insurer's financial condition. The Total Ratio is the Available Capital plus Surplus Allowance and Eligible Deposits divided by a Base Solvency Buffer as described below.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

The principal elements included in determining Qualifying Regulatory Available Capital ("Available Capital") under LICAT include common shares, contributed surplus, retained earnings, the participating account, accumulated currency translation account, unrealized gains and losses on available for sale equity and debt securities, qualifying preferred shares, innovative capital instruments and subordinated debt.

The calculation of the Total Ratio takes into consideration other aspects of the balance sheet that are available as loss absorbing capacity, including the Surplus Allowance and Eligible Deposits. The Surplus Allowance includes the provisions for adverse deviations for non-economic and risk-free interest rate assumptions. The Eligible Deposits consist of the excess deposits held for unregistered reinsurers and claims fluctuation reserves.

The Base Solvency Buffer includes five risk components: (1) credit risk, (2) market risk, (3) insurance risk, (4) segregated funds guarantee risk, and (5) operational risk. Credits are available for: (1) qualifying in-force participating and adjustable products, (2) other risk mitigation and risk transfer, and (3) risk diversification. The sum of the risk components, net of credits, are multiplied by 1.05 to arrive at the Base Solvency Buffer.

The LICAT Guideline sets a Supervisory Target Total Ratio of 100% and a minimum Total Ratio of 90%. The supervisory target provides a cushion above the minimum requirements, provides a margin for other risks, and facilitates OSFI's early intervention process. The supervisory target is not applicable to regulated insurance holding companies and non-operating insurance companies. The Company has established capital targets in excess of the supervisory target set by OSFI.

***Restrictions on Dividends and Capital Transactions***

The Insurance Act prohibits the declaration or payment of dividends on shares of an insurance company if there are reasonable grounds for believing the company does not have, or the payment of the dividend would cause the company not to have, adequate capital or liquidity, or upon any direction made by the Superintendent. The Insurance Act also requires that an insurance company notify the Superintendent of the declaration of a dividend at least fifteen days before the dividend payment date.

The Insurance Act also prohibits the purchase for cancellation of shares issued by an insurance company or the redemption of redeemable shares or other similar capital transactions, if there are reasonable grounds for believing that the company does not have, or the payment would cause the company not to have, adequate capital or liquidity, or upon any direction made by the Superintendent. Further, any redemption or purchase for cancellation of shares issued by an insurance company or similar capital transactions are prohibited without the prior approval of the Superintendent.

On March 13, 2020, OSFI set the expectation for all federally regulated financial institutions that dividend increases and share buybacks should be halted for the time being. On November 4, 2021, OSFI removed these restrictions.

***Restrictions on Ownership***

The Insurance Act contains restrictions on the purchase or other acquisition, issue, transfer and voting of the shares of an insurance company. Pursuant to these restrictions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• No person is permitted to acquire any shares of SLF Inc. if the acquisition would cause the person to have a "significant interest" in any class of shares of SLF Inc., without the prior approval of the Minister of Finance of Canada;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• SLF Inc. is not permitted to record any transfer or issue of shares of SLF Inc. if the transfer or issue would cause the person to have a significant interest in SLF Inc., unless prior approval is obtained from the Minister of Finance of Canada; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• No person who has a significant interest in SLF Inc. may exercise any voting rights attached to the shares held by that person, unless prior approval of the Minister of Finance of Canada is obtained.

A person has a significant interest in a class of shares where the aggregate of any shares of that class beneficially owned by that person, any entity controlled by that person and any person acting jointly or in concert with that person exceeds 10% of all of the outstanding shares of that class of shares.

Under the Insurance Act, the Minister of Finance of Canada may approve only the acquisition of a significant interest of up to 30% of any class of non-voting shares and up to 20% of a class of voting shares, provided that the person acquiring those shares does not have direct or indirect influence over SLF Inc. that, if exercised, would result in that person having control in fact of SLF Inc. In addition, the Insurance Act prohibits life insurance companies, including SLF Inc., from recording a transfer or issuing shares of any class to His Majesty in right of Canada or of a province, an agent of His Majesty, a foreign government or an agent of a foreign government.

SLF Inc. is required to continue to control, but not wholly own, Sun Life Assurance. Any shares of Sun Life Assurance that are not owned by SLF Inc. are required to meet the widely-held criteria (no individual may own more than 10% of any class of shares without prior approval of the Minister of Finance of Canada). The 20% limit on voting share ownership and 30% limit on non-voting share ownership apply to the direct and indirect cumulative ownership of Sun Life Assurance, with the effect that no single investor will be able to use the holding company structure to exceed those ownership restrictions.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23

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***Appointed Actuary***

In accordance with the Insurance Act, SLF Inc.'s Board has appointed a Fellow of the Canadian Institute of Actuaries as its "Appointed Actuary". The Appointed Actuary must provide an opinion on:

• The value of the Company's consolidated policy liabilities as at the end of each fiscal period in accordance with accepted actuarial practice, including the selection of appropriate assumptions and methods;

• Whether the amount of policy liabilities makes appropriate provisions for all obligations to policyholders; and

• Whether the valuation of liabilities is fairly presented in the consolidated financial statements.

Regulations require that the Appointed Actuary meet with the Board or a delegated Committee of the Board at least once in each financial year to report, in accordance with accepted actuarial practice, on the Company's financial position and its expected future financial condition. The Appointed Actuary must report to the Chief Executive Officer and the Chief Financial Officer of SLF Inc. any matters that, in the Appointed Actuary's opinion, could have material adverse effects on the financial condition of SLF Inc.

***Prescribed Supervisory Information***

The Supervisory Information (Insurance Companies) Regulations made under the Insurance Act prohibit regulated insurance companies, such as SLF Inc. and Sun Life Assurance, from disclosing, directly or indirectly, "prescribed supervisory information", as defined in those Regulations. Prescribed supervisory information includes assessments, recommendations, ratings and reports concerning a company made by or at the request of the Superintendent, orders of the Superintendent with respect to capital and liquidity, certain regulatory actions taken with respect to a company, prudential agreements between a company and the Superintendent, and directions of the Superintendent that a company cease or refrain from committing, or remedy, unsafe or unsound practices in conducting its business.

***Provincial/Territorial Insurance Regulation***

In Canada, life insurance is also subject to provincial/territorial regulation and supervision in each province and territory in Canada. Provincial/territorial insurance regulation is primarily concerned with market conduct matters, the rights and obligations under insurance contracts, and the licensing and oversight of insurance intermediaries. In addition to those regulations, guidelines adopted by the Canadian Life and Health Insurance Association ("CLHIA") govern several aspects of our business in Canada.

SLF Inc. is licensed as an insurance company in Canada under the Insurance Act and is the holding company for the Sun Life group of companies. SLF Inc. is not licensed to carry on life insurance business in any province or territory in Canada.

Sun Life Assurance and Sun Life Insurance (Canada) Limited are licensed to carry on life insurance and accident and sickness insurance business in each province and territory in Canada.

**Regulation of Securities Operations**

Several of SLF Inc.'s subsidiaries in Canada are registered with various Canadian Securities Administrators as dealers, advisors or managers under one or more of the following categories of registration: mutual fund dealer, investment fund manager, commodity trading manager, investment counsel/portfolio manager and exempt market dealer. These entities, their registered employees and their products and/or services are regulated in Canada under provincial and territorial securities laws which are administered and enforced by the various Canadian Securities Administrators, and certain entities are also subject to the rules of the applicable self-regulatory organization, such as the Mutual Fund Dealers Association of Canada ("MFDA") for mutual fund dealers, and effective January 1, 2023, the New Self-Regulatory Organization of Canada ("New SRO") resulting from the amalgamation of the MFDA and the Investment Industry Regulatory Organization of Canada ("IIROC"). These entities may be subject to examinations or proceedings by the various Canadian Securities Administrators and self-regulatory organizations. These examinations or proceedings could subject our registered subsidiaries to a range of regulatory sanctions, including censure, limitations on the registrant's activities, and termination of registration, and could subject these entities to a cessation of sales or the rescission of a sale of securities.

**Client Protection for Financial Institution Failure**

Sun Life Assurance's Canadian policyholders are provided protection from an insolvency through Assuris, a not for profit organization that is funded by its member insurance companies. Every life insurance company authorized to sell insurance policies in Canada is required, by the federal, provincial and territorial regulators, to become a member of Assuris. Assuris provides separate protection for individual, group, registered and non-registered, life insurance policies and annuity policies.

The MFDA Investor Protection Corporation ("IPC") provides Clients with protection, within defined limits, in the event of the insolvency of their mutual fund dealer. The IPC is funded by its members, including Sun Life Financial Investment Services (Canada) Inc. Effective January 1, 2023, the New SRO has consolidated the IPC and IIROC's Canadian Investor Protection Fund into a single fund that will be independent of the New SRO and will be known as the Canadian Investor Protection Fund.

The Canada Deposit Insurance Corporation ("CDIC") is a federal crown corporation created to protect deposits made with member financial institutions in case of their failure. CDIC member institutions, including Sun Life Financial Trust Inc., fund deposit insurance through premiums paid on the insured deposits that they hold.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24

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**Other Regulatory Matters**

***Privacy of Client Information and Anti-Spam Legislation***

Canadian federal, and some provincial, laws and regulations require organizations, including financial institutions, to protect the security and confidentiality of Client information. This includes financial institutions notifying Clients about their policies and practices relating to their collection, use and disclosure of Client information, including protection of that information. Requirements

also include an obligation to notify individuals and report to privacy regulators when there is a real risk of significant harm to affected individuals resulting from a breach of security safeguards. In 2021, the Quebec government passed legislation that will significantly alter privacy legislation by introducing new rights for individuals, additional obligations for organizations and expansive enforcement powers and financial penalties for non-compliance. The Quebec privacy legislation will come into force over the next three years with the majority of changes coming into force in September 2023. Canadian anti-spam legislation imposes certain restrictions and formalities on the delivery of commercial electronic messages to existing and prospective Clients. This includes obtaining consent from recipients and providing the ability to unsubscribe from subsequent messages.

***Anti-Money Laundering Legislation***

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, Canada, contains measures to assist in detecting, deterring, and facilitating the investigation of money laundering and terrorist financing offences. This legislation and the associated regulations impose reporting, recordkeeping and "know your Client" obligations on SLF Inc. and certain of its subsidiaries.

***Technology and Cybersecurity***

In July 2022, OSFI issued Guideline B-13 on Technology and Cyber Risk Management. The Guideline applies to all federally regulated financial institutions, including insurance companies, with the stated objective of helping institutions develop greater resilience to technology and cyber risks and will come into effect on January 1, 2024.

**United States**

In the U.S., SLF Inc. does not carry on business and is not regulated as an insurance company. Sun Life Assurance and several indirect U.S. subsidiaries of SLF Inc. carry on business and are regulated as insurance companies in the United States. Michigan is Sun Life Assurance's "state of entry" and is treated as the state of domicile for Sun Life Assurance's U.S. branch (the "U.S. Branch"). The U.S. Branch is licensed to transact business in every state in the United States except New York, plus in the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. SLF Inc.'s U.S. life and health insurance subsidiaries are, collectively, licensed to transact business in all states, the District of Columbia, and Puerto Rico.

Certain U.S. subsidiaries of SLF Inc. (including DentaQuest and its subsidiaries) offer products and services to federal and state health programs that are governed by federal law and subject to regulation by the Centers for Medicare and Medicaid Services ("CMS"). The state health programs are also governed by state health care laws administered by state Medicaid agencies.

In addition, some of SLF Inc.'s U.S. subsidiaries (including MFS and its subsidiaries; Sun Life Capital Management (U.S.) LLC; BGO and Crescent and certain of their respective subsidiaries; and some subsidiaries of InfraRed) and various contracts, policies and funds issued, offered or managed by them are subject to regulation under federal securities laws administered by the SEC and under certain state securities laws.

**Regulation of Insurance Operations - State Level**

In the United States, all states, the District of Columbia, and the U.S. territories and possessions have insurance laws that apply to companies licensed to carry on an insurance business in the jurisdiction. The primary regulator of an insurance company, however, is the state insurance department or equivalent body located in its state of domicile. Most jurisdictions have laws and regulations governing the financial aspects of insurers, including standards of solvency, reserves, reinsurance, and capital adequacy, as well as the business conduct of insurers. In addition, the laws of the various states provide state insurance regulators with broad administrative powers to approve policy forms and related materials and approve rates for certain lines of insurance, grant and revoke licenses to transact business, regulate trade practices, license agents, and require statutory financial statements. The primary purpose of such regulation is the protection of policyholders and consumers, rather than shareholders.

The NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the United States.

The U.S. Branch and SLF Inc.'s U.S. life and health insurance subsidiaries are subject to the insurance holding company laws and regulations in the states in which they are domiciled (or deemed to be commercially domiciled). Most states' insurance holding company laws require each insurer that is domiciled therein and that is a member of a holding company system to register with the insurance regulatory authority of that state and, annually, to furnish those authorities with reports that include information concerning capital structure, ownership, financial condition, certain intercompany transactions, enterprise risk management and

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

general business operations. In addition, under most states' holding company laws, transactions within the holding company system to which the domestic insurer is a party must be fair and equitable and the insurer's policyholder surplus following any such transaction must be both reasonable in relation to its outstanding liabilities and adequate for its needs. Most states require prior regulatory approval of the change of control of the domestic insurer or an entity that controls the domestic insurer and prior notice or regulatory approval of certain intercompany transfers of assets or other material affiliate transactions to which a domestic insurer is a party. Generally, under such laws, a state insurance authority must approve in advance the direct or indirect acquisition of 10% or more of the voting securities of an insurance company domiciled in the state.

SLF Inc.'s U.S. captive insurance companies are subject to the laws and regulations applicable to captive insurers in their states of domicile, as well as the terms of the business plans approved by, and the licensing orders issued by, the companies' domestic regulators. Generally, a captive insurance company is required to seek regulatory approval prior to taking any action that would deviate from the activities described in its approved business plan or specifically permitted by the licensing order issued by its domestic regulator.

The U.S. Branch and SLF Inc.'s U.S. life and health insurance subsidiaries are required to file detailed annual and quarterly financial statements with state insurance regulators in each of the states in which they are licensed, and their business and accounts are subject to examination by such regulators at any time. Regulators have authority to limit or prohibit the ability to issue new policies if, in their judgment, an insurer is not maintaining sufficient surplus or capital or if the further transaction of business would be detrimental to policyholders.

As part of their oversight process, state insurance departments conduct detailed examinations periodically (generally, every three- to five-years) of the financial condition and market conduct of insurance companies domiciled in their states. The latest published examination reports of the U.S. Branch and SLF Inc.'s U.S. life and health insurance companies did not raise any material issues or adjustments. In addition to the periodic examinations, states will on occasion perform targeted market conduct reviews that may cover, among other things, content of disclosures, advertising, sales practices and complaint handling. Examinations are periodically conducted, in cooperation with the departments of other states, under guidelines published by the NAIC.

***Restrictions on Dividends***

The amount of dividends that an insurance company may pay to its parent without prior regulatory approval is regulated under the U.S. state insurance holding company laws and regulations and under the terms of licensing orders issued by various states.

***NAIC IRIS Ratios***

The NAIC has developed a set of financial relationships or "tests" known as the Insurance Regulatory Information System ("IRIS") to assist state regulators in monitoring the financial condition of insurance companies and identifying companies that may require special attention or action by insurance regulatory authorities. A second set of confidential ratios, called the Financial Analysis Solvency Tracking System, is also used for monitoring. Insurance companies generally submit data to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined "usual ranges". Having ratios that fall outside the usual range does not necessarily indicate that a company experienced unfavourable results. Generally, if four or more of an insurance company's ratios fall outside the usual ranges, regulators will begin to investigate or monitor the company. Regulators have the authority to impose remedies with various degrees of supervision, ranging from increased monitoring to certain business limitations. For the twelve-month period ended December 31, 2021, the most recent period for which results are available, SLF Inc.'s U.S. life and health insurance subsidiaries were within the usual ranges for most of the IRIS ratios. The U.S. Branch had two ratios outside of the usual ranges, which was anticipated in connection with certain planned transactions that were reported to or approved by state regulators as required. The ratios that were outside the usual ranges did not indicate any adverse solvency issues.

***Risk-based Capital Ratio Requirements***

All states have risk-based capital ("RBC") ratio requirements for insurance companies. The NAIC RBC system was created to provide a capital adequacy standard that is related to risk, raises a safety net for insurers, is uniform among the states, and provides regulatory authority for timely action. The RBC system requires an insurer to calculate a minimum amount of capital that it must maintain to support the various risks to which it is exposed. A separate factor is used across each major risk category, and may vary by primary insurance type. RBC focuses on the material risks that are common for the particular insurance type. For life and health insurance, RBC considers investment risk, insurance risk, interest rate risk, and other market and business risks, by applying factors to various amounts presented in the company's statutory financial statements. The RBC framework was updated in 2022 to introduce more granular charges associated with mortality risk in the RBC formula for life insurers. For the year ended December 31, 2022, the RBC ratios for the U.S. Branch and SLF Inc.'s U.S. life and health insurance subsidiaries are expected to exceed the levels under which any remedial or regulatory action would be required.

***Statutory Reserves***

State insurance laws require life and health insurance companies to analyze the adequacy of their reserves annually. The appointed actuary for the U.S. Branch and SLF Inc.'s other U.S. life and health insurance subsidiaries must submit an opinion that such reserves, when considered in light of the assets held with respect to those reserves, make adequate provision for the associated contractual

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26

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obligations and related expenses of the U.S. Branch and each of SLF Inc.'s life and health insurance subsidiaries. If such opinion cannot be provided, the affected insurer must set up additional reserves.

Under NAIC rules, life and health insurance companies must maintain an asset valuation reserve ("AVR"), which is a provision for potential asset credit defaults. The size of the AVR depends upon the composition and results of a company's investment portfolio. These reserves are recorded for purposes of statutory accounting practices; they are not recorded under the provisions of IFRS and therefore have no impact on SLF Inc.'s reported results of operations or financial position. The AVR affects the determination of statutory surplus, and changes in such reserves may affect the ability of SLF Inc.'s U.S. life and health insurance subsidiaries to pay dividends or other distributions to their respective parents and also may affect the amounts required to be maintained in trust by the U.S. Branch (see discussion below under Minimum Statutory Surplus and Capital).

***Minimum Statutory Surplus and Capital***

The U.S. Branch and SLF Inc.'s U.S. life and health insurance subsidiaries are required to have minimum statutory surplus and capital of various amounts, depending on the states in which they are licensed and the types of business that they transact.

The U.S. Branch is required to maintain a certain amount of assets in trust with a financial institution acceptable to the Director of Michigan's Department of Insurance and Financial Services (the "Michigan Director") in an amount at all times at least equal to the sum of the U.S. Branch's reserves and other liabilities, the minimum required capital and surplus, and any additional amounts considered necessary by the Michigan Director to cover the U.S. Branch's liabilities. Generally, these assets are available only to meet the obligations of Sun Life Assurance to its U.S. policyholders, claimants and other U.S. Branch creditors. Amendments to the trust agreement must be approved by the Michigan Director. As at December 31, 2022, the U.S. Branch had assets in trust in excess of Michigan's requirements.

***Investments of Insurance Companies***

The U.S. Branch and SLF Inc.'s other U.S. life and health insurance subsidiaries are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain investment categories such as below-investment-grade fixed income securities, equity real estate, foreign investments and equity investments. Failure to comply with these laws and regulations would cause investments exceeding regulatory limits to be treated as non-admitted assets for purposes of measuring surplus and, in some instances, would require divestiture of such non-qualifying investments.

***State Guaranty Association Assessments***

All states, the District of Columbia and Puerto Rico require insurers to participate in the local insurance guaranty association. The association may levy assessments for policyholder losses incurred by impaired or insolvent insurers. Generally, assessments up to certain prescribed limits are based upon the proportionate share of premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged. A large part of the assessments paid by SLF Inc.'s U.S. insurance subsidiaries pursuant to these laws may be used as credits for a portion of its U.S. premium taxes.

**Regulation of Insurance Operations - Federal Level**

Although the U.S. federal government does not directly regulate the insurance business, federal legislation and administrative policies in several areas apply to the conduct of the insurance business, including age and sex discrimination, investment company regulation, financial services regulation, health care regulation, foreign corrupt practices regulation and federal taxation. For example, the U.S. Congress has, from time to time, considered legislation related to limitations on antitrust immunity and the alteration of the federal income tax structure.

DentaQuest and certain other U.S. subsidiaries of SLF Inc. administer dental and vision benefits for federal and state health programs that are governed by federal law, including Medicaid and Children's Health Insurance programs, Medicare Advantage plans, and offerings on federal and state exchanges under the Patient Protection and Affordable Care Act. CMS is the U.S. federal agency that regulates each of these programs. Each U.S. state administers its own Medicaid program and has its own laws and regulations in place. The exchange in each state is operated by CMS, a state agency, or a partnership between the two.

**Regulation of Securities Operations**

The investment management activities of SLF Inc.'s U.S. subsidiaries are subject to federal and state laws and regulations in the jurisdictions where they conduct business. MFS and certain of SLF Inc.'s other U.S. subsidiaries are registered as investment advisers under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), which imposes various obligations on registered investment advisers, including fiduciary duties, and disclosure, operational, recordkeeping and reporting requirements.

Several of SLF Inc.'s U.S. subsidiaries issue or have issued products that are registered with the SEC as investment companies under the Investment Company Act of 1940, as amended (the "1940 Act") and which issue securities that are registered under the Securities Act of 1933, as amended (the "1933 Act"). Certain of SLF Inc.'s U.S. subsidiaries provide investment management services to affiliated funds, which similarly are registered as investment companies under the 1940 Act and which issue securities that are registered under the 1933 Act. The 1940 Act and the 1933 Act impose various obligations on registered investment companies and

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27

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with respect to the securities that they issue, including disclosure, operational, recordkeeping and reporting requirements and, in the case of the 1940 Act, prohibitions or restrictions on certain transactions with affiliates.

Registered investment companies and investment advisers are regulated by and subject to examination by the SEC. The SEC is authorized to institute proceedings and impose sanctions for violations of the U.S. federal securities laws. Failure to comply with applicable securities laws could subject SLF Inc.'s investment companies and investment adviser subsidiaries to a range of regulatory sanctions, including censure, limitations on the registrant's activities, and termination of registration, and could subject its registered investment companies to a cessation of sales or rescission of securities sold.

To the extent that any products are deemed to be securities under U.S. federal or state securities laws, they are qualified for sale as needed in certain states in the United States and the District of Columbia. Marketing and sales of securities products are subject to the Securities Exchange Act of 1934, as amended (the "1934 Act"), and regulations promulgated by the Financial Industry Regulatory Authority ("FINRA").

Certain of SLF Inc.'s U.S. subsidiaries are registered as broker-dealers under the 1934 Act and are subject, for example, to the SEC's net capital rules, and are members of, and subject to regulation by FINRA. Certain other U.S. subsidiaries of SLF Inc. are registered as transfer agents under the 1934 Act.

MFS, BGO, Crescent and InfraRed also conduct business in the European Union ("EU") that is also subject to securities laws and regulations. The revised Markets in Financial Instruments Directive and Regulation ("MiFID II") became effective on January 3, 2018 and applies across the EU and member states of the European Economic Area ("EEA"). Some of the main changes introduced under MiFID II include applying enhanced disclosure requirements, enhancing conduct of business and governance requirements, broadening the scope of pre and post trade transparency, increasing transaction reporting requirements, transforming the relationship between Client commissions and research, and further regulation of trading venues. Implementation of MiFID II has had a significant impact on both the structure and operation of EU financial markets. In response to MiFID II, MFS is paying for all external investment research for all clients (including non-European clients).

**Other U.S. Regulatory Matters**

***U.S. Taxation***

The Inflation Reduction Act ("IRA") was enacted on August 16, 2022 and includes provisions enacting a 15% corporate alternative minimum tax ("CAMT") that applies to certain corporations for tax years beginning after December 31, 2022. The Treasury/IRS is expected to continue issuing substantial guidance related to these legislative changes in the coming months. We are in the process of evaluating the potential impact of the CAMT and other significant provisions of the IRA on our tax expense in the U.S., and will continue to do so as the Treasury/IRS continues to issue such guidance.

***The Dodd-Frank Act***

The Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which was signed into law in July 2010, enacted numerous legal and regulatory changes for the financial services industry, which have been gradually implemented over the ensuing years.

The Dodd-Frank Act mandated the U.S. federal regulation of the over-the-counter ("OTC") derivatives market and granted new joint regulatory authority to the SEC and the U.S. Commodity Futures Trading Commission ("CFTC") over OTC derivatives. The SEC and CFTC have promulgated rules to implement the Dodd-Frank Act's requirements, and certain of Sun Life's derivatives operations have become subject to, among other things, new recordkeeping, reporting and documentation requirements. In addition, certain non-cleared derivatives entered into as part of Sun Life's derivatives operations are subject to two-way variation and, with certain of Sun Life's derivatives counterparties, initial margin requirements. These margining requirements may increase the cost, and reduce the availability of, non-cleared derivatives. Collectively, the Dodd-Frank Act requirements, and the requirements of similar legislation that has been promulgated by Canadian and European regulators, have increased the direct and indirect costs of the Company's hedging and related activities and will likely increase them further in the future.

***LIBOR***

LIBOR and other Interbank Offer Rates ("IBORs") measure the average cost that banks pay to borrow from each other on an unsecured basis on a short-term basis. They are commonly used as a benchmark or reference rate for certain financial products and contracts, including Sun Life's derivatives, loans and floating rate securities investments (collectively, the "Investments") that are LIBOR or IBOR-based.

On March 5, 2021, the ICE Benchmark Administration ("IBA") (the entity that is responsible for calculating LIBOR) announced its intention to cease the publication of (a) the one-week and two-month US dollar LIBOR settings, as well as all GBP, EUR, CHF and JPY LIBOR settings, immediately following the LIBOR publication on December 31, 2021, and (b) the remaining US dollar LIBOR settings, immediately following the LIBOR publication on June 30, 2023. On the same day, the UK Financial Conduct Authority ("FCA") confirmed that all 35 LIBOR settings will be discontinued or declared non-representative as of the dates set out above.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

On October 20, 2021, the prudential regulators in the United States issued a joint statement emphasizing the expectation that supervised institutions with LIBOR exposure continue to progress toward an orderly transition away from LIBOR, reiterating that supervised institutions should, with limited exceptions, cease entering into new contracts that use US dollar LIBOR as a reference rate no later than December 31, 2021. The joint statement also provided considerations when assessing the appropriateness of alternative reference rates used in lieu of LIBOR, and the expectation that new or updated LIBOR contracts provide for the use of a strong and clearly defined fallback rate when the initial reference rate is discontinued. The Alternative Reference Rates Committee ("ARRC") of the Federal Reserve Board has identified the Secured Overnight Financing Rate ("SOFR") as the replacement rate for US dollar LIBOR. The ARRC has also developed industry specific fallback language that may be used by market participants for contract remediation in order to address the transition from US dollar LIBOR to SOFR.

The federal Adjustable Interest Rate (LIBOR) Act ("LIBOR Act") was signed into law on March 15, 2022. This legislation, which supersedes similar laws that were previously passed by several states, provides a statutory fallback mechanism on a nation-wide basis to replace US dollar LIBOR with a benchmark rate, selected by the Federal Reserve Board and based on SOFR, for certain contracts that reference US dollar LIBOR and contain no or insufficient fallback provisions. A final rule that implements the LIBOR Act was adopted by the Federal Reserve Board on December 16, 2022. The LIBOR Act and final Federal Reserve Board rule could apply to certain of Sun Life's investments that reference US dollar LIBOR to the extent that they do not have adequate fallback provisions after June 30, 2023.

Similar benchmark reform is also underway in several other countries, where regulators and industry groups (including the Canadian Alternative Reference Rate Working Group ("CARR") in Canada and the Working Group on Risk-Free Reference Rates for the Euro Area in the European Union) have identified, and are facilitating the transition to, alternative secured or unsecured (depending upon the jurisdiction) "risk free" transaction-based rates. For example, in Canada, on June 22, 2021, OSFI, consistent with international efforts, outlined its expectations of federally regulated financial institutions as they transition away from LIBOR, including ceasing the use of US dollar LIBOR settings as soon as possible and not entering into transactions using LIBOR as a reference rate after December 31, 2021, prioritizing system and model updates to accommodate "risk-free" rates, and the need to have an adequate contingency plan to respond to potential issues that may emerge at LIBOR's cessation. Also, on May 16, 2022, Refinitiv Benchmark Services (UK) Limited announced that it will cease the publication of the Canadian Dollar Offered Rate ("CDOR") after June 28, 2024, and set in motion the expected transition to the Canadian Overnight Repo Rate Average. In the UK, the FCA is working with market participants to facilitate the transition from GBP LIBOR to the Sterling Overnight Index Average and, on September 29, 2022, it announced that the one-and six-month synthetic sterling LIBOR settings will cease to be published after March 1, 2023. On November 23, 2022, the FCA announced that the three-month synthetic sterling LIBOR setting will cease to be published after March 31, 2024, and that it is proposing to require the IBA to publish one-, three- and six-month synthetic US dollar LIBOR settings until September 30, 2024.

It is difficult to fully predict the effect of the benchmark reform that is taking place in the United States and elsewhere. Uncertainty relating to the transition to alternative rates, the use of ARRC or other fallback language, and other factors relating to reform may adversely affect our operations and cash flows and the value of and return on our Investments that are LIBOR or IBOR-based. Accordingly, Sun Life continues to implement a comprehensive enterprise-wide program that is focused on ensuring an effective and smooth transition away from LIBOR and other IBORs.

***Cybersecurity and Privacy of Client Information***

U.S. regulators at the federal and state level are increasing their focus on cybersecurity. In particular, the New York Department of Financial Services has adopted regulations designed to enhance cybersecurity controls of financial institutions, and the Department includes cybersecurity programs within the scope of examination. The NAIC has developed a model cybersecurity regulation based on New York's rule and multiple states have adopted similar measures. These regulations require licensees, including SLF Inc.'s U.S. insurance subsidiaries, to implement risk-based information security programs; establish detailed procedures for investigating cybersecurity events, assessing risk, and overseeing third-party service providers; and comply with increased regulatory reporting requirements.

In addition, U.S. federal and state laws require financial institutions, including insurers, investment companies and investment dealers, to protect the security and confidentiality of Client information and to notify Clients about the institution's policies and practices relating to its collection, use and disclosure of client information. The State of California has enacted legislation and proposed regulations designed to enhance consumer privacy rights, and other states have enacted similar consumer focused privacy laws. These laws and regulations will significantly change data privacy requirements in the U.S., impose greater penalties for non-compliance, and provide for consumer rights to access, delete and correct their personal information and private rights of action.

These laws and regulations will also increase the costs and compliance obligations associated with the Company's information security and administration activities.

***The USA PATRIOT Act of 2001***

The USA PATRIOT Act of 2001 (the "PATRIOT Act") seeks to promote cooperation among financial institutions, regulators and law enforcement agencies in identifying parties that may be involved in terrorism, money laundering or other illegal activities.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29

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Regulations applicable to the insurance industry require insurance companies issuing "covered products" to implement anti-money laundering programs and file suspicious activity reports with the U.S. Treasury Department. SLF Inc.'s U.S. subsidiaries that issue covered products and its U.S. broker-dealer subsidiaries have implemented anti-money laundering programs to comply with the PATRIOT Act regulations and with the Office of Foreign Assets Control requirements with respect to anti-terrorist financing.

***Paid Family and Medical Leave***

A growing number of states have passed or are considering mandated paid family and medical leave ("PFML") programs. These programs generally provide partial income protection for an employee who is unable to work on account of his or her own serious health condition or for various family care reasons. There are a number of PFML proposals at the federal level as well. While PFML programs overlap with short term disability coverage and, as a result, could have a negative impact on the short term disability marketplace in which the U.S. Branch and SLF Inc.'s U.S. life and health subsidiaries operate, these programs also offer an opportunity for insurers to build new products to serve an emerging market.

**United Kingdom**

SLF Inc. does not carry-on business and is not regulated as an insurance or asset management company in the UK. However, it is the indirect owner of Sun Life Assurance Company of Canada (U.K.) Limited ("SLOC UK") through Sun Life UK, which is authorized and regulated as an insurance company in the UK, and subject to the Solvency II insurance regime. Insurance supervision in the UK is performed by two financial services regulators, the Financial Conduct Authority ("FCA") and the Prudential Regulation Authority ("PRA"). In addition, there are several other UK regulatory bodies of financial services with whom SLOC UK is required to maintain compliance.

Following the end of the transitional phase of the UK's withdrawal from the EU on December 31, 2020, SLOC UK continues to be subject to the Solvency II regime. However, some of our policyholders continue to be residents of the EU and EEA jurisdictions. As National Competent Authorities, individual EU and EEA regulators may seek additional returns from SLOC UK to meet their local requirements regarding continuity of service to policyholders resident in their jurisdictions, although this has not been the case to date.

On August 4, 2022, we entered into an agreement to sell Sun Life UK to Phoenix Group. The transaction is expected to close in the first half of 2023, subject to regulatory approvals and customary closing conditions. For more details, see the heading "Three Year History: Acquisitions, Disposals, and Other Developments" above.

**Insurance Supervision and Regulation**

The FCA's statutory and operational objectives are to protect consumers, ensure market integrity and promote effective competition. The PRA's statutory objectives are to promote the safety and soundness of its regulated firms and to ensure policyholders are appropriately protected. It also has a secondary objective to facilitate effective competition in the markets for services provided by PRA-authorized firms.

Both the FCA and PRA adopt a principles rather than a rules-based philosophy to supervision. Within this approach, they use judgment, are forward looking and focus on the issues that pose the greatest risks to their respective objectives. They aim to supervise proportionately relative to the nature, scale and complexity of the business. Both regulators apply a harmonized approach to their expectations of a firm's governance - the Senior Managers and Certification Regime - which places legally enforceable requirements on designated individuals alongside a Conduct Rules regime that applies to most employees within the business.

Both the FCA and the PRA have extensive powers to intervene in the affairs of an authorized insurance company. These include the power to fine an authorized company and to vary or cancel its permission to carry on regulated activities in the UK, to request information or documents, to investigate the business of the company and to require the company to take appropriate actions to satisfy required threshold conditions for authorization.

SLOC UK is regulated as a Standard Formula firm under Solvency II and carries out certain regulated activities in the UK in relation to long-term contracts of insurance. It is required to meet certain Threshold Conditions and to conduct business in accordance with the provisions set out in the FCA Handbook and the PRA Rulebook. Under these requirements, SLOC UK must maintain systems, procedures and controls appropriate to the nature, scale and complexity of its business, to conduct its business with due regard to the interests of its policyholders, and to treat them fairly. It is also required to hold capital appropriate to its risk profile, and report to the regulator its ongoing compliance in that respect.

Solvency II also includes a group supervision requirement that applies to SLOC UK, its ultimate holding company (SLF of Canada UK Limited), and a number of small, mostly inactive and un-regulated entities. SLF Inc. is excluded from the scope of group supervision under the terms of a rule modification granted by the PRA which expires in November 2023. This group supervision regime also places some firm-specific restrictions on dividend and capital transactions, in addition to the provisions of the Companies Act 2006 regarding the payment of dividends.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30

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**Financial Ombudsman Service**

The Financial Ombudsman Service ("FOS") provides consumers with a free and independent service to resolve disputes between consumers and financial services firms. The FOS is empowered to order firms to pay compensation for consumer losses and to take steps to remedy a complaint.

**Financial Services Compensation Scheme**

The Financial Services Compensation Scheme provides for the protection of consumers who may be affected by the inability of financial services companies who carry on regulated business in the UK to meet their liabilities.

**The Pensions Regulator**

The Pensions Regulator is the regulator of workplace pension schemes and has agreed a joint strategy with the FCA that aims to deliver better outcomes for pension savers and those entering retirement.

**Asia**

Sun Life carries on business through subsidiaries, joint ventures or associates in the Philippines, Hong Kong, Indonesia, Vietnam, India, China, Malaysia and Singapore. The operations of our subsidiaries, joint ventures and associates in Asia are subject to the local regulatory and supervisory schemes in the jurisdictions in which they operate, which varies from country to country, but the regulators typically grant (or revoke) licenses to operate and control the ability of a company to operate an insurance business in that country.

In general, the applicable legislation in a particular country includes features governing the registration of agents, regulation of product features and product approvals, asset allocation, minimum capital, the basis for calculating solvency and reserves, the valuation of policyholder liabilities, conditions for outsourcing core and non-core functions, policyholder and investor protection, change of directors or key management and money laundering, know-your-Client and terrorist financing requirements. Regulatory authorities may also regulate affiliations with other financial institutions, shareholder structures and may impose restrictions on declaring dividends and the ability to effect certain capital transactions and many jurisdictions require insurance companies to participate in policyholder protection schemes.

**Philippines**

Our operations in the Philippines, established in 1895, distribute a diverse range of life insurance, asset management and investment products and solutions largely through our career agency sales force and bancassurance channel, an asset management company and an investment & trust company.

We offer individual and group life and health insurance products to individuals and businesses through our wholly-owned subsidiary, Sun Life of Canada (Philippines), Inc. ("Sun Life Philippines"), and our joint venture with the Yuchengco Group, Sun Life Grepa Financial, Inc. ("Sun Life Grepa"), in which we have a 49% ownership stake. In addition, we offer mutual funds and pre-need products respectively through Sun Life Philippines' wholly-owned subsidiaries, Sun Life Asset Management Company, Inc. ("Sun Life Asset Management (Philippines)") and Sun Life Financial Plans Inc. ("SLFPI"). Trust and investment management solutions are provided through Sun Life Investment Management and Trust Corporation ("SLIMTC"). There are no foreign ownership restrictions applicable to life insurance, mutual funds, or pre-need and trust companies in Philippines.

Sun Life Philippines and Sun Life Grepa are life insurance companies incorporated in the Philippines and regulated by the Insurance Commission. Sun Life Philippines offers individual and group life and health insurance products through its agency sales force, brokers and fintech partners. Sun Life Grepa offers its individual and group life insurance products through an agency sales force and through bancassurance distribution arrangements. The Insurance Commission supervises and regulates the operations of life, non-life, and pre-need companies.

Life insurance companies in the Philippines are required at all times to maintain the minimum net worth requirements prescribed by regulations. Current minimum net worth requirements are 1.3 billion Philippine Pesos ("Php"). In addition, life insurance companies must maintain a minimum RBC ratio of 100% as prescribed in the Risk-Based Capital Framework. Insurance companies compliant with the net worth requirements as of December 31, 2019 that are adversely affected by the COVID-19 pandemic are required to comply with the Amended Risk Based Capital Framework and Revised Regulatory Intervention (RBC ratio). The Amended Risk Based Capital Framework adopts a risk-based approach to solvency, including quantitative capital requirements, government and risk management requirements, and disclosure requirements to encourage market discipline. The Revised Regulatory Intervention Ratio provides for the corresponding regulatory action/response to specific levels of RBC ratios. Depending on the RBC ratio, the regulatory response ranges from a required submission of linear extrapolations of the ratio for the next period to a take-over of the insurance company by the Insurance Commission.

Sun Life Asset Management (Philippines) is a mutual fund manager and distributor regulated by the Securities and Exchange Commission. SLFPI offers pension and education plans in the Philippines, and is regulated by the Insurance Commission.

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SLIMTC is regulated by the Bangko Sentral ng Pilipinas and is licensed to provide trust and investment management services. It was established to provide multi-strategy local and global portfolio management services and deliver superior risk-adjusted returns for both individual and institutional investors in the Philippines.

**Indonesia**

In Indonesia, we offer individual life and health insurance, as well as creditor life insurance through our wholly-owned subsidiary, PT Sun Life Financial Indonesia.

PT Sun Life Financial Indonesia is licensed to carry on life insurance business in Indonesia and can distribute life insurance products in Indonesia. PT Sun Life Financial Indonesia can additionally manufacture and distribute sharia products in Indonesia through its sharia business.

The Indonesian Financial Services Authorities (*Otoritas Jasa Keuangan*) ("OJK") is the regulator responsible for supervising and regulating the financial service industries in Indonesia, including the insurance industry. The Indonesia Life Insurance Association ("AAJI") continues to act as a conduit between life insurers and the Ministry of Finance and the OJK in terms of the development of new regulations and guidelines in relation to the life insurance sector. Life insurance sales forces (i.e. agents) are licensed by the AAJI. The Indonesia Sharia Insurance Association acts in the similar capacity as AAJI in relation to the sharia insurance business. The implementation of anti-money laundering controls in the insurance industry is also monitored by the Indonesian Financial Transaction Reports and Analysis Center, in addition to it being under the general supervision of the OJK.

Life insurance companies in Indonesia are required to maintain a minimum solvency ratio of 120% of the minimum required capital and must have minimum shareholder equity of 100 billion Indonesian Rupiah.

In October 2014, legislation was enacted in Indonesia that introduced significant changes to the insurance sector in Indonesia, including establishing single presence requirements, establishing local ownership requirements to be prescribed by regulations, establishing an insurance guarantee program, requiring that Shariah (Takaful) products are distributed through separate standalone insurance companies ("Sharia Spin-off"), requiring the appointment of a controlling entity that will be responsible for losses of the insurance company under its control and imposing stiffer penalties and sanctions for non-compliance. The Government Regulation which regulates local and foreign ownership requirements was issued in April 2018 and since then a grandfathering provision has been included to allow existing ownership by a foreign shareholder to be maintained (the "Grandfathering Provision"). The Government Regulation on the foreign ownership requirement was amended in early 2020. The key amendments introduced include: (1) an expansion of the applicability of the Grandfathering Provision for standalone sharia insurance companies established in response to the Sharia Spin-off and (2) the removal of requirements for local shareholders in joint venture insurance companies to participate in at least 20% of any capital injection, such that local shareholders are now only required to participate in an amount at least proportionate to their current shareholdings.

All insurance companies with sharia business units were required to submit a Sharia Spin-off plan to the OJK for approval. PT Sun Life Financial Indonesia's Sharia Spin-off plan was approved by the OJK in November 2020.

**Vietnam**

In Vietnam, we offer a diverse range of insurance, savings, investment and pension products through our wholly owned subsidiary Sun Life Vietnam Insurance Company Limited ("Sun Life Vietnam"). There are no foreign ownership restrictions applicable to Sun Life Vietnam, however, a transfer of 10% or more of the charter capital of any life insurer must be approved by the Ministry of Finance of Vietnam ("MOF").

In June 2022, the Vietnam National Assembly adopted a new Law on Insurance Business (the "Law on Insurance Business 2022") which has taken effect from January 1, 2023, with the exception of some requirements that have a transition period.

Insurance operations in Vietnam are mainly regulated by the MOF, which sets the standards on all insurance business matters, including product approvals, limits on commission rates payable on insurance products, actuarial liability valuation, and solvency requirements. Life insurers have responsibility for minimum legal capital of Vietnamese Dong ("VND") 600 billion and that a security deposit equal to 2% of the legal capital be maintained at a commercial bank in Vietnam. Life insurers that sell pension products are required to have a minimum legal capital of VND 800 billion. Life insurers that sell pension and unit-linked products are required to have a minimum legal capital of VND 1,000 billion. The equity of the owner of a life insurer must not be lower than the required minimum legal capital applicable to that insurer. A proposal to increase these requirements with respect to minimum legal capital has been put forward under a draft decree of implementing regulations of the Law on Insurance Business 2022. The draft decree is expected to come into effect in early 2023.

The required solvency margin is VND 300 billion over the minimum solvency margin for insurers selling pension, unit-linked and universal life products. The MOF also requires life insurers to maintain: (a) minimum reserves; (b) for unit-linked policies, a minimum solvency margin of 1.5% insurance reserves plus 0.3% of the sums at risk; (c) for universal life products and pension products, a minimum solvency margin of 4% of insurance reserves plus 0.3% of the sums at risk; and (d) for other life insurance policies and

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32

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health policies, a minimum solvency margin of 4% of insurance reserves plus either (i) 0.1% of sums at risk for policies with a term of five years or less, or (ii) 0.3% of the sums at risk for policies with a term over five years. Life insurers must also establish a reserve fund to ensure their solvency. Life insurers are to deduct 5% of annual profit after-tax to set up a compulsory reserve fund, the maximum of which is equal to 10% of the charter capital.

Sun Life Vietnam's products are generally distributed through a career agency sales force, including individual agency, corporate agency and bank partner, for individual Clients and through a corporate agency for corporate Clients. Sun Life Vietnam has an option to contract with eligible insurance auxiliary service providers to support Sun Life Vietnam in selling Sun Life Vietnam's products to Clients. The insurance auxiliary services include insurance consultation, insurance risk assessment, insurance calculation, insurance loss assessment and insurance claim assistance.

Notably, the Law on Insurance Business 2022 allows 100% foreign ownership for onshore insurers and re-insurers. The Law on Insurance Business 2022 also provides for a clearer regime for market participants (including Sun Life Vietnam) to provide insurance services and products via online platforms, and introduces regulations on RBC in order to apply a RBC management model in the Vietnamese insurance market. Accordingly, an insurer's solvency will be conditional on, among other things, maintaining a capital adequacy ratio based on the actual capital and the risk-based capital of the insurer. The risk-based capital will be determined based on the size and quantification of the impacts of various groups of risks on the business activities of the insurer including: (i) insurance risks, (ii) market risks, (iii) operational risks, (iv) other risks that have not been taken into account. The RBC regime is under development by the MOF with international and market consultation to ensure its full implementation by January 1, 2028.

**India**

Aditya Birla Sun Life Insurance Company Limited ("ABSLI") is our insurance joint venture with the Aditya Birla Group in India in which we have a 49% stake. ABSLI provides a full range of individual and group insurance, savings and retirement products through a multi-channel distribution network, including an agency sales force, bancassurance distribution, brokers and worksite marketing.

Insurance operations in India are regulated by the Insurance Regulatory & Development Authority of India ("IRDAI"), whose duties include issuing certificates of registration to insurance companies, protecting the interests of policyholders, and regulating, promoting and ensuring the orderly growth of the insurance industry. In recent years, a number of regulatory changes have been introduced, affecting matters that include product design and structure including commissions, distribution, investments, expense management, risk management, corporate governance, insurer's registration and grievance handling.

Life insurance companies in India are expected to maintain a Minimum Solvency Ratio (Total Assets Available for Solvency / Required Solvency Margin) of 150% at all times, where the Required Solvency Margin is an amount calculated by applying specified factors to reserves and amounts-at-risk. Life insurance companies are required to maintain their Available Solvency Margin at a level which is not less than the greater of fifty per cent of the amount of minimum required capital and one hundred percent of Required Solvency Margin. The Minimum Paid-up Capital for life insurers is INR 1 billion.

The Indian regulator has been actively engaging with insurers and other stakeholders to monitor and manage the ongoing effects of COVID-19 pandemic on the insurance sector. The IRDAI is also keeping a close watch on COVID-19 death claims and has prescribed measures to ensure prompt settlement of such claims to ensure that policyholder interests are not negatively impacted on account of higher claims volume. The Indian regulator has also been actively engaging with insurers and other stakeholders to increase insurance penetration and development of the insurance sector.

The foreign investment limit in the insurance sector in India is 74% of the equity share capital in an Indian insurance company, and is subject to the additional requirement that a majority of its directors, a majority of its Key Management Persons, and at least one among the Chairperson of its Board, its Managing Director and its CEO must be Resident Indian Citizens. In addition, prior approval is required from the IRDAI for: (i) a sale of shares where the nominal value of the shares is over 1% of the paid-up equity share capital; or (ii) a transfer of shares that will result in an increase in shareholdings beyond 5% of the paid-up equity share capital. Any foreign investment in an Indian insurance company must comply with the pricing guidelines specified by the Reserve Bank of India.

The government of India, in consultation with the IRDAI, has issued a draft bill proposing various changes to the existing insurance law framework, including solvency requirements applicable to insurance companies, and we are monitoring for potential impacts on our operations.

Aditya Birla Sun Life Pension Management Limited ("ABSLPML") is a wholly owned subsidiary of ABSLI. ABSLPML's business offers pension solutions and acts as Pension Fund Manager under the National Pension Scheme Trust of the National Pension System ("NPS") to manage pension funds in the private sector according to the provisions of the NPS, the schemes, and the guidelines issued by the Pension Fund Regulatory and Development Authority.

Mutual funds and portfolio management services in India are regulated by the guidelines and regulations issued by the Securities and Exchange Board of India and various other applicable statutes.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;33

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We, along with Aditya Birla Capital Limited, are the promoters of Aditya Birla Sun Life AMC Limited ("ABSLAMC"), an asset management company in India in which we have a 36.49% stake. The equity shares of ABSLAMC are listed on the National Stock Exchange of India Limited and BSE Limited. ABSLAMC is the investment manager of Aditya Birla Sun Life Mutual Fund ("ABSLMF"), a trust registered with the Securities and Exchange Board of India. ABSLAMC is also appointed as the investment manager for Venture Capital Fund – Aditya Birla Real Estate Fund, Alternative Investment Funds and provides Portfolio Management Services. ABSLAMC has also set up wholly owned subsidiaries in Singapore, Dubai and Mauritius.

**China**

Sun Life Everbright Life Insurance Company Limited is a domestically-invested life insurance company in China, in which we have a 24.99% ownership stake. It operates a multi-distribution model that combines a direct career agency, brokerage, group insurance and bancassurance alliances to sell individual life and health insurance and savings products.

Sun Life Everbright Life Insurance Company Limited has a 99% ownership stake in Sun Life Everbright Asset Management Co., Ltd, which carries on business in China as an insurance asset management company.

The insurance industry in China is regulated by the China Banking and Insurance Regulatory Commission ("CBIRC"), which is a central government agency under the State Council of the People's Republic of China. The CBIRC has authority to: (i) issue regulatory rules and other normative documents applicable to the insurance industry and insurance market participants to implement the relevant laws and administrative regulations; (ii) review and approve the establishment, alteration and other significant matters of insurance institutions (which generally include insurance group (holding) companies, insurance companies and insurance asset management companies) and insurance intermediaries in China and, where applicable, their overseas activities (e.g., investment) and activities of their overseas subsidiaries; (iii) review and approve the policy terms and premium rates for insurance products; (iv) formulate and implement standards to measure and supervise the corporate governance, risk management, internal control, financial soundness, capital sufficiency, solvency, operational compliance and information disclosure of insurance institutions; (v) require insurance institutions to submit periodical and ad hoc reports concerning their business operations and condition of assets; and (vi) take necessary regulation measures and impose corresponding regulatory sanctions (e.g. to order the suspension of all or part of an insurance company's business, to restrict the exercise of a shareholder's rights if that shareholder fails to fulfill its obligations).

Currently, insurance companies established in China (including life insurance companies) are allowed to use their insurance funds (including their capital funds, reserve funds, undistributed profits, various reserves and other funds, whether dominated in RMB or a foreign currency) to invest in the following assets (subject to the satisfaction of conditions prescribed for each form of investment): bank deposits, various negotiable securities (such as government bonds, corporate bonds, financial bonds, stocks, units of securities investment funds), publicly offered infrastructure securities investment funds, security lending business, real estate, equity interest, financial derivatives such as forwards, options and interest rate swaps (provided that investment in any financial derivatives must not be speculative but be only intended for risk hedging and investment in offshore financial derivatives is subject to additional requirements of the CBIRC), products of insurance asset management companies, certain qualified financial products (including wealth management products, trust plans of assembled funds, debt-to-equity swap plans, credit asset backed securities, single asset management plans and other products approved by CBIRC) of commercial banks, wealth management companies, trust companies, financial asset investment companies, securities companies, securities asset management companies, securities investment fund management companies and other financial institutions and other investment channels as approved by the State Council.

The minimum paid-up capital of an insurance company is RMB200 million (in cash only) and there are additional capital requirements when additional branches are established.

Insurance asset management companies are also regulated by the CBIRC and may conduct the following businesses, among others: (i) managing insurance funds entrusted to them by their clients (including but not limited to their shareholders and the insurance companies controlled by their shareholders) and various assets generated therefrom; (ii) managing other funds (including basic endowment insurance funds, social security funds, enterprise annuity funds, occupational annuity funds and other funds of domestic and foreign qualified investors) and various assets generated therefrom; (iii) managing and utilizing their own funds in RMB or foreign currencies; and (iv) maintaining an asset-backed security business and offering insurance asset management products.

The management and utilization of insurance funds by insurance asset management companies is subject to requirements and limitations that are similar to those applicable to insurance companies. Currently, insurance asset management companies established in China are allowed to use the entrusted insurance funds to invest in the following assets: bank deposits, government bonds, financial bonds, stocks, security investment funds, financial products (including wealth management products, trust plans of assembled funds, debt-to-equity swap plans, credit asset backed securities and other products approved by CBIRC), indirect equity investments and real estate asset investments (other than real estate investments through equity holdings or direct ownership of real estate assets) and other investment channels as approved by the State Council. Independent custodians are designated for funds managed by insurance asset management companies and those custodians must be commercial banks or other financial institutions that satisfy regulatory requirements. The registered capital of an insurance asset management company must not be less than RMB100 million or the equivalent amount in a freely convertible foreign currency.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;34

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Insurance companies may, either by themselves or by entrusting qualified investment managers, use their insurance funds to make investments, and such "qualified investment managers" include insurance asset management companies and their subsidiaries. Insurance asset management companies are allowed to manage and utilize not only entrusted insurance funds, but also other entrusted funds of non-insurance clients.

Insurance asset management companies are also allowed to carry out insurance asset management product business in accordance with the CBIRC's rules and should complete the product issuance, registration, custody, transaction, settlement, information disclosure and other processes via an asset registration and transaction platform as approved by the CBIRC. The CBIRC is responsible for dynamically supervising the full process of the operation and management of such products and identifying the ultimate investors (beneficiaries) and the underlying assets.

Effective January 1, 2020, the CBIRC lifted the previous 51% cap on foreign ownership in life insurance companies established in China, which means that a foreign investor is now permitted to wholly own a life insurance company in China. In October 2019, the CBIRC also implemented an amendment to the Administrative Regulations on Foreign-Invested Insurance Companies, which relaxes market access by removing the requirement that a foreign insurance company must have engaged in insurance business for more than 30 years and have maintained a representative office in China for at least two years before it can establish a foreign invested insurance company in China, and allowing foreign insurance groups to invest in and establish an insurance company and other overseas financial institutions to make investments in insurance companies.

Effective September 1, 2022, the Regulations on the Management of Insurance Asset Management Companies no longer include restrictions on the shareholding ratio of foreign investors in insurance asset management companies.

**Hong Kong**

Our operations in the Hong Kong Special Administrative Region offer a full range of products to address insurance and savings needs. We offer individual life and health insurance, mandatory provident funds (the government-legislated pension system) and pension administration to individuals and businesses through a career sales agency force and independent financial advisors.

Sun Life Hong Kong Limited is authorized by the Hong Kong Insurance Authority ("IA") under the Insurance Ordinance to carry on certain classes of long-term business in or from Hong Kong. On June 26, 2017, the IA took over from the previous governmental regulator, the Office of the Commissioner of Insurance, the functions of overseeing the authorization and regulation of insurance companies in Hong Kong. On September 23, 2019, the IA took over the regulation of insurance intermediaries from the then existing self-regulatory organizations through a new statutory licensing and intermediary supervision regime. The offer of our investment linked insurance products, pooled retirement funds, approved pool investment funds, mandatory provident fund schemes and occupational retirement schemes are also regulated by one or more of the financial services regulators, including the IA, the Hong Kong Securities and Futures Commission and/or the Mandatory Provident Fund Schemes Authority. Our trustees and intermediaries who administer and distribute these products, funds and schemes are also supervised and regulated by one or more of the above regulators.

In Hong Kong, long-term insurance companies are required to maintain at all times a required solvency margin. Under the law, the required solvency margin is the higher of $2 million Hong Kong dollars ("HKD") or the aggregate of two components: a percentage of the mathematical reserves and a percentage of the capital at risk as prescribed under the Insurance (Margin of Solvency) Rules (which is generally 4% of the mathematical reserves and 0.3% of the capital at risk). For a long-term insurer, under the law, the value of its assets must be greater than the amount of its liabilities by at least the required solvency margin. The minimum paid-up capital for insurers in Hong Kong is HKD$10 million. In practice, the actual capital requirement is much higher than what the law requires, and will also depend on the business undertaken by the insurer. Despite the above, in practice, the IA will also impose additional solvency requirements to ensure a sound and healthy insurance market.

**Malaysia**

Our operations in Malaysia offer individual and group insurance and takaful products through Sun Life Malaysia Assurance Berhad ("SLMA") and Sun Life Malaysia Takaful Berhad ("SLMT"), respectively, our joint ventures with Renggis Ventures Sdn. Bhd. (a subsidiary of Khazanah Nasional Berhad), in which we have a 49% ownership stake in each company. SLMA has an exclusive bancassurance agreement with CIMB Bank Berhad to distribute insurance products through its network across Malaysia, while SLMT has an exclusive bancatakaful agreement with CIMB Islamic Bank Berhad to distribute takaful products through its network across Malaysia. The companies have expanded their distribution channel to include other bancassurance and bancatakaful partners, agency distribution, direct marketing, government and corporate business, telemarketing, online and telco-assurance.

The central bank of Malaysia, Bank Negara Malaysia ("BNM"), regulates entities carrying on the insurance and takaful business in Malaysia and requires insurers and takaful operators to have a minimum paid-up capital of Ringgit Malaysia 100 million. BNM also requires insurers and takaful operators to maintain a capital adequacy level that is commensurate with their risk profiles under the risk-based capital frameworks and has set a minimum Supervisory Target Capital Level of 130%. Based on current Government policy, there is a 70% limit on foreign equity ownership in insurance companies and takaful operators in Malaysia.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;35

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Under the BNM's recent Discussion Paper on Risk-Based Capital Framework for Insurers and Takaful Operators (Framework Design) issued on June 30, 2021, several enhancements have been proposed to the design of the capital adequacy framework for licensed insurers and takaful operators ("ITO"). Feedback has been sought from ITOs and a quantitative impact study was performed in the first half of 2022 to collect data for further analysis and refinement of the proposed new framework design. The form of and implementation date for the revised framework is not yet certain.

In efforts to minimize the impact of disruptions caused by the COVID-19 pandemic, BNM has introduced various relief measures for affected policyholders, including an option to defer payment of life insurance premiums and family takaful contributions for 3 months and this premium deferment assistance was available until December 31, 2021. BNM has also reduced the interest rate and profit rate stress factor caps applied under the risk-based capital frameworks from 40% to 30% with effect from March 31, 2020 to reflect the changes in the prevailing market conditions since the stress factors were set in 2009 ("Caps Reduction"). A COVID-19 test fund of RM 10 million has been created to cover the costs incurred for the screening of COVID-19 by policyholders, although this fund was fully utilized in May 2021. Other types of assistance provided to affected policyholders include extending the period during which the policyholder can reinstate a policy that has been terminated due to non-payment of premium, providing options for policy alterations, waiver of fees or charges for policy alterations, electronic payment alternatives and waiver of penalties for late payment of premiums ("Assistance"). As BNM has not provided an update on the Caps Reduction and Assistance, it is unclear if these measures continue to apply as of the date of this AIF.

**Singapore** 

Sun Life Assurance Company of Canada Singapore Branch carries on an insurance business in Singapore, and is licensed as a Direct Insurer (Life) with the Monetary Authority of Singapore ("MAS") pursuant to the Insurance Act 1966. The MAS is Singapore's central bank and integrated financial regulator regulating financial institutions, including insurance companies. The MAS has regulatory authority for licensing and registration, business conduct, solvency and capital adequacy, and anti-money laundering matters pertaining to insurance companies. In accordance with these laws, Sun Life Assurance Company of Canada Singapore Branch is subject to the MAS's supervisory and regulatory authority and is required to comply with all relevant laws and regulations.

**Bermuda** 

Sun Life Assurance and certain SLF Inc. subsidiaries carry on insurance and investment business in or from Bermuda and are regulated as insurance or investment companies, as the case may be, in that jurisdiction. The Bermuda Monetary Authority ("BMA") is the primary regulator of domestic and international insurance and investment companies carrying on business in or from Bermuda, and has regulatory authority for licensing and registration matters. The BMA has broad supervisory powers to regulate licensees under the Insurance Act 1978 and the Investment Business Act 2003, and is also the designated supervisory authority over the financial services industry in respect of Bermuda's Proceeds of Crime Act anti-money laundering legislation. In accordance with these and related laws, Sun Life Assurance and certain subsidiaries of SLF Inc. are subject to requirements governing their solvency, financial reporting, privacy and data security and business conduct.

**Other Jurisdictions**

In each of the countries in which our other subsidiaries, joint ventures and associates operate, local regulatory authorities supervise and monitor their business and financial condition. In a number of countries, certain insurance subsidiaries, joint ventures and associates are required to meet specific minimum working and regulatory capital requirements. Certain of our subsidiaries (including MFS, BentallGreenOak, InfraRed and/or their respective subsidiaries), joint ventures and associates, also conduct business in various countries, including Japan and Australia, that are subject to applicable laws and regulations, which vary from country to country.

**Risk Factors**

This section provides a summary of some of the significant risks that could affect (and, in some cases, are affecting) our business, reputation, financial condition or results of operations. As a large financial services organization operating in a complex industry, the Company encounters a variety of risks and uncertainties. We face risks in formulating our business strategy and business objectives, in carrying on our business activities in the pursuit of our strategy and objectives, and from external factors such as changes in the economic, political, competitive, environmental, social and regulatory environments. We are subject to financial and insurance risks that are connected to our liabilities and also in connection with the management and performance of our assets, including how we match returns from assets with the payment of liabilities to our Clients. Each of these risks are also considered from the perspective of different types of uncertainties under which either the outcomes and/or their probabilities of occurrence are unknown. Uncertainty can exist around expected financial results and from volatility, trend and extreme events. In addition, risk correlation, interconnected risks, terms of exposure and the risk horizon are important elements to consider while identifying risks.

These risk factors have been grouped as outlined in our Risk Management Framework into six major categories: market, insurance, credit, business and strategic, operational and liquidity risks. Other risks, not specified below, may exist but are not considered to be material at the present time may also impact our business in the future. This information should be considered carefully together

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;36

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with other information in this AIF and in the 2022 MD&A, the 2022 Consolidated Financial Statements and other reports and materials that we file with securities regulators.

These risks may occur independently or in combinations, and may occur simultaneously or in an environment where one or more risks evolve rapidly. For example, a major pandemic could have a material adverse impact on mortality and morbidity claims experience. Such an event may also trigger adverse global capital markets developments, including a downturn in equity market levels and interest rates, increased market volatility and credit deterioration, and could also lead to operational risks such as disruptions within the organization and in third party service arrangements or a government or regulatory response.

While a number of risks that are described below provide examples of inter-connectedness and relationships between risks, these do not represent a complete inventory. It should be noted that these relationships can continue to develop and change over time, and the combined adverse impact on our profitability, financial position, and reputation could be significantly greater than the sum of the individual parts. Our assessment of the impact and probability of these risks changes over time.

A description of our risk management approach can be found under the heading Risk Management in our 2022 MD&A. Many of the risk factors set out below contain forward-looking statements.

**Market Risk** 

We are exposed to financial and capital market risk, which is defined as 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 equity, interest rate and spread, real estate, foreign currency, and inflation risks.

**Equity Risk** 

Equity risk is the potential for financial loss arising from declines or volatility in equity market prices. We are exposed to equity risk from a number of sources. A portion of our exposure to equity risk arises in connection with benefit guarantees on segregated fund products. These benefit guarantees may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing these guarantees is uncertain and depends upon a number of factors, including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impacts on net income and capital.

While a large percentage of these segregated fund products are included in our hedging program, not all of this exposure is hedged. For those contracts included in our hedging program, we generally hedge the value of expected future net claims costs and associated margins, as we are primarily focused on hedging expected economic costs associated with providing the guarantees. Since the value of benefits being hedged will generally differ from the financial statement value, this will result in residual volatility to equity market shocks in net income and capital. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors, including changes in interest rates, increased volatility in capital markets and changes in the general market and regulatory environment within which these hedging programs operate.

Our hedging programs may themselves expose us to other risks, including basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), volatility risk, and increased levels of derivative counterparty credit risk, liquidity risk, model risk and other operational risks. These factors may adversely impact the net effectiveness, costs, and financial viability of maintaining our hedging programs and therefore adversely impact our profitability and financial position. While our hedging programs are intended to mitigate these effects, residual risk and potential reported earnings and capital volatility remain. In addition, regulations for over-the-counter derivatives could impose additional costs and could affect our hedging strategy. Hedge counterparty credit risk is managed by maintaining broad diversification, dealing primarily with highly rated counterparties and transacting through over-the-counter contracts cleared through central clearing houses, exchange-traded contracts or bilateral over-the-counter contracts negotiated directly between counterparties that include applicable credit support annexes.

We generate revenue in our asset management businesses and from certain insurance and annuity contracts where fees are levied on account balances that are affected directly by equity market levels. Accordingly, we have further exposure to equity risk as adverse fluctuations in the market value of such assets will 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) in these businesses, 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 fall within our risk-taking philosophy and appetite, and are therefore generally not hedged.

**Interest Rate and Spread Risk**

Interest rate and spread risk is the potential for financial loss arising from changes or volatility in interest rates or spreads when asset cash flows and the policy obligations they support are not matched. This may result in the need to either sell assets to meet policy payments and expenses or reinvest excess asset cash flows in unfavourable interest rate or spread environments. The impact of changes or volatility in interest rates or spreads is reflected in the valuation of our financial assets and liabilities for insurance contracts.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;37

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

Our primary exposure to interest rate and spread risk arises from certain general account products and segregated fund contracts which contain 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 our risk appetite limits.

Declines in interest rates or narrowing spreads can result in compression of the net spread between interest earned on investments and interest credited to policyholders. Declines in interest rates or narrowing spreads may also result in increased asset calls, mortgage prepayments, and net reinvestment of positive cash flows at lower yields, and therefore adversely impact our profitability and financial position. Negative interest rates may additionally result in losses on our cash deposits and low or negative returns on our fixed income assets impacting our profitability. In contrast, increases in interest rates or a widening of spreads may have a material impact on the value of fixed income assets, resulting in depressed market values, and may lead to lower LICAT ratios or losses in the event of the liquidation of assets prior to maturity.

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, potentially forcing us to liquidate 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.

We also have direct exposure to interest rates and spreads from investments supporting other general account liabilities, surplus and employee benefit plans. Lower interest rates or a narrowing of spreads will result in reduced investment income on new fixed income asset purchases. Conversely, higher interest rates or wider spreads will reduce the value of our existing assets. These exposures fall within our risk-taking philosophy and appetite and are therefore generally not hedged.

We have implemented asset-liability management and hedging programs involving regular monitoring and adjustment of risk exposures using assets, derivative instruments and repurchase agreements to maintain interest rate exposures within our risk appetite. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors including changes in interest rates, increased volatility in capital markets, and changes in the general market and regulatory environment within which these hedging programs operate. In particular, regulations for over-the-counter derivatives could impose additional costs and could affect our hedging strategy. In addition, these programs may themselves expose us to other risks such as those described under the heading Risk Factors - Market Risk - Equity Risk in this AIF.

A sustained low interest rate environment may adversely impact our earnings, regulatory capital requirements and our ability to implement our business strategy and plans in several ways, including:

(i)Lower sales of certain insurance and wealth products, which can in turn pressure our operating expense levels;

(ii)Shifts in the expected pattern of redemptions (surrenders) on existing policies;

(iii)Higher new business strain reflecting lower new business profitability;

(iv)Reduced return on new fixed income asset purchases, and higher hedging costs;

(v)The impact of changes in actuarial assumptions;

(vi)Impairment of goodwill; and

(vii)Additional valuation allowances against our deferred tax assets.

We have taken various management actions to mitigate the risk of low levels of interest rates including changes in product mix, product design and hedging activities. If low levels of interest rates continue to be persistent over an extended period of time, other effects may also surface including changes in policyholder behaviour and actuarial assumptions prescribed by the regulating bodies.

**Real Estate Risk**

Real estate risk is the potential for financial loss arising from fluctuations in the value of, or future cash flows from, our investments in real estate. We are exposed to real estate risk and may experience financial losses resulting from the direct ownership of real estate investments or indirectly through fixed income investments secured by real estate property, leasehold interests, ground rents, and purchase and leaseback transactions. Real estate price risk may arise from external market conditions, inadequate property analysis, inadequate insurance coverage, inappropriate real estate appraisals, or from environmental risk exposures. We hold real estate investments that support general account liabilities and surplus, and fluctuations in value will impact our profitability and financial position. A material and sustained increase in interest rates may lead to deterioration in real estate values.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;38

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

**Foreign Currency Risk**

Foreign currency risk is the result of mismatches in the currency of our assets and liabilities (inclusive of capital), and cash flows. This risk may arise from a variety of sources such as foreign currency transactions and services, foreign currency hedging, investments denominated in foreign currencies, investments in foreign subsidiaries and net income from foreign operations. Changes or volatility in foreign exchange rates, including a change to currencies that are fixed in value to another currency, could adversely affect our financial condition and results of operations.

As an international provider of financial services, we operate in a number of countries, with revenues and expenses denominated in several local currencies. In each country in which we operate, we generally maintain the currency profile of assets to match the currency of aggregate liabilities and required surplus. This approach provides an operational hedge against disruptions in local operations caused by currency fluctuations. Foreign currency derivative contracts such as currency swaps and forwards are used as a risk management tool to manage the currency exposure in accordance with our Asset Liability Management Policy. As at December 31, 2022 and December 31, 2021, the Company did not have a material foreign currency risk exposure on a functional currency basis.

Changes in exchange rates can affect our net income and surplus when financial results in functional currencies are translated into Canadian dollars. Net income earned outside of Canada is generally not currency hedged and a weakening in the local currency of our foreign operations relative to the Canadian dollar can have a negative impact on our net income reported in Canadian currency. A strengthening in the local currency of our foreign operations relative to the Canadian dollar would have the opposite effect. Regulatory capital ratios could also be impacted by changes in exchange rates.

**Inflation Risk**

Inflation risk is the potential for financial loss arising from changes in inflation rates. This risk results from insurance contract liabilities that are linked to market measures of inflation such as the Consumer Price Index. The primary sources for this risk exposure are from certain group and retail annuity contracts and group long term disability contracts. In these contracts, the annuity and disability benefit payments may be linked to an indexing formula containing an inflation price index. Benefit payments linked to inflation indices may also include various caps, floors and averaging mechanisms that vary across product designs. <br>Exposure to inflation risk is managed within our asset-liability management program, primarily by investing in inflation linked assets to match liability exposures. The resulting net income exposure to changes in inflation rates arising from benefit payments is not material.

The impact of inflation on general account expenses is discussed in Risk Factors - Expense Risk in this Annual Information Form.

**Insurance Risk**

Insurance risk is the uncertainty of product performance due to actual experience emerging differently than expected in the areas of policyholder behaviour, mortality, morbidity and longevity. In addition, product design and pricing, expense and reinsurance risks impact multiple risk categories, including insurance risk.

**Policyholder Behaviour Risk**

We can incur losses due to adverse policyholder behaviour relative to the 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 the financial and capital markets, 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.

Many of our products include some form of embedded policyholder option. These could range from simple options relating to surrender or termination, to more complex options relating to payment of premiums or various other benefit and coverage provisions. Changes in the relative frequency or pattern with which these options are elected (relative to those assumed in the pricing and valuation of these options) could have an adverse impact on our profitability and financial position.

Systemic forms of policyholder behaviour risk could also arise with the development of investor-owned and secondary markets for life insurance policies.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;39

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**Mortality and Morbidity Risk**

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, as a result of a pandemic, 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.

External factors could adversely affect our life insurance, health insurance, critical illness, disability, long-term care insurance and annuity businesses. Morbidity experience could be unfavourably impacted by external events, such as pandemics, increases in disability claims during economic slowdowns and increases in high medical treatment costs and growth in utilization of specialty drugs. This introduces the potential for adverse financial volatility in our financial results.

Mortality and morbidity concentration risk is the risk of a catastrophic event, such as natural environmental disasters (for example, earthquakes), human-made disasters (for example, acts of terrorism, military actions, and inadvertent introduction of toxic elements into the environment) as well as epidemics that could occur in geographic locations where there is significant insurance coverage. Certain factors could adversely affect our mortality or morbidity experience relative to the assumptions used in the pricing and valuation of products, leading to a material adverse effect on our profitability and financial position.

Current legislation restricts insurers from requiring Clients to take or release the results of genetic tests. If Clients have access to the results of genetic tests and we do not, this creates asymmetry of information between Clients and insurers, which could adversely impact mortality and morbidity experience and policyholder behaviour. This asymmetry of information may increase as genetic testing advances and becomes more accessible, giving rise to better diagnoses of conditions where treatments are expensive or non-existent. The asymmetry of information may lead to increased anti-selection in new business underwriting. There may also be an impact on policy lapse rates where adverse genetic testing results may motivate Clients to retain their policies resulting in higher claims payouts than assumed in the pricing and valuation of products, as well as increased insurance rates which may result in loss of new and existing Clients.

**Longevity Risk**

Longevity risk is the potential for economic loss, accounting loss or volatility in earnings arising from 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 medical breakthroughs that significantly extend life expectancy. Longevity risk affects contracts where benefits or costs are based upon the likelihood of survival and higher than expected improvements in policyholder life expectancy could therefore increase the ultimate cost of these benefits (for example, annuities, pensions, pure endowments, reinsurance, segregated funds, and specific types of health contracts). Additionally, our longevity risk exposure is increased for certain annuity products such as guaranteed annuity options by an increase in equity market levels.

Many of our products provide benefits over the policyholder's continued lifetime. Higher than expected improvements in policyholder life expectancy could therefore increase the ultimate cost of these benefits, thereby requiring strengthening of policyholder liabilities and resulting in reductions in net income and capital. For longevity risks, external factors including medical advances could adversely affect our life insurance, health insurance, critical illness, disability, long-term care insurance and annuity businesses.

**Product Design and Pricing Risk**

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. This could have an adverse effect on our profitability and capital position.

Products that offer complex features, options or guarantees require increasingly complex pricing models, methods or assumptions, leading to additional levels of uncertainty. The risk of mis-pricing increases with the number and inherent uncertainty of assumptions needed to model a product. Past experience data supplemented with future trend assumptions may be poor predictors of future experience. Lack of experience data on new products or new Client segments increases the risk that future actual experience unfolds differently from expected assumptions. External environmental factors may introduce new risk factors, which were unanticipated during product design, and have an adverse result on the financial performance of the product. Policyholder sophistication and behaviour in the future may vary from that assumed at the time the product is designed, thereby adversely affecting the product's financial performance.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;40

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**Expense Risk**

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

From time to time, certain products or business segments may be closed for new sales (for example variable annuities in our international business in the Asia pillar, our business in the UK and our individual insurance business in the U.S.). Our ability to effectively manage the run-off of business in these products or business segments introduces additional risks, such as policyholder behaviour and expense risk that may have an adverse effect on our operations, profitability and financial position.

**Reinsurance Risk**

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 reinsurance capacity, with adverse impacts on our business strategies, profitability and financial position. There is a possibility of rate increases or renegotiation of some of the legacy reinsurance contracts by a few of our reinsurers, as they continue to review and optimize their business models. In addition, changes to the regulatory treatment of reinsurance arrangements could have an adverse impact on our capital position.

**Credit Risk**

Credit risk is the possibility of loss from amounts owed by our borrowers or financial counterparties. We are subject to credit risk in connection with issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties (including derivative, repurchase agreement and securities lending counterparties), other financial institutions 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, any underlying security that may be used as collateral for the debt obligation. Credit risk can occur 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 may cause an increase in our provisions for asset default, adversely impacting earnings.

Volatility in the capital markets, including deteriorating credit and negative real estate risk indicators, fluctuations in global or domestic macro-economic factors, or loss given default expectations, may have a significant impact on the value of the fixed income assets in our investment portfolio. For example, our asset-backed portfolio is sensitive to fluctuations in macro-economic factors, assumed default rates for the underlying collateral pool and loss given default expectations.

As part of our risk management strategy, we maintain hedging programs that may employ the use of derivatives. Market conditions determine the availability and cost of the derivative protection. Although we deal primarily with highly rated counterparties, a derivative counterparty's insolvency or its inability or unwillingness to make payments under the terms of a derivative agreement could have an adverse effect on our profitability and financial position.

We purchase reinsurance for certain risks underwritten by our various insurance businesses. Reinsurance does not relieve us from our direct liability to policyholders and accordingly, we bear credit risk with respect to our reinsurers. Although we deal primarily with highly rated reinsurers, deterioration in their credit ratings, or reinsurer insolvency, inability or unwillingness to make payments under the terms of a reinsurance agreement could have an adverse effect on our profitability and financial position. The risk that a reinsurer is unable or unwilling to make payments may occur due to, but is not limited to, legal disagreements, interpretations by a court regarding the terms of the reinsurance contract, changes in laws and regulations or interpretation of those changes.

**Business and Strategic Risk**

Business and strategic risk is the risk of loss from the inability to adequately identify, plan or implement an appropriate strategy to achieve strategic and business objectives or adapt to changes in Client behaviours or the external business, economic, political, regulatory or environmental and social landscape or when assumptions made in strategy are not realized as expected.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41

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**Economic and Political Risk**

We operate in various geographies and our business and financial operations are susceptible to regional and global economic, political and regulatory changes. We may be affected by economic and capital markets conditions and economic shocks around the globe as a result of increasingly connected global markets. Factors such as changes in interest rates, foreign exchange rates, market volatility, housing prices, consumer spending, saving and debt, business investment and inflation around the globe can affect the business and economic environments in which we operate. Continued economic and political uncertainty may give rise to increased business and strategic risks including those associated with industry restructuring, mergers and acquisitions, changing competitive dynamics and changes in the legal, regulatory and tax regimes in which our businesses operate. In addition, adverse economic conditions often arise in conjunction with volatile and deteriorating capital markets conditions, which can have an adverse impact on Client behaviour and in turn on our sales and profitability, credit and financial strength ratings, and capital and liquidity positions.

Currently, there are various factors that impact economic and political risk and uncertainty, including but not limited to the following examples:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• decades high levels of inflation and rapidly rising interest rates, against a backdrop of financial market volatility, labour market distortions, supply chain disruptions, corporate insolvency risks and household wealth impacts, all of which are driving recessionary outlooks for the global economy;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the shift to protectionism leading to ongoing trade uncertainties and/or new or increased tariffs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• uncertainty due to Euroscepticism in various European Union countries and the impact of Brexit;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• increased support for populist parties; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• rising income inequality.

These risks can also intersect with other risk considerations such as environmental and social risks including climate change and inequality. The impact of these factors include the possibility of continued low growth, sustained low interest rates, increases in inflation, increased volatility in interest rates and equity markets, and a continuation of relatively low yet volatile credit spreads. The impact on the economic environment from any of these events may not be consistent with our assumptions and expectations, which may adversely impact our financial results and the ability to implement our business strategy. Market-related impacts from the economic environment, legal, regulatory or policy changes or other governmental actions could continue to place pressure on our earnings, regulatory capital requirements, profitability, liquidity and our ability to implement our business strategies and plans. Low interest rates and increased volatility create a number of challenges for us including increased hedge costs, lower investment yields, adverse policyholder behaviour and lower levels of new business profitability. Other impacts of macro-economic uncertainty and volatility may lead to other financial and non-financial impacts including goodwill impairment, decline in our share price and impact on our credit and financial strength ratings. These risks continue to have the potential to inflict significant damage on global and regional markets.

**Strategic Execution Risk**

Our business strategies and plans are dependent on the successful execution of organizational and strategic initiatives designed to support the growth of our business. Our ability to manage the execution of these initiatives effectively and prioritize initiatives directly affects our ability to execute our strategies. Identifying and implementing the right set of initiatives is critical to achieving our business plan targets. Failure to identify and implement the right set of initiatives could also lead to cost structure challenges and inability to achieve our growth objectives.

Our financial performance is dependent upon our ability to implement and execute our business strategies and plans for growth. The current economic, regulatory and competitive environment requires us to identify and adapt rapidly to new opportunities and to refine our strategies. If we fail to identify new opportunities, revise our strategies on a timely basis or adapt to the changing environment, we may not be able to achieve our growth objectives.

Successful execution of our business strategies and plans impacts a number of factors, including our ability to generate sufficient earnings to maintain an adequate level of capital, our ability to generate sustained investment performance, our ability to meet regulatory requirements, our ability to manage our risk exposures effectively, our ability to attract and retain Clients and distributors, our ability to have the right set of diverse products and business mix, and our ability to reduce operating expenses while maintaining our ability to hire, retain and motivate key personnel. There is no certainty that we will be successful in implementing our business strategies or that these strategies will achieve our objectives. If our business strategies are not successful or are not executed effectively, we may not be able to achieve our growth objectives or react to market opportunities, which may have an adverse impact on our business and financial results.

**Distribution Risk** 

Failure to achieve planned distribution scale could materially impact our financial and strategic objectives. This includes the inability to attract and retain intermediaries and agents at a cost that is financially feasible to the Company, or to develop digital sales and Client support capabilities and technologies. Distribution risk may also be influenced where our distribution or product strategy and related services (including digital sales and Client support capabilities and technologies) are not developed, modified or executed in line with our strategic objectives or in consideration of the changes in Client behaviour or our regulatory environment. In addition,

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Information Form 2022

the lack of a well-diversified distribution model in the jurisdictions in which we do business may cause over-reliance on agency channel or key partners.

We distribute our products through a variety of distribution channels, including direct sales agents, managing general agents, independent general agents, financial intermediaries, broker-dealers, banks, pension and benefits consultants and other third-party marketing organizations. We compete with other financial institutions to attract and retain these intermediaries and agents on the basis of products, compensation, support services and financial position. We also face the risk that our key distribution partners may undergo consolidation, change in ownership structure or change their distribution model which could materially impact sales and our growth targets. New distribution channels could emerge that may impact the effectiveness of our current distribution strategy. Distribution channels are growing rapidly in some businesses in certain countries, which may heighten the risks of market conduct and channel conflicts or overlaps. The capability to reach and retain Clients through use of digital technology and data analytics is becoming increasingly important in the insurance industry. While use of digital-based distribution channels may help us achieve or expand scale, these channels expose us to regulatory compliance and information security related risks. Our sales and results of operations could be materially adversely affected if we do not have the right distribution or product strategy and related technology or if we are unsuccessful in attracting and retaining intermediaries and agents.

**Risks Relating to Mergers, Acquisitions, Divestitures and Strategic Investments**

We regularly explore opportunities to selectively acquire other businesses or to divest ourselves of all or part of certain businesses, in support of our growth and strategic objectives. Any transaction that we enter into introduces a number of risks associated with economic, operational, strategic, financial, tax, legal, regulatory, compliance, and other factors.

There is a risk that we may be unable to make an appropriate acquisition in a desired market or business line or are unable to realize the financial and strategic benefits of the transactions due to competitive factors, regulatory requirements or other factors. There is a risk that the capital utilized to finance any transaction could limit our ability to deploy further capital to pursue other opportunities and initiatives. These risks could adversely impact our ability to achieve our financial and strategic objectives.

Our ability to realize the contemplated economic, financial, and strategic benefit of any transaction that we enter into is contingent on several factors, which include the effective separation and/or integration of the transferred businesses, restructuring and/or reorganization of related businesses, and incentivizing and/or retaining personnel to effectively execute these transactions. In addition, the integration of operations and harmonization of any differences in organizational culture may require the dedication of significant management resources, which may distract management's attention from our day-to-day business. Anticipated synergies and other expected benefits may not materialize due to a failure to successfully integrate the acquired businesses with our existing operations. Any of these risks, if realized, could prevent us from achieving the expected results from a transaction or could impact our financial and strategic objectives.

Although we undertake extensive due diligence in connection with potential acquisitions, there may be liabilities or asset impairments that we fail to, or are unable to discover during our due diligence investigations. There could also be unforeseen liabilities or asset impairments, including goodwill impairments that arise in connection with acquisitions or divestitures of businesses. There is no assurance that we will achieve our financial or strategic objectives or anticipated cost savings following an acquisition.

The purchase and sale agreements that support mergers and acquisitions transactions typically include customary indemnifications provided by the seller to the purchaser. These rights are generally limited by survival periods and include limitations on the nature and amount of losses we may recover as a purchaser or be required be pay as a seller in a transaction. For your acquisitions, there is a risk that these indemnifications will not be collectible or be sufficient to fully offset losses arising from the acquired business. We would also be exposed to the credit risk of the selling party with respect to its ability to pay if an indemnification provision is triggered.

**Competitive Environment**

Competition from insurance companies, banks, asset managers, mutual fund companies, financial planners and other service providers (including new entrants and non-traditional financial services companies) is intense, and could adversely affect our business in certain countries.

The businesses in which we engage are highly competitive and our ability to sell our products is dependent on many factors, including scale, price and yields offered, distribution channels, digital capabilities, financial strength ratings, range of product lines and product and service quality, brand strength, investment performance, historical dividend levels and the ability to provide value added services to distributors and Clients. In certain markets, some of our competitors may be superior to us on one or more of these factors. Our competitors have significant potential to disrupt our business through targeted strategies to reduce our market share which may include targeting our key people or bancassurance partners and other distributors or aggressively pricing their products. Our ability to achieve our business plans and strategies depends significantly upon our capacity to anticipate and respond quickly to these competitive pressures.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;43

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Technology is driving rapid change in the financial services sector and is enabling new entrants to compete or offer services to our competitors to enhance their ability to compete in certain segments of the insurance, wealth and asset management markets. The emergence of new technologies such as robotic process automation, artificial intelligence, blockchain and advanced analytics may have an impact on the financial services sector and how companies interact with their stakeholders. Our current competitors or new entrants may use these or other new technologies to provide services in various areas such as customized pricing, proactive outreach to Clients and targeted marketing in order to strengthen their Client relationships and influence Client behaviour. The impact of disruption from changing technology and innovation by traditional and non-traditional competitors who may offer a better user experience, functionality or lower priced products and may have lower distribution costs will require us to adapt at a more rapid pace and may create margin pressures. The risk of disruption may also impact our distribution models as new and low cost digital-based business models emerge in connection with the distribution of financial services and products, such as insurtechs and robo-advisors. These risks are evolving rapidly with an increasing number of digital users and are difficult to anticipate and respond to proactively, and may adversely impact our profitability and financial position.

Competitors may offer a greater selection of or lower cost products, which may create margin pressure in some of our businesses and impact our profitability and market share. In the asset management sector, there has been a trend among investors towards lower-fee passive investment products such as index- and other types of exchange-traded funds, which may impact our ability to attract and retain Clients in our actively managed products. Product development and product life cycles have shortened in many product segments, leading to more intense competition with respect to product features. This increases product development and administrative costs and reduces the time frame over which capital expenditures can be recovered. Regulatory and compliance costs also generally rise with increases in the range and complexity of our product portfolio.

We have many large and well-capitalized competitors with access to significant financial resources and in certain jurisdictions, these competitors have significant market share and established distribution relationships and brands. Among other things, the competition in these industries throughout the world has resulted in a trend towards the global consolidation of the financial services industry including, in particular, the insurance, banking and asset management sectors. To the extent that consolidation continues, we will increasingly face competition from large, well-capitalized financial services companies in many of the jurisdictions in which we operate. These larger companies have the ability to heavily invest in fundamental activities for sustained profitable growth and superior Client service in the life insurance industry such as brand equity, product development, technology, risk management, and distribution capability. There can be no assurance these developments will not adversely affect our businesses in certain countries.

Many of our insurance products, particularly those offered by the group segment, are renewed annually. Given this relatively high frequency of renewal activity, this business may be particularly exposed to adverse persistency through competitive market pressures.

Different accounting bases of reporting and regulatory capital requirements across multiple jurisdictions may cause us to be at a disadvantage compared to some of our competitors due to differences in reported earnings and due to these reporting and regulatory capital requirements.

**Investment Performance**

Investment performance risk is the possibility that we fail to achieve the desired return objectives on our investment portfolio, or that our asset management businesses fail to design or execute investment strategies in order to achieve competitive returns on the products and managed accounts offered by these businesses. Failure to achieve investment objectives may adversely affect our revenue and profitability through slower growth prospects and adverse impacts on policyholder or Client behaviour.

For our insurance businesses, the performance of our investment portfolio depends in part upon the level of and changes in interest rates, spreads, credit experience, equity prices, real estate values, the performance of the economy in general, the performance of the specific obligors included in these portfolios and other factors that are beyond our control. These changes can affect our net investment income substantially in any period.

In our asset management businesses, investment performance, along with achieving and maintaining superior distribution and Client services, is critical. If investment performance is less than that of our competitors or applicable benchmarks, we could lose existing and potential Clients. Similarly, a shift in investing trends and Client preference towards products that differ from our investment products or strategies, and in particular, the trend towards passive or alternative investment portfolios, could also lead to increased outflows. Accordingly, poor investment performance by our asset management operations or a shift in investing trends and Client preferences could adversely affect sales, increase outflows, reduce the level of assets under management or lead to a decline in the fee margin, which could adversely impact our revenues, income and capital position.

**Changes in Legal and Regulatory Environment**

Most of our businesses are subject to extensive regulation and supervision. Changes to legislation, regulations or government policies, or the manner in which they are interpreted or enforced, may require that we make significant changes to our strategy and may result in increased implementation costs and diversion of resources to manage the change. These changes could impact

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financial reporting, accounting processes, capital requirements, the regulatory framework for our products and services, the regulation of selling practices, sales intermediaries and product offerings, solvency requirements, executive compensation, and corporate governance practices and could impose restrictions on our foreign operations (such as limits on foreign ownership of local companies). All of these changes could have an adverse effect on our business and operations. Our failure to comply with existing and evolving regulatory requirements could also result in regulatory sanctions and could affect our relationships with regulatory authorities and our ability to execute our business strategies and plans.

Currently there are a number of regulatory developments in Canada and globally which could impact our business and the way we are regulated or supervised in various jurisdictions, which include the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• OSFI is considering alternatives for in-force variable annuity and segregated fund capital requirements, to be effective January 1, 2025, which may materially change the capital required to support our in-force variable annuity and segregated fund business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In Canada, there has been increased focus on enhancing the affordability of and accessibility to prescription drugs and dental procedures, including pressure from some provincial governments, the media and advocacy groups on the federal government to implement forms of nationalized pharmacare and dentalcare programs. When implemented, these programs could impact our business in several ways, including premium income, our ability to offer coverage, the price and level of coverage of other benefits we offer or are able to offer through our Canadian group benefits business, which in turn could impact plan renewals and retention of group Clients, plan member interaction and the value of other coverage offered by that business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance and securities regulators continue to focus on client fairness, advisor conduct and related practices and are assessing product fees, compensation practices, sales practices and conflicts of interest. Regulators are also imposing higher standards that relate to interacting with clients in order to increase disclosure obligations related to fees; impose prohibitions or restrictions on the payment of certain types of commissions and service fees to agents, advisors and third-party distributors; resulting in changes to product features and sales and market practices by agents, advisors, product manufacturers and distributors. Examples of these changes include the Client Focused Reforms released by the Canadian Securities Administrators which fully came into effect on December 31, 2021, the proposals published by the Canadian Securities Administrators and the Canadian Council of Insurance Regulators in April 2022 to enhance total cost reporting for investment funds and segregated funds and the implementation of the Financial Services Regulatory Authority of Ontario. In addition, recent proposals published by the U.S. Securities and Exchange Commission would expand the scope of materially deceptive and misleading naming practices of registered funds and would expand the private fund advisor rules to prohibit private fund advisers from providing certain types of preferential treatment to investors and from seeking limitation of liability for certain activity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In the U.S., states have enacted laws and regulations that require insurers to increase their level of regulatory reporting around risk management, solvency, and governance practices, and allow U.S. regulators to lead or participate in the group-wide supervision of certain international insurance groups. In December 2020, the NAIC finalized a group capital calculation that will be used by regulators to evaluate the capital position of insurance groups operating in the U.S. The calculation does not set out specific capital requirements, but it could result in increased reporting and capital standards for insurance groups doing business in the U.S., including non-U.S. groups. Certain insurance holding company groups are exempt from the group capital calculation; however, its full impact on our business has not yet been determined.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• In June 2020, China passed the Hong Kong National Security Law ("NSL"), which is now in force in Hong Kong. Law enforcement authorities have extensive powers under the NSL, particularly in relation to investigations. In July 2020, then-U.S. President Trump signed into law the Hong Kong Autonomy Act (the "Act") and issued an Executive Order, providing authority to impose primary sanctions against entities and individuals determined to have materially contributed to the undermining of Hong Kong's autonomy. The Act also provides authority to impose secondary sanctions against non-U.S. financial institutions determined to have conducted a significant transaction for any individual or entity subject to primary sanctions under the Act. The U.S. Treasury Department has imposed primary sanctions on Chinese individuals, such as government officials in Hong Kong and Mainland China, under the Executive Order. Other countries, such as the United Kingdom, have also imposed similar sanctions on China. In June 2021, China enacted the Law of the People's Republic of China on Countering Foreign Sanctions, which authorizes the State Council to impose countermeasures in response to sanctions imposed by foreign governments on Chinese companies and individuals. China has imposed sanctions on members of the U.S. Congress, heads of NGOs and former U.S. officials. There may be heightened risks and uncertainties to our business in Hong Kong as a result of these developments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Regulators are increasing their focus on technology and cybersecurity. New laws, regulations, guidelines, directives and expectations have begun to emerge that will require the Company to continue to enhance its technology and information security programs, upgrade its third-party risk management programs, increase regulatory reporting obligations and have an impact on the costs and resources associated with the Company's technology and information security activities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• IBORs, including LIBOR, measure the average cost that banks pay to borrow from each other on an unsecured basis on a short-term basis. They are commonly used as a benchmark or reference rate for certain financial products and contracts. Certain IBORs will be discontinued or declared unrepresentative, including certain tenors of US dollar LIBOR and CDOR which will be discontinued or declared unrepresentative immediately after June 30, 2023 and June 28, 2024, respectively. Uncertainty relating to the transition to alternative "risk free" rates, the use of ARRC or other fallback language, and other

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factors related to reform may adversely affect our operations and cash flows and the value of and return on our Investments that are LIBOR or IBOR-based.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Regulators in the various jurisdictions in which we operate have increased their focus on ESG matters, including the impact of climate change, and some regulators have taken steps towards introducing or have already introduced rules to address risks and disclosures around ESG and climate change matters. In Canada, OSFI released draft Guideline B-15 on Climate Risk Management ("Guideline B-15") in May 2022, which sets out OSFI's expectations related to the management and disclosure of climate-related risks by federally regulated financial institutions ("FRFIs"). If approved, FRFIs would be expected to report Guideline B-15 disclosures for fiscal years ending on or after October 1, 2023 at the earliest. In addition, the Canadian Securities Administrators has proposed National Instrument 51-107 on disclosure of climate-related matters, which would introduce climate-related disclosure requirements for Canadian reporting issuers. In the U.S., the SEC has proposed rule changes which would require many registrants to include certain climate-related disclosures in their regulatory filings. Internationally, the International Sustainability Standards Board has proposed standards for climate-related disclosures and general sustainability-related disclosures, which are incorporated into draft Guideline B-15. Potential divergence in expectations among regulators, as well as the pace of regulatory change in the area of climate change, could lead to operational risks. We continue to monitor our risk management practices and disclosures as new regulations and standards are implemented and as the situation continues to evolve. We are also monitoring trends in climate- and broader sustainability-related litigation, including "greenwashing" cases involving allegations of exaggerated or misleading sustainability claims.

See the heading Regulatory Matters above for a description of our regulatory environment in Canada, the U.S., the UK, Asia and Bermuda and other examples of changes in regulation that may affect our business and operations.

**Environmental and Social Risk**

Our financial performance, operations, and reputation may be adversely affected if we do not adequately prepare for the direct or indirect impacts of environmental and social risks. Environmental risk includes environmental damage on properties owned or managed by us and climate change related physical and transition risks. These events and developments may include increased frequency and severity of natural or human-made environmental disasters, longer-term shifts in climate patterns, emerging regulatory and public policy developments, and their impacts on our operations, invested assets, suppliers, Clients and reputation. External factors such as stakeholder expectations around environmental performance, resource constraints and costs associated with adaptation are also potential sources of environmental risk. Risks that affect our Clients and our suppliers could have a negative impact on our operations and performance. Social risk includes but is not limited to public health issues and issues of inequality. These risks are considered in our key risk assessments. An environmental issue on a property owned or operated by us could have financial or reputational impacts.

A transition to a lower carbon economy could affect asset values. Among other impacts, portfolio investments in coal, conventional oil and oil sands producers, utilities and related fossil fuel industries, railways and pipelines, as well as markets that depend on these industries, may be subject to additional financial risk as a result of changes in regulation, cost of capital, consumer preferences and competition from renewable energy companies. This may lead to lower overall profitability and/or stranded assets (assets for which the investment costs cannot be recovered as intended).

Physical climate impacts could affect investments in real assets such as real estate, commercial mortgages, and infrastructure, as well as our own operations, and operations and revenues of our Clients and businesses across our portfolios. Risks may result from increased severity and frequency of extreme weather events and from longer-term shifts in climate patterns.

If our Clients, shareholder groups, or other key stakeholders deem that our environmental, social, climate change or other sustainability-related practices are inadequate, our reputation and operations could be negatively affected. Failure to comply with an existing or potential Client's policies in these areas could disqualify us from bidding on, or earning business opportunities, or retaining existing business. We may also experience reduced access to capital markets if sustainability indices and/or investors find that our practices fall short of their criteria, which in turn could result in being removed from one or more of these indices or as an appropriate investment by investors.

As an owner/lessor of, investor in real estate, we may be impacted where environmental events damage or disrupt our underlying properties. Our businesses and the properties underlying our investments are subject to environmental laws and regulations in all key jurisdictions where we carry on business or hold investments. Consequently, we may experience environmental impacts or liabilities that could adversely affect the value of those businesses and properties, their ability to generate income, and costs related to any required compliance requirements or remediation. Through other invested assets, such as loans, bonds or equity investments, we could be subject to these impacts and negative consequences from environmental issues arising at the level of the issuer and/or specific asset. Our reputation and operations may be adversely affected if we or our tenants, borrowers, or other associated parties violate environmental regulations or best practices.

As noted above under Insurance Risk - Mortality and Morbidity Risk, environmental risks, including climate change risks have implications in areas such as catastrophic risk and the concentration risk presented by natural and human-made environmental

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46

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disasters, which could impact our mortality and morbidity experience and our pricing and modeling assumptions as these events increase. For example, in our group benefits businesses, a localized event that affects the workplace of one or more of our Clients could cause a significant loss related to a concentration of claims under group policies.

In addition to the impacts noted above, failure to adequately prepare for the potential impacts of environmental risks, including those associated with climate change, may have other direct and indirect negative impacts. These may include business losses or disruption, including a shift in Client preferences or demands, resulting from:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• extreme weather conditions or other environmental disasters,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• longer-term shifts and impacts related to warming temperatures, the availability of food and water and other ongoing climate change impacts,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• wider and/or more rapid transmission of new and existing diseases through pandemics or otherwise, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• other unforeseen human consequences.

Significant environmental changes and disasters may also reduce the overall level of economic activity in affected areas which could hurt our businesses, the value of our investments, our ability to offer products and services, or service our existing Clients.

These risks could also harm the financial condition of our reinsurers and insurers of property which we own, lease, have invested in or manage which may increase the risk of default on recoveries from these reinsurers and insurers, may increase the cost of reinsuring our business or the cost of insurance, and may result in reinsurance or insurance coverage being unavailable.

**Operational Risk**

Operational risk is the risk of loss (financial and non-financial) resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk is present in all of our business activities and encompasses a broad range of risks as described below. Operational risk is embedded in the practices utilized to manage other risks and, therefore, if not managed effectively, operational risk can impact our ability to manage other key risks.

**Information Security and Privacy Risks**

Information and technology are used in almost all aspects of our business and operations. As part of our Client strategy, we continue to enhance the digital side of our business to support and enable new business models and processes, that are more personal, proactive and predictive.

Our business and the successful implementation of our digital strategy are dependent on various factors including maintaining a secure environment for our Clients, employees and other parties' information. This requires the effective and secure use, management and oversight of information and physical assets. We engage with various stakeholders and leverage emerging technologies, including digital, mobile applications, cloud computing, artificial intelligence and robotic process automation. These technologies are used to collect, process and maintain information relating to business transactions and financial reporting, as well as the personal information of our Clients and employees. We also obtain services from a wide range of third-party service providers and have outsourced some business and information technology functions in various jurisdictions.

There continues to be an increasing number of information security compromises and privacy breaches across industry sectors, governments and individuals. The increasing scope and complexity of malicious activity poses a significant risk to our systems and these risks may be exacerbated by the breadth of our operations, our geographic footprint and the complexity of our technology systems. The risk of information security compromises and privacy breaches continued during the COVID-19 pandemic as individuals extending remote working arrangements. A serious security or privacy breach of either an internal or third-party service provider's computer system that contains sensitive business, Client and/or employee information may result in business interruption, theft or misuse of confidential information, regulatory penalties and scrutiny, litigation, reputational damage and may have an adverse impact on current and future business opportunities with our Clients, employees and business relationships. We continue to monitor for increases in malicious activity due to the conflict in Ukraine.

In particular, privacy breaches could occur and may result in unauthorized access and disclosure or use of personal information. Many jurisdictions in which we do business are developing and implementing reporting requirements relating to cybersecurity and more stringent consumer privacy legislation, many with greater enforcement powers for regulators and higher potential fines and penalties.

We have established security controls and processes that are intended to protect information and computer systems including information security risk assessments and privacy impact assessments. Notwithstanding these measures, the threat environment is rapidly and constantly changing, and there remains a possibility that our processes and controls could be unsuccessful in detecting or preventing a security breach. We remain vulnerable, and work with third parties who may also be vulnerable, to computer viruses and other types of malicious software, cyber-attacks and hacking attempts from unauthorized persons, the physical theft of computer systems, internal programming or human errors, fraud, or other disruptive problems or events. There is also a risk that certain internal controls fail, which could also exacerbate the consequences from such events.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;47

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**Human Resources Risk** 

Our ability to achieve business objectives can be adversely affected if we are unable to attract, retain or effectively deploy resources with the in-depth knowledge and necessary skills required, or are unable to design compensation and talent programs that effectively drive employee behaviour and shape corporate culture. Failure to manage Human Resources risk can also lead to direct financial and reputational loss including losses arising from activity that is inconsistent with Human Rights or employment laws or health and safety regulations.

**Regulatory Compliance, Legal and Conduct Risk**

We are subject to extensive regulatory oversight by financial services regulators in the jurisdictions in which we conduct business. Failure to comply with applicable laws or to conduct our business consistent with changing regulatory or public expectations could adversely impact our reputation and may lead to regulatory investigations, examinations, proceedings, settlements, penalties, fines, restrictions on our business, litigation or an inability to carry out our business strategy.

Our business is based on public trust and confidence and any damage to that trust or confidence could cause Clients not to buy, or to redeem our products. We also face a significant risk of litigation in the ordinary course of operating our business including the risk of class action lawsuits. In addition, we also face the risk of reputational damage or loss due to intentional, malicious, illegal or unethical acts such as fraud, misappropriation or circumvention of the law by internal and/or external parties including our employees, Clients, distributors, service providers or other third parties. Even with controls in place, these parties may behave in ways that could harm, injure or otherwise negatively impact our Clients and other stakeholders. For instance, we may not be able to fully monitor or control the manner of distribution of our products by third party firms or the submission of falsified applications or claims, despite the training program and compliance testing in place. We may suffer financial, reputation or other harm to our business if our products are distributed by such firms in an inappropriate manner or to Clients for whom such products are unsuitable. We are subject to anti-bribery and anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, the Canadian Corruption of Foreign Public Officials Act, and the UK Bribery Act, each of which include significant civil and criminal penalties if breached. Our policies, including our Code of Conduct, require strict adherence to these laws. In the course of business, we, or our joint ventures, distributors or other non-controlled business partners, may from time to time transact with government entities. As a consequence, we may be at risk of censure under anti-bribery and anti-corruption laws if our or our partners' due diligence or other process and procedures when transacting with government entities are deemed inadequate.

Financial services regulators and other government agencies in jurisdictions we operate regularly make inquiries, conduct investigations and administer examinations with respect to compliance with applicable laws and regulations. As well, regulatory and governmental authorities, industry groups and rating agencies have developed initiatives regarding market conduct. Financial services regulators and other governmental authorities in many of the countries in which we operate have raised issues and commenced regulatory inquiries, investigations and proceedings with respect to current and past business practices in the financial services industry, and have given greater emphasis to the investigation of those practices. Current and future regulatory investigations, examinations, proceedings, and civil actions arising out of such matters could adversely affect our reputation, and may result in settlements, penalties, fines, restrictions on our business, litigation or an inability to carry out our business strategy or may cause us to make changes to our business and compliance practices, policies and procedures, which in turn could impact our profitability and future financial results and increase our litigation risk.

Under the Insurance Act and the Supervisory Information (Insurance) Regulations (Canada) and pursuant to similar restrictions in other jurisdictions, we are prohibited from directly or indirectly disclosing any supervisory information relating to SLF Inc., Sun Life Assurance and their affiliates.

**Information Technology Risk**

The use of technology and computer systems is essential in supporting and maintaining business operations. We use technology to support virtually all aspects of our business and operations. The rapidly changing business environment increases the risk of our technology strategy not being agile enough to adapt to new business demands in a timely manner leading to financial losses, increased costs and the inability to meet Client needs.

Initiatives supporting our business strategy rely on developing innovative information technology solutions and upgrading our existing systems on a timely basis to meet business needs. Although every reasonable precaution is taken to ensure information technology systems remain available, stable and current, it is not possible to fully eliminate all risk. Some changes and upgrades are extremely complex and there is a chance that an undetected technical flaw may exist, which, when implemented, stops or disrupts critical information technology systems or business applications.

**Third-Party Risk**

We engage in a variety of third-party relationships, including with distributors, independent contractors, outsourcing service providers and suppliers. Our profitability or reputation could be impacted if these third parties are unable to meet their ongoing service commitments or fail to perform to expected standards.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;48

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An interruption in our relationship with certain third parties or other parties engaged by such third parties, the impairment of their reputation or creditworthiness, their failure to provide contracted services in the manner agreed or in accordance with applicable laws and regulations could materially and adversely affect our business objectives or expose us to regulatory fines and/or reputational harm. Even with contingency plans developed for our material third party arrangements, there can be no assurance that we would be able to transition to alternate sources for these arrangements in a timely manner, at reasonable cost, or with minimal disruption to our stakeholders.

**Business Disruption Risk**

To conduct operations, our businesses are dependent on the availability of trained employees, physical locations and access to technology. A significant business disruption to our operations can result if one or more of these key elements are negatively impacted.

Although we have implemented and periodically test our business continuity, crisis management and disaster recovery plans, a sustained failure of one or more of our key business processes or systems could materially and adversely impact our business, operations and employees. These failures can result from disruption of our processes and systems due to utility outages, fires, floods, severe storms, cyber-attacks, terrorism and other human-made attacks, natural disasters and other events. We have experienced increased incidences and impacts of disruption due to weather events such as tropical storms and flooding in the geographies in which we operate, as well as earthquakes and pandemic risks. In addition to these key business processes and system disruptions, these unanticipated events, including disease pandemics, can also negatively affect staff, preventing them from working or from operating business processes. Business disruptions can also occur due to changes in environmental risk and related impacts have been highlighted above under the heading Environmental and Social Risk. Also, because some of our business processes are performed by third parties and some of our systems interface with or are dependent on third-party systems, we could experience service interruptions if these third-party operations or systems fail.

**Model Risk**

We use complex models to support many business functions including product development and pricing, capital management, valuation, financial reporting, planning, hedging, asset-liability management, risk management and advanced analytics (such as artificial intelligence, predictive modeling and decision making algorithms). Model risk is the risk of loss, either in the form of financial loss, inappropriate or poor business decisions, damage to reputation, or other adverse impact, arising from inaccurate model outputs or incorrect use or interpretation of model outputs.

Model risk can arise from many sources including inappropriate methodologies, assumptions or parameters, incorrect use of source data, inaccurate or untimely source data, incorrect application or operator errors, increasing product complexity and regulatory expectations. If the models' methodologies and assumptions are not appropriately set or well controlled, or data or implementation errors occur in the models, this could result in a negative impact on our results and financial position.

Many of our methods and models for managing risk and exposures are based upon the use of observed historical precedents for financial market behaviour, credit experience and insurance risks. As a result, these methods may not fully predict future risk exposures, which can be significantly greater than our historical measures indicate. Other risk management methods depend upon the evaluation of information regarding markets, Clients, catastrophic occurrence or other matters that are publicly available or otherwise accessible to us. However, this information may not always be accurate, complete, up-to-date, properly evaluated or necessarily indicative of ultimate realized experience. As we review and update our models, changes might be made to valuation methods and assumptions, which may impact our results.

**Information Management Risk**

As an international provider of financial services, we deal with extensive information across a number of countries. Information management risk is the a) inability to capture, manage, retain and appropriately dispose of business records, b) the inability to provide data that is valid, complete, accurate, consistent, unique, or timely to support business decisions, and c) the inability to manage data location and cross-border appropriately. Failure to manage these risks could have financial or reputational impacts, and may lead to regulatory proceedings, penalties and litigation.

Additional information on operational risk can be found in the Risk Factors section of this AIF.

**Liquidity Risk**

Liquidity risk is the possibility that we will not be able to fund all cash outflow commitments and collateral requirements as they fall due. This includes the risk of being forced to sell assets at depressed prices resulting in realized losses on sale. This risk also includes restrictions on our ability to efficiently allocate capital among our subsidiaries due to various market and regulatory constraints on the movement of funds. Our funding obligations arise in connection with the payment of policyholder benefits, expenses, reinsurance settlements, asset purchases, investment commitments, interest on debt, and dividends on common and preferred shares. Sources of available cash flow include general fund premiums and deposits, investment related inflows (such as maturities, principal repayments, investment income and proceeds of asset sales), proceeds generated from financing activities, and dividends

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;49

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and interest payments from subsidiaries. We have various financing transactions and derivative contracts under which we may be required to pledge collateral or to make payments to our counterparties for the decline in market value of specified assets. The amount of collateral or payments required may increase under certain circumstances (such as changes to interest rates, credit spreads, equity markets or foreign exchange rates), which could adversely affect our liquidity.

Under stress conditions, increases in funding obligations can occur in conjunction with reductions in cost effective sources of available cash inflow. In particular, adverse stress scenarios could involve increases in policyholder cash surrenders and terminations and decreases in the amounts of premiums and deposits being generated by existing and new Clients. Adverse capital market conditions may also be associated with a reduction in available market liquidity and clearing prices for expected asset sales, and reductions in the level of cash inflows (dividends, interest payments and expected maturities) on continuing portfolio investments. These developments could have an adverse effect on our financial position and results of operations.

We engage in various transactions including repurchase agreements and other capital markets transactions to meet short-term cash requirements. The cost and our ability to execute these transactions may be negatively impacted by illiquid or volatile markets. Disruption in the financial markets may limit our access to capital in the event we are required to seek additional liquidity to operate our businesses. This will result in increased costs to raise capital coupled with less desirable terms or maturities which would decrease future profitability and financial flexibility.

SLF Inc. is a holding company for its insurance, wealth and asset management subsidiaries and does not have significant operations of its own. Dividends and interest payments from its subsidiaries are its principal sources of cash. If the cash received from its subsidiaries is insufficient, then it may be required to raise debt or equity externally or sell some of its assets. 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.

In addition, rating agencies publish credit ratings of securities issued by SLF Inc. and its subsidiaries, which have an impact on the interest rates paid by those companies on borrowed funds. A material downgrade in the issuer credit ratings could limit our access to capital or increase the cost of borrowing and may have an adverse effect on our financial condition.

We have established financing arrangements that support NAIC statutory reserves for universal life policies issued by Sun Life Assurance in the U.S. Our ability to support these reserves with these financing structures can be negatively impacted by market conditions and regulatory changes. Further, these financings, in all or in part, are treated as operating leverage by the rating agencies. If, due to a change in rating agency methodology or position, the rating agencies cease to treat these financings as operating leverage, without providing any grandfathering provisions, there may be an adverse impact on our credit and financial strength ratings.

**Other Risks**

**Risks relating to the COVID-19 Pandemic**

Pandemics, epidemics or outbreaks of an infectious disease could have an adverse impact on our results, business, financial condition or liquidity, and could result in changes to the way we operate. The COVID-19 pandemic and the measures imposed by governments around the world have disrupted the global economy, financial markets, supply chains, business activity and productivity in unprecedented ways. Additional risks are emerging around governments' withdrawal of COVID-19 pandemic support measures, and how they will seek to finance the unprecedented level of support. The worsening of the economic and market conditions caused by the COVID-19 pandemic, and impact on Clients, industries and individual countries could have a material adverse effect on our businesses including sales, fee income, investment performance, expenses, results of operations, corporate reputation and financial condition. Sustained adverse effects could negatively impact profitability and also make it difficult for us to access capital markets, could impact our liquidity and capital position, or may result in downgrades in our credit ratings. These actions may also have the effect of heightening many of the other risks described in the section entitled "Risk Factors" in this document and "J - Risk Management" in our 2022 MD&A.This includes, but is not limited to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Market risks, such as equity, interest rates and spread, real estate, and foreign currency risks, including impact on fee income;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Insurance risk, including higher than expected mortality and, morbidity claims and adverse policyholder behaviour including but not limited to higher than expected policy lapses, withdrawals, and surrenders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Credit risk, including defaults, impairments and downgrades;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Business and strategic risk including economic and political risk, business strategy implementation risk, distribution risk, expense risk, changes in Client behaviour, sales, investment performance, and changes in legal and regulatory environment;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Operational risk, including information security and privacy risk, human resources risks, regulatory compliance, legal and conduct risk, information technology risk, processing risk, third-party risk, and business disruption risk, and change

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50

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management risk with the need to quickly implement and execute new programs and procedures to support Clients, advisors, employees, products, and services; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Liquidity risk including collateral, and payment deferrals on invested assets or policyholder insurance premium impacts.

The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus, including variants, vaccine efficacy, public acceptance of containment measures and vaccine adoption, the subsequent reduction in rates of infection and the actions taken by governments, monetary authorities, regulators, financial institutions, businesses and individuals, and could vary by country and result in differing outcomes. The longer-term impacts of COVID-19 on morbidity and mortality are unknown and are being monitored. Given the extent of the circumstances, it is difficult to reliably measure or predict the potential impact of this uncertainty on our future financial results.

**IFRS 17 and 9**

IFRS 17 *Insurance Contracts* ("IFRS 17") and IFRS 9 *Financial Instruments* ("IFRS 9") are effective for Canadian insurance companies for annual periods beginning on or after January 1, 2023.

IFRS 17 will replace IFRS 4 *Insurance Contracts* and establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts.

IFRS 9 will replace IAS 39 *Financial Instruments: Recognition and Measurement* and includes guidance on the classification and measurement of financial instruments, impairment of financial assets and hedge accounting.

Risks related to IFRS 17 and 9 include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Operational risk - IFRS 17 and IFRS 9 requires a more expansive set of data, introduces complex estimation techniques, computational requirements and disclosures, which necessitate a major transformation to various actuarial and financial reporting processes, tools, and systems.<br>Business and strategic risk - the standards may create additional volatility in our financial results and capital position. Volatility of reported results may require changes to business strategies and the introduction of new or modified non-GAAP measures to explain our results. The impact to business strategy could include changes to hedging and investment strategy, product strategy and the use of reinsurance and, as a result, could impact our exposures to other risks such as counterparty risk and liquidity risk.<br>Regulatory Capital risk - In addition to IFRS 17 changes, LICAT Guideline changes for Segregated Fund Guarantee capital are also planned to take effect January 1, 2025. OSFI has been engaging the industry in testing of new Segregated Fund Guarantee capital requirements,.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Impact on tax - in certain jurisdictions, including Canada, the implementation of IFRS 17 may impact tax positions and other financial metrics that are dependent upon IFRS accounting values.

**International Operations**

The future success of our businesses in our international operations depends in large part on our ability to grow and compete in the markets where we operate. Challenges in these markets pose strategic and execution risk including our ability to attract and retain qualified employees and executives with local experience and critical skills, political, legal, economic, competition or other risks, risks associated with joint venture operations, developing and executing our risk management practices, and our ability to attract, retain, expand and diversify distribution channels.

If we are unable to attract, retain and engage qualified employees and executives with relevant experience and critical business skills, our ability to grow our business in our international operations as quickly as planned may be limited. Competition for qualified employees and distribution partners in our international operations, in particular the Asian markets, continues to be strong and could adversely impact our ability to attract and retain talent.

Our international operations may face political, legal and regulatory, economic, competitive, operational or other risks that we may not face in our domestic operations. Examples of this type of risk are the risk of changes in regulation, political risks due to changes in government, discriminatory regulation, political instability, nationalization or expropriation of assets, changes to the maximum level of non-domestic ownership, price controls and exchange controls or other restrictions that could prevent us from transferring funds from these operations out of the countries in which they operate or converting local currencies we hold into Canadian dollars or other currencies.

Capital markets in certain international markets may not have the same depth, liquidity or range of investment options generally available in other markets in which we operate. In particular, the more limited availability of long-duration assets exposes our Asian operations to higher asset-liability management costs and potential risk.

We have entered into joint venture arrangements in certain markets in Asia, where we may have a lesser degree of control over these businesses that may expose us to additional operational, financial, compliance and legal risks. We may be dependent on our joint venture counterparty for capital, product distribution, local market knowledge, or other resources. Our ability to exercise

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51

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management control or influence over these joint ventures and the success of our investments in them will depend on the cooperation between the joint venture participants and the terms of the joint venture agreements, which allocate control among the joint venture participants. If we are unable to effectively manage these joint ventures, or any joint venture counterparty fails to meet its obligations under the joint venture arrangement, encounters financial difficulty, elects to alter, modify or terminate the relationship, or a joint venture does not comply with local legislation or regulations, we may be unable to achieve our objectives and our results of operations and brand may be negatively impacted.

**Capital Adequacy**

Capital adequacy risk is the risk that our capital position is not or will not be sufficient to withstand adverse economic conditions, to maintain our financial strength, to allow us and our subsidiaries to support ongoing operations and to take advantage of opportunities for expansion, and to support the risk taking activity in pursuit of our business objectives.

The strength of our capital position depends in part upon the level of and changes in interest rates and equity prices, credit experience, mortality and morbidity experience, currency rate fluctuations and our overall profitability.

Various factors such as declining equity markets, downgrades in ratings, changes in interest rates, changes in credit spreads on corporate bonds and asset backed securities, lower earnings and inability to access capital markets on a timely basis may negatively impact our capital ratios, and may impair our financial position and our ability to execute our business strategies and plans. In addition, regulatory changes being considered by other regulators world-wide may adversely impact the capital ratios of SLF Inc. and its insurance subsidiaries. These factors may impair our financial position and our ability to execute our business strategy.

**Credit and Financial Strength Ratings**

Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under insurance policies. Credit ratings indicate the opinions of rating agencies regarding an issuer's ability to meet the terms of debt, preferred share and Tier 1 hybrid capital obligations in a timely manner, and are important factors in a company's overall funding profile and ability to access external capital. A downgrade by a rating agency in the credit ratings of securities issued by SLF Inc. and its subsidiaries or the financial strength ratings of SLF Inc.'s insurance company subsidiaries could adversely affect our financial condition and results of operations.

The financial strength rating of an insurance company is a key competitive factor in marketing its products and in attracting and retaining agents and distributors. If our credit or financial strength ratings are downgraded, our financial condition, competitive position and results of operations could be negatively impacted in many ways, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Reducing new sales of insurance products, annuities and investment products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Requiring us to reduce prices for products and services to remain competitive;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Higher level of surrenders and withdrawals;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Higher reinsurance costs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Increasing our cost of capital and limiting our access to the capital markets, thus reducing our financial flexibility;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Reducing our ability to enter into normal course derivative or hedging transactions and increasing the costs associated with such transactions; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Adversely affecting our relationships with our advisors and third-party distributors of our products.

In addition, downgrades in our credit or financial strength ratings below thresholds specified in certain of our derivative agreements, reinsurance agreements and other agreements could result in the counterparties to those agreements having the right to terminate those agreements or to require that we provide support for those agreements in the form of collateral or letters of credit.

Changes in methodologies and criteria used by rating agencies could also result in downgrades that do not reflect changes in the general economic conditions or our financial condition.

Additional information concerning our ratings is provided in this AIF under the heading Security Ratings and in our 2022 MD&A under the heading Financial Strength.

**Tax Matters**

The validity and measurement of tax benefits associated with various tax positions taken or expected to be taken in our tax filings are a matter of tax law and are subject to interpretation. Tax laws are complex and their interpretation requires significant judgment. The provision for income taxes reflects management's interpretation of the relevant tax laws and its best estimate of income tax implications of the transactions and events during the period. There can be a risk that tax authorities could differ in their interpretation of the relevant laws and could assert that tax positions taken by the company give rise to a need for reassessment, including reassessment under specific or general anti-avoidance rules or transfer pricing provisions.

The assessment of additional taxes, interest and penalties or damage to the Company's reputation could be materially adverse to our future results of operations and financial position.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;52

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Under the liability method of accounting for income taxes, deferred tax assets are recognized for the carryforward of unused tax losses and tax credits, as well as amounts that have already been recorded in the financial statements, but will not result in deductible amounts in determining taxable income until future periods. Deferred tax assets are recognized only to the extent of the probability that taxable profit will be available against which the future tax deductions and unused tax losses can be utilized.

At the end of each reporting period, we must assess the value of our deferred tax assets. The determination of our deferred tax assets is dependent upon projections of future taxable profits. Our projections require significant judgments and estimates about future events, including global economic conditions and the future profitability of our businesses. If the profitability of our businesses is lower than our projections or if our outlook diminishes significantly, we may be required to reduce the value of our deferred tax assets. Any change to our deferred tax assets could have a material adverse impact on our future results of operations and financial position.

We are also subject to changing income tax regulations. We currently have an effective income tax rate that is lower than the Canadian statutory income tax rate for corporations. The Company reflects favourable tax impacts in its financial statements from certain tax benefits, including but not limited to tax-exempt investment income, dividends received deductions, tax credits (from certain investments or from taxes paid on foreign source income), and favourable tax rates in certain jurisdictions in which we operate. In addition, many of our life insurance products benefit Clients with preferred tax treatment under various tax regimes. For example life insurance policies and annuity contracts in the U.S. and Canada allow for the deferral or elimination of taxation on earnings (inside buildup) accrued under the policy. There is a risk that tax legislation, administrative guidance or legislative developments could lessen or eliminate some of the benefits currently available to the Company or its policyholders. This risk could result in lower product sales or increased lapses of policies, and could have a material adverse effect on our future results of operations and financial position.

From time to time, governments in countries in which we operate enact changes to statutory corporate income tax rates. A change in income tax rate requires us to review and re-measure our deferred tax assets and liabilities as of the date of substantive enactment. As of December 31, 2022, the Company reported a $1,652 millions net deferred tax asset in its Consolidated Statements of Financial Position, primarily in Canada. Any future tax rate reductions in jurisdictions where we carry a net deferred tax asset could result in a reduction in the carrying value of the deferred tax asset and a corresponding income tax expense at the time of substantive enactment of a rate reduction.

The Organisation for Economic Co-operation and Development's (OECD's) base erosion and profit shifting ("BEPS") project has prompted governments around the world, including Canada, to consider wide-ranging tax reforms to address BEPS and transparency issues. The proposals include introducing a global minimum tax rate of 15% to ensure that large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate. The rules are expected to become effective in 2023; however, at this time, none of the jurisdictions where Sun Life has significant operations has enacted or substantively enacted tax legislation implementing these global minimum taxes.

**Legal and Regulatory Proceedings** 

We are regularly involved in legal actions, both as a defendant and as a plaintiff. Information on legal and regulatory proceedings is provided in Note 23 of our 2022 Consolidated Financial Statements and is incorporated herein by reference.

Since January 1, 2020, (i) no penalties or sanctions have been imposed against Sun Life by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision; (ii) Sun Life has not entered into any settlement agreements with a court relating to Canadian securities legislation or with a Canadian securities regulatory authority and (iii) no penalties or sanctions have been imposed against Sun Life by a Canadian securities regulatory authority, other than nominal late filing fees, or by a court relating to Canadian securities legislation.

**Additional Information**

Additional information including directors' and officers' remuneration and indebtedness, principal holders of SLF Inc.'s securities, securities authorized for issuance under equity compensation plans and interests of informed persons in material transactions, if applicable, is contained in SLF Inc.'s information circular for its most recent annual meeting of security holders that involved the election of directors. Additional financial information is provided in SLF Inc.'s MD&A and consolidated financial statements for its most recently completed financial year.

Requests for copies of these documents may be sent to the Corporate Secretary of SLF Inc. at 1 York Street, 31st Floor, Toronto, Ontario, M5J 0B6. Copies of these documents and other additional information related to SLF Inc. are available at <u>www.sunlife.com</u>, <u>www.sedar.com</u> and <u>www.sec.gov</u>.

Sun Life Financial Inc. \| sunlife.com &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;53

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![image_5a.jpg](image_5a.jpg)**APPENDIX A**

**SUN LIFE FINANCIAL INC. AND** 

**SUN LIFE ASSURANCE COMPANY OF CANADA (TOGETHER, "SUN LIFE")**

**CHARTER OF THE AUDIT COMMITTEE**

![imageb.jpg](imageb.jpg)

The Audit Committee (the "Committee") is responsible for assisting Sun Life's Board of Directors (the "Board") in overseeing the integrity of financial statements and related information provided to shareholders and other stakeholders, compliance with financial regulatory requirements, adequacy and effectiveness of the internal controls implemented and maintained by management, and assessing the qualifications, independence and performance of the external auditor.

![imageb.jpg](imageb.jpg)

**1. Duties and Responsibilities**![image_2a.jpg](image_2a.jpg)

In assisting the Board with its oversight role, the Committee:

**1.1Financial Reporting**

a) Reviews with management and Sun Life's external auditor (the "External Auditor") and makes recommendations to the Board on the approval of the quarterly unaudited and the annual audited consolidated financial statements ("Quarterly and Annual Financial Statements"), including the notes thereto, Management's Discussion and Analysis and related news release.

b) In conducting its review of the Quarterly and Annual Financial Statements:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i.reviews the reported and underlying earnings;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii.discusses with the President & Chief Executive Officer and the Chief Financial Officer any significant issues raised in connection with the certifications relating to financial disclosure and controls that those officers are required to file with securities regulatory authorities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iii.receives reports from the Chief Actuary on the parts of the quarterly and annual audited consolidated financial statements prepared by that officer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iv.reviews with management and the External Auditor Sun Life's principal accounting and actuarial practices and policies; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;v.considers emerging industry, regulatory and accounting standards and the possible impact on Sun Life's principal accounting practices and policies, including consideration of the use of non- International Financial Reporting Standards ("IFRS") measures.

c) Periodically reviews tax matters.

d) Reviews, at least annually, a report on litigation matters, as required.

e) At the request of the Chair of the Committee, reviews finance, accounting and tax related aspects of material transactions that are being proposed by Sun Life.

**1.2Internal Control**

a) Requires management to implement and maintain appropriate systems, processes and controls to ensure accurate, complete and timely reporting of financial and related information and evaluates the effectiveness of such processes and controls, and ensures that appropriate action is being taken to address any material internal control deficiencies.

February 9, 2022 54

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b) Reviews, at least annually. and makes recommendations to the Board on the approval of Sun Life's Internal Control Framework, which includes, amongst other things, procedures established to handle complaints received by Sun Life related to accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters, if applicable.

c) Reviews quarterly reports from the Chief Compliance Officer on complaints related to accounting, internal accounting controls or auditing matters, if applicable

d) Reviews management's quarterly reports on the effectiveness of Sun Life's internal controls over financial reporting, including any evolving standards over environmental, social and governance (ESG) and/or climate related disclosures.

e) Reviews, as required, management's reports relating to emerging industry, regulatory and accounting standards, including their impacts on Sun Life's principal accounting practices and policies, and the status of their implementation.

f) Periodically meets with the Business Group Chief Financial Officers and Heads of Internal Audit to review the control environment, resources, organizational structure and priorities.

**1.3Internal Audit**

a) Reviews the Chief Auditor's quarterly reports on the effectiveness of Sun Life's internal controls.

b) Reviews and approves the annual internal audit plan and any significant changes to the internal audit plan, reviews any restrictions on the scope of activities or access to information in the course of the audit, and oversees the coordination of the internal audit plan with the External Auditor's audit plan.

c) Together with the Chair of the Audit Committee, interacts with the Chief Auditor as required to support fulfilment of the Chief Auditor's mandate; the Chief Auditor reports on a functional basis to the Chair of the Audit Committee and administratively to the President & Chief Executive Officer.

**1.4External Auditor**

a) Reviews the External Auditor's audit findings reports and (i) seeks assurances from the External Auditor that the financial statements, including the notes thereto, fairly present the financial position, results of operations and cash flows of Sun Life; (ii) assures itself that the External Auditor is satisfied that the accounting estimates and judgements made by management, and management's selection of accounting principles, reflect an appropriate application of IFRS; (iii) discusses with the External Auditor any significant changes that were required in the external audit plan; and (iv) discusses any significant issues raised with management during the course of the audit or review and oversees the resolution of any disagreements, including any restrictions on the scope of activities or access to information, and those matters that are required to be discussed under generally accepted auditing standards.

b) Discusses with the External Auditor on a quarterly basis the results of quarterly review procedures over the financial statements, including discussions on key areas of judgement, significant transactions in the quarter and the progress against the external audit plan.

February 8, 2023

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c) Reviews the independence of the External Auditor, including the requirements relating to such independence under the laws governing Sun Life, the applicable rules of stock exchanges on which Sun Life's securities are listed, and regulatory bodies with responsibility for establishing auditor independence requirements and policies and at least annually receives and reviews with the External Auditor its written statement delineating relationships with Sun Life and, if necessary, recommends that the Board take appropriate action to satisfy itself of the External Auditor's independence and accountability to the Committee, the Board and shareholders.

d) Appraises the qualifications and performance of the External Auditor, including timing and implementation of the rotation of the lead audit partner, and recommends to the Board the appointment, or if so determined by the Committee the replacement, of the External Auditor, subject to the approval of the shareholders.

e) Reviews and approves the scope and terms of the External Auditor's engagement, and reviews and recommends for approval by the Board the engagement letter and remuneration of the External Auditor.

f) Reviews and approves the Restricting Use of External Auditor Policy which outlines the services for which the External Auditor can be engaged, the approval process for such services and the policy regarding the employment of former employees of the External Auditor.

g) Determines, reviews and approves the services to be performed by the External Auditor and the fees to be paid to the External Auditor for audit, audit-related and other services permitted by law and in accordance with the Restricting Use of External Auditor Policy.

h) Reviews with the External Auditor and management the overall scope of the external audit plan, quality control procedures and the resources that the External Auditor will devote to the audit.

i) Discusses with the External Auditor the financial and control-related aspects of material transactions that are being proposed by Sun Life.

**1.5Resources and Talent**

a) Reviews, at least annually, and approves changes to the statements of mandate, responsibility and authority of the Chief Actuary, Chief Auditor and Chief Financial Officer and the organizational structure of the Actuarial, Finance and Internal Audit functions.

b) Reviews, at least annually, the adequacy of the authority, independence and resources of the Chief Actuary, Chief Auditor and Chief Financial Officer.

c) Reviews, at least annually, management's reporting on the state of the information technology that delivers Sun Life's finance and actuarial reporting.

d) Approves, at least annually, the objectives of the Chief Actuary, Chief Auditor and Chief Financial Officer and reviews, at least annually, the effectiveness of the Actuarial, Internal Audit and Finance functions.

e) Reviews, at least annually, succession plans for the Chief Actuary, Chief Auditor, Chief Financial Officer and other senior management roles overseen by the Committee

f) Is consulted, through the Chair of the Committee in advance of any appointment, reassignment, replacement or dismissal of the Chief Actuary, Chief Auditor or Chief Financial

February 8, 2023

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Officer, and annually on the performance assessment and compensation awarded to those individuals.

g) Requires the Chief Actuary, Chief Auditor and Chief Financial Officer to report on any material disagreements with other members of senior management relating to the business, and reviews how such matters are being addressed.

**1.6Regulatory**

a) Reviews matters within its mandate that are addressed in the regular examination and similar reports received from regulatory agencies, including management's responses and recommendations.

b) Reviews and discusses with the External Auditor and Chief Actuary such reports and regulatory returns of Sun Life as may be specified by law.

c) Reviews with the External Auditor any regulatory matters that pertain to the External Auditor.

**2. Composition and Procedures**![image_2a.jpg](image_2a.jpg)

**2.1Membership**

a) The Committee is composed of not less than three directors, including the Committee Chair, appointed by the Board on an annual basis following each annual meeting.

b) Each member of the Committee shall be independent as defined in the Director Independence Policy

c) The Governance, Investment & Conduct Review Committee will review Committee membership annually to ensure the Committee as a whole includes members with the competencies, experience and expertise required to fulfill the Committee's mandate.

d) Each member of the Committee shall be financially literate. In the Board's judgment, a member of the Committee is financially literate if, after seeking and receiving any explanations or information from senior financial management or the External Auditor of Sun Life that the member requires, the member is able to read and understand the consolidated financial statements of Sun Life to the extent sufficient to be able to intelligently ask, and to evaluate the answers to, probing questions about the material aspects of those financial statements.

e) The Committee shall have at least one member that, in the Board's judgement, qualifies as an audit committee financial expert (as defined by the U.S. Securities and Exchange Commission).

f) The Committee will discuss the qualifications for and determine whether a member of the Committee is a financial expert, and in conjunction with the Governance, Investment & Conduct Review Committee, will ensure that all Committee members are financially literate.

g) Any member of the Committee may be removed or replaced at any time by the Board and the Board shall fill vacancies on the Committee.

**2.2Meetings and Procedures**

a) A meeting of the Committee may be called at any time by the Chair of the Board (the "Board Chair") or by any member of the Committee.

February 8, 2023

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

b) The Committee meets as frequently as necessary, but not less than four times a year.

c) A quorum at any meeting of the Committee shall be three members.

d) The Chair of the Committee reports to the Board after each Committee meeting.

e) The External Auditor reports to the Committee and receives notice of and may attend all Committee meetings.

f) The Committee holds a private session at each meeting of the Committee for members only and at each regularly scheduled meeting with each of the Chief Actuary, Chief Auditor, Chief Financial Officer and representatives of the External Auditor, and with the Chief Risk Officer and Chief Compliance Officer, as appropriate, and those individuals have unrestricted access to Committee members between meetings.

g) The Committee will review its Forward Agenda, as required, and on an annual basis, the Committee will review this Charter and, where necessary, recommend changes to the Board for approval.

h) The Committee will review the minutes and list of follow up items of each Committee meeting.

i) This Charter will be posted on Sun Life's website and the Committee will prepare a report on its activities for inclusion in the annual management information circular.

j) The Committee shall undertake and review with the Board an annual performance evaluation of the Committee and the Committee Chair.

**3. Access to Management and Independent Advisors**![image_2a.jpg](image_2a.jpg)

The Committee:

a) Has full and unrestricted access to management and, in consultation with the Board Chair, may engage any special advisors it deems necessary to provide independent advice at the expense of Sun Life.

b) Establishes the scope and frequency of the independent reviews of the Actuarial, Finance and Internal Audit functions.

February 8, 2023

## Exhibit 99.4

**Exhibit 99.4**

**CERTIFICATION**

I, Kevin D. Strain certify that:

1. I have reviewed this annual report on Form 40-F of Sun Life Financial Inc.;

2.&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and

5.&nbsp;&nbsp;&nbsp;&nbsp;The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.

Date: February 8, 2023

<u>/s/ Kevin D. Strain &nbsp;&nbsp;&nbsp;&nbsp;</u>

Kevin D. Strain

President and Chief Executive Officer

------

**CERTIFICATION**

I, Manjit Singh certify that:

1. I have reviewed this annual report on Form 40-F of Sun Life Financial Inc.;

2.&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and

5.&nbsp;&nbsp;&nbsp;&nbsp;The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.

Date: February 8, 2023

<u>/s/ Manjit Singh&nbsp;&nbsp;&nbsp;&nbsp;</u>

Manjit Singh

Executive Vice-President and

Chief Financial Officer

## Exhibit 99.5

**Exhibit 99.5**

**Certification**

pursuant to

18 U.S.C. Section 1350

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 40-F of Sun Life Financial Inc. (the "Company") for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his respective knowledge:

&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 8, 2023

<u>/s/ Kevin D. Strain&nbsp;&nbsp;&nbsp;&nbsp;</u>

Kevin D. Strain

President and

Chief Executive Officer

Date: February 8, 2023

<u>/s/ Manjit Singh&nbsp;&nbsp;&nbsp;&nbsp;</u>

Manjit Singh

Executive Vice-President and

&nbsp;&nbsp;&nbsp;&nbsp;Chief Financial Officer

This certificate has not been, and shall not be deemed to be, "filed" with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934.

## Exhibit 99.6

**Exhibit 99.6**

**Consent of Independent Registered Public Accounting Firm** 

We consent to the incorporation by reference in Registration Statement Nos. 333-105130, 333-229698 and 333-90292 on Form S-8 and to the use of our reports dated February 8, 2023 relating to the consolidated financial statements of Sun Life Financial Inc. (the "Company") and the effectiveness of the Company's internal control over financial reporting appearing in this Annual Report on Form 40-F for the year ended December 31, 2022.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Ontario, Canada

February 8, 2023

## Exhibit 99.7

**Exhibit 99.7**

**CONSENT OF APPOINTED ACTUARY**

I consent to the incorporation by reference in Registration Statement Nos. 333-105130 and 333-229698 on Form S-8 and use and incorporation by reference in this Annual Report on Form 40-F of Sun Life Financial Inc. (the "Company") for the year ended December 31, 2022 of the Appointed Actuary's Report to the Shareholders and Directors dated February 8, 2023 (the "Report"), relating to the valuation of the policy liabilities and reinsurance recoverables of the Company and its subsidiaries for its Consolidated Statement of Financial Position at December 31, 2022 and December 31, 2021 and their change in the Consolidated Statements of Operations for the year ended December 31, 2022.

_<u>/s/ Kevin Morrissey</u>_______________&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Kevin Morrissey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Fellow, Canadian Institute of Actuaries&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Toronto, Ontario, Canada

February 8, 2023

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