EX-99.2 3 d811540dex992.htm EX-99.2

EX-99.2

Exhibit 99.2

CONSOLIDATED STATEMENTS OF OPERATIONS

				For the three months ended								For the nine months ended
(unaudited, in millions of Canadian dollars except for per share amounts)				September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Revenue
Premiums
Gross				$	5,370			$	4,928			$	15,400			$	15,046
Less: Ceded					571				559				1,751				1,717
Net premiums					4,799				4,369				13,649				13,329
Net investment income (loss):
Interest and other investment income					1,467				1,414				4,330				4,166
Fair value and foreign currency changes on assets and liabilities (Note 5)					1,718				(1,304	)			8,498				(3,257	)
Net gains (losses) on available-for-sale assets					47				19				103				96
Net investment income (loss)					3,232				129				12,931				1,005
Fee income (Note 9)					1,585				1,500				4,574				4,483
Total revenue					9,616				5,998				31,154				18,817
Benefits and expenses
Gross claims and benefits paid (Note 7)					4,335				3,908				12,808				11,884
Increase (decrease) in insurance contract liabilities (Note 7)					2,510				(942	)			10,418				(1,329	)
Decrease (increase) in reinsurance assets (Note 7)					208				234				68				189
Increase (decrease) in investment contract liabilities (Note 7)					14				(25	)			56				(34	)
Reinsurance expenses (recoveries) (Note 8)					(525	)			(476	)			(1,536	)			(1,523	)
Commissions					590				574				1,740				1,736
Net transfer to (from) segregated funds (Note 12)					(162	)			(65	)			(343	)			(156	)
Operating expenses					1,714				1,563				5,079				4,807
Premium taxes					101				93				305				280
Interest expense					65				73				237				226
Total benefits and expenses					8,850				4,937				28,832				16,080
Income (loss) before income taxes					766				1,061				2,322				2,737
Less: Income tax expense (benefit) (Note 10)					10				184				188				485
Total net income (loss)					756				877				2,134				2,252
Less: Net income (loss) attributable to non-controlling interest and participating policyholders (Note 11)					52				286				164				239
Shareholders’ net income (loss)					704				591				1,970				2,013
Less: Preferred shareholders’ dividends					23				24				71				71
Common shareholders’ net income (loss)				$	681			$	567			$	1,899			$	1,942
Average exchange rates during the reporting periods:		U.S. dollars			1.32				1.31				1.33				1.29
Earnings (loss) per share (Note 14)
Basic				$	1.15			$	0.94			$	3.20			$	3.19
Diluted				$	1.15			$	0.93			$	3.19			$	3.18
Dividends per common share				$	0.525			$	0.475			$	1.550			$	1.405

The attached notes form part of these Interim Consolidated Financial Statements.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 37

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

		For the three months ended								For the nine months ended
(unaudited, in millions of Canadian dollars)		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Total net income (loss)		$	756			$	877			$	2,134			$	2,252
Other comprehensive income (loss), net of taxes:
Items that may be reclassified subsequently to income:
Change in unrealized foreign currency translation gains (losses):
Unrealized gains (losses)			112				(315	)			(427	)			138
Change in unrealized gains (losses) on available-for-sale assets:
Unrealized gains (losses)			76				(76	)			511				(302	)
Reclassifications to net income (loss)			(37	)			(12	)			(72	)			(69	)
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses)			22				(2	)			43				2
Reclassifications to net income (loss)			(16	)			–				(28	)			(6	)
Share of other comprehensive income (loss) in joint ventures and associates:
Unrealized gains (losses)			1				(72	)			5				(96	)
Total items that may be reclassified subsequently to income			158				(477	)			32				(333	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans			1				11				(99	)			100
Total items that will not be reclassified subsequently to income			1				11				(99	)			100
Total other comprehensive income (loss)			159				(466	)			(67	)			(233	)
Total comprehensive income (loss)			915				411				2,067				2,019
Less: Non-controlling interest and participating policyholders’ comprehensive income (loss) (Note 11)			52				285				162				241
Shareholders’ comprehensive income (loss)		$	863			$	126			$	1,905			$	1,778
INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS)
		For the three months ended								For the nine months ended
(unaudited, in millions of Canadian dollars)		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Income tax benefit (expense):
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains / losses		$	–			$	(56	)		$	–			$	(56	)
Unrealized gains / losses on available-for-sale assets			(18	)			18				(120	)			56
Reclassifications to net income for available-for-sale assets			10				6				26				26
Unrealized gains / losses on cash flow hedges			(4	)			–				(12	)			(1	)
Reclassifications to net income for cash flow hedges			3				–				7				2
Total items that may be reclassified subsequently to income			(9	)			(32	)			(99	)			27
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans			2				(5	)			39				(29	)
Total items that will not be reclassified subsequently to income			2				(5	)			39				(29	)
Total income tax benefit (expense) included in other comprehensive income (loss)		$	(7	)		$	(37	)		$	(60	)		$	(2	)

The attached notes form part of these Interim Consolidated Financial Statements.

38 Sun Life Financial Inc. Third Quarter 2019 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

						As at
(unaudited, in millions of Canadian dollars)						September 30, 2019				December 31, 2018
Assets
Cash, cash equivalents and short-term securities (Note 5)						$	8,647			$	9,506
Debt securities (Note 5)							82,167				74,443
Equity securities (Note 5)							4,925				4,634
Mortgages and loans							48,125				46,822
Derivative assets							2,193				1,112
Other invested assets (Note 5)							5,325				4,830
Policy loans							3,216				3,222
Investment properties (Note 5)							7,335				7,157
Invested assets							161,933				151,726
Other assets							4,899				4,498
Reinsurance assets (Note 7)							4,059				4,141
Deferred tax assets							1,431				1,209
Intangible assets							2,015				1,779
Goodwill							5,869				5,412
Total general fund assets							180,206				168,765
Investments for account of segregated fund holders (Note 12)							112,806				103,062
Total assets						$	293,012			$	271,827
Liabilities and equity
Liabilities
Insurance contract liabilities (Note 7)						$	130,870			$	121,923
Investment contract liabilities (Note 7)							3,121				3,164
Derivative liabilities							2,352				2,295
Deferred tax liabilities							397				322
Other liabilities							14,730				12,153
Senior debentures							1,000				1,299
Subordinated debt							3,538				3,039
Total general fund liabilities							156,008				144,195
Insurance contracts for account of segregated fund holders (Note 12)							106,404				96,663
Investment contracts for account of segregated fund holders (Note 12)							6,402				6,399
Total liabilities						$	268,814			$	247,257
Equity
Issued share capital and contributed surplus						$	10,613			$	10,749
Shareholders’ retained earnings and accumulated other comprehensive income							12,540				12,957
Total shareholders’ equity							23,153				23,706
Non-controlling interest							20				–
Participating policyholders’ equity							1,025				864
Total equity						$	24,198			$	24,570
Total liabilities and equity						$	293,012			$	271,827
Exchange rates at the end of the reporting periods:			U.S. dollars				1.32				1.36

The attached notes form part of these Interim Consolidated Financial Statements.

Approved on behalf of the Board of Directors on November 6, 2019.

Dean A. Connor		Sara Grootwassink Lewis
President and Chief Executive Officer		Director

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 39

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

		For the nine months ended
(unaudited, in millions of Canadian dollars)		September 30, 2019				September 30, 2018
Shareholders:
Preferred shares
Balance, beginning and end of period		$	2,257			$	2,257
Common shares (Note 11)
Balance, beginning of period			8,419				8,582
Stock options exercised			22				16
Common shares purchased for cancellation			(158	)			(109	)
Common shares issued as consideration for business acquisition			–				4
Balance, end of period			8,283				8,493
Contributed surplus
Balance, beginning of period			73				72
Share-based payments			4				3
Stock options exercised			(4	)			(3	)
Balance, end of period			73				72
Retained earnings
Balance, beginning of period, as previously reported			11,267				10,305
Adjustment for change in accounting policy (Note 2)			(22	)			(44	)
Balance, beginning of period, after change in accounting policy			11,245				10,261
Net income (loss)			1,970				2,013
Dividends on common shares			(920	)			(853	)
Dividends on preferred shares			(71	)			(71	)
Common shares purchased for cancellation (Note 11)			(434	)			(297	)
Transfer from participating policyholders’ equity (Note 11)			–				89
Changes attributable to acquisition (Note 3)			(875	)			–
Balance, end of period			10,915				11,142
Accumulated other comprehensive income (loss), net of taxes (Note 15)
Balance, beginning of period			1,690				1,105
Total other comprehensive income (loss) for the period			(65	)			(235	)
Balance, end of period			1,625				870
Total shareholders’ equity, end of period		$	23,153			$	22,834
Non-controlling interest:
Balance, beginning of period		$	–			$	–
Changes attributable to acquisition (Note 3)			19				–
Net income (loss)			1				–
Total non-controlling interest, end of period		$	20			$	–
Participating policyholders:
Balance, beginning of period		$	864			$	650
Net income (loss) (Note 11)			163				239
Total other comprehensive income (loss) for the period (Note 15)			(2	)			2
Transfer to retained earnings (Note 11)			–				(89	)
Total participating policyholders’ equity, end of period		$	1,025			$	802
Total equity		$	24,198			$	23,636

The attached notes form part of these Interim Consolidated Financial Statements.

40 Sun Life Financial Inc. Third Quarter 2019 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the three months ended								For the nine months ended
(unaudited, in millions of Canadian dollars)		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Cash flows provided by (used in) operating activities
Income (loss) before income taxes		$	766			$	1,061			$	2,322			$	2,737
Adjustments:
Interest expense related to financing activities			61				62				189				185
Increase (decrease) in insurance and investment contract liabilities			2,524				(967	)			10,474				(1,363	)
Decrease (increase) in reinsurance assets			208				234				68				189
Realized and unrealized (gains) losses and foreign currency changes on invested assets			(1,765	)			1,285				(8,601	)			3,161
Sales, maturities and repayments of invested assets			11,637				13,643				42,708				46,751
Purchases of invested assets			(13,713	)			(14,084	)			(46,046	)			(48,602	)
Income taxes received (paid)			(88	)			(41	)			(586	)			(189	)
Mortgage securitization (Note 5)			100				–				229				39
Other operating activities			463				(75	)			110				(957	)
Net cash provided by (used in) operating activities			193				1,118				867				1,951
Cash flows provided by (used in) investing activities
Net (purchase) sale of property and equipment			(17	)			(29	)			(69	)			(34	)
Investment in and transactions with joint ventures and associates			2				(10	)			16				(13	)
Dividends received from joint ventures and associates			14				14				45				34
Acquisition, net of cash and cash equivalents (Note 3)(1)			(167	)			–				(167	)			–
Other investing activities			(44	)			(32	)			(129	)			(134	)
Net cash provided by (used in) investing activities			(212	)			(57	)			(304	)			(147	)
Cash flows provided by (used in) financing activities
Increase in (repayment of) borrowed funds			1				(8	)			165				(29	)
Issuance of subordinated debt, net of issuance costs			747				–				747				–
Redemption of senior debentures and subordinated debt (Note 11)			(300	)			–				(550	)			(400	)
Issuance of common shares on exercise of stock options			5				3				18				13
Common shares purchased for cancellation (Note 11)			(192	)			(200	)			(592	)			(406	)
Dividends paid on common and preferred shares			(326	)			(307	)			(976	)			(911	)
Payment of lease liabilities			(33	)			–				(93	)			–
Interest expense paid			(78	)			(75	)			(192	)			(208	)
Net cash provided by (used in) financing activities			(176	)			(587	)			(1,473	)			(1,941	)
Changes due to fluctuations in exchange rates			35				(66	)			(123	)			48
Increase (decrease) in cash and cash equivalents			(160	)			408				(1,033	)			(89	)
Net cash and cash equivalents, beginning of period			6,321				5,459				7,194				5,956
Net cash and cash equivalents, end of period			6,161				5,867				6,161				5,867
Short-term securities, end of period			2,422				2,126				2,422				2,126
Net cash, cash equivalents and short-term securities, end of period (Note 5)		$	8,583			$	7,993			$	8,583			$	7,993

⁽¹⁾  Consists of total cash consideration paid of $192, less cash and cash equivalents acquired of $25.

The attached notes form part of these Interim Consolidated Financial Statements.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 41

Condensed Notes to the Interim Consolidated Financial Statements

(Unaudited, 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”). SLF Inc. and its subsidiaries are collectively referred to as “us”, “our”, “ours”, “we”, or “the Company”.

Our Interim Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting as issued and adopted by the International Accounting Standards Board (“IASB”). We have used accounting policies which are consistent with our accounting policies in our 2018 Annual Consolidated Financial Statements, except as disclosed in Note 2 below. Our Interim Consolidated Financial Statements should be read in conjunction with our 2018 Annual Consolidated Financial Statements, as interim financial statements do not include all the information incorporated in annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

2. Changes in Accounting Policies

New and Amended International Financial Reporting Standards Adopted in 2019

2.A IFRS 16 Leases (“IFRS 16”)

In January 2016, the IASB issued IFRS 16, which replaces IAS 17 Leases (“IAS 17”) and related interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. For lessees, IFRS 16 removes the classification of leases as either operating or financing and requires that all leases be recognized on the statement of financial position, with certain exemptions allowed by this new standard. The accounting for lessors is substantially unchanged. We adopted IFRS 16 on a modified retrospective basis as at January 1, 2019 and recognized transition adjustments in retained earnings. Our accounting policies under IFRS 16 are as follows:

We assess whether a contract is, or contains, a lease at the inception of the contract. 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. 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 expense in the Consolidated Statements of Operations. 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 or not 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.

As a result of the adoption of IFRS 16, we recognized right-of-use assets of $744 and lease liabilities of $880, reported in Other assets and Other liabilities, respectively, on our Consolidated Statements of Financial Position. Together with the de-recognition of deferred balances of $105 previously recognized under IAS 17 and deferred tax impact of $9, the adoption of IFRS 16 reduced opening retained earnings by $22 on an after-tax basis as at January 1, 2019.

On transition to IFRS 16, we applied the practical expedient to use hindsight when determining the lease term of contracts containing extension or termination options. Our weighted-average incremental borrowing rate applied to lease liabilities as at January 1, 2019 was 3.3%. The difference between operating lease commitments disclosed in our 2018 Annual Consolidated Financial Statements and lease liabilities on January 1, 2019 is primarily due to the time value of money.

42 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.B Other

The following new and amended IFRS are effective for annual periods beginning on or after January 1, 2019, and did not have a material impact on our Interim Consolidated Financial Statements:

In June 2017, the IASB issued IFRIC 23 Uncertainty over Income Tax Treatments (“IFRIC 23”), which was developed by the IFRS Interpretations Committee. IFRIC 23 clarifies how to apply the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments, and requires an entity to determine whether tax treatments should be considered collectively or independently. In addition, IFRIC 23 addresses the assumptions an entity should make about the examination of tax treatments by taxation authorities, as well as how an entity should consider changes in facts and circumstances. IFRIC 23 also provides guidance on how to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, and tax rates, based on whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings. We adopted IFRIC 23 on a cumulative retrospective basis.

In October 2017, the IASB issued narrow-scope amendments to IAS 28 Investments in Associates and Joint Ventures. The amendments clarify that long-term interests in an associate or joint venture to which the equity method is not applied should be accounted for following the requirements of IFRS 9 Financial Instruments (“IFRS 9”). These amendments are required to be applied retrospectively with certain exceptions. As we qualified for and have elected to take the IFRS 9 deferral approach, we will continue to apply IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”) to the long-term interests in associates or joint ventures covered by these amendments.

In December 2017, the IASB issued Annual Improvements to IFRSs 2015-2017 Cycle, which includes minor amendments to four IFRS standards. These amendments were applied prospectively.

In February 2018, the IASB issued Plan Amendment, Curtailment or Settlement which amends IAS 19 Employee Benefits (“IAS 19”). Under IAS 19, when an amendment, curtailment or settlement of a defined benefit pension plan occurs, the net defined benefit liability or asset is remeasured. The amendments require an entity to use the updated assumptions from this remeasurement to determine current service cost and net interest for reporting periods after the change to the plan. These amendments will be applied to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

New and Amended International Financial Reporting Standards Issued in 2019

In September 2019, the IASB issued the Interest Rate Benchmark Reform, which includes amendments to IFRS 9, IAS 39, and IFRS 7 Financial Instruments: Disclosures. The amendments clarify that entities can continue to apply certain hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform. The amendments are effective for annual periods beginning on or after January 1, 2020. We are currently assessing the impact the adoption of these amendments will have on our Consolidated Financial Statements.

3. Acquisition

BentallGreenOak

On July 1, 2019, we acquired 56% of BentallGreenOak (“BGO”), which was the product of the merger of the Bentall Kennedy group of companies (“Bentall Kennedy”) and GreenOak Real Estate (“GreenOak”), a global real estate investment firm. The former GreenOak shareholders hold the remaining interest in BGO. Total consideration of $411 included approximately $192 in cash and 44% of our interest in Bentall Kennedy which, valued on a discounted cash flow basis, represents consideration of $219. The merged business adds organizational depth and a full spectrum of solutions including equity and debt real estate strategies, adding to the capabilities of our alternatives manager, SLC Management.

The fair values of the identifiable assets and liabilities acquired were:

As at July 1, 2019
Intangible assets		$	238
Net assets			27
Deferred tax liabilities			(48	)
Total identifiable net assets at fair value			217
Non-controlling interest(1)			(343	)
Goodwill arising on acquisition			537
Total consideration		$	411

⁽¹⁾  We have elected to measure non-controlling interest (“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.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 43

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.

This transaction has two additional components (“Additional components”):

A. We have the option to acquire the remaining outstanding shares in BGO commencing in 2026 (“call option”), and BGO minority shareholders have the option to require us to purchase their shares in 2027 (“put option”).

B. In addition to our 56% ownership interest in BGO, we have acquired the right to 75% of former GreenOak shareholders’ share of BGO’s earnings for the period from July 2019 to December 2027. Consideration is to be paid in quarterly instalments over that period (“deferred payments”).

The present values of the put option and deferred payments are calculated using our incremental borrowing rate; the subsequent interest expense recorded using the effective interest method will be recognized in the Consolidated Statements of Operations. Subsequent revisions to the expected exercise price payable for the put option will be recognized in the Consolidated Statements of Operations. If the put option expires unexercised or is cancelled, the carrying value of the financial liability will be released first to NCI, with excess amounts if any recognized against Retained earnings. If the call option is exercised, the liabilities relating to the Additional components will be extinguished and recognized against Retained earnings.

The Additional components are financial liabilities. Amounts were initially measured at the present value of $951 for the put option and $467 for the deferred payments in Other liabilities, with a corresponding reduction to NCI, limited to the original amount recorded upon the acquisition of BGO. Excess amounts were recognized against Retained earnings. At the date of acquisition, the impact to our assets, liabilities, and equity is as follows:

As at July 1, 2019		Share purchase				Additional components				Total
Cash consideration		$	(192	)		$	–			$	(192	)
Net assets			27				–				27
Intangible assets			238				–				238
Goodwill(1)			537				–				537
Total assets		$	610			$	–			$	610
Deferred tax liability		$	(48	)		$	–			$	(48	)
Put option liability			–				(951	)			(951	)
Deferred payments liability			–				(467	)			(467	)
Total liabilities		$	(48	)		$	(1,418	)		$	(1,466	)
Non-controlling interest – Bentall Kennedy		$	(171	)(2)		$	171			$	–
Non-controlling interest – GreenOak(3)			(343	)			324				(19	)
Retained earnings			(48	)(2)			923				875
Total equity		$	(562	)		$	1,418			$	856

⁽¹⁾  Goodwill of $537 reflects GreenOak’s non-contractual customer relationships. Approximately $285 of goodwill is tax deductible.

⁽²⁾  The aggregate amount of $219 represents the fair value of our interest in Bentall Kennedy transferred as consideration.

⁽³⁾  The remaining $19 represents specifically identifiable assets where the risks and rewards accrue to the former GreenOak shareholders and are distributed through a separate class of shares.

4. Segmented Information

We have five business segments: Canada, United States (“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. Corporate includes the results of our United Kingdom (“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 principally from life and health insurance, investment management and annuities, and mutual funds. Revenues not attributed to the strategic business units are derived primarily from Corporate investments and earnings on capital. Transactions between segments are executed and priced on an arm’s-length basis in a manner similar to transactions with third parties.

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.

44 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 Canada and Corporate to Asset Management, and product distribution fees paid by Asset Management to Asia. Intersegment transactions are presented in the Consolidation adjustments column in the following tables.

Results by segment for the three months ended September 30, 2019 and September 30, 2018 are as follows:

		Canada				U.S.				Asset Management				Asia				Corporate				Consolidation adjustments				Total
2019
Gross premiums:
Annuities		$	584			$	–			$	–			$	–			$	5			$	–			$	589
Life insurance			1,203				389				–				693				23				–				2,308
Health insurance			1,403				1,059				–				7				4				–				2,473
Total gross premiums			3,190				1,448				–				700				32				–				5,370
Less: ceded premiums			357				155				–				54				5				–				571
Net investment income (loss)			1,171				898				20				688				462				(7	)			3,232
Fee income			328				21				1,099				134				37				(34	)			1,585
Total revenue			4,332				2,212				1,119				1,468				526				(41	)			9,616
Less:
Total benefits and expenses			4,088				2,446				824				1,270				263				(41	)			8,850
Income tax expense (benefit)			(15	)			(48	)			73				13				(13	)			–				10
Total net income (loss)		$	259			$	(186	)		$	222			$	185			$	276			$	–			$	756
Less: Net income (loss) attributable to non-controlling interest shareholders and participating policyholders			36				–				1				15				–				–				52
Shareholders’ net income (loss)		$	223			$	(186	)		$	221			$	170			$	276			$	–			$	704
2018
Gross premiums:
Annuities		$	608			$	–			$	–			$	–			$	5			$	–			$	613
Life insurance			1,129				404				–				458				24				–				2,015
Health insurance			1,335				955				–				6				4				–				2,300
Total gross premiums			3,072				1,359				–				464				33				–				4,928
Less: ceded premiums			350				145				–				57				7				–				559
Net investment income (loss)			(53	)			159				9				72				(50	)			(8	)			129
Fee income			305				19				1,041				130				36				(31	)			1,500
Total revenue			2,974				1,392				1,050				609				12				(39	)			5,998
Less:
Total benefits and expenses			2,183				1,733				731				426				(97	)			(39	)			4,937
Income tax expense (benefit)			176				(75	)			78				14				(9	)			–				184
Total net income (loss)		$	615			$	(266	)		$	241			$	169			$	118			$	–			$	877
Less: Net income (loss) attributable to non-controlling interest shareholders and participating policyholders			280				1				–				5				–				–				286
Shareholders’ net income (loss)		$	335			$	(267	)		$	241			$	164			$	118			$	–			$	591

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 45

Results by segment for the nine months ended September 30, 2019 and September 30, 2018 are as follows:

		Canada				U.S.				Asset Management				Asia				Corporate				Consolidation adjustments				Total
2019
Gross premiums:
Annuities		$	1,371			$	1			$	–			$	–			$	18			$	–			$	1,390
Life insurance			3,728				1,197				–				1,599				68				–				6,592
Health insurance			4,220				3,161				–				25				12				–				7,418
Total gross premiums			9,319				4,359				–				1,624				98				–				15,400
Less: ceded premiums			1,100				480				–				156				15				–				1,751
Net investment income (loss)			6,510				2,722				67				2,557				1,095				(20	)			12,931
Fee income			959				65				3,151				393				109				(103	)			4,574
Total revenue			15,688				6,666				3,218				4,418				1,287				(123	)			31,154
Less:
Total benefits and expenses			14,971				6,644				2,355				3,971				1,014				(123	)			28,832
Income tax expense (benefit)			(35	)			(5	)			193				39				(4	)			–				188
Total net income (loss)		$	752			$	27			$	670			$	408			$	277			$	–			$	2,134
Less: Net income (loss) attributable to non-controlling interest shareholders and participating policyholders			144				(5	)			1				24				–				–				164
Shareholders’ net income (loss)		$	608			$	32			$	669			$	384			$	277			$	–			$	1,970
2018
Gross premiums:
Annuities		$	1,936			$	–			$	–			$	–			$	16			$	–			$	1,952
Life insurance			3,461				1,213				–				1,550				70				–				6,294
Health insurance			3,969				2,800				–				21				10				–				6,800
Total gross premiums			9,366				4,013				–				1,571				96				–				15,046
Less: ceded premiums			1,108				429				–				163				17				–				1,717
Net investment income (loss)			1,369				(99	)			10				(246	)			(9	)			(20	)			1,005
Fee income			907				52				3,111				393				115				(95	)			4,483
Total revenue			10,534				3,537				3,121				1,555				185				(115	)			18,817
Less:
Total benefits and expenses			9,127				3,683				2,241				1,081				63				(115	)			16,080
Income tax expense (benefit)			294				(45	)			215				37				(16	)			–				485
Total net income (loss)		$	1,113			$	(101	)		$	665			$	437			$	138			$	–			$	2,252
Less: Net income (loss) attributable to non-controlling interest shareholders and participating policyholders			267				(35	)			–				7				–				–				239
Shareholders’ net income (loss)		$	846			$	(66	)		$	665			$	430			$	138			$	–			$	2,013

46 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. Total Invested Assets and Related Net Investment Income

5.A Asset Classification

The carrying values of our Debt securities, Equity securities, and Other invested assets presented in our Interim Consolidated Statements of Financial Position consist of the following:

As at			Fair value through profit or loss				Available- for-sale				Other	(1)			Total
September 30, 2019
Debt securities		$	67,744			$	14,423			$	–			$	82,167
Equity securities		$	4,505			$	420			$	–			$	4,925
Other invested assets		$	3,052			$	743			$	1,530			$	5,325
December 31, 2018
Debt securities		$	61,402			$	13,041			$	–			$	74,443
Equity securities		$	4,014			$	620			$	–			$	4,634
Other invested assets		$	2,701			$	621			$	1,508			$	4,830

⁽¹⁾  Other consists primarily of investments accounted for using the equity method of accounting.

5.B Fair Value and Foreign Currency Changes on Assets and Liabilities

The fair value and foreign currency changes on assets and liabilities presented in our Interim Consolidated Statements of Operations consist of the following:

		For the three months ended								For the nine months ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Fair value change:
Cash, cash equivalents and short-term securities		$	1			$	(1	)		$	(2	)		$	3
Debt securities			1,726				(1,205	)			6,764				(3,011	)
Equity securities			48				(26	)			555				10
Derivative investments			(117	)			8				1,236				(709	)
Other invested assets			24				(2	)			71				39
Total change in fair value through profit or loss assets and liabilities			1,682				(1,226	)			8,624				(3,668	)
Fair value changes on investment properties			59				92				256				329
Foreign exchange gains (losses)(1)			(23	)			(170	)			(382	)			54
Realized gains (losses) on property and equipment(2)			–				–				–				28
Fair value and foreign currency changes on assets and liabilities		$	1,718			$	(1,304	)		$	8,498			$	(3,257	)

⁽¹⁾  Primarily arises from the translation of foreign currency denominated available-for-sale assets and mortgages and loans. Any offsetting amounts arising from foreign currency derivatives are included in the fair value change on derivative investments.

⁽²⁾  In 2018, we sold and leased back a property in Waterloo, Ontario. The transaction qualified as a sale and operating lease and, as a result, we recognized a gain of $28.

5.C Impairment of Available-For-Sale Assets

We recognized impairment losses on available-for-sale assets of $2 and $36 for the three and nine months ended September 30, 2019, respectively ($3 and $8 for the three and nine months ended September 30, 2018, respectively).

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 47

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

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

As at		September 30, 2019				December 31, 2018				September 30, 2018
Cash		$	1,684			$	2,089			$	1,776
Cash equivalents			4,541				5,209				4,294
Short-term securities			2,422				2,208				2,126
Cash, cash equivalents and short-term securities			8,647				9,506				8,196
Less: Bank overdraft, recorded in Other liabilities			64				104				203
Net cash, cash equivalents and short-term securities		$	8,583			$	9,402			$	7,993

5.E Mortgage Securitization

We securitize certain insured fixed rate commercial mortgages as described in Note 5 of our 2018 Annual Consolidated Financial Statements.

The carrying value and fair value of the securitized mortgages as at September 30, 2019 are $1,541 and $1,566, respectively ($1,328 and $1,318, respectively, as at December 31, 2018). The carrying value and fair value of the associated liabilities as at September 30, 2019 are $1,682 and $1,722, respectively ($1,453 and $1,446, respectively, as at December 31, 2018). The carrying value of asset-backed securities in the principal reinvestment account (“PRA”) as at September 30, 2019 and December 31, 2018 are $130 and $124, respectively. There are no cash and cash equivalents in the PRA as at September 30, 2019 and December 31, 2018.

The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions for asset-backed securities described in Note 5 of our 2018 Annual Consolidated Financial Statements. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at September 30, 2019 and December 31, 2018.

5.F Fair Value Measurement

The fair value methodologies and assumptions for assets and liabilities carried at fair value as well as disclosures on unobservable inputs, sensitivities, and valuation processes for Level 3 assets can be found in Note 5 of our 2018 Annual Consolidated Financial Statements.

5.F.i Fair Value Hierarchy

Our assets and liabilities that are carried at fair value on a recurring basis by hierarchy level are as follows:

As at		September 30, 2019																December 31, 2018
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets
Cash, cash equivalents and short-term securities		$	8,103			$	544			$	–			$	8,647			$	8,926			$	580			$	–			$	9,506
Debt securities – fair value through profit or loss			1,522				65,913				309				67,744				1,253				59,776				373				61,402
Debt securities – available-for-sale			1,476				12,897				50				14,423				1,513				11,485				43				13,041
Equity securities – fair value through profit or loss			1,924				2,393				188				4,505				1,967				1,845				202				4,014
Equity securities – available-for-sale			234				151				35				420				398				186				36				620
Derivative assets			17				2,176				–				2,193				27				1,085				–				1,112
Other invested assets			1,056				274				2,465				3,795				898				183				2,241				3,322
Investment properties			–				–				7,335				7,335				–				–				7,157				7,157
Total invested assets		$	14,332			$	84,348			$	10,382			$	109,062			$	14,982			$	75,140			$	10,052			$	100,174
Investments for account of segregated fund holders			25,713				85,370				1,723				112,806				24,705				76,761				1,596				103,062
Total assets measured at fair value		$	40,045			$	169,718			$	12,105			$	221,868			$	39,687			$	151,901			$	11,648			$	203,236
Liabilities
Investment contract liabilities		$	–			$	–			$	2			$	2			$	–			$	–			$	3			$	3
Derivative liabilities			6				2,346				–				2,352				11				2,284				–				2,295
Other liabilities			–				–				1,425				1,425				–				–				–				–
Total liabilities measured at fair value		$	6			$	2,346			$	1,427			$	3,779			$	11			$	2,284			$	3			$	2,298

48 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Debt securities – fair value through profit or loss consist of the following:

As at		September 30, 2019																December 31, 2018
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Canadian federal government		$	–			$	3,780			$	15			$	3,795			$	–			$	3,815			$	15			$	3,830
Canadian provincial and municipal government			–				14,119				16				14,135				–				11,852				14				11,866
U.S. government and agency			1,522				136				1				1,659				1,253				125				2				1,380
Other foreign government			–				5,207				33				5,240				–				4,895				34				4,929
Corporate			–				37,601				224				37,825				–				34,665				205				34,870
Asset-backed securities:
Commercial mortgage-backed securities			–				1,629				6				1,635				–				1,464				3				1,467
Residential mortgage-backed securities			–				2,150				–				2,150				–				1,961				–				1,961
Collateralized debt obligations			–				145				–				145				–				143				–				143
Other			–				1,146				14				1,160				–				856				100				956
Total debt securities – fair value through profit or loss		$	1,522			$	65,913			$	309			$	67,744			$	1,253			$	59,776			$	373			$	61,402

Debt securities – available-for-sale consist of the following:

As at		September 30, 2019																December 31, 2018
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Canadian federal government		$	–			$	2,170			$	–			$	2,170			$	–			$	1,746			$	–			$	1,746
Canadian provincial and municipal government			–				1,191				–				1,191				–				1,199				–				1,199
U.S. government and agency			1,476				–				–				1,476				1,513				14				–				1,527
Other foreign government			–				734				1				735				–				716				1				717
Corporate			–				5,718				49				5,767				–				4,971				42				5,013
Asset-backed securities:
Commercial mortgage-backed securities			–				859				–				859				–				766				–				766
Residential mortgage-backed securities			–				535				–				535				–				386				–				386
Collateralized debt obligations			–				786				–				786				–				804				–				804
Other			–				904				–				904				–				883				–				883
Total debt securities – available-for-sale		$	1,476			$	12,897			$	50			$	14,423			$	1,513			$	11,485			$	43			$	13,041

There were no significant transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2019 and September 30, 2018.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 49

The following tables provide reconciliations of the beginning and ending balances for assets and liabilities that are categorized in Level 3:

For the three months 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 invested assets				Investment properties				Total invested assets measured at fair value				Investments for account of segregated fund holders				Total assets measured at fair value				Other liabilities
September 30, 2019
Beginning balance		$	306			$	59			$	192			$	35			$	2,295			$	7,229			$	10,116			$	1,696			$	11,812			$	–
Acquisitions			–				–				–				–				13				–				13				–				13				1,418
Included in net income(1)(2)(3)			2				–				(2	)			–				10				44				54				27				81				12
Included in OCI(2)			–				–				–				(1	)			(5	)			–				(6	)			–				(6	)			–
Purchases			25				4				–				–				175				66				270				28				298				–
Sales / Payments			–				–				(3	)			–				(29	)			(16	)			(48	)			(19	)			(67	)			(16	)
Settlements			(1	)			–				–				–				–				–				(1	)			(1	)			(2	)			–
Transfers into Level 3(4)			10				–				–				–				–				–				10				–				10				–
Transfers (out) of Level 3(4)			(33	)			(13	)			–				–				–				–				(46	)			–				(46	)			–
Foreign currency translation(5)			–				–				1				1				6				12				20				(8)				12				11
Ending balance		$	309			$	50			$	188			$	35			$	2,465			$	7,335			$	10,382			$	1,723			$	12,105			$	1,425
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)		$	1			$	–			$	(3	)		$	–			$	10			$	46			$	54			$	22			$	76			$	–
September 30, 2018
Beginning balance		$	388			$	130			$	186			$	33			$	1,897			$	7,337			$	9,971			$	1,360			$	11,331			$	–
Included in net income(1)(2)(3)			(5	)			2				(2	)			–				(6	)			74				63				13				76				–
Included in OCI(2)			–				(5	)			–				–				(2	)			–				(7	)			–				(7	)			–
Purchases			31				39				3				–				238				135				446				125				571				–
Sales / Payments			(16	)			–				–				–				(28	)			(248	)			(292	)			(9	)			(301	)			–
Settlements			(1	)			–				–				–				–				–				(1	)			(1	)			(2	)			–
Transfers into Level 3(4)			–				–				–				–				–				–				–				–				–				–
Transfers (out) of Level 3(4)			(65	)			(47	)			–				–				–				–				(112	)			(5	)			(117	)			–
Foreign currency translation(5)			(3	)			(1	)			(2	)			1				(9	)			(28	)			(42	)			(14	)			(56	)			–
Ending balance		$	329			$	118			$	185			$	34			$	2,090			$	7,270			$	10,026			$	1,469			$	11,495			$	–
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)		$	(5	)		$	–			$	(2	)		$	–			$	(5)			$	46			$	34			$	12			$	46			$	–

50 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine months 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 invested assets				Investment properties				Total invested assets measured at fair value				Investments for account of segregated fund holders				Total assets measured at fair value				Other liabilities
September 30, 2019
Beginning balance		$	373			$	43			$	202			$	36			$	2,241			$	7,157			$	10,052			$	1,596			$	11,648			$	–
Acquisitions			–				–				–				–				13				–				13				–				13				1,418
Included in net income(1)(2)(3)			11				–				(3	)			(22	)			(51	)			199				134				49				183				12
Included in OCI(2)			–				4				–				1				4				–				9				–				9				–
Purchases			70				31				4				22				366				520				1,013				145				1,158				–
Sales / Payments			(11	)			–				(8	)			–				(90	)			(487	)			(596	)			(37	)			(633	)			(16	)
Settlements			(4	)			–				–				–				–				–				(4	)			(1	)			(5	)			–
Transfers into Level 3(4)			10				–				–				–				–				–				10				–				10				–
Transfers (out) of Level 3(4)			(135	)			(27	)			(4	)			–				–				–				(166	)			–				(166	)			–
Foreign currency translation(5)			(5	)			(1	)			(3	)			(2	)			(18)				(54	)			(83	)			(29)				(112	)			11
Ending balance		$	309			$	50			$	188			$	35			$	2,465			$	7,335			$	10,382			$	1,723			$	12,105			$	1,425
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)		$	7			$	–			$	(3	)		$	–			$	(51)			$	220			$	173			$	30			$	203			$	–
September 30, 2018
Beginning balance		$	417			$	136			$	167			$	38			$	1,721			$	7,067			$	9,546			$	1,154			$	10,700			$	–
Included in net income(1)(2)(3)			(13	)			–				8				–				32				274				301				22				323				–
Included in OCI(2)			–				(5	)			–				(6	)			(8	)			–				(19	)			–				(19	)			–
Purchases			92				141				8				1				491				467				1,200				327				1,527				–
Sales / Payments			(48	)			–				–				(1	)			(157	)			(585	)			(791	)			(25	)			(816	)			–
Settlements			(14	)			–				–				(1	)			–				–				(15	)			(1	)			(16	)			–
Transfers into Level 3(4)			11				13				–				1				–				–				25				4				29				–
Transfers (out) of Level 3(4)			(117	)			(167	)			–				–				–				–				(284	)			(5	)			(289	)			–
Foreign currency translation(5)			1				–				2				2				11				47				63				(7	)			56				–
Ending balance		$	329			$	118			$	185			$	34			$	2,090			$	7,270			$	10,026			$	1,469			$	11,495			$	–
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)		$	(6	)		$	–			$	9			$	–			$	32			$	261			$	296			$	17			$	313			$	–

⁽¹⁾  Included in Net investment income (loss) for Total invested assets measured at fair value in our Interim Consolidated Statements of Operations.

⁽²⁾  Total gains and losses in net income (loss) and other comprehensive income (“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.

⁽³⁾ Investment properties included in net income is comprised of fair value changes on investment properties of $59 and $256 for the three and nine months ended September 30, 2019, respectively ($92 and $329 for the three and nine months ended September 30, 2018, respectively), net of amortization of leasing commissions and tenant inducements of $15 and $57 for the three and nine months ended September 30, 2019, respectively ($18 and $55 for the three and nine months ended September 30, 2018, respectively).

⁽⁴⁾ Transfers into Level 3 occur when the inputs used to price the assets and liabilities lack observable market data, and as a result, no longer meet the Level 1 or 2 definitions 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 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.

⁽⁵⁾ 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.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 51

6. Financial Instrument and Insurance Risk Management

Our risk management policies and procedures for managing risks related to financial instruments and insurance contracts can be found in Notes 6 and 7, respectively, of our 2018 Annual Consolidated Financial Statements.

Our financial instrument market risk sensitivities are included in our Management’s Discussion and Analysis (“MD&A”) as at September 30, 2019 and December 31, 2018. The shaded text and tables in the Risk Management section of the MD&A represent our disclosures on market risk sensitivities in accordance with IFRS 7 Financial Instruments: Disclosures and include discussions on how we measure our risk and our objectives, policies, and methodologies for managing this risk. Therefore, the shaded text and tables in the MD&A represent an integral part of these Interim Consolidated Financial Statements.

We use reinsurance to limit losses, minimize exposure to significant risks, and to provide additional capacity for growth. 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. Effective January 1, 2019, we updated our single life or joint-first-to-die basis retention limit to $40 ($25 in 2018) in Canada and US$40 (US$25 in 2018) outside of Canada. For survivorship life insurance, our maximum global retention limit is $50 ($30 in 2018) in Canada and US$50 (US$30 in 2018) 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.

7. Insurance Contract Liabilities and Investment Contract Liabilities

7.A Insurance Contract Liabilities

7.A.i Changes in Insurance Contract Liabilities and Reinsurance Assets

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

		For the three months ended September 30, 2019												For the three months ended September 30, 2018
		Insurance contract liabilities				Reinsurance assets				Net				Insurance contract liabilities				Reinsurance assets				Net
Balances before Other policy liabilities and assets, beginning of period		$	120,696			$	3,655			$	117,041			$	112,539			$	3,671			$	108,868
Change in balances on in-force policies			2,177				138				2,039				(1,074	)			(120	)			(954	)
Balances arising from new policies			745				30				715				551				24				527
Method and assumption changes			(412	)			(376	)			(36	)			(419	)			(138	)			(281	)
Increase (decrease) in Insurance contract liabilities and Reinsurance assets			2,510				(208	)			2,718				(942	)			(234	)			(708	)
Foreign exchange rate movements			354				35				319				(968	)			(54	)			(914	)
Balances before Other policy liabilities and assets			123,560				3,482				120,078				110,629				3,383				107,246
Other policy liabilities and assets			7,310				577				6,733				6,851				554				6,297
Total Insurance contract liabilities and Reinsurance assets, end of period		$	130,870			$	4,059			$	126,811			$	117,480			$	3,937			$	113,543

52 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		For the nine months ended September 30, 2019												For the nine months ended September 30, 2018
		Insurance contract liabilities				Reinsurance assets				Net				Insurance contract liabilities				Reinsurance assets				Net
Balances before Other policy liabilities and assets, beginning of period		$	114,902			$	3,653			$	111,249			$	111,091			$	3,503			$	107,588
Change in balances on in-force policies			8,731				205				8,526				(3,424	)			(165	)			(3,259	)
Balances arising from new policies			2,066				103				1,963				2,490				91				2,399
Method and assumption changes			(379	)			(376	)			(3	)			(395	)			(115	)			(280	)
Increase (decrease) in Insurance contract liabilities and Reinsurance assets			10,418				(68	)			10,486				(1,329	)			(189	)			(1,140	)
Foreign exchange rate movements			(1,760	)			(103	)			(1,657	)			867				69				798
Balances before Other policy liabilities and assets			123,560				3,482				120,078				110,629				3,383				107,246
Other policy liabilities and assets			7,310				577				6,733				6,851				554				6,297
Total Insurance contract liabilities and Reinsurance assets, end of period		$	130,870			$	4,059			$	126,811			$	117,480			$	3,937			$	113,543

7.A.ii 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 three months ended September 30, 2019				For the nine months ended September 30, 2019				Description
Mortality / Morbidity		$	(347	)		$	(347	)		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.
Lapse and other policyholder behaviour			99				103			Updates to lapse and policyholder behaviour in all jurisdictions. The largest item was an unfavourable lapse update in International in Asia.
Expense			5				5			Updates to reflect expense experience in all jurisdictions.
Investment returns			1				6			Updates to various investment related assumptions across the Company, partially offset by updates to promulgated ultimate reinvestment rates.
Model enhancements and other			206				230			Various enhancements and methodology changes across all jurisdictions. The largest item was an unfavourable strengthening of reinsurance provisions in In-force Management in the U.S., partially offset by a favourable change to participating accounts in the UK in Corporate and the Philippines in Asia.
Total impact		$	(36	)		$	(3	)

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 53

		For the three months ended September 30, 2018				For the nine months ended September 30, 2018				Description
Mortality / Morbidity		$	(319	)		$	(320	)		Updates to reflect mortality/morbidity experience in all jurisdictions. The largest items were favourable mortality in International in Asia, Group Retirement Services in Canada and the UK in Corporate.
Lapse and other policyholder behaviour			564				563			Updates to lapse and other policyholder behaviour in all jurisdictions. The largest items, which all had unfavourable impacts, were updated lapse assumptions in the U.S. and International in Asia.
Expense			17				12			Updates to reflect expense experience in all jurisdictions including updates to Canada participating life insurance accounts.
Investment returns			(327	)			(328	)		Updates to various investment related assumptions across the Company including updates to Canada participating life insurance accounts.
Model enhancements and other			(216	)			(207	)		Various enhancements and methodology changes across all jurisdictions. The largest item was a favourable change to the participating provisions for adverse deviations in Canada and the U.S., partially offset by a change in reinsurance provisions in the U.S.
Total impact		$	(281	)		$	(280	)

7.B Investment Contract Liabilities

7.B.i Changes in Investment Contract Liabilities

Changes in investment contract liabilities without discretionary participation features (“DPF”) are as follows:

		For the three months ended September 30, 2019								For the three months ended September 30, 2018
		Measured at fair value				Measured at amortized cost				Measured at fair value				Measured at amortized cost
Balances, beginning of period		$	2			$	2,634			$	3			$	2,619
Deposits			–				74				–				124
Interest			–				15				–				13
Withdrawals			–				(118	)			–				(126	)
Fees			–				(1	)			–				(1	)
Other			–				5				–				5
Foreign exchange rate movements			–				(1	)			–				–
Balances, end of period		$	2			$	2,608			$	3			$	2,634

		For the nine months ended September 30, 2019								For the nine months ended September 30, 2018
		Measured at fair value				Measured at amortized cost				Measured at fair value				Measured at amortized cost
Balances, beginning of period		$	3			$	2,646			$	3			$	2,517
Deposits			–				255				–				370
Interest			–				43				–				39
Withdrawals			–				(347	)			–				(301	)
Fees			–				(4	)			–				(6	)
Other			–				15				–				15
Foreign exchange rate movements			(1	)			–				–				–
Balances, end of period		$	2			$	2,608			$	3			$	2,634

54 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Changes in investment contract liabilities with DPF are as follows:

		For the three months ended								For the nine months ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Balances, beginning of period		$	509			$	547			$	515			$	562
Change in liabilities on in-force policies			(1	)			(38	)			13				(73	)
Foreign exchange rate movements			3				(9	)			(17	)			11
Balances, end of period		$	511			$	500			$	511			$	500

7.C Gross Claims and Benefits Paid

Gross claims and benefits paid consist of the following:

		For the three months ended								For the nine months ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Maturities and surrenders		$	661			$	670			$	2,088			$	1,925
Annuity payments			476				468				1,430				1,402
Death and disability benefits			1,005				909				3,120				2,999
Health benefits			1,950				1,592				5,414				4,751
Policyholder dividends and interest on claims and deposits			243				269				756				807
Total gross claims and benefits paid		$	4,335			$	3,908			$	12,808			$	11,884

8. Reinsurance (Expenses) Recoveries

Reinsurance (expenses) recoveries consist of the following:

		For the three months ended								For the nine months ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Recovered claims and benefits		$	483			$	439			$	1,416			$	1,385
Commissions			17				18				50				54
Reserve adjustments			5				(1	)			10				24
Operating expenses and other			20				20				60				60
Reinsurance (expenses) recoveries		$	525			$	476			$	1,536			$	1,523

9. Fee Income

Fee income consists of the following:

		For the three months ended								For the nine months ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Fee income from insurance contracts		$	255			$	238			$	737			$	708
Fee income from service contracts:
Distribution fees			210				211				609				631
Fund management and other asset-based fees			942				871				2,666				2,601
Administrative service and other fees			178				180				562				543
Total fee income		$	1,585			$	1,500			$	4,574			$	4,483

Distribution fees and Fund management and other asset-based fees are primarily earned in Asset Management. Administrative service and other fees are primarily earned in Canada. The fee income by reportable segment is presented in Note 4.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 55

10. Income Taxes

Our effective income tax rate differs from the combined Canadian federal and provincial statutory income tax rate as follows:

		For the three months ended																For the nine months ended
		September 30, 2019								September 30, 2018								September 30, 2019								September 30, 2018
						%								%								%								%
Total net income (loss)		$	756							$	877							$	2,134							$	2,252
Add: Income tax expense (benefit)			10								184								188								485
Total net income (loss) before income taxes		$	766							$	1,061							$	2,322							$	2,737
Taxes at the combined Canadian federal and provincial statutory income tax rate		$	203				26.5			$	284				26.8			$	615				26.5			$	732				26.8
Increase (decrease) in rate resulting from:
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions			(90	)			(11.7	)			(69	)			(6.5	)			(146	)			(6.3	)			(158	)			(5.8	)
Tax exempt investment income			(32	)			(4.2	)			(40	)			(3.8	)			(178	)			(7.7	)			(98	)			(3.6	)
Adjustments in respect of prior periods, including resolution of tax disputes			(74	)			(9.7	)			5				0.5				(91	)			(3.9	)			(1	)			–
Tax (benefit) cost of unrecognized tax losses and tax credits			–				–				4				0.3				6				0.3				4				0.1
Tax rate and other legislative changes			–				–				–				–				2				0.1				–				–
Other			3				0.4				–				–				(20	)			(0.9	)			6				0.2
Total tax expense (benefit) and effective income tax rate		$	10				1.3			$	184				17.3			$	188				8.1			$	485				17.7

In the second quarter of 2019, a provincial corporate tax rate decrease from 12% to 8% was enacted in Alberta, Canada. As a result, our statutory tax rate decreased from 26.75% (rounded to 26.8% in the table above) in 2018 to 26.5% in 2019 and future years.

Statutory income tax rates in other jurisdictions in which we conduct business range from 0% to 30%, 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, higher earnings in jurisdictions with higher statutory tax rates result in an increase in our tax expense, while earnings arising in tax jurisdictions with statutory rates lower than 26.5% reduce our tax expense. These differences are reported in Higher (lower) effective rates on income subject to taxation in foreign jurisdictions.

Tax exempt investment income includes tax rate differences related to various types of investment income that are taxed at rates lower than our statutory income tax rate, including dividend income, and capital gains arising in Canada. Fluctuations in foreign exchange rates and changes in market values of real estate properties and other investments have an impact on the amount of these tax rate differences.

Adjustments in respect of prior periods, including the resolution of tax disputes, for the three months ended September 30, 2019 relates mainly to the resolution of tax matters in Canada, and the finalization of the prior year’s Canadian and U.S. tax filings, and for the nine months ended September 30, 2019 also includes the resolution of tax audits in MFS and amendments to the prior years’ U.S. tax filings. In the three months ended September 30, 2018, the adjustments related primarily to the finalization of the prior year’s Canadian and U.S. tax filings, and for the nine months ended September 30, 2018 also included the resolution of tax audits in Canada and Asia.

Tax (benefit) cost of unrecognized tax losses and tax credits reflects unrecognized losses in Asia.

Other for the nine months ended September 30, 2019 and September 30, 2018 primarily reflects withholding taxes on distributions from our foreign subsidiaries and the benefit relating to investments in joint ventures in Asia. In the nine months ended September 30, 2019, Other also reflects the reversal of withholding taxes no longer expected to be paid.

56 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. Capital Management

11.A Capital

Our capital base is structured to exceed minimum regulatory and internal capital targets, and maintain strong credit and financial strength ratings while maintaining a capital efficient structure. We strive to achieve an optimal capital structure by balancing the use of debt and equity financing. Capital is managed both on a consolidated basis under principles that consider all the risks associated with the business as well as at the business group level under the principles appropriate to the jurisdiction in which each operates. We manage the capital for all of our international subsidiaries on a local statutory basis in a manner commensurate with their individual risk profiles. Further details on our capital, and how it is managed, are included in Note 21 of our 2018 Annual Consolidated Financial Statements.

SLF Inc. is a non-operating insurance company and is subject to the Life Insurance Capital Adequacy Test (“LICAT”) guideline. As at September 30, 2019, SLF Inc.’s LICAT ratio exceeded the regulatory minimum target as set out by the Office of the Superintendent of Financial Institutions (“OSFI”). Sun Life Assurance, SLF Inc.’s principal operating life insurance subsidiary in Canada, is also subject to the LICAT guideline. As at September 30, 2019, Sun Life Assurance’s LICAT ratio exceeded OSFI’s minimum regulatory target, as well as OSFI’s supervisory target applicable to operating life insurance companies.

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 September 30, 2019. In addition, other subsidiaries of SLF Inc. that must comply with local capital or solvency requirements in the jurisdiction in which they operate maintained capital levels above minimum local requirements as at September 30, 2019.

Our capital base consists mainly of common shareholders’ equity, participating policyholders’ equity, preferred shareholders’ equity, and certain other capital securities that qualify as regulatory capital.

11.B Significant Capital Transactions

11.B.i Common Shares

Changes in common shares issued and outstanding were as follows:

		For the nine months ended
		September 30, 2019								September 30, 2018
Common shares (in millions of shares)		Number of shares				Amount				Number of shares				Amount
Balance, beginning of period			598.5			$	8,419				610.5			$	8,582
Stock options exercised			0.6				22				0.4				16
Common shares purchased for cancellation			(11.5	)			(158	)			(7.7	)(1)			(109	)
Common shares issued as consideration for business acquisition			–				–				0.1				4
Balance, end of period			587.6			$	8,283				603.3			$	8,493

⁽¹⁾ 1.1 million shares were purchased pursuant to a third-party share repurchase program under an issuer bid exemption order at a discount to the prevailing market price of the common shares on the Toronto Stock Exchange.

On August 14, 2019, SLF Inc. launched a normal course issuer bid to purchase and cancel up to 15 million common shares of SLF Inc. (“common shares”) between August 14, 2019 and August 13, 2020 (the “2019 NCIB”) and implemented an automatic repurchase plan with its designated broker in order to facilitate purchases of common shares under such bid. Under such automatic repurchase plan, SLF Inc.’s designated broker may purchase common shares pursuant to the 2019 NCIB at times when SLF Inc. ordinarily would not be active in the market due to regulatory restrictions or self-imposed blackout periods. SLF Inc. launched a normal course issuer bid on August 14, 2018 and amended it effective May 14, 2019 (the “2018 NCIB”). Under the 2018 NCIB, SLF Inc. was authorized to purchase and cancel up to 18 million common shares between August 14, 2018 and August 13, 2019. On August 14, 2017, SLF Inc. launched a normal course issuer bid to purchase and cancel up to 11.5 million common shares between August 14, 2017 and August 13, 2018 (the “2017 NCIB” and, together with the 2018 NCIB and the 2019 NCIB, the “NCIBs”).

Pursuant to each of the NCIBs, common shares purchased for cancellation were (or, in the case of the 2019 NCIB, are) able to be purchased through the facilities of the Toronto Stock Exchange, other Canadian stock exchanges, and/or alternative Canadian trading platforms, at prevailing market rates, or by way of private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities at a discount to the prevailing market price.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 57

For the nine months ended September 30, 2019, SLF Inc. purchased and cancelled approximately 11.4 million common shares at an average price per share of $52.01 for a total amount of $592 under the 2018 NCIB and 2019 NCIB. An additional 0.1 million shares purchased in 2018 were cancelled in 2019. For the nine months ended September 30, 2018, SLF Inc. purchased and cancelled approximately 7.7 common shares at an average price per share of $52.91 for a total amount of $406 under the 2018 NCIB. The total amount paid to purchase the shares is allocated to Common shares and Retained earnings in our Consolidated Statements of Changes in Equity. The amount allocated to Common shares is based on the average cost per common share and amounts paid above the average cost are allocated to Retained earnings.

11.B.ii Senior and Subordinated Debt

On July 2, 2019, SLF Inc.’s Series D Senior Unsecured 5.70% Debentures matured and SLF Inc. repaid all of the outstanding $300 principal amount of such debentures together with all accrued and unpaid interest.

On May 13, 2019, SLF Inc. redeemed all of the outstanding $250 principal amount of Series 2014-1 Subordinated Unsecured 2.77% Fixed/Floating Debentures in accordance with the redemption terms attached to such debentures.

On August 7, 2019, SLF Inc. issued $750 principal amount of Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating debentures due 2029. SLF Inc. intends to use an amount equal to the net proceeds to finance or refinance, in whole or in part, new and/or existing eligible assets as defined in our Sustainability Bond Framework.

11.C Participating Account Seed Capital

In the first quarter of 2018, with OSFI’s approval, seed capital, together with interest earned since demutualization, was transferred from the participating account to the shareholder account. The transfer of seed capital is recorded on our Consolidated Statements of Changes in Equity as a Transfer from participating policyholders’ equity totaling $89, comprised of $50 in Canada and $39 (US$30) in U.S. The transfer of interest on seed capital is included as a reduction in Participating policyholders’ net income (loss) and an increase in Shareholders’ net income (loss) totaling $110, on a pre- and post-tax basis, comprised of $75 in Canada and $35 (US$28) in U.S. At the time of demutualization, OSFI required shareholders to transfer seed capital into the participating account to support participating insurance policies sold after demutualization. It was anticipated that over time the seed capital would no longer be needed and that the seed capital and accumulated interest would be returned to the shareholders, subject to OSFI’s approval. The transfer has no impact on regulatory capital requirements, and will have no adverse impact on the policy dividends or security of benefits of participating policyholders.

12. Segregated Funds

12.A Investments for Account of Segregated Fund Holders

The carrying value of investments held for segregated fund holders are as follows:

As at		September 30, 2019				December 31, 2018
Segregated and mutual fund units		$	98,243			$	89,049
Equity securities			10,227				9,771
Debt securities			3,821				3,448
Cash, cash equivalents and short-term securities			618				711
Investment properties			384				400
Mortgages			23				23
Other assets			133				156
Total assets		$	113,449			$	103,558
Less: Liabilities arising from investing activities			643				496
Total investments for account of segregated fund holders		$	112,806			$	103,062

58 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12.B Changes in Insurance Contracts and Investment Contracts for Account of Segregated Fund Holders

Changes in insurance contracts and investment contracts for account of segregated fund holders are as follows:

		Insurance contracts								Investment contracts
For the three months ended		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Balances, beginning of period		$	105,168			$	101,496			$	6,516			$	7,196
Additions to segregated funds:
Deposits			2,486				2,671				19				21
Net transfer (to) from general funds			(162	)			(65	)			–				–
Net realized and unrealized gains (losses)			1,231				(56	)			100				(105	)
Other investment income			656				603				33				49
Total additions		$	4,211			$	3,153			$	152			$	(35	)
Deductions from segregated funds:
Payments to policyholders and their beneficiaries			2,526				2,512				141				138
Management fees			272				254				14				13
Taxes and other expenses			91				67				3				2
Foreign exchange rate movements			86				316				108				210
Total deductions		$	2,975			$	3,149			$	266			$	363
Net additions (deductions)			1,236				4				(114	)			(398	)
Balances, end of period		$	106,404			$	101,500			$	6,402			$	6,798

		Insurance contracts								Investment contracts
For the nine months ended		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Balances, beginning of period		$	96,663			$	99,121			$	6,399			$	7,271
Additions to segregated funds:
Deposits			8,379				8,727				62				63
Net transfers (to) from general funds			(343	)			(156	)			–				–
Net realized and unrealized gains (losses)			10,859				1,558				728				(119	)
Other investment income			1,219				1,171				116				146
Total additions		$	20,114			$	11,300			$	906			$	90
Deductions from segregated funds:
Payments to policyholders and their beneficiaries			8,845				7,803				453				469
Management fees			777				754				40				44
Taxes and other expenses			278				202				12				4
Foreign exchange rate movements			473				162				398				46
Total deductions		$	10,373			$	8,921			$	903			$	563
Net additions (deductions)			9,741				2,379				3				(473	)
Balances, end of period		$	106,404			$	101,500			$	6,402			$	6,798

13. Commitments, Guarantees and Contingencies

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 the preferred shares issued by Sun Life Assurance from time to time, 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.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 59

The following tables set forth certain consolidating summary financial information for SLF Inc. and Sun Life Assurance (consolidated):

For the three months ended		SLF Inc. (unconsolidated)				Sun Life Assurance (consolidated)				Other subsidiaries of SLF Inc. (combined)				Consolidation adjustment				SLF Inc. (consolidated)
September 30, 2019
Revenue		$	53			$	7,707			$	2,387			$	(531	)		$	9,616
Shareholders’ net income (loss)		$	704			$	577			$	104			$	(681	)		$	704
September 30, 2018
Revenue		$	91			$	4,872			$	1,113			$	(78	)		$	5,998
Shareholders’ net income (loss)		$	591			$	719			$	(177	)		$	(542	)		$	591
For the nine months ended		SLF Inc. (unconsolidated)				Sun Life Assurance (consolidated)				Other subsidiaries of SLF Inc. (combined)				Consolidation adjustment				SLF Inc. (consolidated)
September 30, 2019
Revenue		$	160			$	26,978			$	5,718			$	(1,702	)		$	31,154
Shareholders’ net income (loss)		$	1,970			$	1,347			$	560			$	(1,907	)		$	1,970
September 30, 2018
Revenue		$	276			$	15,523			$	3,058			$	(40	)		$	18,817
Shareholders’ net income (loss)		$	2,013			$	1,701			$	159			$	(1,860	)		$	2,013
As at		SLF Inc. (unconsolidated)				Sun Life Assurance (consolidated)				Other subsidiaries of SLF Inc. (combined)				Consolidation adjustment				SLF Inc. (consolidated)
September 30, 2019
Invested assets		$	23,504			$	153,229			$	8,365			$	(23,165	)		$	161,933
Total other general fund assets		$	4,468			$	24,106			$	12,127			$	(22,428	)		$	18,273
Investments for account of segregated fund holders		$	–			$	112,753			$	53			$	–			$	112,806
Insurance contract liabilities		$	–			$	130,964			$	10,359			$	(10,453	)		$	130,870
Investment contract liabilities		$	–			$	3,121			$	–			$	–			$	3,121
Total other general fund liabilities		$	4,818			$	24,852			$	7,625			$	(15,278	)		$	22,017
December 31, 2018
Invested assets		$	24,255			$	143,040			$	6,991			$	(22,560	)		$	151,726
Total other general fund assets		$	4,088			$	21,958			$	10,389			$	(19,396	)		$	17,039
Investments for account of segregated fund holders		$	–			$	103,014			$	48			$	–			$	103,062
Insurance contract liabilities		$	–			$	122,066			$	8,534			$	(8,677	)		$	121,923
Investment contract liabilities		$	–			$	3,164			$	–			$	–			$	3,164
Total other general fund liabilities		$	4,636			$	21,801			$	5,972			$	(13,301	)		$	19,108

60 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14. 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 three months ended								For the nine months ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Common shareholders’ net income (loss) for basic earnings per share		$	681			$	567			$	1,899			$	1,942
Add: increase in income due to convertible instruments(1)			3				3				8				8
Common shareholders’ net income (loss) on a diluted basis		$	684			$	570			$	1,907			$	1,950
Weighted average number of common shares outstanding for basic earnings per share (in millions)			590				606				593				608
Add: dilutive impact of stock options(2) (in millions)			1				1				1				1
Add: dilutive impact of convertible instruments(1) (in millions)			4				4				4				4
Weighted average number of common shares outstanding on a diluted basis (in millions)			595				611				598				613
Basic earnings (loss) per share		$	1.15			$	0.94			$	3.20			$	3.19
Diluted earnings (loss) per share		$	1.15			$	0.93			$	3.19			$	3.18

⁽¹⁾  The convertible instruments are the Sun Life ExchangEable Capital Securities (“SLEECS”) – Series B issued by Sun Life Capital Trust.

⁽²⁾  Excludes the impact of 1 million stock options for both the three and nine months ended September 30, 2019 because these stock options were anti-dilutive for the period (1 million for both the three and nine months ended September 30, 2018).

15. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss), net of taxes, are as follows:

		For the three months ended September 30, 2019												For the three months ended September 30, 2018
		Balance, beginning of period				Other comprehensive income (loss)				Balance, end of period				Balance, beginning of period				Other comprehensive income (loss)				Balance, end of period
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains (losses), net of hedging activities		$	1,384			$	112			$	1,496			$	1,465			$	(315	)		$	1,150
Unrealized gains (losses) on available-for-sale assets			344				39				383				63				(88	)			(25	)
Unrealized gains (losses) on cash flow hedges			(12	)			6				(6	)			(13	)			(2	)			(15	)
Share of other comprehensive income (loss) in joint ventures and associates			(20	)			1				(19	)			(55	)			(72	)			(127	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans			(363	)			1				(362	)			(258	)			11				(247	)
Revaluation surplus on transfers to investment properties			145				–				145				145				–				145
Total		$	1,478			$	159			$	1,637			$	1,347			$	(466	)		$	881
Total attributable to:
Participating policyholders		$	12			$	–			$	12			$	12			$	(1	)		$	11
Shareholders			1,466				159				1,625				1,335				(465	)			870
Total		$	1,478			$	159			$	1,637			$	1,347			$	(466	)		$	881

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2019 61

		For the nine months ended September 30, 2019												For the nine months ended September 30, 2018
		Balance, beginning of period				Other comprehensive income (loss)				Balance, end of period				Balance, beginning of period				Other comprehensive income (loss)				Balance, end of period
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains (losses), net of hedging activities		$	1,923			$	(427	)		$	1,496			$	1,012			$	138			$	1,150
Unrealized gains (losses) on available-for-sale assets			(56	)			439				383				346				(371	)			(25	)
Unrealized gains (losses) on cash flow hedges			(21	)			15				(6	)			(11	)			(4	)			(15	)
Share of other comprehensive income (loss) in joint ventures and associates			(24	)			5				(19	)			(31	)			(96	)			(127	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans			(263	)			(99	)			(362	)			(347	)			100				(247	)
Revaluation surplus on transfers to investment properties			145				–				145				145				–				145
Total		$	1,704			$	(67	)		$	1,637			$	1,114			$	(233	)			881
Total attributable to:
Participating policyholders		$	14			$	(2	)		$	12			$	9			$	2			$	11
Shareholders			1,690				(65	)			1,625				1,105				(235	)			870
Total		$	1,704			$	(67	)		$	1,637			$	1,114			$	(233	)		$	881

16. 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. In the Fehr action, the motions judge dismissed the plaintiff’s motion for certification in its entirety by way of a two-part decision released on November 12, 2015 and December 7, 2016. The plaintiffs appealed and, in a decision released on September 5, 2018, the Ontario Court of Appeal overturned part of the lower court’s decision and certified three alleged breach of contract claims related to the policies. Sun Life Assurance’s application for leave to appeal this decision was dismissed by the Supreme Court of Canada on May 2, 2019. 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 results of operations of the Company.

62 Sun Life Financial Inc. Third Quarter 2019 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)