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Sun Life Financial Inc.

11/03/2022 | Press release | Distributed by Public on 11/03/2022 04:07

CANADIAN RESIDENTS PARTICIPATING IN THE SHARE ACCOUNT - Form 6-K

CANADIAN RESIDENTS PARTICIPATING IN THE SHARE ACCOUNT

Shareholders holding shares in the Canadian Share Account can sell their shares for $15 plus 3 cents per share. Complete Form A on the front of your Share Ownership Statement, tear it off and return it by mail to TSX Trust Company.

For more information call TSX Trust Company at 1 877 224-1760.

Sun Life Reports Third Quarter 2022 Results

Sun Life Financial Inc. ("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". We manage our operations and report our financial results in five business segments: Canada, United States ("U.S."), Asset Management, Asia, and Corporate. The information in this document is based on the unaudited interim financial results of SLF Inc. for the period ended September 30, 2022 and should be read in conjunction with the interim management's discussion and analysis ("MD&A") and our unaudited interim consolidated financial statements and accompanying notes ("Interim Consolidated Financial Statements") for the period ended September 30, 2022, prepared in accordance with International Financial Reporting Standards ("IFRS"). We report certain financial information using non-IFRS financial measures. For more details, refer to the Non-IFRS Financial Measures section in this document. Additional information relating to SLF Inc. is available on www.sunlife.com under Investors - Financial results and reports, on the SEDAR website at www.sedar.com, and on the U.S. Securities and Exchange Commission's website at www.sec.gov. Reported net income (loss) refers to Common shareholders' net income (loss) determined in accordance with IFRS.Unless otherwise noted, all amounts are in Canadian dollars.

TORONTO, ON - (November 2, 2022) - Sun Life Financial Inc.(TSX: SLF) (NYSE: SLF) announced its results for the third quarter ended September 30, 2022.

•Q3'22 reported net income of $466 million decreased 54% and underlying net income(1) of $949 million increased 5% from Q3'21.

•Q3'22 reported EPS(2) was $0.80 and underlying EPS(1)(2) was $1.62.

•Q3'22 reported ROE(1) was 7.6% and underlying ROE(1) was 15.5%.

•Increase common share dividend from $0.69 to $0.72 per share.

"Sun Life delivered strong third quarter results, continuing to reflect the strength of our diversified business mix, in a challenging economic environment," said Kevin Strain, President and CEO of Sun Life. "Sun Life U.S. benefited from the first full quarter of contribution from DentaQuest. Overall insurance sales across our businesses were strong, reflecting the increased importance Clients are placing on protection and health. In our Asset Management business, we announced our intention to acquire a majority stake in Advisors Asset Management, Inc., a leading independent U.S. high-net-worth retail distribution firm, and announced a strategic partnership with Phoenix Group for both MFS and SLC Management in conjunction with the intended sale of our UK business. These transactions provide attractive opportunities for continued growth in our Asset Management pillar."


Quarterly results	Year-to-date
Profitability	Q3'22	Q3'21	2022	2021
Reported net income - Common shareholders ($ millions)	466	1,019	2,109	2,856
Underlying net income ($ millions)(1)	949	902	2,684	2,635
Reported EPS ($)(2)	0.80	1.74	3.59	4.85
Underlying EPS ($)(1)(2)	1.62	1.54	4.58	4.50
Reported return on equity ("ROE")(1)	7.6	%	17.6	%	11.7	%	16.7	%
Underlying ROE(1)	15.5	%	15.6	%	14.9	%	15.4	%

Growth	Q3'22	Q3'21	2022	2021
Insurance sales ($ millions)(1)	943	628	2,478	2,068
Wealth sales and asset management gross flows ($ millions)(1)	43,096	50,725	158,359	171,700
Value of new business ("VNB") ($ millions)(1)	256	290	785	852
Assets under management ("AUM") ($ billions)(1)(3)	1,275	1,386

Financial Strength	Q3'22	Q3'21
LICAT ratios (at period end)(4)
Sun Life Financial Inc.	129	%	143	%
Sun Life Assurance(5)	123	%	124	%
Financial leverage ratio (at period end)(1)	26.4	%	22.2	%

(1)Represents a non-IFRS financial measure. For more details, see the Non-IFRS Financial Measures section in this document and in our MD&A for the period ended September 30, 2022 ("Q3'22 MD&A").

(2)All earnings per share ("EPS") measures refer to fully diluted EPS, unless otherwise stated.

(3)AUM is comprised of General Funds and Segregated Funds on our Statements of Financial Position, and other third-party assets managed by the Company ("other AUM"). For more details, see the Non-IFRS Financial Measures section in this document and in our Q3'22 MD&A.

(4)For further information on the Life Insurance Capital Adequacy Test ("LICAT"), see section E - Financial Strength in our Q3'22 MD&A. Our LICAT ratios are calculated in accordance with OSFI-mandated guideline, Life Insurance Capital Adequacy Test.

(5)Sun Life Assurance Company of Canada ("Sun Life Assurance") is SLF Inc.'s principal operating life insurance subsidiary.

EARNINGS NEWS RELEASE Sun Life Financial Inc. Third Quarter 2022 1

Financial and Operational Highlights - Quarterly Comparison (Q3 2022 vs. Q3 2021)

Our strategy is focused on key business segments, where we aim to be a leader in the markets in which we operate.


($ millions, unless otherwise noted)
Reported net income (loss) - Common shareholders	Underlying net income (loss)(1)	Insurance sales(1)	Wealth sales and asset management gross flows(1)
Q3'22	Q3'21	change	Q3'22	Q3'21	change	Q3'22	Q3'21	change	Q3'22	Q3'21	change
Canada	210	393	(47)%	300	290	3%	233	182	28%	4,131	5,918	(30)%
U.S.	94	46	104%	216	110	96%	366	199	84%	-	-	-
Asset Management	215	301	(29)%	295	362	(19)%	-	-	-	36,434	40,682	(10)%
Asia	125	288	(57)%	175	145	21%	344	247	39%	2,531	4,125	(39)%
Corporate	(178)	(9)	nm(2)	(37)	(5)	nm(2)	-	-	-	-	-	-
Total	466	1,019	(54)%	949	902	5%	943	628	50%	43,096	50,725	(15)%

(1)Represents a non-IFRS financial measure. See the Non-IFRS Financial Measures section in this document and in the Q3'22 MD&A.

(2)Not meaningful.

Reported 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 Sun Life UK(1), less favourable ACMA(2) impacts, and an increase in SLC Management's acquisition-related liabilities(3), partially offset by fair value changes on MFS'(4) share-based payment awards. Underlying net income of $949 million(5) 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.

Canada: A leader in insurance and asset management

Canada reported net income of $210 million decreased $183 million or 47% from prior year, mainly reflecting market-related impacts, due to interest rate movements and lower equity markets. Prior year reported net income also included increases in the value of real estate investments, partially offset by a par allocation adjustment(6). Underlying net income of $300 million increased $10 million or 3% from prior year, primarily driven by higher investment gains, partially offset by a higher effective tax rate. Growth in protection and health was mostly offset by lower wealth results mainly driven by declines in equity markets.

Canada insurance sales were $233 million, up 28% year-over-year, driven by large case group benefits sales in Sun Life Health and higher individual participating whole life insurance sales. Canada wealth sales were $4 billion, down 30%, reflecting lower defined contribution(7) and defined benefit solutions sales in Group Retirement Services ("GRS"), and lower individual wealth sales.

We continue to focus on helping our Clients achieve lifetime financial security and live healthier lives. In 2022, over 45,000 financial roadmaps were created using our Sun Life One Plan digital tool, contributing to our ambition for all Canadians to have a financial plan. This quarter, 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. We also continue to focus on making it easier for Clients to do business with us. This quarter, we 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%.

U.S.: A leader in health and benefits

U.S. reported net income of $94 million increased $48 million from prior year, driven by an increase in underlying net income, partially offset by market-related impacts and DentaQuest integration costs. Underlying net income of $216 million increased $106 million, driven by growth across all businesses, the contribution from the DentaQuest acquisition and favourable experience-related items. Experience in the quarter included favourable medical stop-loss margins and investment gains. Mortality experience in Group Benefits also improved significantly compared to prior year due to lower COVID-19-related claims.

Foreign exchange translation led to an increase of $4 million and $8 million in reported net income and underlying net income, respectively.

U.S. insurance sales were $366 million, up 84% year-over-year, driven by higher dental(8) and employee benefits sales.

(1)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 E - Financial Strength in the Q3'22 MD&A.

(2)Assumption changes and management actions ("ACMA").

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

(4)MFS Investment Management ("MFS").

(5)Refer to section C - Profitability in the Q3'22 MD&A for more information about experience-related items and the Non-IFRS Financial Measures section in this document for a reconciliation between reported net income and underlying net income.

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

(7) Defined contribution sales include retained business sales.

(8) Dental sales include sales from DentaQuest, acquired on June 1, 2022.

2 Sun Life Financial Inc. Third Quarter 2022 EARNINGS NEWS RELEASE

As a leader in health and benefits, we are helping Clients get the right care at the right time. In Q3, we established a new partnership with AbleTo, a virtual behavioural health therapy and coaching program. Sun Life U.S. is the only disability carrier directly partnering with AbleTo, offering convenient mental health services supporting our disability and critical illness members with a cancer diagnosis.

In addition, 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.

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

Asset Management reported net income of $215 million decreased $86 million or 29% from prior year, driven by an increase in SLC Management's acquisition-related liabilities(1) and a decline in underlying net income, partially offset by fair value changes on MFS' share-based payment awards. Underlying net income of $295 million decreased $67 million or 19%, due to lower results in MFS, largely reflecting declines in global equity markets, as well as in SLC Management, due to investment gains in the prior year and continued investments in the businesses.

Foreign exchange translation led to an increase of $10 million in both reported net income and underlying net income.

Asset Management ended Q3'22 with $912 billion in AUM, consisting of $703 billion (US$509 billion) in MFS and $208 billion in SLC Management. Total Asset Management net outflows of $7.7 billion in Q3'22 reflected MFS net outflows of approximately $13.4 billion (US$10.3 billion), partially offset by SLC Management net inflows of approximately $5.7 billion.

In the third quarter of 2022, 97%, 94% and 47% of MFS' U.S. retail mutual fund assets ranked in the top half of their Morningstar categories based on ten-, five- and three-year performance, respectively. The MFS pre-tax net operating profit margin(2) was 41% for Q3'22, compared to 42% in the prior year.

In August, 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 sale of our Sun Life UK(3) business. Phoenix Group is the UK's largest long-term savings and retirement business, with £270 billion(4) 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 Phoenix Group in achieving this goal.

In September, we announced our intention to acquire a 51%(5) 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 will provide access to U.S. retail distribution for SLC Management. This will allow SLC Management to meet the growing demand for alternative assets among U.S. high-net-worth ("HNW") investors.

During the third quarter, InfraRed Capital Partners ("InfraRed") received a five-star rating in the latest Principles for Responsible Investment ("PRI") assessment(6) 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.

Sun Life is continuing progress on its climate commitments with a focus on setting interim targets towards net zero greenhouse gas ("GHG") emissions by 2050. MFS has set an interim target to commit 90% of in-scope assets(7) to be managed in-line with net zero carbon emissions by 2030. We expect our other asset management businesses that are members of the Net Zero Asset Managers ("NZAM") initiative to communicate their targets following finalization with NZAM. For Sun Life's General Account investments, we intend to publish interim targets as part of our 2022 sustainability reporting, to be published in March 2023. Sun Life has also set an interim target of a 50% absolute reduction in GHG emissions by 2030 relative to a 2019 baseline for its operations.

Asia: A regional leader focused on fast-growing markets

Asia reported net income of $125 million decreased $163 million or 57% from prior year, reflecting favourable ACMA impacts in the prior year. Underlying net income of $175 million increased $30 million or 21%, driven by improved mortality reflecting lower COVID-19-related claims, and higher investment gains and contributions from our joint ventures, partially offset by lower fee-based income mainly driven by equity market declines.

Foreign exchange translation led to a $4 million decline in both reported net income and underlying net income.

Asia insurance sales were $344 million, up 39% year-over-year, driven by sales growth across all markets. Asia wealth sales were $3 billion, down 39%, reflecting lower sales in India, the Philippines and Hong Kong.

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

(2)Represents a non-IFRS financial measure. For more details, see the Non-IFRS Financial Measures section in this document and in the Q3'22 MD&A.

(3)SLF of Canada UK Limited.

(4)As at June 30, 2022.

(5)On a fully diluted basis.

(6)InfraRed PRI Transparency and Assessment Reports are available at https://www.ircp.com/sustainability#documents.

(7)In-scope assets comprise approximately 92% of MFS's global AUM.

EARNINGS NEWS RELEASE Sun Life Financial Inc. Third Quarter 2022 3

We are committed to helping our Clients achieve lifetime financial security by offering products that fulfill their needs. In Hong Kong, we have seen strong Client reception for Stellar, the first ESG-focused savings plan(1) in the market that actively integrates environmental, social and governance ("ESG") concepts into investment strategies. Following this success, 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 also continue to enhance our product offerings for HNW Clients to diversify, protect, and grow their assets. This quarter, we launched Sun Global Aurora, a savings-oriented indexed universal life product. Sun Global Aurora is a cost-effective alternative to our core product, providing Clients the flexibility to customize premium payments to meet their wealth accumulation goals, while offering stable returns and exposure to equity markets.

Corporate

Corporate reported net loss was $178 million, compared to a net loss of $9 million in the prior year, reflecting a $170 million charge related to the sale of Sun Life UK, partially offset by favourable ACMA impacts. Underlying net loss was $37 million, compared to a net loss of $5 million in the prior year, reflecting a higher effective tax rate and lower available-for-sale ("AFS") gains.

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 has no material implication on our business strategies. However, upon transition at January 1, 2022, the changes in measurement of insurance contract liabilities and timing of recognition of earnings would have resulted in the following impacts:

•A net transfer of approximately $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 mid-single digit decrease in our 2022 underlying net income as we restate the comparative year on an IFRS 17 basis.

The CSM balance will qualify as Tier 1 available capital. On July 21, 2022, OSFI finalized the LICAT guidelines to reflect the IFRS 17 adoption, effective January 1, 2023. We expect our LICAT ratio to improve on adoption and we also expect capital generation and capital volatility to be relatively unchanged under the new regime.

Our medium-term financial objectives following the adoption of IFRS 17 and 9 will be:

•Underlying EPS growth: 8-10%

•Underlying ROE: 18%+ (an increase from 16%+ prior to transition)

•Underlying Dividend payout ratio: 40-50%

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 additional details, refer to Note 2 in the Interim Consolidated Financial Statements for the period ended September 30, 2022.

(1)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.

4 Sun Life Financial Inc. Third Quarter 2022 EARNINGS NEWS RELEASE

Sun Life Financial Inc.

Management's Discussion and Analysis

For the period ended September 30, 2022

Dated November 2, 2022


Table of Contents
A.	How We Report Our Results	6
B.	Financial Summary	7
C.	Profitability	8
D.	Growth	11
E.	Financial Strength	12
F.	Performance by Business Segment	14
1.Canada	14
2.U.S.	15
3.Asset Management	17
4.Asia	19
5.Corporate	20
G.	Investments	20
H.	Risk Management	23
I.	Additional Financial Disclosure	29
J.	Legal and Regulatory Proceedings	31
K.	Changes in Accounting Policies	31
L.	Internal Control Over Financial Reporting	32
M.	Non-IFRS Financial Measures	32
N.	Forward-looking Statements	40

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 5

About Sun Life

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 September 30, 2022, Sun Life had total assets under management ("AUM") of $1.27 trillion. For more information please visit www.sunlife.com.

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

A. How We Report Our Results

Sun Life Financial Inc. ("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". 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 interim and annual management's discussion and analysis ("MD&A"). We prepare our unaudited Interim Consolidated Financial Statements using International Financial Reporting Standards ("IFRS"), the accounting requirements of the Office of the Superintendent of Financial Institutions ("OSFI") and in accordance with the International Accounting Standard ("IAS") 34 Interim Financial Reporting. Reported net income (loss) refers to Common shareholders' net income (loss) determined in accordance with IFRS.

Unless otherwise noted, all amounts are in Canadian dollars.

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 M - Non-IFRS Financial Measures in this document and the Supplementary Financial Information package that is available on www.sunlife.com 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 N - 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, 2021. These documents are filed with securities regulators in Canada and are available at www.sedar.com. 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 www.sec.gov.

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 sections B - Overview - 5 - COVID-19 and J - Risk Management - 9 - Risks relating to the COVID-19 pandemic in the 2021 annual MD&A.

6 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

B. Financial Summary


($ millions, unless otherwise noted)	Quarterly results	Year-to-date
Profitability	Q3'22	Q2'22	Q3'21	2022	2021
Net income (loss)
Reported net income (loss) - Common shareholders	466	785	1,019	2,109	2,856
Underlying net income (loss)(1)	949	892	902	2,684	2,635
Diluted earnings per share ("EPS") ($)
Reported EPS (diluted)	0.80	1.34	1.74	3.59	4.85
Underlying EPS (diluted)(1)	1.62	1.52	1.54	4.58	4.50
Reported basic EPS ($)	0.80	1.34	1.74	3.60	4.88
Return on equity ("ROE") (%)
Reported ROE(1)	7.6	%	13.1	%	17.6	%	11.7	%	16.7	%
Underlying ROE(1)	15.5	%	14.9	%	15.6	%	14.9	%	15.4	%

Growth	Q3'22	Q2'22	Q3'21	2022	2021
Sales
Insurance sales(1)	943	736	628	2,478	2,068
Wealth sales and asset management gross flows(1)	43,096	57,376	50,725	158,359	171,700
Value of new business ("VNB")(1)	256	271	290	785	852
Assets under management(1)
General fund assets	203,567	195,382	197,948
Segregated funds	118,564	120,098	133,305
Other AUM(1)	952,624	945,554	1,055,066
Total AUM(1)	1,274,755	1,261,034	1,386,319

Financial Strength	Q3'22	Q2'22	Q3'21
LICAT ratios(2)
Sun Life Financial Inc.	129	%	128	%	143	%
Sun Life Assurance(3)	123	%	124	%	124	%
Financial leverage ratio(1)	26.4	%	25.7	%	22.2	%
Dividend
Dividend payout ratio(1)	43	%	45	%	36	%
Dividends per common share ($)	0.690	0.690	0.550
Capital
Subordinated debt	7,075	6,427	4,434
Innovative capital instruments(4)	200	200	200
Participating policyholders' equity	1,764	1,713	1,596
Non-controlling interest equity	64	56	56
Preferred shares and other equity instruments	2,239	2,239	2,531
Common shareholders' equity(5)	24,718	23,825	23,412
Total capital	36,060	34,460	32,229
Weighted average common shares outstanding for basic EPS (millions)	586	586	586
Closing common shares outstanding (millions)	586	586	586

(1)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

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

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

(4)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 our 2021 annual MD&A.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 7

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


Quarterly results	Year-to-date
($ millions, after-tax)	Q3'22	Q2'22	Q3'21	2022	2021
Reported net income - Common shareholders	466	785	1,019	2,109	2,856
Less: Market-related impacts(1)	(160)	(152)	171	(274)	471
Assumption changes and management actions(1)	7	-	95	8	93
Other adjustments(1)(2)	(330)	45	(149)	(309)	(343)
Underlying net income(3)	949	892	902	2,684	2,635
Reported ROE(3)	7.6	%	13.1	%	17.6	%	11.7	%	16.7	%
Underlying ROE(3)	15.5	%	14.9	%	15.6	%	14.9	%	15.4	%
Experience-related items attributable to reported and underlying net income(3)(4)
Impacts of investment activity on insurance contract liabilities ("investing activity")	63	36	16	188	130
Credit	22	38	35	63	82
Mortality	10	19	(28)	(50)	(40)
Morbidity	36	24	(3)	49	73
Lapse and other policyholder behaviour ("policyholder behaviour")	(4)	(19)	1	(28)	(21)
Expenses	5	32	(40)	50	(123)
Other experience	(10)	(37)	(11)	(67)	(55)
Total of experience-related items(3)(4)	122	93	(30)	205	46

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

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

(3)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

(4)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.

Quarterly Comparison - Q3 2022 vs. Q3 2021

Reported net income of $466 million decreased $553 million or 54%, primarily reflecting unfavourable market-related impacts, a $170 million charge related to the sale of Sun Life UK(1), less favourable ACMA(2) impacts, and an increase in SLC Management's acquisition-related liabilities(3), partially offset by fair value changes on MFS'(4) share-based payment awards. Underlying net income of $949 million(5) 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.

Foreign exchange translation led to an increase of $24 million and $10 million in reported net income and underlying net income, respectively.

Reported ROE was 7.6% and underlying ROE was 15.5% (Q3'21 - 17.6% and 15.6%, respectively).

1.Market-related impacts

Market-related impacts resulted in a decrease of $160 million to reported net income (Q3'21 - an increase of $171 million), primarily driven by interest rate movements and lower equity markets. Refer to section M - Non-IFRS Financial Measures in this document for more information of the components of market-related impacts.

(2)Assumption changes and management actions ("ACMA").

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

(4)MFS Investment Management ("MFS").

(5)Refer to section M - Non-IFRS Financial Measures in this document for a reconciliation between reported net income and underlying net income.

8 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

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 assumption changes and management actions was an increase of $7 million to reported net income (Q3'21 - an increase of $95 million).

Assumption Changes and Management Actions by Type

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


As at September 30, 2022
($ millions, after-tax)	Impacts on reported net income(1)	Comments
Mortality / morbidity	70	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	(9)	Updates to reflect expense experience.
Investment returns	(7)	Updates to various investment-related assumptions.
Model enhancements and other	18	Various enhancements and methodology changes.
Total impacts on reported net income(2)	7

(1)ACMA is included in reported net income and is presented as an adjustment to arrive at underlying net income.

(2)In this table, ACMA represents the shareholders' reported net income impacts (after-tax) including management actions. In Note 6.A of our Interim Consolidated Financial Statements for the period ended September 30, 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 M - Non-IFRS Financial Measures in this document.

3.Other adjustments

Other adjustments decreased reported net income $330 million (Q3'21 - a decrease of $149 million), reflecting a $170 million charge related to the sale of Sun Life UK, an increase in SLC Management's acquisition-related liabilities(1) 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.

4.Experience-related items

The notable experience-related items for Q3'22 are as follows:

•Favourable investing activity gains across the insurance businesses;

•Favourable credit largely in Canada and the U.S.;

•Favourable mortality largely from International in Asia;

•Favourable morbidity largely in the U.S.; and

•Unfavourable other experience mainly reflecting project spend.

5.Income taxes

Our statutory 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.

Our Q3'22 effective income tax rate(2) on reported net income and underlying net incomewas 21.7% and 19.0%, respectively (Q3'21 - 13.3% and 14.5%, respectively). In the third quarter of 2022, our effective tax rate on underlying net income was within our expected range of 15% to 20%. In the third quarter of 2021, our effective tax rate on underlying net income was slightly below our expected range due to higher tax-exempt investment income in Corporate and Canada. For additional information, refer to Note 10 in our Interim Consolidated Financial Statements for the period ended September 30, 2022.

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

(2)Our effective income tax rate on reported net income is calculated using Total income (loss) before income taxes, as detailed in Note 10 in our Interim Consolidated Financial Statements for the period ended September 30, 2022. Our effective income tax rate on underlying net income is calculated using pre-tax underlying net income, as detailed in section M - Non-IFRS Financial Measures in this document, and the associated income tax expense.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 9

6.Impacts of foreign exchange translation

The impacts of foreign exchange translation led to an increase of $24 million and $10 million in reported net income and underlying net income, respectively.

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Reported net income of $2,109 million decreased $747 million or 26%, reflecting unfavourable market-related impacts, a $170 million charge related to the sale of Sun Life UK, an increase in SLC Management's acquisition-related liabilities(1), and less favourable ACMA impacts, partially offset by fair value changes on MFS' share-based payment awards. Underlying net income of $2,684 million increased $49 million or 2%, 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.

Foreign exchange translation led to an increase of $34 million and $16 million in reported net income and underlying net income, respectively.

1.Market-related impacts

Market-related impacts resulted in a decrease of $274 million to reported net income (the first nine months of 2021 - an increase of $471 million), reflecting interest rate movements and lower equity markets, partially offset by an increase in the value of our real estate investments. See section M - Non-IFRS Financial Measures in this document for a breakdown of the components of market-related impacts.

2.Assumption changes and management actions

The net impact of ACMA was an increase of $8 million to reported net income (the first nine months of 2021 - an increase of $93 million). See section M - Non-IFRS Financial Measures in this document for more details.

3.Other adjustments

Other adjustments decreased reported net income $309 million (the first nine months of 2021 - a decrease of $343 million), reflecting

a $170 million charge related to the sale of Sun Life UK, an increase in SLC Management's acquisition-related liabilities(1), DentaQuest acquisition and integration costs, 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 and a gain on the sale-leaseback of our Wellesley office in the U.S.

4. Experience-related items

The notable experience-related items are as follows:

•Favourable investing activity gains across the insurance businesses;

•Favourable credit in Canada, the U.S. and Asia;

•Unfavourable mortality which included COVID-19-related experience;

•Favourable morbidity driven by U.S. medical stop-loss, partially offset by disability in Canada and the U.S.;

•Unfavourable policyholder behaviour primarily in Asia;

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

•Unfavourable other experience reflecting higher project spend.

5.Income taxes

Our effective tax rates on reported net income and underlying net income(2) were 22.1% and 17.0%, respectively (the first nine months of 2021 - 17.6% and 16.2%, respectively). Our effective tax rate on underlying net income in both periods was within our expected range of 15% to 20%.

6.Impacts of foreign exchange translation

The impacts of foreign exchange translation led to an increase of $34 million and $16 million in reported net income and underlying net income, respectively.

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

10 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

D. Growth

1. Sales, Gross Flows and Value of New Business


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Insurance salesby business segment(1)
Canada	233	218	182	783	611
U.S.	366	213	199	727	544
Asia	344	305	247	968	913
Total insurance sales(1)	943	736	628	2,478	2,068
Wealth sales andgross flows by business segment(1)
Canada	4,131	4,438	5,918	13,508	14,178
Asia	2,531	3,298	4,125	9,350	11,445
Total wealth sales	6,662	7,736	10,043	22,858	25,623
Asset Management gross flows(1)	36,434	49,640	40,682	135,501	146,077
Total wealth sales and asset management gross flows(1)	43,096	57,376	50,725	158,359	171,700
Value of New Business(1)	256	271	290	785	852

(1)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

Total insurance sales increased $315 million or 50% from prior year ($311 million or 50%(1), excluding foreign exchange translation).

•Canada insurance sales increased 28%, driven by large case group benefits sales in Sun Life Health and higher individual participating whole life insurance sales.

•U.S. insurance sales increased 78%(1), driven by higher employee benefits and dental sales, including contribution from DentaQuest.

•Asia insurance sales increased 43%(1), driven by sales growth across all markets.

Total wealth sales and asset management gross flows decreased $7,629 million or 15% year-over-year ($8,708 million or 17%(1), excluding foreign exchange translation).

•Canada wealth sales decreased 30%, driven by lower defined contribution(2) and defined benefit solutions sales in GRS, and lower individual wealth sales.

•Asia wealth sales decreased 37%(1), reflecting lower sales in India, the Philippines and Hong Kong.

•Asset Management gross flows decreased 13%(1), reflecting lower retail and institutional gross flows in MFS, partially offset by higher institutional gross flows in SLC Management.

Total VNB of $256 million decreased 12% from prior year, driven by product mix. The impact of higher insurance sales was offset by lower wealth sales.

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

(2) Defined contribution sales include retained business sales.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 11

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.


Quarterly results
($ millions)	Q3'22	Q2'22	Q1'22	Q4'21	Q3'21
Assets under management(1)
General fund assets	203,567	195,382	196,685	205,374	197,948
Segregated funds	118,564	120,098	133,496	139,996	133,305
Other assets under management(1)
Retail(2)	443,361	446,195	503,216	553,943	534,178
Institutional and managed funds(2)	547,988	537,413	558,442	587,259	561,904
Consolidation adjustments and other	(38,725)	(38,054)	(39,686)	(41,844)	(41,016)
Total other AUM(1)	952,624	945,554	1,021,972	1,099,358	1,055,066
Total assets under management(1)	1,274,755	1,261,034	1,352,153	1,444,728	1,386,319

(1)Represents a non-IFRS financial measure. See section M - Non-IFRS Financial Measures in this document.

(2)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.

AUM decreased $170.0 billion or 12% from December 31, 2021, primarily driven by:

(i)unfavourable market movements on the value of segregated, retail, institutional and managed funds of $235.6 billion; and

(ii)net outflows from segregated, retail, institutional and managed funds of $8.8 billion; partially offset by

(iii)an increase of $73.2 billion from foreign exchange translation (excluding the impacts of general fund assets).

Segregated, retail, institutional and managed fund net outflows of $8.3 billion in Q3'22 were largely driven by net outflows of $13.4 billion in MFS, partially offset by net inflows of $5.7 billion in SLC Management.

E. Financial Strength


Quarterly results
($ millions, unless otherwise stated)	Q3'22	Q2'22	Q1'22	Q4'21	Q3'21
LICAT ratio(1)
Sun Life Financial Inc.	129	%	128	%	143	%	145	%	143	%
Sun Life Assurance	123	%	124	%	123	%	124	%	124	%
Financial leverage ratio(2)(3)	26.4	%	25.7	%	25.9	%	25.5	%	22.2	%
Dividend
Underlying dividend payout ratio(2)	43	%	45	%	46	%	43	%	36	%
Dividends per common share ($)	0.690	0.690	0.660	0.660	0.550
Capital
Subordinated debt(3)	7,075	6,427	6,426	6,425	4,434
Innovative capital instruments(4)	200	200	200	200	200
Participating policyholders' equity	1,764	1,713	1,704	1,700	1,596
Non-controlling interests	64	56	62	59	56
Preferred shares and other equity instruments	2,239	2,239	2,239	2,239	2,531
Common shareholders' equity(5)	24,718	23,825	23,659	24,075	23,412
Total capital(3)	36,060	34,460	34,290	34,698	32,229

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

(2)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

(3)For Q1'22 and 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.

(4)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 our 2021 annual MD&A.

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

12 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

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 September 30, 2022, SLF Inc.'s LICAT ratio was 129%, 16 percentage points lower than December 31, 2021, reflecting the DentaQuest acquisition, market-related impacts and dividend payments, partially offset by reported net income, subordinated debt issuance 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 September 30, 2022, Sun Life Assurance's LICAT ratio was 123%, 1 percentage point lower than December 31, 2021, reflecting impacts from market-related impacts and dividend payments to SLF Inc., partially offset by reported net income and the smoothing impact of the interest rate scenario switch in North America for participating businesses.

The Sun Life Assurance LICAT ratios in both periods are 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 September 30, 2022, our total capital was $36.1 billion, an increase of $1.4 billion compared to December 31, 2021. The increase to total capital included reported net income of $2,109 million, the favourable impacts of foreign exchange translation of $1,102 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 available-for-sale ("AFS") assets of $1,385 million and the payment of $1,192 million of dividends on common shares of SLF Inc. ("common shares").

Our capital and liquidity positions remain strong with a LICAT ratio of 129% at SLF Inc., a financial leverage ratio of 26.4%(1) and $1.5 billion in cash and other liquid assets(1) as at September 30, 2022 in SLF Inc. (the ultimate parent company), and its wholly-owned holding companies (December 31, 2021 - $4.7 billion).

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. intends to redeem 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 redemption will be funded from existing cash and other liquid assets.

Other Transactions

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(2) 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.

On September 1, 2022, we entered into an agreement to acquire a 51%(3) interest in Advisors Asset Management Inc. ("AAM"), a leading independent U.S. retail distribution firm for consideration of approximately $280 million (US$214 million), subject to customary adjustments, with an option to acquire the remaining interest starting in 2028. AAM will provide access to U.S. retail distribution for SLC Management, Sun Life's institutional fixed income and alternatives asset manager. This will allow SLC Management to meet the growing demand among U.S. high-net-worth 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$36.8 billion (approximately C$50.8 billion) in assets as at September 30, 2022, with 10 offices across nine U.S. states. The transaction is expected to close during the first half of 2023, subject to receipt of regulatory approvals and customary closing conditions.

In October 2022, a matter related to reinsurance pricing for our U.S. In-force Management business was resolved, resulting in a charge of $55 million (US$42 million) in the third quarter. Management is exploring other reinsurance options, which may result in a net reduction to the SLF Inc. LICAT ratio of one to three percentage points in the fourth quarter.

(1)This is a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

(2)As at June 30, 2022.

(3)On a fully diluted basis.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 13

F. Performance by Business Segment


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Reported net income (loss) - Common shareholders
Canada	210	160	393	633	1,202
U.S.	94	213	46	476	414
Asset Management	215	296	301	819	752
Asia	125	131	288	417	629
Corporate	(178)	(15)	(9)	(236)	(141)
Total reported net income (loss) - Common shareholders	466	785	1,019	2,109	2,856
Underlying net income (loss)(1)
Canada	300	344	290	942	865
U.S.	216	154	110	488	446
Asset Management	295	270	362	891	964
Asia	175	148	145	475	456
Corporate	(37)	(24)	(5)	(112)	(96)
Total underlying net income (loss)(1)	949	892	902	2,684	2,635

(1)Represents a non-IFRS financial measure. For more details, see section M - 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


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Individual Insurance & Wealth	48	(52)	203	122	694
Sun Life Health(1)	56	113	79	225	206
Group Retirement Services	106	99	111	286	302
Reported net income - Common shareholders	210	160	393	633	1,202
Less: Market-related impacts(2)	(134)	(183)	146	(343)	384
Assumption changes and management actions(2)	45	-	42	36	38
Acquisition, integration and restructuring(2)	(1)	(1)	-	(2)	-
Other(2)(3)	-	-	(85)	-	(85)
Underlying net income(4)	300	344	290	942	865
Reported ROE (%)(4)	10.1	%	7.9	%	19.5	%	10.3	%	20.6	%
Underlying ROE (%)(4)	14.3	%	17.2	%	14.4	%	15.4	%	14.9	%
Insurance sales(4)	233	218	182	783	611
Wealth sales(4)	4,131	4,438	5,918	13,508	14,178

(1)Effective Q4 2021, we began reporting on the performance and results of Sun Life Health, which brings our Group Benefits business and Lumino Health platform together.

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

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

(4)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

Profitability

Quarterly Comparison - Q3 2022 vs. Q3 2021

Canada reported net income of $210 million decreased $183 million or 47%, mainly reflecting market-related impacts, due to interest rate movements and lower equity markets. Prior year reported net income also included increases in the value of real estate investments, partially offset by a par allocation adjustment(1). Underlying net income of $300 million increased $10 million or 3%, primarily driven by higher investment gains, partially offset by a higher effective tax rate. Growth in protection and health was mostly offset by lower wealth results mainly driven by declines in equity markets. Experience in the quarter included investment gains and favourable credit, partially offset by Sun Life Health morbidity, which was in line with prior year.

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

14 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Canada reported net income of $633 million decreased $569 million or 47%, mainly reflecting lower equity markets and interest rate movements. Prior year reported net income also included increases in the value of real estate investments, partially offset by a Q3'21 par allocation adjustment. Underlying net income of $942 million increased $77 million or 9%, driven by experience-related items, business growth and higher new business gains, partially offset by a higher effective tax rate and lower AFS gains. Year-to-date experience included investment gains and favourable credit, partially offset by unfavourable morbidity.

Growth

Quarterly Comparison - Q3 2022 vs. Q3 2021

Canada insurance sales increased $51 million or 28%, driven by large case group benefits sales in Sun Life Health and higher individual participating whole life insurance sales.

Canada wealth sales decreased $1.8 billion or 30%, reflecting lower defined contribution(1) and defined benefit solutions sales in GRS and lower individual wealth sales.

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Canada insurance sales increased $172 million or 28%, driven by large case group benefits sales in Sun Life Health.

Canada wealth sales decreased $0.7 billion or 5%, reflecting lower individual wealth sales, partially offset by higher defined contribution(1) sales in GRS.

2. U.S.


Quarterly results	Year-to-date
(US$ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Group Benefits(1)	92	86	49	237	237
Dental(1)	9	(25)	1	(14)	1
In-force Management	(29)	106	(13)	149	93
Reported net income - Common shareholders	72	167	37	372	331
Less: Market-related impacts(2)	(14)	26	12	49	41
Assumption changes and management actions(2)	(20)	-	(62)	(13)	(65)
Acquisition, integration and restructuring(2)	(18)	(38)	(1)	(60)	(2)
Other(2)(3)	(42)	58	-	16	-
Underlying net income(4)	166	121	88	380	357
Reported ROE (%)(4)	5.5	%	16.2	%	4.9	%	12.0	%	15.2	%
Underlying ROE (%)(4)	12.8	%	11.7	%	11.6	%	12.3	%	16.4	%
After-tax profit margin for Group Benefits (%)(1)(4)(5)	5.9	%	4.7	%	8.2	%	5.9	%	8.2	%
Insurance sales(4)	281	168	158	565	435
(C$ millions)
Reported net income - Common shareholders	94	213	46	476	414
Less: Market-related impacts(2)	(17)	33	15	63	53
Assumption changes and management actions(2)	(26)	-	(78)	(17)	(82)
Acquisition, integration and restructuring(2)	(24)	(49)	(1)	(78)	(3)
Other(2)(3)	(55)	75	-	20	-
Underlying net income(4)	216	154	110	488	446

(1)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.

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

(4)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

(5)Based on underlying net income, on a trailing four-quarter basis. For more details, see section M - Non-IFRS Financial Measures in this document.

(1) Defined contribution sales include retained business sales.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 15

Profitability

Quarterly Comparison - Q3 2022 vs. Q3 2021

U.S. reported net income of US$72 million ($94 million) increased US$35 million ($48 million), driven by an increase in underlying net income and favourable ACMA impacts, partially offset by a charge reflecting the resolution of a matter related to reinsurance pricing for our In-force Management business, market-related impacts and DentaQuest integration costs. Underlying net income of US$166 million ($216 million) increased US$78 million ($106 million), driven by growth across all businesses, the contribution from the DentaQuest acquisition and favourable experience-related items. Experience in the quarter included favourable medical stop-loss margins and investment gains. Mortality experience in Group Benefits also improved significantly compared to prior year due to lower COVID-19-related claims.

Foreign exchange translation led to an increase of $4 million and $8 million in reported net income and underlying net income, respectively.

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

U.S. reported net income of US$372 million ($476 million) increased US$41 million ($62 million), driven by a gain on the sale-leaseback of our Wellesley office, favourable ACMA impacts and an increase in underlying net income, partially offset by DentaQuest acquisition and integration costs and a charge reflecting the resolution of a matter related to reinsurance pricing for our In-force Management business. Underlying net income of US$380 million ($488 million) increased US$23 million ($42 million), driven by growth across all businesses, the contribution from the DentaQuest acquisition, partially offset by experience-related items and lower AFS gains. Year-to-date experience included favourable medical stop-loss margins, investment gains and favourable credit, partially offset by disability experience. For the first nine months of 2022, COVID-19 impacts largely reflected elevated group life mortality in Q1.

Foreign exchange translation led to an increase of $13 million and $14 million in reported net income and underlying net income, respectively.

Growth

Quarterly Comparison - Q3 2022 vs. Q3 2021

U.S. insurance sales increased US$123 million or 78%, driven by higher dental(1) and employee benefits sales.

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

U.S. insurance sales increased US$130 million or 30%, driven by growth in dental(1) and medical stop-loss sales.

(1) Dental sales include sales from DentaQuest, acquired on June 1, 2022.

16 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

3. Asset Management


Quarterly results	Year-to-date
Asset Management (C$ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Reported net income - Common shareholders	215	296	301	819	752
Less: Fair value adjustments on MFS' share-based payment awards(1)	37	44	(43)	78	(139)
Acquisition, integration and restructuring(1)(2)(3)	(117)	(18)	(18)	(150)	(52)
Other(1)(4)	-	-	-	-	(21)
Underlying net income(5)	295	270	362	891	964
Assets under management (C$ billions)(5)	911.6	905.3	1,008.8	911.6	1,008.8
Gross flows (C$ billions)(5)	36.4	49.6	40.7	135.5	146.1
Net flows (C$ billions)(5)	(7.7)	0.3	1.8	(9.4)	12.8
MFS(C$ millions)
Reported net income - Common shareholders	312	291	284	892	754
Less: Fair value adjustments on MFS' share-based payment awards(1)	37	44	(43)	78	(139)
Underlying net income(5)	275	247	327	814	893
Assets under management (C$ billions)(5)	703.4	711.7	833.0	703.4	833.0
Gross flows (C$ billions)(5)	28.2	40.5	33.7	109.3	115.2
Net flows (C$ billions)(5)	(13.4)	(7.0)	(2.7)	(27.3)	(10.0)
MFS (US$ millions)
Reported net income - Common shareholders	240	228	225	696	602
Less: Fair value adjustments on MFS' share-based payment awards(1)	28	34	(34)	60	(111)
Underlying net income(5)	212	194	259	636	713
Pre-tax net operating margin(5)	41	%	36	%	42	%	38	%	40	%
Average net assets (US$ billions)(5)	560.9	592.1	675.5	600.0	650.0
Assets under management (US$ billions)(5)(6)	508.7	552.9	657.1	508.7	657.1
Gross flows (US$ billions)(5)	21.6	31.7	26.7	85.4	92.0
Net flows (US$ billions)(5)	(10.3)	(5.5)	(2.2)	(21.2)	(8.1)
Asset appreciation (depreciation) (US$ billions)	(33.9)	(78.6)	(2.4)	(162.9)	54.9
SLC Management (C$ millions)
Reported net income - Common shareholders	(97)	5	17	(73)	(2)
Less: Acquisition, integration and restructuring(1)(2)(3)	(117)	(18)	(18)	(150)	(52)
Other(1)(4)	-	-	-	-	(21)
Underlying net income(5)	20	23	35	77	71
Fee-related earnings(5)	58	52	52	164	137
Pre-tax fee-related earnings margin(5)(7)	24	%	23	%	23	%	24	%	23	%
Pre-tax net operating margin(5)(7)	22	%	24	%	23	%	22	%	23	%
Assets under management (C$ billions)(5)	208.2	193.6	175.8	208.2	175.8
Gross flows - AUM (C$ billions)(5)	8.2	9.2	7.0	26.2	30.9
Net flows - AUM (C$ billions)(5)	5.7	7.3	4.6	17.9	22.8
Fee earning assets under management ("FE AUM") (C$ billions)(5)	162.9	150.1	140.0	162.9	140.0
Gross flows - FE AUM (C$ billions)(5)	10.2	6.8	6.7	25.2	23.8
Net flows - FE AUM (C$ billions)(5)	8.8	5.0	4.8	19.4	18.2
Capital raising (C$ billions)(5)	3.8	5.7	5.0	15.2	20.8
Deployment (C$ billions)(5)	9.5	7.0	6.5	23.4	25.7

(2)Amounts relate to acquisition costs for our SLC affiliates, BentallGreenOak, InfraRed Capital Partners and Crescent Capital Group LP, which include the unwinding of the discount for Other financial liabilities of $15 million in Q3'22 and $47 million in the first nine months of 2021 of 2022 (Q2'22 - $16 million; Q3'21 - $17 million; the first nine months of 2021 - $44 million).

(3)Q3'22 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.

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

(5)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

(6)Monthly information on AUM is provided by MFS in its Corporate Fact Sheet, which can be found at www.mfs.com/CorpFact. The Corporate Fact Sheet also provides MFS' U.S. GAAP assets and liabilities as at December 31, 2021.

(7)Based on a trailing 12-month basis.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 17

Profitability

Quarterly Comparison - Q3 2022 vs. Q3 2021

Asset Management reported net income of $215 million decreased $86 million or 29%, driven by an increase in SLC Management's acquisition-related liabilities(1) and a decline in underlying net income, partially offset by fair value changes on MFS' share-based payment awards. Underlying net income of $295 million decreased $67 million or 19%, due to lower results in MFS and SLC Management.

Foreign exchange translation led to an increase of $10 million in both reported net income and underlying net income.

MFS reported net income of US$240 million increased US$15 million or 7%, driven by fair value changes on MFS' share-based payment awards. Underlying net income of US$212 million decreased US$47 million or 18%, largely reflecting declines in global equity markets, partially offset by lower variable compensation expenses. Pre-tax net operating margin was 41% (Q3'21 - 42%).

SLC Management reported net loss was $97 million, compared to reported net income of $17 million in the prior year, reflecting an increase in acquisition-related liabilities(1). Underlying net income of $20 million decreased $15 million or 43%, reflecting investment gains in the prior year and continued investments in the businesses. The fee-related earnings margin(2) and the pre-tax net operating profit margin(2) for Q3'22 was 24% and 22%, respectively (Q3'21 - 23% and 23%, respectively).

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Asset Management reported net income of $819 million increased $67 million or 9%, driven by fair value changes on MFS' share-based payment awards, partially offset by an increase in SLC Management's acquisition-related liabilities(1) and a decline in underlying net income. Underlying net income of $891 million decreased $73 million or 8%, driven by lower results in MFS.

Foreign exchange translation led to an increase of $20 million and $19 million in reported net income and underlying net income, respectively.

MFS reported net income of US$696 million increased US$94 million or 16%, driven by fair value changes on MFS' share-based payment awards. Underlying net income of US$636 million decreased US$77 million or 11%, largely reflecting declines in global equity markets, partially offset by lower variable compensation expenses.

SLC Management reported net loss was $73 million, compared to reported net loss of $2 million in the prior year, reflecting an increase in acquisition-related liabilities(1). Underlying net income of $77 million increased $6 million or 8%, driven by higher fee-related earnings as a result of higher AUM and lower sales incentives related to fundraising, partially offset by investment gains in the prior year and continued investments in the businesses.

Growth

Asset Management AUM decreased $147.6 billion or 14% from December 31, 2021, reflecting net asset value changes of $134.7 billion, net outflows of $9.4 billion, and Client distributions of $3.5 billion.

MFS AUM decreased US$184.1 billion or 27% from December 31, 2021, reflecting asset value changes of US$162.9 billion and net outflows of

US$21.2 billion. In Q3'22, 97%, 94% and 47% of MFS' U.S. retail fund assets ranked in the top half of their Morningstar categories based on ten-, five- and three-year performance, respectively.

SLC Management AUM increased $24.3 billion or 13% from December 31, 2021, as net inflows of $17.9 billion and asset value changes of $9.8 billion were partially offset by Client distributions of $3.5 billion. Net inflows were comprised of capital raising and Client contributions, totaling $26.2 billion, partially offset by outflows of $8.2 billion.

SLC Management FE AUM increased $15 billion or 10% from December 31, 2021, driven by net inflows of $19.4 billion and asset value changes of $0.4 billion, partially offset by Client distributions of $4.9 billion. Net inflows were comprised of capital deployment and Client contributions, totaling $25.2 billion, partially offset by outflows of $5.8 billion.

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

(2)Based on a trailing 12-month basis.

18 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

4. Asia


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Local Markets	52	49	92	174	234
International Hubs	73	82	196	243	395
Reported net income - Common shareholders	125	131	288	417	629
Less: Market-related impacts(1)	8	(11)	13	6	38
Assumption changes and management actions(1)	(58)	-	132	(57)	137
Acquisition, integration and restructuring(1)	-	(6)	(2)	(7)	(2)
Underlying net income (loss)(2)	175	148	145	475	456
Reported ROE (%)(2)	7.3	%	8.0	%	18.5	%	8.5	%	13.7	%
Underlying ROE (%)(2)	10.2	%	9.1	%	9.3	%	9.6	%	10.0	%
Insurance sales(2)	344	305	247	968	913
Wealth sales(2)	2,531	3,298	4,125	9,350	11,445

(2)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

Profitability

Quarterly Comparison - Q3 2022 vs. Q3 2021

Foreign exchange translation led to a $4 million decline in both reported net income and underlying net income.

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Asia reported net income of $417 million decreased $212 million or 34%, reflecting favourable ACMA impacts in the prior year. Underlying net income of $475 million increased $19 million or 4%, driven by experience-related items, partially offset by lower fee-based income mainly driven by equity market declines. Year-to-date experience included investment gains and favourable credit, partially offset by unfavourable policyholder behaviour.

Foreign exchange translation led to decline of $9 million and $10 million in reported net income and underlying net income, respectively.

Growth

Quarterly Comparison - Q3 2022 vs. Q3 2021

Asia insurance sales increased 43%(1), driven by sales growth across all markets.

Asia wealth sales decreased 37%(1), reflecting lower sales in India, the Philippines and Hong Kong.

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Asia insurance sales increased 8%(1), driven by higher sales in all local markets and Singapore, partially offset by lower sales in Hong Kong and International.

Asia wealth sales decreased 16%(1), reflecting lower sales in India and Hong Kong, partially offset by higher sales in the Philippines.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 19

5. Corporate


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
UK	(107)	38	30	(29)	118
Corporate Support	(71)	(53)	(39)	(207)	(259)
Reported net income (loss) - Common shareholders	(178)	(15)	(9)	(236)	(141)
Less: Market-related impacts(1)	(17)	9	(3)	-	(4)
Assumption changes and management actions(1)	46	-	(1)	46	-
Acquisition, integration and restructuring(1)(2)	-	-	-	-	(51)
Other(1)(3)	(170)	-	-	(170)	10
Underlying net income (loss)(4)	(37)	(24)	(5)	(112)	(96)

(2)The restructuring charge of $57 million in Q1'21 related to our strategy for our workspace and redefining the role of the office.

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

(4)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

Profitability

Quarterly Comparison - Q3 2022 vs. Q3 2021

Year-to-Date Comparison - Q3 2022 vs. Q3 2021

Corporate reported net loss was $236 million, compared to a net loss of $141 million in the prior year, reflecting a $170 million charge related to the sale of Sun Life UK, partially offset by a Q1'21 restructuring charge of $57 million, and favourable ACMA. Underlying net loss was $112 million, compared to a net loss of $96 million in the prior year, reflecting losses on AFS and seed investments, partially offset by lower expenses primarily for incentive compensation.

G. Investments

Total general fund invested assets of $175.9 billion as at September 30, 2022, were down $8.7 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:(1)


September 30, 2022	December 31, 2021
($ millions)	Carrying value	% of Total carrying value	Carrying value	% of Total carrying value
Cash, cash equivalents and short-term securities	11,386	6	%	12,278	6	%
Debt securities	75,526	43	%	88,727	48	%
Equity securities	6,740	4	%	9,113	5	%
Mortgages and loans	55,430	32	%	51,692	28	%
Derivative assets	2,632	1	%	1,583	1	%
Other invested assets	10,661	6	%	8,759	5	%
Policy loans	3,339	2	%	3,261	2	%
Investment properties	10,149	6	%	9,109	5	%
Total invested assets	175,863	100	%	184,522	100	%

(1)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.

20 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

1. Debt Securities

Our 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 September 30, 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.

Debt Securities by Geography

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


September 30, 2022	December 31, 2021
($ millions)	FVTPL debt securities	AFS debt securities	Total	% of Total	FVTPL debt securities	AFS debt securities	Total	% of Total
Debt securities by geography:
Canada	27,344	5,041	32,385	43	%	33,028	5,135	38,163	43	%
United States	21,529	5,138	26,667	35	%	26,678	4,552	31,230	35	%
Europe	6,148	1,380	7,528	10	%	8,289	1,337	9,626	11	%
Asia	4,664	732	5,396	7	%	5,249	622	5,871	7	%
Other	2,469	1,081	3,550	5	%	2,754	1,083	3,837	4	%
Total debt securities	62,154	13,372	75,526	100	%	75,998	12,729	88,727	100	%

Our gross unrealized losses as at September 30, 2022 for FVTPL and AFS debt securities were $10,154 million and $1,501 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 September 30, 2022 (December 31, 2021 - 73%). Debt securities with a credit rating of "BBB" or higher represented 99% of total debt securities as at September 30, 2022, consistent with December 31, 2021.

2. Mortgages and Loans

Mortgages and loans are presented at their carrying value in our Interim 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.(1)


September 30, 2022	December 31, 2021
($ millions)	Mortgages	Loans	Total	Mortgages	Loans	Total
Canada	9,750	12,959	22,709	9,569	12,885	22,454
United States	5,678	17,190	22,868	5,907	14,596	20,503
Europe	19	6,949	6,968	9	6,093	6,102
Asia	-	556	556	-	532	532
Other	-	2,329	2,329	-	2,101	2,101
Total mortgages and loans	15,447	39,983	55,430	15,485	36,207	51,692
% of Total Invested Assets	9	%	23	%	32	%	8	%	20	%	28	%

(1)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.

As at September 30, 2022, we held $15.4 billion of mortgages (December 31, 2021 - $15.5 billion). Our mortgage portfolio consists entirely of commercial mortgages, including retail, office, multi-family, industrial and land properties. As at September 30, 2022, 35% 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 56% as at September 30, 2022, compared to 58% as at December 31, 2021. 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 1.73 times. Of the $4.1 billion of multi-family residential mortgages in the Canadian commercial mortgage portfolio, 92% were insured by the CMHC.

As at September 30, 2022, we held $40.0 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 21

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.


September 30, 2022
Gross carrying value	Allowance for losses
($ millions)	Mortgages	Loans	Total	Mortgages	Loans	Total
Not past due	15,436	39,929	55,365	-	-	-
Past due:
Past due less than 90 days	-	-	-	-	-	-
Past due 90 days or more	-	-	-	-	-	-
Impaired	93	146	239	82	92	174
Total	15,529	40,075	55,604	82	92	174
December 31, 2021
Gross carrying value	Allowance for losses
($ millions)	Mortgages	Loans	Total	Mortgages	Loans	Total
Not past due	15,473	36,188	51,661	-	-	-
Past due:
Past due less than 90 days	-	-	-	-	-	-
Past due 90 days or more	-	-	-	-	-	-
Impaired	92	71	163	80	52	132
Total	15,565	36,259	51,824	80	52	132

As at September 30, 2022, our impaired mortgages and loans, net of allowances for losses, were $65 million (December 31, 2021 - $31 million).

3. 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)	September 30, 2022	December 31, 2021
Net fair value asset (liability)	(554)	191
Total notional amount	68,617	65,966
Credit equivalent amount(1)	1,221	1,179
Risk-weighted credit equivalent amount(1)	27	28

(1)Amounts presented are net of collateral received.

The net fair value of derivatives was a liability of $554 million as at September 30, 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 $68.6 billion as at September 30, 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.

4. 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 September 30, 2022 was $2,435 million (December 31, 2021 - $2,992 million). The decrease of $557 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.

A one-notch downgrade of 25% of our fixed income investment portfolio(1) 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.

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

22 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

H. Risk Management

This section includes our disclosure on market risks and should be read in conjunction with our unaudited Interim Consolidated Financial Statements for the quarter ended September 30, 2022.

We have established a Risk Management Framework to assist in identifying, measuring, managing, monitoring and reporting risks. The Risk Management Framework covers all risks and these have been grouped into six major categories: market, insurance, credit, business and strategic, operational and liquidity risks. The impact of the COVID-19 pandemic is resulting in the potential for simultaneous adverse impacts across all six major risk categories, though the time horizon and magnitude of these impacts is uncertain at this time. For additional information, refer to sections B - Overview - 5 - COVID-19 and J - Risk Management - 9 - Risks relating to the COVID-19 Pandemic in the 2021 Annual MD&A.

Through our enterprise risk management processes, we oversee the various risk factors identified in the Risk Management Framework and provide reports to senior management and to the Board Committees at least quarterly. Our enterprise risk management processes and risk factors are described in our annual MD&A and AIF.

When referring to segregated funds in this section, it is inclusive of segregated fund guarantees, variable annuities and investment products and includes Run-off reinsurance in Corporate.

Market Risk Sensitivities

Our net income(1) 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.

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 Q3'22, we realized $3 million (pre-tax), in net gains on the sale of AFS assets (Q3'21 - $41 million). The net unrealized gains (losses) within our Accumulated OCI position on AFS fixed income and equity assets were $(1,210) million and $91 million, respectively, net of tax, as at September 30, 2022 (December 31, 2021 - $137 million and $129 million, respectively).

(1)Net income in section H - Risk Management in this document refers to common shareholders' net income.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 23

1. 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 September 30, 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.


($ millions, unless otherwise noted) As at September 30, 2022
Change in Equity Markets(1)	25% decrease	10% decrease	10% increase	25% increase
Potential impact on net income(2)(3)	$	(400)	$	(150)	$	150	$	300
Potential impact on OCI(3)	$	(100)	$	(50)	$	50	$	100
Potential impact on LICAT(2)(4)	1.5% point decrease	0.5% point decrease	0.0% point change	0.0% point change

($ millions, unless otherwise noted) As at December 31, 2021
Change in Equity Markets(1)	25% decrease	10% decrease	10% increase	25% increase
Potential impact on net income(2)(3)	$	(400)	$	(150)	$	150	$	350
Potential impact on OCI(3)	$	(150)	$	(50)	$	50	$	150
Potential impact on LICAT(2)(4)	0.5% point decrease	0.0% point change	0.0% point change	0.5% point increase

(1) Represents the respective change across all equity markets as at September 30, 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).
(2) The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at September 30, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates.
(3)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.
(4) The LICAT sensitivities illustrate the impact on Sun Life Assurance as at September 30, 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%.

2. 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 September 30, 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.


($ millions, unless otherwise noted)	As at September 30, 2022	As at December 31, 2021
Change in Interest Rates(1)	50 basis point decrease	50 basis point increase	50 basis point decrease	50 basis point increase
Potential impact on net income(2)(3)(4)	$	-	$	-	$	(50)	$	50
Potential impact on OCI(3)	$	250	$	(250)	$	250	$	(250)
Potential impact on LICAT(2)(5)	2.0% point increase	2.0% point decrease	1.5% point increase	0.5% point decrease

(1) Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at September 30, 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).
(2) The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at September 30, 2022 and December 31, 2021, and include new business added and product changes implemented prior to such dates.
(3) 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.
(4) 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.
(5) The LICAT sensitivities illustrate the impact on Sun Life Assurance as at September 30, 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%.

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 September 30, 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.

24 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

3. 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.

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 September 30, 2022 and December 31, 2021.


($ millions, unless otherwise noted)	As at September 30, 2022	As at December 31, 2021
Change in Credit Spreads(1)	50 basis point decrease	50 basis point increase	50 basis point decrease	50 basis point increase
Potential impact on net income(2)	$	(25)	$	25	$	(75)	$	50
Potential impact on LICAT(3)	1.5% point increase	1.5% point decrease	0.5% point decrease	0.5% point increase

(1) In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period.
(2) Sensitivities have been rounded in increments of $25 million.
(3) The LICAT sensitivities illustrate the impact on Sun Life Assurance as at September 30, 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%.


($ millions, unless otherwise noted)	As at September 30, 2022	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
Potential impact on net income(1)	$	-	$	-	$	25	$	(25)

(1)Sensitivities have been rounded in increments of $25 million.

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.

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. It should be noted that switching of the scenario can also change the direction of our sensitivities.

For SLF Inc., the six-quarter smoothing resulted in no change to the LICAT ratio this quarter. The remaining impact of one percentage point is expected to increase the LICAT ratio over the next four quarters, assuming no further scenario switches.

For Sun Life Assurance, the six-quarter smoothing resulted in an increase in the LICAT ratio of approximately one percentage point this quarter. The remaining impact of two percentage points is expected to increase the LICAT ratio over the next four quarters, assuming no further scenario switches.

4. 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

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 25

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.

5. Segregated Fund Guarantees

Approximately one-quarter of our equity market sensitivity and a small amount of interest rate risk sensitivity as at September 30, 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


As at September 30, 2022
($ millions)	Fund value	Amount at Risk(1)	Value of guarantees(2)	Insurance contract liabilities(3)
Canada	11,291	910	10,896	158
Asia	1,297	398	1,638	97
Corporate(4)	2,107	224	924	171
Total	14,695	1,532	13,458	426


As at December 31, 2021
($ millions)	Fund value	Amount at Risk(1)	Value of guarantees(2)	Insurance contract liabilities(3)
Canada	13,751	183	11,210	350
Asia	1,728	166	1,711	69
Corporate(4)	2,672	137	892	184
Total	18,151	486	13,813	603

(1)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.

(2)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.

(3)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.

(4)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.

The movement of the items in the table above from December 31, 2021 to September 30, 2022 primarily resulted from the following factors:

(i) the total fund values decreased due to decreases in equity markets and increases in interest rates;

(ii) the total amount at risk increased due to decreases in equity markets;

(iii) the total value of guarantees decreased due to net redemptions from products closed to new business; and

(iv) the total insurance contract liabilities decreased due to increases in interest rates, partially offset by decreases in equity markets.

26 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

6. Segregated Fund Hedging

Our hedging programs use derivative instruments to mitigate the interest and equity-related exposure of our segregated fund contracts. As at September 30, 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 September 30, 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


September 30, 2022
($ millions)	Changes in interest rates(3)	Changes in equity markets(4)
Net income sensitivity(1)(2)	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
($ millions)	Changes in interest rates(3)	Changes in equity markets(4)
Net income sensitivity(1)(2)	50 basis point decrease	10% decrease	25% decrease
Before hedging	(150)	(150)	(350)
Hedging impact	150	100	250
Net of hedging	-	(50)	(100)

(1)Net income sensitivities have been rounded in increments of $50 million.

(2)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.

(3)Represents a parallel shift in assumed interest rates across the entire yield curve as at September 30, 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).

(4)Represents the change across all equity markets as at September 30, 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.

7. 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 direct 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 direct real estate investments as at September 30, 2022 would decrease net income(1) by approximately $450 million (December 31, 2021 - decrease of $375 million). Conversely, an instantaneous 10% increase in the value of our direct real estate investments as at September 30, 2022 would increase net income by approximately $450 million (December 31, 2021 - increase of $350 million).

(1)Sensitivities have been rounded in increments of $25 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 27

8. Additional Cautionary Language and Key Assumptions Related to Sensitivities

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.

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 M - 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.

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 September 30, 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.

The sensitivities are based on methods and assumptions in effect as at September 30, 2022 and December 31, 2021, as applicable. Changes in the regulatory environment, accounting or actuarial valuation methods, models, or assumptions (including changes to the ASB promulgated URR) 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.

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.

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.

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 2021 annual MD&A. Additional information on market risk can be found in Note 6 of our 2021 Annual Consolidated Financial Statements and the Risk Factors section in the 2021 AIF.

28 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

I. Additional Financial Disclosure

1. Revenue


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Premiums
Gross	7,400	7,069	6,436	20,379	18,512
Less: Ceded	374	649	602	1,642	1,835
Net premiums	7,026	6,420	5,834	18,737	16,677
Net investment income (loss)
Interest and other investment income	1,561	1,505	1,517	4,457	4,313
Fair value(1) and foreign currency changes on assets and liabilities	(1,904)	(7,838)	(928)	(18,054)	(4,310)
Net gains (losses) on available-for-sale assets	3	(4)	41	29	141
Net Investment income (loss)	(340)	(6,337)	630	(13,568)	144
Fee income	1,944	1,928	2,046	5,852	5,872
Total revenue	8,630	2,011	8,510	11,021	22,693

(1)Represents the change in FVTPL assets and liabilities.

Revenue was in line with the prior year, as net premium growth was offset by a decline in the fair value changes on assets. Foreign exchange translation led to a $149 million increase in revenue.

Revenue decreased $11,672 million or 51% in the first nine months of 2022 compared to the same period in 2021, reflecting a decline in the fair value of assets, primarily due to rising interest rates, partially offset by net premium growth. Foreign exchange translation led to a $245 million increase in revenue.

2. Changes in the Statements of Financial Position and in Shareholders' Equity

Total general fund assets of $203.6 billion, compared to $205.4 billion at December 31, 2021, reflect a decline in the fair value of assets, partly offset by business growth and favourable impacts of foreign exchange translation.

Insurance contract liabilities balances before Other policy liabilities of $128.9 billion, compared to $139.7 billion at December 31, 2021, reflect changes in balances on in-force policies (which include fair value changes on FVTPL assets supporting insurance contract liabilities).

Total shareholders' equity, including preferred share capital, is $27.0 billion, compared to $26.3 billion at December 31, 2021. The change reflects:

(i)total shareholders' net income of $2,159 million, before preferred share dividends of $50 million; and

(ii)an increase of $1,102 million from the impacts of foreign exchange translation; partially offset by

(iii)net unrealized losses on AFS assets in OCI of $1,385 million; and

(iv)common share dividend payments of $1,192 million.

As at October 21, 2022, SLF Inc. had 586,336,106 common shares, 3,645,727 options to acquire SLF Inc. common shares, and 52,200,000 Class A Shares outstanding.

3. Cash Flows


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Net cash and cash equivalents, beginning of period	7,485	6,752	8,823	7,693	10,648
Cash flows provided by (used in):
Operating activities	1,885	1,983	885	3,397	143
Investing activities	(96)	(2,589)	(177)	(2,737)	(1,070)
Financing activities	(213)	1,261	(1,391)	694	(1,462)
Changes due to fluctuations in exchange rates	334	78	97	348	(22)
Increase (decrease) in cash and cash equivalents	1,910	733	(586)	1,702	(2,411)
Net cash and cash equivalents, end of period	9,395	7,485	8,237	9,395	8,237
Short-term securities, end of period	1,990	1,843	3,196	1,990	3,196
Net cash, cash equivalents and short-term securities, end of period	11,385	9,328	11,433	11,385	11,433

Our operating activities generate cash flows which include net premium revenue, net investment income, fee income, and the sale and maturity of investments. They are the principal source of funds to pay for policyholder claims and benefits, commissions, operating expenses, and the purchase of investments. Cash flows used in investing activities primarily include transactions related to associates, joint ventures and acquisitions. Cash flows provided by and used in financing activities largely reflect capital transactions including payments of dividends, the issuance and repurchase of shares, as well as the issuance and retirement of debt instruments and preferred shares.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 29

Q3'22 cash outflows provided by financing activities decreased year-over-year, as Q3'21 included the redemption of preferred shares and senior debentures, and Q3'22 included the issuance of subordinated debt, partially offset by repayment of borrowing from credit facilities.

4. 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.


Quarterly results
($ millions, unless otherwise noted)	Q3'22	Q2'22	Q1'22	Q4'21	Q3'21	Q2'21	Q1'21	Q4'20
Total revenue	8,630	2,011	380	12,995	8,510	12,669	1,514	11,649
Common shareholders' net income (loss)
Reported net income	466	785	858	1,078	1,019	900	937	744
Less: Market-related impacts(1)	(160)	(152)	38	156	171	91	209	20
Assumption changes and management actions(1)	7	-	1	(19)	95	2	(4)	(42)
Other adjustments(1)	(330)	45	(24)	43	(149)	(76)	(118)	(96)
Underlying net income(2)	949	892	843	898	902	883	850	862
Diluted EPS ($)
Reported	0.80	1.34	1.46	1.83	1.74	1.53	1.59	1.27
Underlying(2)	1.62	1.52	1.44	1.53	1.54	1.50	1.45	1.47
Basic reported EPS ($)
Reported	0.80	1.34	1.46	1.84	1.74	1.54	1.60	1.27
Reported net income (loss) by segment - Common shareholders
Canada	210	160	263	356	393	404	405	255
U.S.	94	213	169	85	46	157	211	88
Asset Management	215	296	308	140	301	221	230	267
Asia	125	131	161	446	288	143	198	132
Corporate	(178)	(15)	(43)	51	(9)	(25)	(107)	2
Total reported net income (loss) - Common shareholders	466	785	858	1,078	1,019	900	937	744
Less: Market-related impacts (pre-tax)(1)	(212)	(109)	193	153	231	85	380	(65)
ACMA (pre-tax)(1)	15	-	1	(23)	93	2	(6)	(60)
Other adjustments (pre-tax)(1)(3)	(362)	57	(26)	67	(179)	(64)	(144)	(109)
Tax expense (benefit) on above items(3)	76	(55)	(153)	(17)	(28)	(6)	(143)	116
Underlying net income (loss) by segment(2)
Canada	300	344	298	266	290	290	285	243
U.S.	216	154	118	72	110	165	171	148
Asset Management	295	270	326	382	362	311	291	333
Asia	175	148	152	130	145	152	159	116
Corporate	(37)	(24)	(51)	48	(5)	(35)	(56)	22
Total underlying net income (loss)(2)	949	892	843	898	902	883	850	862

(2)Represents a non-IFRS financial measure. For more details, see section M - Non-IFRS Financial Measures in this document.

(3)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.

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.

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.

30 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

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.

Fourth Quarter 2020

Q4'20 reported net income increased by $25 million or 3% compared to the prior year, driven by the change in underlying net income of $70 million, partially offset by unfavourable ACMA impacts in the U.S. and higher fair value adjustments on MFS' share-based payment awards. Underlying net income increased driven by business growth, favourable morbidity experience related to Canada and the U.S., partially offset by lower investing activity reflecting losses in Canada in the current quarter due to asset repositioning, lower AFS gains reflecting an impairment in Asia, and less favourable credit experience in Asia and the U.S. Across the Company, mortality experience was in line with the prior year, as unfavourable experience in Canada was offset by favourable experience in Corporate. Furthermore, in the U.S., the unfavourable impact of COVID-19 claims in 2020 was comparable to the impacts of large case claims in In-force Management in Q4'19.

J. Legal and Regulatory Proceedings

Information concerning legal and regulatory matters is provided in our Annual Consolidated Financial Statements, our annual MD&A, and the AIF, in each case for the year ended December 31, 2021, and in our Interim Consolidated Financial Statements for the period ended September 30, 2022.

K. Changes in Accounting Policies

We have adopted several amended IFRS standards in the current year. The adoption of these amendments had no material impact on our Consolidated Financial Statements. In addition, a new IFRS amendment was issued in the current year that is expected to be adopted in 2024. For additional information, refer to Note 2 in our Interim Consolidated Financial Statements for the period ended September 30, 2022.

IFRS 17 Insurance Contracts ("IFRS 17") and IFRS 9 Financial Instruments ("IFRS 9'') to be Adopted in 2023

•A net transfer of approximately $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 mid-single digit decrease in our 2022 underlying net income as we restate the comparative year on an IFRS 17 basis.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 31

Our medium-term financial objectives following the adoption of IFRS 17 and 9 will be:

•Underlying EPS growth: 8-10%

•Underlying ROE: 18%+ (an increase from 16%+ prior to transition)

•Underlying Dividend payout ratio: 40-50%

L. 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 the Company's financial reporting and the preparation of its financial statements in accordance with IFRS.

There were no changes in the Company's internal control over financial reporting during the period, which began on July 1, 2022 and ended on September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

M. Non-IFRS Financial Measures

1.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 assumptions, 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; and (iii) the impacts of changes in the fair value of investment properties in the reporting period;

(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:

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;

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;

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

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 2021 Annual Consolidated Financial Statements. For additional information about the SLEECS, please refer to Note 13 of our 2021 Annual Consolidated Financial Statements.

32 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

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


Quarterly results	Year-to-date
($ millions, unless otherwise noted)	Q3'22	Q2'22	Q3'21	2022	2021
Reported net income - Common shareholders	466	785	1,019	2,109	2,856
Market-related impacts
Equity market impacts
Impacts from equity market changes	(53)	(169)	19	(246)	181
Basis risk impacts	5	10	5	37	14
Equity market impacts	(48)	(159)	24	(209)	195
Interest rate impacts(1)
Impacts of interest rate changes	(123)	(93)	(2)	(273)	109
Impacts of credit spread movements	6	20	4	66	(14)
Impacts of swap spread movements	2	5	-	(6)	12
Interest rate impacts	(115)	(68)	2	(213)	107
Impacts of changes in the fair value of investment properties	3	75	145	148	169
Less: Market-related impacts	(160)	(152)	171	(274)	471
Less: Assumption changes and management actions	7	-	95	8	93
Other adjustments
Fair value adjustments on MFS' share-based payment awards	37	44	(43)	78	(139)
Acquisition, integration and restructuring(2)(3)(4)(5)	(142)	(74)	(21)	(237)	(108)
Other(6)(7)(8)(9)(10)	(225)	75	(85)	(150)	(96)
Less: Total of other adjustments	(330)	45	(149)	(309)	(343)
Underlying net income	949	892	902	2,684	2,635
Reported EPS (diluted) ($)	0.80	1.34	1.74	3.59	4.85
Less: Market-related impacts ($)	(0.27)	(0.26)	0.29	(0.47)	0.77
Assumption changes and management actions ($)	0.01	-	0.16	0.01	0.16
Fair value adjustments on MFS' share-based payment awards ($)	0.06	0.08	(0.07)	0.13	(0.24)
Acquisition, integration and restructuring ($)	(0.24)	(0.13)	(0.04)	(0.40)	(0.19)
Other ($)	(0.37)	0.13	(0.14)	(0.25)	(0.16)
Impact of convertible securities on diluted EPS ($)	(0.01)	-	-	(0.01)	0.01
Underlying EPS (diluted) ($)	1.62	1.52	1.54	4.58	4.50

(1)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.

(2)Amounts relate to acquisition costs for our SLC affiliates, BentallGreenOak, InfraRed Capital Partners and Crescent Capital Group LP, which include the unwinding of the discount for Other financial liabilities of $15 million in Q3'22 and $47 million for the first nine months of 2022 (Q2'22 - $16 million; Q3'21 - $17 million; the first nine months of 2021 - $44 million).

(3)The restructuring charge of $57 million in Q1'21 related to our strategy for our workspace and redefining the role of the office.

(4)Reflects acquisition and integration costs associated with DentaQuest, acquired on June 1, 2022.

(5)Q3'22 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.

(6)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 E - Financial Strength in this document.

(7)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.

(8)Q2'22 reflects a gain on the sale-leaseback of our Wellesley office in the U.S.

(9)Q3'21 reflects an adjustment for investment income and expense allocations between participating policyholders and shareholders for prior years.

(10)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.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 33

The following table shows the pre-tax amount of underlying net income adjustments:


Quarterly results	Year-to-date
($ millions, unless otherwise noted)	Q3'22	Q2'22	Q3'21	2022	2021
Reported net income - Common shareholders (after-tax)	466	785	1,019	2,109	2,856
Underlying net income adjustments (pre-tax):
Less: Market-related impacts	(212)	(109)	231	(128)	696
Assumption changes and management actions	15	-	93	16	89
Other adjustments(1)	(362)	57	(179)	(331)	(387)
Total underlying net income adjustments (pre-tax)	(559)	(52)	145	(443)	398
Less: Taxes related to underlying net income adjustments(1)	76	(55)	(28)	(132)	(177)
Underlying net income (after-tax)	949	892	902	2,684	2,635

(1)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.

2.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 C - Profitability in this document. See section D - Profitability - 2 - Assumption changes and management actions in the 2021 Annual MD&A for details on ACMA.

Note 6.A of the Interim Consolidated Financial Statements for the period ended September 30, 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.


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Impacts of method and assumption changes on insurance contract liabilities (pre-tax)	(17)	-	(240)	(12)	(274)
Less: Participating policyholders(1)	-	-	21	4	(9)
Less: Other items(2)	(20)	-	-	(20)	-
Impacts of method and assumption changes excluding participating policyholders (pre-tax)	3	-	(261)	4	(265)
Less: Tax	5	-	(91)	5	(93)
Impacts of method and assumption changes excluding participating policyholders (after-tax)	(2)	-	(170)	(1)	(172)
Add: Management actions (after-tax)(3)	9	-	267	9	267
Other (after-tax)(4)	-	-	(2)	-	(2)
Assumption changes and management actions (after-tax)(5)(6)	7	-	95	8	93

(1)Adjustment to remove the pre-tax impacts of method and assumption changes on amounts attributed to participating policyholders.

(2)Other includes a charge reflecting the resolution of a matter related to reinsurance pricing for our U.S. In-force Management business.

(3)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 $12 million in Q3'22 and an increase of $12 million for the first nine months of 2022 (Q2'22 - $nil; Q3'21 - an increase of $355 million; the first nine months of 2021 - an increase of $355 million).

(4)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 Q3'22 and $nil for the first nine months of 2022 (Q2'22 - $nil; Q3'21 - a decrease of $2 million; the first nine months of 2021 - a decrease of $2 million).

(5)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.

(6)ACMA is included in reported net income and is excluded in calculating underlying net income, as described in section C - Profitability in this document

34 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

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.

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 September 30, 2022	As at December 31, 2021
Cash and other liquid assets (held at SLF Inc. and its wholly owned holding companies):
Cash, cash equivalents & short-term securities	892	2,383
Debt securities(1)	1,426	1,421
Equity securities(2)	103	861
Sub-total(3)	2,421	4,665
Less: Loans related to acquisitions (held at SLF Inc. and its wholly owned holding companies)(4)	(957)	-
Cash and other liquid assets (held at SLF Inc. and its wholly owned holding companies)(5)	1,464	4,665

(1)Includes publicly traded bonds.

(2)Includes ETF Investments.

(3)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.

(4)Loans related to acquisitions have been included as an adjustment to Cash and other liquid assets, as they reflect funding for the DentaQuest acquisition.

(5)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.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 35

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	Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Fee income (per IFRS)	310	307	278	911	799
Less: Non-fee-related revenue adjustments(1)(2)	67	65	55	200	172
Fee-related revenue	243	242	223	711	627
Total expenses (per IFRS)	391	290	277	953	801
Less: Non-fee-related expense adjustments(2)(3)	206	100	106	406	311
Fee-related expenses	185	190	171	547	490
Fee-related earnings	58	52	52	164	137
Add: Investment income (loss) and performance fees(4)	-	-	17	11	19
Add: Interest and other(5)	(16)	(7)	(7)	(29)	(24)
Operating income	42	45	62	146	132

(1)Includes Interest and other - fee income, Investment income (loss) and performance fees - fee income, and Other - fee income.

(2)Excludes the income and related expenses for certain property management agreements to provide more accurate metrics on our fee-related business.

(3)Includes Interest and other, Placement fees - other, Amortization of intangibles, Acquisition, integration and restructuring, and Other - expenses.

(4)Investment income (loss) and performance fee in SLC's 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):


Quarterly results	Year-to-date
($ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Net investment income (loss) (per IFRS)	(14)	-	17	(4)	20
Less: Other - Investment income (loss)	(14)	-	-	(12)	2
Add: Investment income (loss) and performance fees - fee income	-	-	-	3	1
Investment income (loss) and performance fees	-	-	17	11	19

(5)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.

36 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

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	Quarterly results	Year-to-date
(US$ millions)	Q3'22	Q2'22	Q3'21	2022	2021
Revenue
Fee income (per IFRS)	801	838	973	2,548	2,798
Less: Commissions	104	110	132	334	378
Less: Other(1)	(13)	(16)	(10)	(40)	(32)
Adjusted revenue	710	744	851	2,254	2,452
Expenses
Expenses (per IFRS)	500	542	671	1,648	1,982
Net investment (income)/loss (per IFRS)	(7)	6	-	5	1
Less: Gross fair value adjustments on share-based payment awards(2)	(17)	(25)	52	(27)	160
Less: Commissions	104	110	132	334	378
Less: Other(1)	(13)	(16)	(10)	(40)	(32)
Adjusted expenses	419	479	497	1,386	1,477
Pre-tax net operating margin	41	%	36	%	42	%	38	%	40	%

(1)Other includes accounting basis differences, such as sub-advisory expenses and product allowances.

(2)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.

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 our 2021 annual MD&A.

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.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 37

3.Reconciliations of Select Non-IFRS Financial Measures

Reported Net Income to Underlying Net Income Reconciliation - Pre-tax by Business Group


Q3'22
($ millions)	Canada	U.S.	Asset Management	Asia	Corporate	Total
Reported net income (loss) - Common shareholders	210	94	215	125	(178)	466
Less: Market-related impacts (pre-tax)(1)	(170)	(22)	-	8	(28)	(212)
ACMA (pre-tax)	62	(33)	-	(58)	44	15
Other adjustments (pre-tax)(1)(2)	(1)	(102)	(89)	-	(170)	(362)
Tax expense (benefit) on above items(2)	19	35	9	-	13	76
Underlying net income (loss)	300	216	295	175	(37)	949
Q2'22
Reported net income (loss) - Common shareholders	160	213	296	131	(15)	785
Less: Market-related impacts (pre-tax)(1)	(143)	43	-	(12)	3	(109)
ACMA (pre-tax)	-	-	-	-	-	-
Other adjustments (pre-tax)(1)(2)	(1)	32	32	(6)	-	57
Tax expense (benefit) on above items(2)	(40)	(16)	(6)	1	6	(55)
Underlying net income (loss)	344	154	270	148	(24)	892
Q3'21
Reported net income (loss) - Common shareholders	393	46	301	288	(9)	1,019
Less: Market-related impacts (pre-tax)(1)	204	18	-	13	(4)	231
ACMA (pre-tax)	56	(98)	-	132	3	93
Other adjustments (pre-tax)(1)(2)	(115)	(2)	(61)	(1)	-	(179)
Tax expense (benefit) on above items(2)	(42)	18	-	(1)	(3)	(28)
Underlying net income (loss)	290	110	362	145	(5)	902

(1)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

(2)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
($ millions)	Canada	U.S.	Asset Management	Asia	Corporate	Total
Reported net income (loss) - Common shareholders	633	476	819	417	(236)	2,109
Less: Market-related impacts (pre-tax)(1)	(190)	81	-	5	(24)	(128)
ACMA (pre-tax)	51	(22)	-	(57)	44	16
Other adjustments (pre-tax)(1)(2)	(2)	(76)	(76)	(7)	(170)	(331)
Tax expense (benefit) on above items(2)	(168)	5	4	1	26	(132)
Underlying net income (loss)	942	488	891	475	(112)	2,684
2021
($ millions)	Canada	U.S.	Asset Management	Asia	Corporate	Total
Reported net income (loss) - Common shareholders	1,202	414	752	629	(141)	2,856
Less: Market-related impacts (pre-tax)(1)	598	66	-	38	(6)	696
ACMA (pre-tax)	50	(103)	-	137	5	89
Other adjustments (pre-tax)(1)(2)	(115)	(4)	(197)	(1)	(70)	(387)
Tax expense (benefit) on above items(2)	(196)	9	(15)	(1)	26	(177)
Underlying net income (loss)	865	446	964	456	(96)	2,635

(1)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

38 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

Reported Net Income to Underlying Net Income Reconciliation - Pre-tax by Business Unit - Asset Management


Q3'22	Q2'22	Q3'21
($ millions)	MFS	SLC Management	MFS	SLC Management	MFS	SLC Management
Reported net income (loss) - Common shareholders	312	(97)	291	5	284	17
Less: Other adjustments (pre-tax)(1)(2)	42	(131)	50	(18)	(43)	(18)
Tax expense (benefit) on above items(2)	(5)	14	(6)	-	-	-
Underlying net income (loss)	275	20	247	23	327	35

(1)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.


2022	2021
($ millions)	MFS	SLC Management	MFS	SLC Management
Reported net income (loss) - Common shareholders	892	(73)	754	(2)
Less: Other adjustments (pre-tax)(1)(2)	90	(166)	(140)	(57)
Tax expense (benefit) on above items(2)	(12)	16	1	(16)
Underlying net income (loss)	814	77	893	71

(1)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

Reported Net Income to Underlying Net Income Reconciliation - Pre-tax in U.S. dollars


Q3'22	Q2'22	Q3'21
(US$ millions)	U.S.	MFS	U.S.	MFS	U.S.	MFS
Reported net income (loss) - Common shareholders	72	240	167	228	37	225
Less: Market-related impacts (pre-tax)(1)	(18)	-	33	-	15	-
ACMA (pre-tax)	(25)	-	-	-	(78)	-
Other adjustments (pre-tax)(1)(2)	(78)	32	25	39	(1)	(34)
Tax expense (benefit) on above items(2)	27	(4)	(12)	(5)	13	-
Underlying net income (loss)	166	212	121	194	88	259

(1)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.


2022	2021
(US$ millions)	U.S.	MFS	U.S.	MFS
Reported net income (loss) - Common shareholders	372	696	331	602
Less: Market-related impacts (pre-tax)(1)	62	-	52	-
ACMA (pre-tax)	(16)	-	(82)	-
Other adjustments (pre-tax)(1)(2)	(58)	70	(3)	(111)
Tax expense (benefit) on above items(2)	4	(10)	7	-
Underlying net income (loss)	380	636	357	713

(1)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 39

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.


(US$ millions)	Q3'22	Q2'22	Q1'22	Q4'21	Q3'21	Q2'21	Q1'21	Q4'20
Reported net income (loss) - Common shareholders(1)	92	86	59	6	49	99	89	73
Less: Market-related impacts (pre-tax)(2)	(5)	(4)	2	8	4	2	3	1
ACMA (pre-tax)	(8)	-	-	-	(1)	-	(3)	(6)
Other adjustments (pre-tax)(2)	(1)	-	(1)	(1)	(2)	(1)	-	(1)
Tax expense (benefit) on above items	3	1	-	(1)	(1)	-	-	1
Underlying net income (loss) for U.S. Group Benefits	103	89	58	-	49	98	89	78

(1)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.

(2)For a breakdown of this adjustment made to arrive at a non-IFRS financial measure, see the heading Underlying Net Income and Underlying EPS.

N. 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 our intention to acquire a majority interest in AAM; (iv) relating to our anticipated redemption of the 2017-1 Subordinated Unsecured 2.75% Fixed/Floating Debentures; (v) relating to our reinsurance options for our U.S. In-force Management business and the expected impacts on our LICAT ratio; (vi) relating to the expected impacts of the adoption of IFRS 17 and IFRS 9; (vii) relating to our growth initiatives and other business objectives; (viii) relating to the plans we have implemented in response to the COVID-19 pandemic and related economic conditions and their impact on the Company; (ix) relating to our expected tax range for future years; (x) set out in this document under the heading H - Risk Management - Market Risk Sensitivities - Interest Rate Sensitivities; (xi) that are predictive in nature or that depend upon or refer to future events or conditions; and (xii) 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 due to, among other factors, 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 C - Profitability - 5 - Income taxes, E - Financial Strength and H - Risk Management and in SLF Inc.'s 2021 AIF under the heading Risk Factors, and the factors detailed in SLF Inc.'s other filings with Canadian and U.S. securities regulators, which are available for review at www.sedar.com and www.sec.gov, 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, which have been further heightened with the current COVID-19 pandemic given the uncertainty of its duration and impact. 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; and fluctuations in foreign currency exchange rates; 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 the severity, duration and spread of COVID-19; 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 and to acquire a majority interest in AAM that could have a material adverse effect on our forward-looking statements: (1) the ability of the parties to complete each transaction; (2) the failure of the parties to obtain

40 Sun Life Financial Inc. Third Quarter 2022 MANAGEMENT'S DISCUSSION AND ANALYSIS

necessary consents and approvals or to otherwise satisfy the conditions to the completion of each transaction in a timely manner, or at all; (3) our ability to realize the financial and strategic benefits of each transaction; and (4) the impact of the announcement of each transaction and the dedication of our resources to completing each 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2022 41

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 2022	September 30 2021	September 30 2022	September 30 2021
Revenue
Premiums
Gross	$	7,400	$	6,436	$	20,379	$	18,512
Less: Ceded	374	602	1,642	1,835
Net premiums	7,026	5,834	18,737	16,677
Net investment income (loss):
Interest and other investment income	1,561	1,517	4,457	4,313
Fair value and foreign currency changes on assets and liabilities (Note 5)	(1,904)	(928)	(18,054)	(4,310)
Net gains (losses) on available-for-sale assets	3	41	29	141
Net investment income (loss)	(340)	630	(13,568)	144
Fee income (Note 9)	1,944	2,046	5,852	5,872
Total revenue	8,630	8,510	11,021	22,693
Benefits and expenses
Gross claims and benefits paid (Note 6)	5,603	4,645	15,822	13,913
Increase (decrease) in insurance contract liabilities (Note 6)	(561)	411	(14,281)	(1,867)
Decrease (increase) in reinsurance assets (Note 6)	92	58	(28)	104
Increase (decrease) in investment contract liabilities (Note 6)	(17)	(14)	(105)	(28)
Reinsurance expenses (recoveries) (Note 7)	(247)	(581)	(1,611)	(1,805)
Net transfer to (from) segregated funds (Note 12)	(269)	(154)	(881)	(218)
Operating expenses, commissions and premium taxes	3,241	2,800	8,928	8,527
Interest expense	119	81	318	245
Total benefits and expenses	7,961	7,246	8,162	18,871
Income (loss) before income taxes	669	1,264	2,859	3,822
Less: Income tax expense (benefit) (Note 10)	145	168	632	673
Total net income (loss)	524	1,096	2,227	3,149
Less: Net income (loss) attributable to participating policyholders	31	57	41	229
Net income (loss) attributable to non-controlling interests	9	(3)	27	(5)
Shareholders' net income (loss)	484	1,042	2,159	2,925
Less: Dividends on preferred shares and distributions on other equity instruments	18	23	50	69
Common shareholders' net income (loss)	$	466	$	1,019	$	2,109	$	2,856

Average exchange rates during the reporting periods: U.S. dollars	1.30	1.26	1.28	1.25

Earnings (loss) per share (Note 14)
Basic	$	0.80	$	1.74	$	3.60	$	4.88
Diluted	$	0.80	$	1.74	$	3.59	$	4.85

Dividends per common share	$	0.690	$	0.550	$	2.040	$	1.650

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

42 Sun Life Financial Inc. Third Quarter 2022 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


For the three months ended	For the nine months ended
(unaudited, in millions of Canadian dollars)	September 30 2022	September 30 2021	September 30 2022	September 30 2021
Total net income (loss)	$	524	$	1,096	$	2,227	$	3,149
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)	1,106	257	1,102	(160)
Change in unrealized gains (losses) on available-for-sale assets:
Unrealized gains (losses)	(295)	(39)	(1,360)	(250)
Reclassifications to net income (loss)	(5)	(37)	(25)	(125)
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses)	54	17	51	16
Reclassifications to net income (loss)	(52)	(18)	(61)	(12)
Share of other comprehensive income (loss) in joint ventures and associates:
Unrealized gains (losses)	36	29	(76)	(26)
Total items that may be reclassified subsequently to income	844	209	(369)	(557)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans	10	36	92	(18)
Total items that will not be reclassified subsequently to income	10	36	92	(18)
Total other comprehensive income (loss)	854	245	(277)	(575)
Total comprehensive income (loss)	1,378	1,341	1,950	2,574
Less: Participating policyholders' comprehensive income (loss)	51	61	64	228
Non-controlling interests' comprehensive income (loss)	12	(4)	29	(6)
Shareholders' comprehensive income (loss)	$	1,315	$	1,284	$	1,857	$	2,352

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 2022	September 30 2021	September 30 2022	September 30 2021
Income tax benefit (expense):
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains (losses)	$	2	$	-	$	5	$	(1)
Unrealized gains (losses) on available-for-sale assets	56	12	308	77
Reclassifications to net income for available-for-sale assets	(1)	6	5	17
Unrealized gains (losses) on cash flow hedges	-	(1)	5	(7)
Reclassifications to net income for cash flow hedges	(1)	1	(2)	5
Total items that may be reclassified subsequently to income	56	18	321	91
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans	(3)	(12)	(45)	(6)
Total items that will not be reclassified subsequently to income	(3)	(12)	(45)	(6)
Total income tax benefit (expense) included in other comprehensive income (loss)	$	53	$	6	$	276	$	85

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

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 43

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


As at
(unaudited, in millions of Canadian dollars)	September 30 2022	December 31 2021
Assets
Cash, cash equivalents and short-term securities (Note 5)	$	11,386	$	12,278
Debt securities (Note 5)	75,526	88,727
Equity securities (Note 5)	6,740	9,113
Mortgages and loans	55,430	51,692
Derivative assets	2,632	1,583
Other invested assets (Note 5)	10,661	8,759
Policy loans	3,339	3,261
Investment properties (Note 5)	10,149	9,109
Invested assets	175,863	184,522
Other assets	8,071	5,434
Reinsurance assets (Note 6)	3,750	3,683
Deferred tax assets	2,159	1,848
Intangible assets	5,150	3,370
Goodwill	8,574	6,517
Total general fund assets	203,567	205,374
Investments for account of segregated fund holders (Note 12)	118,564	139,996
Total assets	$	322,131	$	345,370
Liabilities and equity
Liabilities
Insurance contract liabilities (Note 6)	$	137,929	$	147,811
Investment contract liabilities (Note 6)	3,302	3,368
Derivative liabilities	3,186	1,392
Deferred tax liabilities	748	322
Other liabilities (Note 8)	22,342	17,783
Senior debentures	200	200
Subordinated debt	7,075	6,425
Total general fund liabilities	174,782	177,301
Insurance and investment contracts for account of segregated fund holders (Note 12)	118,564	139,996
Total liabilities	$	293,346	$	317,297
Equity
Issued share capital and contributed surplus	$	10,643	$	10,615
Shareholders' retained earnings and accumulated other comprehensive income	16,314	15,699
Total shareholders' equity	26,957	26,314
Participating policyholders' equity	1,764	1,700
Non-controlling interests' equity	64	59
Total equity	$	28,785	$	28,073
Total liabilities and equity	$	322,131	$	345,370

Exchange rates at the end of the reporting periods: U.S. dollars	1.38	1.26

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

Approved on behalf of the Board of Directors on November 2, 2022.



Kevin Strain	Barbara G. Stymiest
Chief Executive Officer	Director

44 Sun Life Financial Inc. Third Quarter 2022 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


For the nine months ended
(unaudited, in millions of Canadian dollars)	September 30 2022	September 30 2021
Shareholders:
Preferred shares and other equity instruments
Balance, beginning of period	$	2,239	$	2,257
Issued during the period	-	1,000
Issuance costs, net of tax	-	(1)
Redeemed during the period	-	(725)
Balance, end of period	2,239	2,531
Common shares (Note 11)
Balance, beginning of period	8,305	8,262
Stock options exercised	3	32
Balance, end of period	8,308	8,294
Contributed surplus
Balance, beginning of period	71	72
Share-based payments	25	5
Stock options exercised	-	(5)
Balance, end of period	96	72
Retained earnings
Balance, beginning of period	14,713	12,289
Net income (loss)	2,159	2,925
Redemption of preferred shares	-	(12)
Dividends on common shares	(1,192)	(964)
Dividends on preferred shares and distributions on other equity instruments	(50)	(69)
Changes attributable to acquisition	-	(139)
Balance, end of period	15,630	14,030
Accumulated other comprehensive income (loss), net of taxes (Note 15)
Balance, beginning of period	986	1,589
Total other comprehensive income (loss) for the period	(302)	(573)
Balance, end of period	684	1,016
Total shareholders' equity, end of period	$	26,957	$	25,943
Participating policyholders:
Balance, beginning of period	$	1,700	$	1,368
Net income (loss) (Note 11)	41	229
Total other comprehensive income (loss) for the period (Note 15)	23	(1)
Total participating policyholders' equity, end of period	$	1,764	$	1,596
Non-controlling interests:
Balance, beginning of period	$	59	$	25
Changes attributable to acquisition	-	15
Net income (loss)	27	(5)
Additional contribution	2	38
Total other comprehensive income (loss) for the period (Note 15)	2	(1)
Distribution to non-controlling interests	(26)	(16)
Total non-controlling interests' equity, end of period	$	64	$	56
Total equity	$	28,785	$	27,595

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

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 45

CONSOLIDATED STATEMENTS OF CASH FLOWS


For the three months ended	For the nine months ended
(unaudited, in millions of Canadian dollars)	September 30 2022	September 30 2021	September 30 2022	September 30 2021
Cash flows provided by (used in) operating activities
Income (loss) before income taxes	$	669	$	1,264	$	2,859	$	3,822
Adjustments:
Interest expense related to financing activities	72	44	192	136
Increase (decrease) in insurance and investment contract liabilities	(578)	397	(14,386)	(1,895)
Decrease (increase) in reinsurance assets	92	58	(28)	104
Realized and unrealized (gains) losses and foreign currency changes on invested assets	1,901	887	18,025	4,169
Sales, maturities and repayments of invested assets	9,894	10,737	39,810	41,166
Purchases of invested assets	(11,834)	(12,080)	(41,184)	(45,378)
Income taxes received (paid)	(159)	(184)	(638)	(715)
Mortgage securitization (Note 5)	56	120	151	50
Other operating activities	1,772	(358)	(1,404)		(1,316)
Net cash provided by (used in) operating activities	1,885	885	3,397	143
Cash flows provided by (used in) investing activities
Net (purchase) sale of property and equipment	(42)	(21)	112	(59)
Investment in and transactions with joint ventures and associates	2	3	(53)	8
Dividends and other proceeds relating to joint ventures and associates	20	-	27	21
Acquisitions, net of cash and cash equivalents acquired (Note 3)(1)	-	(104)	(2,638)	(412)
Other investing activities	(76)	(55)	(185)	(628)
Net cash provided by (used in) investing activities	(96)	(177)	(2,737)	(1,070)
Cash flows provided by (used in) financing activities
Increase in (repayment of) borrowed funds	4	6	(225)	27
Issuance of subordinated debt, net of issuance costs	647	-	647	-
Increase in (repayment of) borrowing from credit facility	(366)	24	1,778		99
Redemption of preferred shares and other equity instruments	-	(725)	-	(725)
Redemption of senior debentures and subordinated debt	-	(300)	-	(650)
Issuance of preferred shares and other equity instruments, net	-	-	-	987
Issuance of common shares on exercise of stock options	2	8	3	27
Transactions with non-controlling interests	(4)	(3)	(24)	21
Dividends paid on common and preferred shares	(412)	(338)	(1,238)	(1,016)
Payment of lease liabilities	(40)	(27)	(109)	(100)
Interest expense paid	(44)	(36)	(164)	(132)
Other financing activities	-	-	26	-
Net cash provided by (used in) financing activities	(213)	(1,391)	694	(1,462)
Changes due to fluctuations in exchange rates	334	97	348	(22)
Increase (decrease) in cash and cash equivalents	1,910	(586)	1,702	(2,411)
Net cash and cash equivalents, beginning of period	7,485	8,823	7,693	10,648
Net cash and cash equivalents, end of period	9,395	8,237	9,395	8,237
Short-term securities, end of period	1,990	3,196	1,990	3,196
Net cash, cash equivalents and short-term securities, end of period (Note 5)	$	11,385	$	11,433	$	11,385	$	11,433

(1) Consists primarily of total cash consideration paid, less cash and cash equivalents acquired of $nil for the three months ended September 30, 2022 (September 30, 2021 - $110, less cash and cash equivalents acquired of $6), and total cash consideration paid for the acquisition of DentaQuest of $3,269, less cash and cash equivalents acquired of $638 for the nine months ended September 30, 2022 (September 30, 2021 - $446, less cash and cash equivalents acquired of $34).

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

46 Sun Life Financial Inc. Third Quarter 2022 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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. General Information

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 2021 Annual Consolidated Financial Statements, except as disclosed in Note 2 below. Our Interim Consolidated Financial Statements should be read in conjunction with our 2021 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.

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. For additional information, please refer to Note 1 of our 2021 Annual Consolidated Financial Statements.

2. Summary of Accounting Policies

Our significant accounting policies and future changes in accounting policies that are not yet effective for us are disclosed in Note 2 of our 2021 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

On December 16, 2021, the Canadian Alternative Reference Rate working group ("CARR") recommended that the administrator Refinitiv Benchmark Services (UK) Limited ("RBSL") cease the calculation and publication of the Canadian Dollar Offered Rate ("CDOR") after June 30, 2024 and proposed a two-staged approach to transition from CDOR to Canadian Overnight Repo Rate Average ("CORRA"). On May 16, 2022, following public consultation, RBSL 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 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

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 47

exceptions for risk management requirements. OSFI also expects loans referencing CDOR to transition by June 28, 2024. Financial institutions are also expected to prioritize system and model updates to accommodate the use of CORRA prior to June 28, 2024.

The transition to Alternative Reference Rates ("ARR") is incorporated within our Interbank Offered Rate Transition Program and incorporates developments such as the transition of CDOR. As at September 30, 2022, our exposure to CDOR consists of non-derivative assets of $391 and derivative notional of $11,686 that have not yet transitioned to an ARR.

2.B New and Amended International Financial Reporting Standards to be Adopted in 2023 or Later

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 Insurance Contracts ("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 Financial Instruments ("IFRS 9") which replaces IAS 39 Financial Instruments: Recognition and Measurement. 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. We are assessing the implications of this amendment, along with the option on comparative periods restatement as permitted by IFRS 9, on our Consolidated Financial Statements.

IFRS 17

IFRS 17 establishes principles for the recognition, measurement, presentation, and disclosure of insurance contracts. The key principles of IFRS 17 are as follows:

•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.

•Insurance contracts issued and reinsurance contracts held are divided into groups that will be separately recognized and measured.

•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.

•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.

•Insurance revenue, insurance services expenses and insurance finance income or expenses are presented separately.

•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:

•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.

•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.

•Expense cash flows under IFRS 17 are limited to those directly attributable to fulfillment of the obligations under insurance contracts.

•Future income taxes are excluded from future cash flows under IFRS 17.

Risk adjustment:

•Measures the compensation required for uncertainty related to non-financial risk, such as mortality, morbidity, surrender and expenses under IFRS 17.

•Provisions for uncertainty related to financial risk are included in the present value of future cash flows under IFRS 17.

•No amount is provided for asset-liability mismatch risk under IFRS 17.

•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:

•This is a new component of liabilities and necessitates the "grouping" of insurance contracts, which is not required under IFRS 4.

•The CSM represents unearned profits, which is discussed in more detail below.

48 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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:

•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.

•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.

•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

In addition to the updates provided in Note 2 of our 2021 Annual Consolidated Financial Statements, 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 fair value through profit or loss.

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 assess the implications of adopting both standards. The establishment of the CSM and other measurement changes upon transition at January 1, 2022, including the impact of reflecting IFRS 9 as at the same date, would reduce total equity. The impact on shareholders' equity would be a reduction of approximately $4.5 billion.

We are currently assessing the impact of the following amendments on our Consolidated Financial Statements:

IFRS 16

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 September 30, 2022, the net carrying value of assets and liabilities classified as held for sale is $407, which is in accordance with applicable measurement requirements. This quarter, 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 early 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 majority interest for 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.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 49

DentaQuest

On June 1, 2022, we acquired DentaQuest, the second-largest provider of dental benefits in the United States by membership, for approximately $3,269 (US$2,586). Total consideration for the 100% acquisition of DentaQuest was paid with cash of $3,269, and primarily comprised of goodwill and intangibles, including contractual relationships, software, and brand. DentaQuest is reported in 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:


As at June 1, 2022
Intangible assets	$	1,498
Net assets	258
Deferred tax liabilities	$	(314)
Total identifiable net assets at fair value	1,442
Goodwill arising on acquisition(1)	1,827
Total consideration	$	3,269

(1) Goodwill primarily reflects expected synergies from the combination of DentaQuest and our existing 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.

Acquisitions and Other in Asia

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 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.

50 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 51


For the three months ended	Canada	U.S.	Asset Management	Asia	Corporate	Consolidation adjustments	Total
September 30, 2022
Gross premiums:
Annuities	$	875	$	-	$	-	$	2	$	(1)	$	-	$	876
Life insurance	1,467	384	-	854	21	-	2,726
Health insurance	1,635	2,158	-	4	1	-	3,798
Total gross premiums	3,977	2,542	-	860	21	-	7,400
Less: Ceded premiums	381	(55)	-	47	1	-	374
Net investment income (loss)	1,874	(659)	(4)	(1,018)	(510)	(23)	(340)
Fee income	387	104	1,353	159	23	(82)	1,944
Total revenue	5,857	2,042	1,349	(46)	(467)	(105)	8,630
Less:
Total benefits and expenses	5,507	1,928	1,043	(139)	(273)	(105)	7,961
Income tax expense (benefit)	76	20	82	1	(34)	-	145
Total net income (loss)	$	274	$	94	$	224	$	92	$	(160)	$	-	$	524
Less:
Net income (loss) attributable to participating policyholders	64	-	-	(33)	-	-	31
Net income (loss) attributable to non-controlling interests	-	-	9	-	-	-	9
Shareholders' net income (loss)	$	210	$	94	$	215	$	125	$	(160)	$	-	$	484
September 30, 2021
Gross premiums:
Annuities	$	1,387	$	-	$	-	$	8	$	3	$	-	$	1,398
Life insurance	1,350	352	-	636	22	-	2,360
Health insurance	1,505	1,163	-	4	6	-	2,678
Total gross premiums	4,242	1,515	-	648	31	-	6,436
Less: Ceded premiums	372	174	-	52	4	-	602
Net investment income (loss)	413	207	16	23	(6)	(23)	630
Fee income	404	23	1,503	157	28	(69)	2,046
Total revenue	4,687	1,571	1,519	776	49	(92)	8,510
Less:
Total benefits and expenses	4,187	1,518	1,120	450	63	(92)	7,246
Income tax expense (benefit)	76	7	101	12	(28)	-	168
Total net income (loss)	$	424	$	46	$	298	$	314	$	14	$	-	$	1,096
Less:
Net income (loss) attributable to participating policyholders	31	-	-	26	-	-	57
Net income (loss) attributable to non-controlling interests	-	-	(3)	-	-	-	(3)
Shareholders' net income (loss)	$	393	$	46	$	301	$	288	$	14	$	-	$	1,042

52 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For the nine months ended	Canada	U.S.	Asset Management	Asia	Corporate	Consolidation adjustments	Total
September 30, 2022
Gross premiums:
Annuities	$	2,348	$	1	$	-	$	19	$	6	$	-	$	2,374
Life insurance	4,526	1,112	-	2,441	58	-	8,137
Health insurance	4,827	5,016	-	22	3	-	9,868
Total gross premiums	11,701	6,129	-	2,482	67	-	20,379
Less: Ceded premiums	1,173	315	-	144	10	-	1,642
Net investment income (loss)	(5,663)	(2,629)	(10)	(3,887)	(1,312)	(67)	(13,568)
Fee income	1,187	182	4,176	461	81	(235)	5,852
Total revenue	6,052	3,367	4,166	(1,088)	(1,174)	(302)	11,021
Less:
Total benefits and expenses	4,969	2,774	3,063	(1,498)	(844)	(302)	8,162
Income tax expense (benefit)	361	117	257	41	(144)	-	632
Total net income (loss)	$	722	$	476	$	846	$	369	$	(186)	$	-	$	2,227
Less:
Net income (loss) attributable to participating policyholders	89	-	-	(48)	-	-	41
Net income (loss) attributable to non-controlling interests	-	-	27	-	-	-	27
Shareholders' net income (loss)	$	633	$	476	$	819	$	417	$	(186)	$	-	$	2,159
September 30, 2021
Gross premiums:
Annuities	$	2,457	$	-	$	-	$	24	$	12	$	-	$	2,493
Life insurance	4,158	1,080	-	2,773	62	-	8,073
Health insurance	4,449	3,455	-	21	21	-	7,946
Total gross premiums	11,064	4,535	-	2,818	95	-	18,512
Less: Ceded premiums	1,139	540	-	145	11	-	1,835
Net investment income (loss)	(52)	120	18	286	(156)	(72)	144
Fee income	1,169	56	4,299	472	82	(206)	5,872
Total revenue	11,042	4,171	4,317	3,431	10	(278)	22,693
Less:
Total benefits and expenses	9,338	3,654	3,278	2,695	184	(278)	18,871
Income tax expense (benefit)	347	103	292	33	(102)	-	673
Total net income (loss)	$	1,357	$	414	$	747	$	703	$	(72)	$	-	$	3,149
Less:
Net income (loss) attributable to participating policyholders	155	-	-	74	-	-	229
Net income (loss) attributable to non-controlling interests	-	-	(5)	-	-	-	(5)
Shareholders' net income (loss)	$	1,202	$	414	$	752	$	629	$	(72)	$	-	$	2,925

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 53

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, 2022
Debt securities	$	62,154	$	13,372	$	-	$	75,526
Equity securities	$	6,443	$	297	$	-	$	6,740
Other invested assets	$	4,883	$	1,050	$	4,728	$	10,661
December 31, 2021
Debt securities	$	75,998	$	12,729	$	-	$	88,727
Equity securities	$	7,538	$	1,575	$	-	$	9,113
Other invested assets	$	4,435	$	781	$	3,543	$	8,759

(1) Other consists primarily of investments accounted for using the equity method of accounting, as well as loans measured at amortized cost.

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 8 for the associated liabilities for the CLO.

As at September 30, 2022, the carrying value of the assets supporting the CLOs are $3,037 (December 31, 2021 - $1,865), which consists of assets such as cash and accounts receivable of $291 (December 31, 2021 - $319) and loans of $2,746 (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 $160 (December 31, 2021 - $104) in the most subordinated tranche.

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

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 2022	September 30 2021	September 30 2022	September 30 2021
Fair value change:
Cash, cash equivalents and short-term securities	$	1	$	-	$	2	$	(4)
Debt securities	(2,205)	(870)	(16,020)	(4,960)
Equity securities	(421)	(133)	(1,382)	580
Derivative investments	(144)	(479)	(1,907)	(676)
Other invested assets	110	138	127	365
Other liabilities - obligations for securities borrowing	-	-	14	-
Total change in fair value through profit or loss assets and liabilities	(2,659)	(1,344)	(19,166)	(4,695)
Fair value changes on investment properties	96	367	681	732
Foreign exchange gains (losses)(1)	659	49	331	(347)
Realized gains (losses) on property and equipment(2)	-	-	100	-
Fair value and foreign currency changes on assets and liabilities	$	(1,904)	$	(928)	$	(18,054)	$	(4,310)

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

(2) 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 nine months ended September 30, 2022.

5.C Impairment of Available-for-Sale Assets

We recognized net impairment losses on available-for-sale assets of $nil and $8 for the three months and nine months ended September 30, 2022, respectively (September 30, 2021 - $1 and $1, respectively).

54 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 2022	December 31 2021	September 30 2021
Cash	$	3,372	$	2,297	$	1,999
Cash equivalents	6,024	5,529	6,330
Short-term securities	1,990	4,452	3,196
Cash, cash equivalents and short-term securities	11,386	12,278	11,525
Less: Bank overdraft, recorded in Other liabilities	1	133	92
Net cash, cash equivalents and short-term securities	$	11,385	$	12,145	$	11,433

5.E Mortgage Securitization

We securitize certain insured fixed rate commercial mortgages as described in Note 5 of our 2021 Annual Consolidated Financial Statements.

The carrying value and fair value of the securitized mortgages as at September 30, 2022 are $1,940 and $1,809, respectively (December 31, 2021 - $1,856 and $1,882, respectively). The carrying value and fair value of the associated liabilities as at September 30, 2022 are $2,158 and $2,022, respectively (December 31, 2021 - $2,007 and $2,043, respectively). The carrying value of securities in the principal reinvestment account (''PRA'') as at September 30, 2022 is $222 (December 31, 2021 - $164). There are $nil cash and cash equivalents in the PRA as at September 30, 2022 (December 31, 2021 - $4).

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 2021 Annual Consolidated Financial Statements. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at September 30, 2022 and December 31, 2021.

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 2021 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, 2022	December 31, 2021
Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets
Cash, cash equivalents and short-term securities	$	10,624	$	762	$	-	$	11,386	$	10,923	$	1,355	$	-	$	12,278
Debt securities - fair value through profit or loss	771	61,144	239	62,154	1,503	74,333	162	75,998
Debt securities - available-for-sale	856	12,464	52	13,372	770	11,916	43	12,729
Equity securities - fair value through profit or loss	3,750	2,585	108	6,443	4,429	3,013	96	7,538
Equity securities - available-for-sale	148	74	75	297	1,414	87	74	1,575
Derivative assets	52	2,580	-	2,632	26	1,557	-	1,583
Other invested assets	691	209	5,033	5,933	1,189	377	3,650	5,216
Investment properties	-	-	10,149	10,149	-	-	9,109	9,109
Total invested assets measured at fair value	$	16,892	$	79,818	$	15,656	$	112,366	$	20,254	$	92,638	$	13,134	$	126,026
Investments for account of segregated fund holders	22,701	95,261	602	118,564	28,637	110,748	611	139,996
Total assets measured at fair value	$	39,593	$	175,079	$	16,258	$	230,930	$	48,891	$	203,386	$	13,745	$	266,022
Liabilities
Investment contract liabilities	$	-	$	-	$	16	$	16	$	-	$	-	$	9	$	9
Derivative liabilities	42	3,144	-	3,186	9	1,383	-	1,392
Other liabilities - obligations for securities borrowing	-	47	-	47	-	51	-	51
Total liabilities measured at fair value	$	42	$	3,191	$	16	$	3,249	$	9	$	1,434	$	9	$	1,452

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 55

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


As at	September 30, 2022	December 31, 2021
Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Canadian federal government	$	-	$	3,676	$	13	$	3,689	$	-	$	4,783	$	15	$	4,798
Canadian provincial and municipal government	-	12,607	-	12,607	-	15,930	-	15,930
U.S. government and agency	771	112	-	883	1,503	139	-	1,642
Other foreign government	-	3,705	11	3,716	-	4,747	7	4,754
Corporate	-	34,700	143	34,843	-	41,914	138	42,052
Asset-backed securities:
Commercial mortgage-backed securities	-	1,983	65	2,048	-	2,221	2	2,223
Residential mortgage-backed securities	-	2,279	-	2,279	-	2,565	-	2,565
Collateralized debt obligations	-	497	-	497	-	351	-	351
Other	-	1,585	7	1,592	-	1,683	-	1,683
Total	$	771	$	61,144	$	239	$	62,154	$	1,503	$	74,333	$	162	$	75,998

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


As at	September 30, 2022	December 31, 2021
Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Canadian federal government	$	-	$	1,858	$	-	$	1,858	$	-	$	2,303	$	-	$	2,303
Canadian provincial and municipal government	-	1,015	-	1,015	-	1,149	-	1,149
U.S. government and agency	856	6	-	862	770	1	-	771
Other foreign government	-	719	-	719	-	756	1	757
Corporate	-	6,266	41	6,307	-	5,473	41	5,514
Asset-backed securities:
Commercial mortgage-backed securities	-	819	-	819	-	761	1	762
Residential mortgage-backed securities	-	807	-	807	-	522	-	522
Collateralized debt obligations	-	508	-	508	-	505	-	505
Other	-	466	11	477	-	446	-	446
Total	$	856	$	12,464	$	52	$	13,372	$	770	$	11,916	$	43	$	12,729

There were no significant transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2022 and September 30, 2021.

56 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table provides a reconciliation 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
September 30, 2022
Beginning balance	$	148	$	50	$	100	$	69	$	4,476	$	9,781	$	14,624	$	593	$	15,217
Included in net income(1)(2)(3)	(10)	-	7	-	174	89	260	(11)	249
Included in OCI(2)	-	1	-	-	19	-	20	-	20
Purchases	96	-	2	1	334	153	586	31	617
Sales / Payments	-	-	(1)	-	(67)	(20)	(88)	(6)	(94)
Settlements	-	-	-	-	-	-	-	(1)	(1)
Foreign currency translation(5)	5	1	-	5	97	146	254	(4)	250
Ending balance	$	239	$	52	$	108	$	75	$	5,033	$	10,149	$	15,656	$	602	$	16,258
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(10)	$	-	$	7	$	-	$	162	$	87	$	246	$	(10)	$	236
September 30, 2021
Beginning balance	$	176	$	53	$	148	$	48	$	3,055	$	8,164	$	11,644	$	546	$	12,190
Included in net income(1)(2)(3)	(2)	-	6	-	140	348	492	7	499
Included in OCI(2)	-	(1)	-	-	5	-	4	-	4
Purchases	-	-	-	-	245	102	347	1	348
Sales / Payments	(9)	(13)	-	(13)	(66)	(49)	(150)	(5)	(155)
Settlements	(1)	-	-	-	-	-	(1)	(1)	(2)
Foreign currency translation(5)	(1)	-	1	1	19	34	54	(3)	51
Ending balance	$	163	$	39	$	155	$	36	$	3,398	$	8,599	$	12,390	$	545	$	12,935
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	-	$	-	$	6	$	-	$	141	$	358	$	505	$	9	$	514

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 57


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
September 30, 2022
Beginning balance	$	162	$	43	$	96	$	74	$	3,650	$	9,109	$	13,134	$	611	$	13,745
Included in net income(1)(2)(3)	(24)	1	10	5	344	652	988	4	992
Included in OCI(2)	-	(3)	-	-	20	-	17	-	17
Purchases	152	67	4	1	1,169	524	1,917	41	1,958
Sales / Payments	-	(2)	(2)	(11)	(220)	(310)	(545)	(3)	(548)
Settlements	(1)	-	-	-	(47)	-	(48)	(1)	(49)
Transfers (out) of Level 3(4)	(52)	(53)	-	-	-	-	(105)	-	(105)
Foreign currency translation(5)	2	(1)	-	6	117	174	298	(50)	248
Ending balance	$	239	$	52	$	108	$	75	$	5,033	$	10,149	$	15,656	$	602	$	16,258
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(24)	$	-	$	10	$	-	$	332	$	637	$	955	$	16	$	971
September 30, 2021
Beginning balance	$	225	$	67	$	181	$	47	$	2,645	$	7,516	$	10,681	$	550	$	11,231
Included in net income(1)(2)(3)	(6)	-	(1)	-	319	697	1,009	13	1,022
Included in OCI(2)	-	(1)	-	-	13	-	12	-	12
Purchases	29	-	5	15	638	508	1,195	4	1,199
Sales / Payments	(9)	(13)	(24)	(26)	(215)	(121)	(408)	(5)	(413)
Settlements	(14)	(2)	(5)	-	-	-	(21)	(1)	(22)
Transfers (out) of Level 3(4)	(57)	(10)	-	-	-	-	(67)	-	(67)
Foreign currency translation(5)	(5)	(2)	(1)	-	(2)	(1)	(11)	(16)	(27)
Ending balance	$	163	$	39	$	155	$	36	$	3,398	$	8,599	$	12,390	$	545	$	12,935
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(4)	$	-	$	(1)	$	-	$	317	$	713	$	1,025	$	17	$	1,042

(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 $96 and $681 for the three and nine months ended September 30, 2022, respectively (September 30, 2021 - $367 and $732, respectively), net of amortization of leasing commissions and tenant inducements of $7 and $29 for the three and nine months ended September 30, 2022, respectively (September 30, 2021 - $19 and $35, respectively). For the key unobservable inputs used in the valuation of investment properties, please refer to Note 5.A.iii Fair Value Hierarchy in our 2021 Annual Consolidated Financial Statements.

(4) 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.

58 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6. Insurance Contract Liabilities and Investment Contract Liabilities

6.A Insurance Contract Liabilities

6.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, 2022	September 30, 2021
Insurance contract liabilities	Reinsurance assets	Net	Insurance contract liabilities	Reinsurance assets	Net
Balances before Other policy liabilities and assets, beginning of period	$	126,303	$	3,080	$	123,223	$	134,060	$	2,998	$	131,062
Change in balances on in-force policies	(1,463)	(134)	(1,329)	(1,078)	74	(1,152)
Balances arising from new policies	859	16	843	1,387	6	1,381
Method and assumption changes	43	26	17	102	(138)	240
Increase (decrease) during the period	(561)	(92)	(469)	411	(58)	469
Foreign exchange rate movements	3,128	225	2,903	1,065	65	1,000
Balances before Other policy liabilities and assets	128,870	3,213	125,657	135,536	3,005	132,531
Other policy liabilities and assets	9,059	537	8,522	8,326	802	7,524
Balance, end of period	$	137,929	$	3,750	$	134,179	$	143,862	$	3,807	$	140,055


For the nine months ended
September 30, 2022	September 30, 2021
Insurance contract liabilities	Reinsurance assets	Net	Insurance contract liabilities	Reinsurance assets	Net
Balances before Other policy liabilities and assets, beginning of period	$	139,671	$	2,905	$	136,766	$	137,733	$	3,126	$	134,607
Change in balances on in-force policies	(16,300)	(59)	(16,241)	(4,782)	(10)	(4,772)
Balances arising from new policies	1,977	57	1,920	2,781	46	2,735
Method and assumption changes	42	30	12	134	(140)	274
Increase (decrease) during the period	(14,281)	28	(14,309)	(1,867)	(104)	(1,763)
Foreign exchange rate movements	3,480	280	3,200	(330)	(17)	(313)
Balances before Other policy liabilities and assets	128,870	3,213	125,657	135,536	3,005	132,531
Other policy liabilities and assets	9,059	537	8,522	8,326	802	7,524
Balance, end of period	$	137,929	$	3,750	$	134,179	$	143,862	$	3,807	$	140,055

6.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	For the nine months ended
September 30, 2022	September 30, 2022	Description
Mortality / Morbidity	$	(72)	$	(77)	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	71	Updates to lapse and policyholder behaviour in all jurisdictions. The largest item was an adverse lapse impact in Vietnam in Asia.
Expenses	17	17	Updates to reflect expense experience.
Investment returns	10	10	Updates to various investment-related assumptions.
Model enhancements and other	(9)	(9)	Various enhancements and methodology changes.
Total impact	$	17	$	12

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 59


For the three months ended	For the nine months ended
September 30, 2021	September 30, 2021	Description
Mortality / Morbidity	$	(89)	$	(89)	Updates to reflect mortality/morbidity experience in all jurisdictions.
Policyholder behaviour	219	219	Updates to policyholder behaviour in all jurisdictions. The largest item was in U.S. In-force Management.
Expenses	(201)	(203)	Updates to reflect expense experience and margins in all jurisdictions. The largest item was a reduction in expense margins.
Investment returns	421	418	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	(110)	(71)	Various enhancements and methodology changes across all jurisdictions.
Total impact	$	240	$	274

6.B Investment Contract Liabilities

6.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, 2022	September 30, 2021
Measured at fair value	Measured at amortized cost	Measured at fair value	Measured at amortized cost
Balances, beginning of period	$	8	$	2,474	$	9	$	2,598
Deposits	-	108	-	62
Interest	-	15	-	14
Withdrawals	-	(85)	-	(157)
Fees	-	(2)	-	(1)
Change in fair value	8	-	-	-
Other	-	3	-	2
Foreign exchange rate movements	-	1	-	1
Balances, end of period	$	16	$	2,514	$	9	$	2,519


For the nine months ended
September 30, 2022	September 30, 2021
Measured at fair value	Measured at amortized cost	Measured at fair value	Measured at amortized cost
Balances, beginning of period	$	9	$	2,487	$	2	$	2,690
Deposits	-	314	-	230
Interest	-	44	-	44
Withdrawals	-	(336)	-	(449)
Fees	-	(4)	-	(5)
Change in fair value	8	-	7	-
Other	-	8	-	8
Foreign exchange rate movements	(1)	1	-	1
Balances, end of period	$	16	$	2,514	$	9	$	2,519

60 Sun Life Financial Inc. Third Quarter 2022 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 2022	September 30 2021	September 30 2022	September 30 2021
Balances, beginning of period	$	761	$	900	$	872	$	497
Change in liabilities on in-force policies	(40)	(28)	(157)	(79)
Increase (decrease) in liabilities	(40)	(28)	(157)	(79)
Acquisitions	-	-	-	471
Foreign exchange rate movements	51	13	57	(4)
Balances, end of period	$	772	$	885	$	772	$	885

6.C Gross Claims and Benefits Paid


For the three months ended	For the nine months ended
September 30 2022	September 30 2021	September 30 2022	September 30 2021
Maturities and surrenders	$	917	$	837	$	2,623	$	2,377
Annuity payments	524	515	1,581	1,500
Death and disability benefits	1,100	1,127	3,752	3,586
Health benefits	2,713	1,793	6,835	5,344
Policyholder dividends and interest on claims and deposits	349	373	1,031	1,106
Total gross claims and benefits paid	$	5,603	$	4,645	$	15,822	$	13,913

6.D 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 three months ended	For the nine months ended
September 30 2022	September 30 2021	September 30 2022	September 30 2021
Increase (decrease) in insurance contract liabilities	$	(561)	$	411	$	(14,281)	$	(1,867)
Decrease (increase) in reinsurance assets	92	58	(28)	104
Increase (decrease) in investment contract liabilities	(17)	(14)	(105)	(28)
Net transfer to (from) segregated funds	(269)	(154)	(881)	(218)
Total changes in insurance contract liabilities, investment contract liabilities, reinsurance assets, and segregated funds	$	(755)	$	301	$	(15,295)	$	(2,009)

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 61

7. Reinsurance (Expenses) Recoveries


For the three months ended	For the nine months ended
September 30 2022	September 30 2021	September 30 2022	September 30 2021
Recovered claims and benefits	$	209	$	522	$	1,468	$	1,662
Commissions	18	19	54	47
Reserve adjustments	(1)	20	26	36
Operating expenses and other	21	20	63	60
Total reinsurance (expenses) recoveries	$	247	$	581	$	1,611	$	1,805

8. Other Liabilities

Included in Other liabilities are the liabilities associated with the special purpose vehicles that invest in CLO, as described in Note 5. As at September 30, 2022, we have recognized $2,815 (December 31, 2021 - $1,726) in Other Liabilities in our Interim Consolidated Statements of Financial Position.

Other liabilities also include other financial liabilities, which includes the obligations to purchase remaining outstanding shares of certain SLC Management subsidiaries. These amounts are measured at fair value, as described in Note 5.A.ii of our 2021 Annual Consolidated Financial Statements. During the period, these amounts were revised to reflect changes in expected cash flows, which increased our liability by $96 (three and nine months ended September 30, 2021 - $nil) and a corresponding amount recognized in our Interim Consolidated Statements of Operations.

9. Fee Income


For the three months ended	For the nine months ended
September 30 2022	September 30 2021	September 30 2022	September 30 2021
Fee income from insurance contracts	$	280	$	296	$	859	$	854
Fee income from service contracts:
Distribution fees	208	249	661	709
Fund management and other asset-based fees	1,154	1,288	3,566	3,669
Administrative service and other fees	302	213	766	640
Total fee income	$	1,944	$	2,046	$	5,852	$	5,872

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.

62 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 2022	September 30 2021	September 30 2022	September 30 2021
%	%	%	%
Total net income (loss)	$	524	$	1,096	$	2,227	$	3,149
Add: Income tax expense (benefit)	145	168	632	673
Total net income (loss) before income taxes	$	669	$	1,264	$	2,859	$	3,822
Taxes at the combined Canadian federal and provincial statutory income tax rate	$	176	26.3	$	332	26.3	$	750	26.3	$	1,003	26.3
Increase (decrease) in rate resulting from:
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions	(69)	(10.3)	(86)	(6.8)	(207)	(7.2)	(208)	(5.4)
Tax-exempt investment (income) loss	(19)	(2.8)	(72)	(5.7)	58	2.0	(141)	(3.7)
Adjustments in respect of prior periods, including resolution of tax disputes	2	0.3	(13)	(1.0)	(6)	(0.2)	(10)	(0.3)
Tax (benefit) cost of unrecognized tax losses and tax credits	4	0.6	-	-	11	0.4	4	0.1
Tax rate and other legislative changes	-	-	-	-	-	-	10	0.2
Other	51	7.6	7	0.5	26	0.8	15	0.4
Total income tax expense (benefit) and effective income tax rate	$	145	21.7	$	168	13.3	$	632	22.1	$	673	17.6

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 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 26.25% reduce our tax expense. These differences are reported in higher (lower) effective rates on income subject to taxation in foreign jurisdictions. The benefit reported for the three months and nine months ended September 30, 2022 included lower income in jurisdictions with low statutory income tax rates compared to the three months and nine months ended September 30, 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, for the three and nine months ended September 30, 2022 and

September 30, 2021 related mainly to prior year adjustments in Canada.

Tax (benefit) cost of unrecognized tax losses and tax credits for the three months and nine months ended September 30, 2022 and September 30, 2021 primarily reflected unrecognized losses in Asia and capital losses in Canada.

Other for the three and nine months ended September 30, 2022 primarily reflected 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 and the benefit relating to investments in joint ventures in Asia. In addition, for the nine months ended September 30, 2022, Other reflected the reversal of withholding taxes no longer expected to be paid. For the three and nine months ended September 30, 2021, Other primarily reflected withholding taxes on distributions from our foreign subsidiaries and the benefit relating to investments in joint ventures in Asia.

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 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. Further details on our capital, and how it is managed, are included in Note 21 of our 2021 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, 2022, SLF Inc.'s LICAT ratio exceeded the regulatory minimum target as set out by the OSFI.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 63

Sun Life Assurance, SLF Inc.'s principal operating life insurance subsidiary in Canada, is also subject to the LICAT guideline. As at September 30, 2022, 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, 2022. 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, 2022.

Our capital base consists mainly of common shareholders' equity, preferred shareholders' equity, participating policyholders' equity, non-controlling interest's 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, 2022	September 30, 2021
Common shares (in millions of shares)	Number of shares	Amount	Number of shares	Amount
Balance, beginning of period	586.0	$	8,305	585.1	$	8,262
Stock options exercised	0.1	3	0.7	32
Balance, end of period	586.1	$	8,308	585.8	$	8,294

11.B.ii Other Capital Transactions

On August 10, 2022, SLF Inc. issued $650 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, which may include investments in subsidiaries, repayment of indebtedness, and other strategic investments.

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, 2022	December 31, 2021
Segregated and mutual fund units	$	107,321	$	125,944
Equity securities	7,341	9,963
Debt securities	2,626	3,410
Cash, cash equivalents and short-term securities	840	778
Investment properties	445	446
Mortgages	17	19
Other assets	189	141
Total assets	$	118,779	$	140,701
Less: Liabilities arising from investing activities	215	705
Total investments for account of segregated fund holders	$	118,564	$	139,996

64 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


For the three months ended	For the nine months ended
September 30, 2022	September 30, 2021	September 30, 2022	September 30, 2021
Balances, beginning of period	$	120,098	$	133,249	$	139,996	$	125,921
Additions to segregated funds:
Deposits	3,171	2,964	10,911	9,825
Net transfer (to) from general funds	(269)	(154)	(881)	(218)
Net realized and unrealized gains (losses)	(1,801)	(20)	(21,460)	8,070
Other investment income	702	686	1,511	1,262
Total additions	$	1,803	$	3,476	$	(9,919)	$	18,939
Deductions from segregated funds:
Payments to policyholders and their beneficiaries	3,071	2,976	9,437	9,827
Management fees	293	330	916	945
Taxes and other expenses	101	104	283	320
Foreign exchange rate movements	(128)	10	877	463
Total deductions	$	3,337	$	3,420	$	11,513	$	11,555
Net additions (deductions)	(1,534)	56	(21,432)	7,384
Balances, end of period	$	118,564	$	133,305	$	118,564	$	133,305

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 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 three months ended	SLF Inc. (unconsolidated)	Sun Life Assurance (consolidated)	Other subsidiaries of SLF Inc. (combined)	Consolidation adjustments	SLF Inc. (consolidated)
September 30, 2022
Revenue	$	156	$	5,524	$	2,623	$	327	$	8,630
Shareholders' net income (loss)	$	484	$	244	$	154	$	(398)	$	484
September 30, 2021
Revenue	$	77	$	6,365	$	2,365	$	(297)	$	8,510
Shareholders' net income (loss)	$	1,042	$	698	$	300	$	(998)	$	1,042


For the nine months ended	SLF Inc.(unconsolidated)	Sun Life Assurance (consolidated)	Other subsidiaries of SLF Inc. (combined)	Consolidation adjustments	SLF Inc. (consolidated)
September 30, 2022
Revenue	$	439	$	3,452	$	5,718	$	1,412	$	11,021
Shareholders' net income (loss)	$	2,159	$	1,161	$	738	$	(1,899)	$	2,159
September 30, 2021
Revenue	$	231	$	16,543	$	6,431	$	(512)	$	22,693
Shareholders' net income (loss)	$	2,925	$	1,932	$	882	$	(2,814)	$	2,925

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 65


Assets and liabilities as at	SLF Inc.(unconsolidated)	Sun Life Assurance (consolidated)	Other subsidiaries of SLF Inc. (combined)	Consolidation adjustments	SLF Inc. (consolidated)
September 30, 2022
Invested assets	$	31,716	$	166,230	$	12,417	$	(34,500)	$	175,863
Total other general fund assets	$	13,660	$	25,506	$	36,972	$	(48,434)	$	27,704
Investments for account of segregated fund holders	$	-	$	118,514	$	50	$	-	$	118,564
Insurance contract liabilities	$	-	$	137,821	$	8,780	$	(8,672)	$	137,929
Investment contract liabilities	$	-	$	3,302	$	-	$	-	$	3,302
Total other general fund liabilities	$	17,324	$	25,650	$	31,419	$	(40,842)	$	33,551
December 31, 2021
Invested assets	$	30,984	$	174,777	$	13,006	$	(34,245)	$	184,522
Total other general fund assets	$	12,462	$	24,580	$	32,525	$	(48,715)	$	20,852
Investments for account of segregated fund holders	$	-	$	139,929	$	67	$	-	$	139,996
Insurance contract liabilities	$	-	$	147,989	$	10,105	$	(10,283)	$	147,811
Investment contract liabilities	$	-	$	3,368	$	-	$	-	$	3,368
Total other general fund liabilities	$	16,020	$	24,249	$	27,702	$	(41,849)	$	26,122

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 2022	September 30 2021	September 30 2022	September 30 2021
Common shareholders' net income (loss) for basic earnings per share	$	466	$	1,019	$	2,109	$	2,856
Add: Increase in income due to convertible instruments(1)	3	3	8	8
Common shareholders' net income (loss) on a diluted basis	$	469	$	1,022	$	2,117	$	2,864
Weighted average number of common shares outstanding for basic earnings per share (in millions)	586	586	586	585
Add: Dilutive impact of stock options(2) (in millions)	-	-	-	1
Dilutive impact of convertible instruments(1) (in millions)	3	3	3	4
Weighted average number of common shares outstanding on a diluted basis (in millions)	589	589	589	590
Basic earnings (loss) per share	$	0.80	$	1.74	$	3.60	$	4.88
Diluted earnings (loss) per share	$	0.80	$	1.74	$	3.59	$	4.85

(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 2 million and 1 million stock options for the three and nine months ended September 30, 2022, respectively, because these stock options were anti-dilutive for the period (September 30, 2021 - 1 million and 1 million, respectively).

66 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 2022	September 30, 2021
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	$	949	$	1,106	$	2,055	$	738	$	257	$	995
Unrealized gains (losses) on available-for-sale assets	(819)	(300)	(1,119)	333	(76)	257
Unrealized gains (losses) on cash flow hedges	(19)	2	(17)	(8)	(1)	(9)
Share of other comprehensive income (loss) in joint ventures and associates	(159)	36	(123)	(97)	29	(68)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans	(240)	10	(230)	(337)	36	(301)
Revaluation surplus on transfers to investment properties	145	-	145	145	-	145
Total	$	(143)	$	854	$	711	$	774	$	245	$	1,019
Total attributable to:
Participating policyholders	$	5	$	20	$	25	$	-	$	4	$	4
Non-controlling interests	(1)	3	2	-	(1)	(1)
Shareholders	(147)	831	684	774	242	1,016
Total	$	(143)	$	854	$	711	$	774	$	245	$	1,019


For the nine months ended
September 30, 2022	September 30, 2021
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	$	953	$	1,102	$	2,055	$	1,155	$	(160)	$	995
Unrealized gains (losses) on available-for-sale assets	266	(1,385)	(1,119)	632	(375)	257
Unrealized gains (losses) on cash flow hedges	(7)	(10)	(17)	(13)	4	(9)
Share of other comprehensive income (loss) in joint ventures and associates	(47)	(76)	(123)	(42)	(26)	(68)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans	(322)	92	(230)	(283)	(18)	(301)
Revaluation surplus on transfers to investment properties	145	-	145	145	-	145
Total	$	988	$	(277)	$	711	$	1,594	$	(575)	$	1,019
Total attributable to:
Participating policyholders	$	2	$	23	$	25	$	5	$	(1)	$	4
Non-controlling interest	-	2	2	-	(1)	(1)
Shareholders	986	(302)	684	1,589	(573)	1,016
Total	$	988	$	(277)	$	711	$	1,594	$	(575)	$	1,019

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2022 67

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.

Our significant legal proceedings and regulatory matters are disclosed in Note 23.G of our 2021 Annual Consolidated Financial Statements. There have been no significant updates to such legal and regulatory proceedings.

17. Subsequent Event

On September 26, 2022, SLF Inc. announced its intention to redeem all of the outstanding $400 principal amount of Series 2017-1 Subordinated Unsecured 2.75% Fixed/Floating Debentures (the "Debentures") in accordance with the redemption terms attached to the Debentures. The redemption will be funded from existing cash and liquid assets. The Debentures are redeemable at SLF Inc.'s option on or after November 23, 2022 at a redemption price per Debenture equal to the principal amount together with accrued and unpaid interest to the date of redemption. SLF Inc. intends to redeem the Debentures on November 23, 2022.

68 Sun Life Financial Inc. Third Quarter 2022 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Corporate and Shareholder Information


For information about Sun Life, corporate	United States	Direct deposit of dividends
news and financial results, please visit	American Stock Transfer & Trust	Common shareholders residing in Canada,
sunlife.com.	Company, LLC	the U.S. and the U.K. may have their dividend
6201 15th Ave.	payments deposited directly into their
Corporate office	Brooklyn, NY 11219	bank account.
Sun Life Financial Inc.	Tel: 1-877-224-1760
1 York Street	Email: [email protected]	The Request for Electronic Payment of
Toronto, Ontario	Dividends Forms are available for
Canada M5J 0B6	United Kingdom	downloading from the TSX Trust
Tel: 416-979-9966	Link Group	Company website,
Website: www.sunlife.com	10th Floor, Central Square	https://tsxtrust.com/sun-life/forms,
29 Wellington Street	or you can contact TSX Trust Company
Investor Relations	Leeds LS1 4DL	have a form sent to you.
For financial analysts, portfolio managers	Tel: +44 (0) 345-602-1587
and institutional investors requiring	Email:	Canadian dividend reinvestment
information, please contact:	[email protected]	and share purchase plan
Investor Relations	Canadian-resident common shareholders
Fax: 416-979-4080	Philippines	can enroll in the Dividend Reinvestment
Email: [email protected]	Rizal Commercial Banking Corporation	and Share Purchase Plan. For details visit
Please note that financial information can	(RCBC)	our website at sunlife.com or contact the
also be obtained from www.sunlife.com.	RCBC Stock Transfer Processing Section	Plan Agent, TSX Trust Company
Ground Floor, West Wing,	at [email protected].
Transfer agent	GPL (Grepalife) Building,
For information about your shareholdings,	221 Senator Gil Puyat Avenue	Stock exchange listings
dividends, change in share registration or	Makati City, 1200,	Sun Life Financial Inc. common shares are
address, estate transfers, lost certificates,	Philippines	listed on the Toronto (TSX), New York
or to advise of duplicate mailings, please	From Metro Manila: 632-5318-8567	(NYSE) and Philippine (PSE) stock
contact the Transfer Agent in the country	From the Provinces: 1-800-1-888-2422	exchanges. Ticker Symbol: SLF
where you reside. If you do not live in any	Email: [email protected]
of the countries listed, please contact the	Sun Life Financial Inc. Class A Preferred
Canadian Transfer Agent.	Hong Kong, SAR	Shares are listed on the Toronto Stock
Computershare Hong Kong Investor	Exchange (TSX).
Canada	Services Limited
TSX Trust Company	17M Floor, Hopewell Centre	Ticker Symbols:	Series 3 - SLF.PR.C
P.O. Box 700	183 Queen's Road East	Series 4 - SLF.PR.D
Station B	Wanchai, Hong Kong	Series 5 - SLF.PR.E
Montreal, Quebec	Tel: 852-2862-8555	Series 8R - SLF.PR.G
Canada H3B 3K3	Shareholders can submit inquiries online at:	Series 9QR - SLF.PR.J
Within North America:	https://www.computershare.com/hk/en/	Series 10R - SLF.PR.H
Tel: 1-877-224-1760	online_feedback	Series 11QR - SLF.PR.K
Outside of North America:
Tel: 416-682-3865	Shareholder services
Fax: 1-888-249-6189	For shareholder account inquiries, please
Email: [email protected]	contact the Transfer Agent in the country
Website: https://tsxtrust.com/sun-life	where you reside, or Shareholder Services:
Shareholders can view their account	Fax: 416-598-3121
details using TSX Trust Company's	English Email:
Internet service, Investor Central.	[email protected]
Register at https://tsxtrust.com/sun-life.	French Email:
[email protected]

2022 dividend dates
Common Shares

Record dates	Payment dates
March 2, 2022	March 31, 2022
June 1, 2022	June 30, 2022
August 24, 2022	September 29, 2022
November 23, 2022	December 30, 2022

CORPORATE AND SHAREHOLDER INFORMATION Sun Life Financial Inc. Third Quarter 2022 69

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