Consolidated Financial Statements and Notes

C ONSOLIDATED

FINANCIALSTATEMENTS ANDNOTES

FINANCIAL REPORTINGRESPONSIBILITIES 99

APPOINTEDACTUARY’S REPORT 100

INDEPENDENTAUDITOR’S REPORT 101

REPORTS OF INDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM 104

CONSOLIDATEDFINANCIAL STATEMENTS 107

ConsolidatedStatementsofOperations 107

ConsolidatedStatementsofComprehensive Income (Loss) 108

ConsolidatedStatementsofFinancialPosition 109

ConsolidatedStatementsofChangesinEquity 110

ConsolidatedStatementsofCashFlows 111

NOTES TOTHE CONSOLIDATEDFINANCIAL STATEMENTS 112

SignificantAccountingPolicies Note 1 112

ChangesinAccountingPolicies Note 2 122

AcquisitionsandOther Note 3 123

SegmentedInformation Note 4 125

TotalInvestedAssetsandRelatedNetInvestmentIncome Note 5 128

FinancialInstrumentRiskManagement Note 6 135

Insurance RiskManagement Note 7 146

OtherAssets Note 8 149

GoodwillandIntangible Assets Note 9 150

Insurance ContractLiabilitiesandInvestmentContractLiabilities Note 10 152

Reinsurance Note 11 158

OtherLiabilities Note 12 159

SeniorDebenturesandInnovative CapitalInstruments Note 13 160

SubordinatedDebt Note 14 162

Share Capital Note 15 162

InterestsinOtherEntities Note 16 164

Fee Income Note 17 166

OperatingExpenses Note 18 166

Share-BasedPayments Note 19 167

Income Taxes Note 20 169

CapitalManagement Note 21 171

SegregatedFunds Note 22 172

Commitments,GuaranteesandContingencies Note 23 173

RelatedParty Transactions Note 24 175

PensionPlansandOtherPost-RetirementBenefits Note 25 175

Earnings(Loss)PerShare Note 26 179

AccumulatedOtherComprehensive Income (Loss) Note 27 180

SubsequentEvents Note 28 180

98 SunLifeFinancialInc.AnnualReport2020 ConsolidatedFinancialStatements

FinancialReporti ngResponsibilities

Managementisresponsible forpreparingthe ConsolidatedFinancialStatements.Thisresponsibility includesselectingappropriate accounting policiesandmakingestimatesandotherjudgmentsconsistentwithInternationalFinancialReportingStandards.The financialinformationpresented elsewhere inthe annualreporttoshareholdersisconsistentwiththese ConsolidatedFinancialStatements.

The BoardofDirectors("Board")overseesmanagement’sresponsibilitiesforfinancialreporting.AnAuditCommittee ofnon-managementdirectors isappointedby the Boardtoreviewthe ConsolidatedFinancialStatementsandreporttothe Boardpriortotheirapprovalofthe Consolidated FinancialStatementsforissuance toshareholders.Otherkey responsibilitiesofthe AuditCommittee include reviewingthe Company’sexisting internalcontrolproceduresandplannedrevisionstothose procedures,andadvisingthe Boardonauditingmattersandfinancialreportingissues.

Managementisalsoresponsible formaintainingsystemsofinternalcontrolthatprovide reasonable assurance thatfinancialinformationisreliable, thatallfinancialtransactionsare properly authorized,thatassetsare safeguarded,andthatSunLife FinancialInc.anditssubsidiaries,collectively referredtoas"the Company",adhere tolegislative andregulatory requirements.These systemsinclude the communicationofpoliciesandthe Company’sCode ofBusinessConductthroughoutthe organization.Internalcontrolsare reviewedandevaluatedby the Company’sinternal auditors.

Managementconductedanassessmentofthe effectivenessofthe Company’sinternalcontroloverfinancialreporting,asof December31,2020, basedonthe frameworkandcriteriaestablishedin InternalControl -IntegratedFramework(2013),issuedby the Committee ofSponsoring Organizationsofthe Treadway Commission.Basedonthatassessment,managementhasconcludedthatthe Company’sinternalcontrolover financialreportingwaseffective asof December31,2020.

The AuditCommittee alsoconductssuchreviewandinquiry ofmanagementandthe internalandexternalauditorsasitdeemsnecessary towards establishingthatthe Company isemployingappropriate systemsofinternalcontrol,isadheringtolegislative andregulatory requirementsandis applyingthe Company’sCode ofBusinessConduct.Boththe internalandexternalauditorsandthe Company’sAppointedActuary have fulland unrestrictedaccesstothe AuditCommittee withandwithoutthe presence ofmanagement.

The Office ofthe SuperintendentofFinancialInstitutions,Canadaconductsperiodicexaminationsofthe Company.These examinationsare designed toevaluate compliance withprovisionsofthe Insurance CompaniesAct (Canada)andtoensure thatthe interestsofpolicyholders,depositors,and the publicare safeguarded.The Company’sforeignoperationsandforeignsubsidiariesare examinedby regulatorsintheirlocaljurisdictions.

The Company’sAppointedActuary,whoisamemberofmanagement,isappointedby the Boardtodischarge the variousactuarialresponsibilities requiredunderthe Insurance CompaniesAct (Canada),andconductsthe valuationofthe Company’sactuarialliabilities.The role ofthe Appointed Actuary isdescribedinmore detailin Note 10. The reportofthe AppointedActuary accompaniesthese ConsolidatedFinancialStatements.

The Company’sexternalauditor,Deloitte LLP,IndependentRegisteredPublicAccountingFirm,hasauditedthe Company’sinternalcontrolover financialreportingasof December31,2020,inadditiontoauditingthe Company’sConsolidatedFinancialStatementsforthe yearsended December31,2020 and December31,2019.Itsreportstothe Boardandshareholdersexpressunqualifiedopinionsandaccompany these ConsolidatedFinancialStatements.Deloitte LLPmeetsseparately withbothmanagementandthe AuditCommittee todiscussthe resultsofitsaudit.

DeanA.Connor PresidentandChiefExecutiveOffice r

KevinD.Strain,CPA,CA ExecutiveVice -PresidentandChiefFinancialOfficer

Toronto,Ontario,Canada February1 0,2021

ConsolidatedFinancialStatements SunLifeFinancialInc.AnnualReport2020 99

AppointedActuary’sReport

THESHAREHOLDERSANDDIRECTORSOFSUNLIFEFINANCIALINC. Ihave valuedthe policy liabilitiesandreinsurance recoverablesofSunLife FinancialInc.anditssubsidiariesforitsConsolidatedStatementsof FinancialPositionat December31,2020 and December31,2019 andtheirchange inthe ConsolidatedStatementsofOperationsforthe yearended December31,2020 inaccordance withacceptedactuarialpractice inCanada,includingselectionofappropriate assumptionsandmethods.

Inmy opinion,the amountofpolicy liabilitiesnetofreinsurance recoverablesmakesappropriate provisionforallpolicy obligationsandthe ConsolidatedFinancialStatementsfairly presentthe resultsofthe valuation.

KevinMorrissey Fellow,CanadianInstitute ofActuaries

Toronto,Ontario,Canada February 10,2021

100 SunLifeFinancialInc.AnnualReport2020 AppointedActuary'sReport

IndependentAuditor’sReport Tothe Shareholdersandthe BoardofDirectorsofSunLife FinancialInc.

Opinion We have auditedthe consolidatedfinancialstatementsofSunLife FinancialInc.(the "Company"),whichcomprise the consolidatedstatementsof financialpositionasatDecember31,2020 and2019,andthe consolidatedstatementsofoperations,comprehensive income (loss),changesin equity andcashflowsforthe yearsthenended,andnotestothe consolidatedfinancialstatements,includingasummary ofsignificantaccounting policies(collectively referredtoasthe "financialstatements").

Inouropinion,the accompanyingfinancialstatementspresentfairly,inallmaterialrespects,the financialpositionofthe Company asatDecember 31,2020 and2019,anditsfinancialperformance anditscashflowsforthe yearsthenendedinaccordance withInternationalFinancialReporting Standardsasissuedby the InternationalAccountingStandardsBoard("IFRS").

BasisforOpinion We conductedourauditinaccordance withCanadiangenerally acceptedauditingstandards("CanadianGAAS").Ourresponsibilitiesunderthose standardsare furtherdescribedinthe Auditor’sResponsibilitiesforthe Auditofthe FinancialStatements sectionofourreport.We are independent ofthe Company inaccordance withthe ethicalrequirementsthatare relevanttoourauditofthe financialstatementsinCanada,andwe have fulfilledourotherethicalresponsibilitiesinaccordance withthese requirements.We believe thatthe auditevidence we have obtainedissufficient andappropriate toprovide abasisforouropinion.

KeyAuditMatters Key auditmattersare those mattersthat,inourprofessionaljudgment,were ofmostsignificance inourauditofthe consolidatedfinancial statementsforthe yearendedDecember31,2020.These matterswere addressedinthe contextofourauditofthe consolidatedfinancial statementsasawhole,andinformingourauditopinionthereon,andwe donotprovide aseparate opiniononthese matters.

InsuranceContractL iabilities-R efertoN otes 1a nd1 0t ot heFinancialS tatements KeyAudi tM atterDescription The Company hassignificantinsurance contractliabilitiesrepresentingthe majority ofitstotalliabilities.Applicationofdifferentassumptionsmay resultindifferentmeasurementofthe insurance contractliabilities.There isinsurance riskfromthe uncertainty ofproductperformance due to differencesbetweenthe actualexperience andexpectedexperience.The Company usesvariousactuarialmodelstodetermine insurance contract liabilities,some ofwhichinvolve highlevelsofcomplexity.

While there are many assumptionswhichmanagementmakes,the assumptionswiththe greatestuncertainty are those relatedtomortality, includingthe impact,ifany,ofthe COVID-19 pandemicandlapse andotherpolicyholderbehaviour("policyholderbehaviour").These assumptions requiredsubjective andcomplexauditorjudgmentincertaincircumstancesincludingwhere (i)there islimitedCompany andindustry experience data,(ii)the historicalexperience may notbe agoodindicatorofthe future,and(iii)the policyholderbehaviourmay be irrational.Auditingof certainactuarialmodelsandmortality andpolicyholderbehaviourassumptionsrequiredahighdegree ofauditorjudgmentandanincreasedextent ofauditeffort,includingthe needforthe integralinvolvementofactuarialspecialists.

HowtheKeyAudi tM atterWasAddressedintheAudit Ourauditproceduresrelatedtoactuarialmodelsandassumptionsofmortality andpolicyholderbehaviourincludedthe following,amongothers: • We evaluatedandtestedthe effectivenessofcontrolsoveractuarialmodelsandthe determinationofthe mortality andpolicyholderbehaviour

assumptionsusedinthe calculationofinsurance contractliabilitiesaswellasaccessandchange managementcontrolsoverthose actuarial models.

• Withthe assistance ofactuarialspecialists,we testedthe reasonablenessofkey mortality andpolicyholderbehaviourassumptions,by: • Evaluatingmanagement’smethodsandassumptionsinaccordance withactuarialprinciplesandpracticesunderthe Canadianactuarial

standardsofpractice. • Testingexperience studiesandotherinputsusedinthe determinationofthe mortality andpolicyholderbehaviourassumptions. • Analyzingmanagement’sinterpretationofitsexperience study results,evaluatingtriggersanddriversforrevisionsofassumptions,assessing

reasonably possible alternative assumptions,andconsideringindustry andotherexternalsourcesofdata,where applicable. • Withthe assistance ofactuarialspecialists,we testedthe appropriatenessofactuarialmodelsusedinthe estimationprocessby:

• Calculatinganindependentestimate ofthe insurance contractliability forasample ofinsurance policiesandcomparingthe resultstothe Company’sresults.

• Testingthe accuracy ofasample ofactuarialmodelsforchangesinkey assumptions.

Valuationo fInvestmentPro perties-R efertoN otes 1a nd 5t ot heFinancialS tatements KeyAudi tM atterDescription

Investmentpropertiesare accountedforatfairvalue.The fairvaluesofinvestmentpropertiesare generally determinedusingproperty valuation modelsandare basedonexpectedcapitalizationratesandmodelsthatdiscountexpectedfuture netcashflowsatcurrentmarketexpectedratesof returnreflective ofthe characteristics,location,andmarketofeachproperty.Expectedfuture netcashflowsinclude contractualandprojectedcash flowsandforecastedoperatingexpenses,andtake intoaccountdiscount,rental,andoccupancy ratesderivedfrommarketsurveys.The estimates offuture cashinflowsinadditiontoexpectedrentalincome fromcurrentleases,include projectedincome fromfuture leasesbasedonsignificant assumptionsthatare consistentwithcurrentmarketconditions.

The assumptionswiththe greatestuncertainty are the discountrates,terminalcapitalizationratesandfuture rentalrates.Performingaudit procedurestoassessinputsrequiredahighdegree ofauditorjudgmentandanincreasedextentofauditeffort,includingthe needforthe integral involvementoffairvalue specialists.

IndependentAuditor'sReport SunLifeFinancialInc.AnnualReport2020 101

HowtheKeyAudi tM atterWasAddressedintheAudit Ourauditproceduresrelatedtovaluationmodelsandassumptionsincludingdiscountrates,terminalcapitalizationrates,andfuture rentalrates includedthe following,amongothers: • We evaluatedandtestedthe effectivenessofcontrolsoverthe fairvalue processforinvestmentproperties.These controlsinclude an

assessmentandapprovalby seniormanagementofthe discountrates,terminalcapitalizationrates,andfuture rentalratesassumptionsused inthe determinationofthe valuationofinvestmentpropertiesandthe valuationconclusionsrelative tocomparable properties.

• Withthe assistance offairvalue specialists,we evaluatedonasample basisthe reasonablenessofmanagement’sdiscountrates,terminal capitalizationrates,andfuture rentalratesassumptionsandvaluationconclusionsby comparingthemtothe discountrates,terminal capitalizationratesandfuture rentalratesofmarketsurveysandtransactionsincomparable properties.

OtherInformation Managementisresponsible forthe otherinformation.The otherinformationcomprises: • Management’sDiscussionandAnalysis • The information,otherthanthe financialstatementsandourauditor’sreportsthereon,inthe AnnualReport.

Ouropiniononthe financialstatementsdoesnotcoverthe otherinformationandwe donotandwillnotexpressany formofassurance conclusion thereon.Inconnectionwithourauditofthe financialstatements,ourresponsibility istoreadthe otherinformationidentifiedabove and,indoing so,considerwhetherthe otherinformationismaterially inconsistentwiththe financialstatementsorourknowledge obtainedinthe audit,or otherwise appearstobe materially misstated.

We obtainedManagement’sDiscussionandAnalysispriortothe date ofthisauditor’sreport.If,basedonthe workwe have performedonthisother information,we conclude thatthere isamaterialmisstatementofthisotherinformation,we are requiredtoreportthatfactinthisauditor’sreport. We have nothingtoreportinthisregard.

The AnnualReportisexpectedtobe made available tousafterthe date ofthe auditor’sreport.If,basedonthe workwe willperformonthisother information,we conclude thatthere isamaterialmisstatementofthisotherinformation,we are requiredtoreportthatfacttothose chargedwith governance.

ResponsibilitiesofManagementandTh oseChargedwi thGovern ancefortheFinancialStatemen ts Managementisresponsible forthe preparationandfairpresentationofthe financialstatementsinaccordance withIFRS,andforsuchinternal controlasmanagementdeterminesisnecessary toenable the preparationoffinancialstatementsthatare free frommaterialmisstatement, whetherdue tofraudorerror.

Inpreparingthe financialstatements,managementisresponsible forassessingthe Company’sability tocontinue asagoingconcern,disclosing,as applicable,mattersrelatedtogoingconcernandusingthe goingconcernbasisofaccountingunlessmanagementeitherintendstoliquidate the Company ortocease operations,orhasnorealisticalternative buttodoso.

Those chargedwithgovernance are responsible foroverseeingthe Company’sfinancialreportingprocess.

102 SunLifeFinancialInc.AnnualReport2020 IndependentAuditor'sReport

Auditor’sResponsibilitiesfortheAuditoftheFinancialStatemen ts Ourobjectivesare toobtainreasonable assurance aboutwhetherthe financialstatementsasawhole are free frommaterialmisstatement,whether due tofraudorerror,andtoissue anauditor’sreportthatincludesouropinion.Reasonable assurance isahighlevelofassurance,butisnota guarantee thatanauditconductedinaccordance withCanadianGAASwillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscan arise fromfraudorerrorandare consideredmaterialif,individually orinthe aggregate,they couldreasonably be expectedtoinfluence the economicdecisionsofuserstakenonthe basisofthese financialstatements.

Aspartofanauditinaccordance withCanadianGAAS,we exercise professionaljudgmentandmaintainprofessionalskepticismthroughoutthe audit.We also: • Identify andassessthe risksofmaterialmisstatementofthe financialstatements,whetherdue tofraudorerror,designandperformaudit

proceduresresponsive tothose risks,andobtainauditevidence thatissufficientandappropriate toprovide abasisforouropinion.The riskof notdetectingamaterialmisstatementresultingfromfraudishigherthanforone resultingfromerror,asfraudmay involve collusion,forgery, intentionalomissions,misrepresentations,orthe override ofinternalcontrol.

• Obtainanunderstandingofinternalcontrolrelevanttothe auditinordertodesignauditproceduresthatare appropriate inthe circumstances, butnotforthe purpose ofexpressinganopiniononthe effectivenessofthe Company’sinternalcontrol.

• Evaluate the appropriatenessofaccountingpoliciesusedandthe reasonablenessofaccountingestimatesandrelateddisclosuresmade by management.

• Conclude onthe appropriatenessofmanagement’suse ofthe goingconcernbasisofaccountingand,basedonthe auditevidence obtained, whetheramaterialuncertainty existsrelatedtoeventsorconditionsthatmay castsignificantdoubtonthe Company’sability tocontinue asa goingconcern.Ifwe conclude thatamaterialuncertainty exists,we are requiredtodrawattentioninourauditor’sreporttothe related disclosuresinthe financialstatementsor,ifsuchdisclosuresare inadequate,tomodify ouropinion.Ourconclusionsare basedonthe audit evidence obtaineduptothe date ofourauditor’sreport.However,future eventsorconditionsmay cause the Company tocease tocontinue as agoingconcern.

• Evaluate the overallpresentation,structure andcontentofthe financialstatements,includingthe disclosures,andwhetherthe financial statementsrepresentthe underlyingtransactionsandeventsinamannerthatachievesfairpresentation.

• Obtainsufficientappropriate auditevidence regardingthe financialinformationofthe entitiesorbusinessactivitieswithinthe Company to expressanopiniononthe financialstatements.We are responsible forthe direction,supervisionandperformance ofthe groupaudit.We remainsolely responsible forourauditopinion.

We communicate withthose chargedwithgovernance regarding,amongothermatters,the plannedscope andtimingofthe auditandsignificant auditfindings,includingany significantdeficienciesininternalcontrolthatwe identify duringouraudit.

We alsoprovide those chargedwithgovernance withastatementthatwe have compliedwithrelevantethicalrequirementsregarding independence,andtocommunicate withthemallrelationshipsandothermattersthatmay reasonably be thoughttobearonourindependence, andwhere applicable,relatedsafeguards.

Fromthe matterscommunicatedwiththose chargedwithgovernance,we determine those mattersthatwere ofmostsignificance inthe auditof the consolidatedfinancialstatementsofthe currentperiodandare therefore the key auditmatters.We describe these mattersinourauditor's reportunlesslaworregulationprecludespublicdisclosure aboutthe matterorwhen,inextremely rare circumstances,we determine thatamatter shouldnotbe communicatedinourreportbecause the adverse consequencesofdoingsowouldreasonably be expectedtooutweighthe public interestbenefitsofsuchcommunication.

The engagementpartneronthe auditresultinginthisindependentauditor’sreportisWilliamA.Cunningham.

/s/Deloitte LLP

CharteredProfessionalAccountants LicensedPublicAccountants Toronto,Ontario,Canada February 10,2021

IndependentAuditor'sReport SunLifeFinancialInc.AnnualReport2020 103

ReportofIndependentRegisteredPublicAccountingFirm Tothe Shareholdersandthe BoardofDirectorsofSunLife FinancialInc.

Opinion onth eFinancialStatemen ts We have auditedthe accompanyingconsolidatedstatementsoffinancialpositionofSunLife FinancialInc.andsubsidiaries(the "Company")asof December31,2020 and2019,the relatedconsolidatedstatementsofoperations,comprehensive income (loss),changesinequity andcashflows, foreachofthe twoyearsinthe periodendedDecember31,2020,andthe relatednotes(collectively referredtoasthe "financialstatements").In ouropinion,the financialstatementspresentfairly,inallmaterialrespects,the financialpositionofthe Company asofDecember31,2020 and 2019,anditsfinancialperformance anditscashflowsforeachofthe twoyearsinthe periodendedDecember31,2020,inconformity with InternationalFinancialReportingStandardsasissuedby the InternationalAccountingStandardsBoard.

We have alsoaudited,inaccordance withthe standardsofthe PublicCompany AccountingOversightBoard(UnitedStates)(PCAOB),the Company's internalcontroloverfinancialreportingasofDecember31,2020,basedoncriteriaestablishedin InternalControl—IntegratedFramework(2013) issuedby the Committee ofSponsoringOrganizationsofthe Treadway CommissionandourreportdatedFebruary 10,2021,expressedan unqualifiedopiniononthe Company'sinternalcontroloverfinancialreporting.

BasisforOpinion These financialstatementsare the responsibility ofthe Company'smanagement.Ourresponsibility istoexpressanopiniononthe Company's financialstatementsbasedonouraudits.We are apublicaccountingfirmregisteredwiththe PCAOBandare requiredtobe independentwith respecttothe Company inaccordance withthe U.S.federalsecuritieslawsandthe applicable rulesandregulationsofthe SecuritiesandExchange Commissionandthe PCAOB.

We conductedourauditsinaccordance withthe standardsofthe PCAOB.Those standardsrequire thatwe planandperformthe audittoobtain reasonable assurance aboutwhetherthe financialstatementsare free ofmaterialmisstatement,whetherdue toerrororfraud.Ourauditsincluded performingprocedurestoassessthe risksofmaterialmisstatementofthe financialstatements,whetherdue toerrororfraud,andperforming proceduresthatrespondtothose risks.Suchproceduresincludedexamining,onatestbasis,evidence regardingthe amountsanddisclosuresinthe financialstatements.Ourauditsalsoincludedevaluatingthe accountingprinciplesusedandsignificantestimatesmade by management,aswellas evaluatingthe overallpresentationofthe financialstatements.We believe thatourauditsprovide areasonable basisforouropinion.

CriticalAu ditMatters The criticalauditmatterscommunicatedbeloware mattersarisingfromthe current-periodauditofthe financialstatementsthatwere communicatedorrequiredtobe communicatedtothe auditcommittee andthat(1)relate toaccountsordisclosuresthatare materialtothe financialstatementsand(2)involvedespecially challenging,subjective,orcomplexauditorjudgments.The communicationofcriticalauditmatters doesnotalterinany way ouropiniononthe financialstatements,takenasawhole,andwe are not,by communicatingthe criticalauditmatters below,providingseparate opinionsonthe criticalauditmattersoronthe accountsordisclosurestowhichthey relate.

InsuranceContractL iabilities-R efertoN otes 1a nd1 0t ot heFinancialS tatements CriticalAudi tM atterDescription The Company hassignificantinsurance contractliabilitiesrepresentingthe majority ofitstotalliabilities.Applicationofdifferentassumptionsmay resultindifferentmeasurementofthe insurance contractliabilities.There isinsurance riskfromthe uncertainty ofproductperformance due to differencesbetweenthe actualexperience andexpectedexperience.The Company usesvariousactuarialmodelstodetermine insurance contract liabilities,some ofwhichinvolve highlevelsofcomplexity.

While there are many assumptionswhichmanagementmakes,the assumptionswiththe greatestuncertainty are those relatedtomortality, includingthe impact,ifany,ofthe COVID-19 pandemic,andlapse andotherpolicyholderbehaviour("policyholderbehaviour").These assumptions requiredsubjective andcomplexauditorjudgmentincertaincircumstances,includingwhere (i)there islimitedCompany andindustry experience data,(ii)the historicalexperience may notbe agoodindicatorofthe future,and(iii)the policyholderbehaviourmay be irrational.Auditingof certainactuarialmodelsandmortality andpolicyholderbehaviourassumptionsrequiredahighdegree ofauditorjudgmentandanincreasedextent ofauditeffort,includingthe needforthe integralinvolvementofactuarialspecialists.

HowtheCriticalAudi tM atterWasAddressedintheAudit Ourauditproceduresrelatedtoactuarialmodelsandassumptionsofmortality andpolicyholderbehaviourincludedthe following,amongothers: • We evaluatedandtestedthe effectivenessofcontrolsoveractuarialmodelsandthe determinationofthe mortality andpolicyholder

behaviourassumptionsusedinthe calculationofinsurance contractliabilitiesaswellasaccessandchange managementcontrolsoverthose actuarialmodels.

• Withthe assistance ofactuarialspecialists,we testedthe reasonablenessofkey mortality andpolicyholderbehaviourassumptions,by: • Evaluatingmanagement’smethodsandassumptionsinaccordance withactuarialprinciplesandpracticesunderthe Canadianactuarial

standardsofpractice. • Testingexperience studiesandotherinputsusedinthe determinationofthe mortality andpolicyholderbehaviourassumptions. • Analyzingmanagement’sinterpretationofitsexperience study results,evaluatingtriggersanddriversforrevisionsofassumptions,

assessingreasonably possible alternative assumptions,andconsideringindustry andotherexternalsourcesofdata,where applicable. • Withthe assistance ofactuarialspecialists,we testedthe appropriatenessofactuarialmodelsusedinthe estimationprocessby:

• Calculatinganindependentestimate ofthe insurance contractliability forasample ofinsurance policiesandcomparingthe resultsto the Company’sresults.

• Testingthe accuracy ofasample ofactuarialmodelsforchangesinkey assumptions.

104 SunLifeFinancialInc.AnnualReport2020 ReportofIndependentRegisteredPublic AccountingFirm

Valuationo fInvestmentPro perties-R efertoN otes 1a nd 5t ot heFinancialS tatements CriticalAudi tM atterDescription Investmentpropertiesare accountedforatfairvalue.The fairvaluesofinvestmentpropertiesare generally determinedusingproperty valuation modelsandare basedonexpectedcapitalizationratesandmodelsthatdiscountexpectedfuture netcashflowsatcurrentmarketexpectedratesof returnreflective ofthe characteristics,location,andmarketofeachproperty.Expectedfuture netcashflowsinclude contractualandprojectedcash flowsandforecastedoperatingexpenses,andtake intoaccountdiscount,rental,andoccupancy ratesderivedfrommarketsurveys.The estimates offuture cashinflowsinadditiontoexpectedrentalincome fromcurrentleases,include projectedincome fromfuture leasesbasedonsignificant assumptionsthatare consistentwithcurrentmarketconditions.

The assumptionswiththe greatestuncertainty are the discountrates,terminalcapitalizationratesandfuture rentalrates.Performingaudit procedurestoassessinputsrequiredahighdegree ofauditorjudgmentandanincreasedextentofauditeffort,includingthe needforthe integral involvementoffairvalue specialists.

HowtheCriticalAudi tM atterWasAddressedintheAudit Ourauditproceduresrelatedtovaluationmodelsandassumptionsincludingdiscountrates,terminalcapitalizationrates,andfuture rentalrates includedthe following,amongothers: • We evaluatedandtestedthe effectivenessofcontrolsoverthe fairvalue processforinvestmentproperties.These controlsinclude an

assessmentandapprovalby seniormanagementofthe discountrates,terminalcapitalizationrates,andfuture rentalratesassumptionsused inthe determinationofthe valuationofinvestmentpropertiesandthe valuationconclusionsrelative tocomparable properties.

• Withthe assistance offairvalue specialists,we evaluatedonasample basisthe reasonablenessofmanagement’sdiscountrates,terminal capitalizationrates,andfuture rentalratesassumptionsandvaluationconclusionsby comparingthemtothe discountrates,terminal capitalizationratesandfuture rentalratesofmarketsurveysandtransactionsincomparable properties.

/s/Deloitte LLP


We have servedasthe Company’sauditorsince 1875.

ReportofIndependentRegisteredPublic AccountingFirmSunLifeFinancialInc.AnnualReport2020 105

ReportofIndependentRegisteredPublicAccountingFirm

Tothe Shareholdersandthe BoardofDirectorsofSunLife FinancialInc.

Opinion onI nternalCon troloverFi nancialRep orting We have auditedthe internalcontroloverfinancialreportingofSunLife FinancialInc.andsubsidiaries(the "Company")asofDecember31,2020, basedoncriteriaestablishedin InternalControl—IntegratedFramework(2013) issuedby the Committee ofSponsoringOrganizationsofthe Treadway Commission(COSO).Inouropinion,the Company maintained,inallmaterialrespects,effective internalcontroloverfinancialreportingas ofDecember31,2020,basedoncriteriaestablishedin InternalControl—IntegratedFramework(2013) issuedby COSO.

We have alsoaudited,inaccordance withthe standardsofthe PublicCompany AccountingOversightBoard(UnitedStates)(PCAOB),the consolidatedfinancialstatementsasofandforthe yearendedDecember31,2020,ofthe Company andourreportdatedFebruary 10,2021, expressedanunqualifiedopiniononthose financialstatements.

BasisforOpinion The Company’smanagementisresponsible formaintainingeffective internalcontroloverfinancialreportingandforitsassessmentofthe effectivenessofinternalcontroloverfinancialreporting,includedinthe accompanyingFinancialReportingResponsibilitiesreport.Ourresponsibility istoexpressanopiniononthe Company’sinternalcontroloverfinancialreportingbasedonouraudit.We are apublicaccountingfirmregistered withthe PCAOBandare requiredtobe independentwithrespecttothe Company inaccordance withthe U.S.federalsecuritieslawsandthe applicable rulesandregulationsofthe SecuritiesandExchange Commissionandthe PCAOB.

We conductedourauditinaccordance withthe standardsofthe PCAOB.Those standardsrequire thatwe planandperformthe audittoobtain reasonable assurance aboutwhethereffective internalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincluded obtaininganunderstandingofinternalcontroloverfinancialreporting,assessingthe riskthatamaterialweaknessexists,testingandevaluatingthe designandoperatingeffectivenessofinternalcontrolbasedonthe assessedrisk,andperformingsuchotherproceduresaswe considerednecessary inthe circumstances.We believe thatourauditprovidesareasonable basisforouropinion.

Definitionan dLi mitationsofInternalCon troloverFi nancialRep orting Acompany ’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidere asonable assurancere gardingthere liability offinancial reportingandthepre parationoffinancialstatementsforexternalpurposesinaccordancewithInte rnationalFinancialReportingStandardsasissued by theInte rnationalAccountingStandardsBoard.Acompany ’sinternalcontroloverfinancialreportingincludesthosepolicie sandproceduresthat (1)pertaintothemainte nanceofre cordsthat,inreasonablede tail,accurately andfairlyre flectthe transactionsanddispositionsoftheasse tsofthe company;(2)providere asonable assurance thattransactionsarere cordedasnecessarytope rmitpreparationoffinancialstatementsinaccordance withInternationalFinancialReportingStandardsasissuedby theInte rnationalAccountingStandardsBoard,andthatreceiptsandexpendituresof the company arebe ingmade only inaccordancewithauthorizationsofmanage mentanddirectorsofthecompany ;and(3)providere asonable assurancere gardingpreventionortimelyde tectionofunauthorizedacquisition,use,ordispositionofthecompany ’sassetsthatcouldhave a materialeffectonthefinancialstate ments.

Because ofitsinherentlimitations,internalcontroloverfinancialreportingmay notpreventordetectmisstatements.Also,projectionsofany evaluationofeffectivenesstofuture periodsare subjecttothe riskthatcontrolsmay become inadequate because ofchangesinconditions,orthat the degree ofcompliance withthe policiesorproceduresmay deteriorate.

/s/Deloitte LLP


106 SunLifeFinancialInc.AnnualReport2020 ReportofIndependentRegisteredPublic AccountingFirm

CONSOLIDATEDSTATEMENTSOFOPERATIONS

Forthe yearsendedDecember31,(inmillionsofCanadiandollars,exceptforpershare amounts) 2020 2019

Revenue

Premiums Gross $ 26,190 $ 22,680 Less:Ceded 2,452 2,392

Netpremiums 23,738 20,288

Netinvestmentincome (loss): Interestandotherinvestmentincome( Note5 ) 5,407 5,855 Fairvalueandfore igncurrencychange sonassetsandliabilities(Note5 ) 6,860 7,118 Netgains(losses)onavailable-for-sale assets 451 167

Netinvestmentincome (loss) 12,718 13,140 Fee income (Note 17) 6,881 6,251

Total revenue 43,337 39,679

Benefitsandexpenses Grossclaimsandbenefitspaid(Note 10) 18,307 17,421

Increase (decrease)ininsurance contractliabilities(Note 10) 14,860 11,367

Decrease (increase)inreinsurance assets(Note 10) 204 (28) Increase (decrease)ininvestmentcontractliabilities(Note 10) 61 65

Reinsurance expenses(recoveries)(Note 11) (2,353) (2,131) Commissions 2,612 2,417

Nettransferto(from)segregatedfunds(Note 22) (1,825) (437) Operatingexpenses(Note 18) 7,401 7,033

Premiumtaxes 428 406

Interestexpense 355 333

Total benefitsandexpenses 40,050 36,446

Income(loss)befo reincometaxes 3,287 3,233 Less:Incometaxe xpense(be nefit)(Note2 0) 495 286

Total neti ncome(loss) 2,792 2,947 Less:Netincome (loss)attributabletoparticipatingpolicy holders(Note2 1) 283 230

Netincome (loss)attributabletonon-controllinginte rests 11 4

Shareholders’neti ncome(loss) 2,498 2,713 Less:Preferredshareholders’dividends 94 95

Commonshareholders’net income(loss) $ 2,404 $ 2,618

Averageexchangeratesduringthereportingperiods: U.S.dollars 1.34 1.33

Earnings(loss)persha re(Note26) Basicearnings(loss)pershare $ 4.11 $ 4.42 Dilutedearnings(loss)pershare $ 4.10 $ 4.40

Dividendspercommonshare $ 2.200 $ 2.100

TheattachednotesformpartoftheseConsolidatedFinancialStatements.

ConsolidatedFinancialStatementsSunLifeFinancialInc.AnnualReport2020 107

CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME(LOSS)

Forthe yearsendedDecember31,(inmillionsofCanadiandollars) 2020 2019

Total net income(loss) $ 2,792 $ 2,947

Othercomprehensiveincome(loss),net oftaxes: Itemsthatmay be reclassifiedsubsequently toincome:

Change inunrealizedforeigncurrency translationgains(losses): Unrealizedgains(losses) (204) (564)

Change inunrealizedgains(losses)onavailable-for-sale assets: Unrealizedgains(losses) 658 489

Reclassificationstonetincome (loss) (339) (120) Change inunrealizedgains(losses)oncashflowhedges:

Unrealizedgains(losses) (15) 33

Reclassificationstonetincome (loss) 9 (19) Share ofothercomprehensive income (loss)injointventuresandassociates:

Unrealizedgains(losses) (9) (9)

Totalitemsthatmay be reclassifiedsubsequently toincome 100 (190) Itemsthatwillnotbe reclassifiedsubsequently toincome:

Remeasurementofdefinedbenefitplans 22 (42)

Totalitemsthatwillnotbe reclassifiedsubsequently toincome 22 (42)

Totalothercomprehensive income (loss) 122 (232)

Total comprehensiveincome(loss) 2,914 2,715

Less:Participatingpolicyholders’comprehensive income (loss)(Note 21) 277 227

Non-controllinginterests’comprehensive income (loss) 11 4

Shareholders’comprehensiveincome(loss) $ 2,626 $ 2,484

INCOMETAXESINCLUDEDINOTHERCOMPREHENSIVEINCOME(LOSS)


Incometaxbenefit (expense): Itemsthatmay be reclassifiedsubsequently toincome:

Unrealizedforeigncurrency translationgains(losses) $ (16) $ — Unrealizedgains(losses)onavailable-for-sale assets (180) (110) Reclassificationstonetincome foravailable-for-sale assets 87 31

Unrealizedgains(losses)oncashflowhedges 2 (13) Reclassificationstonetincome forcashflowhedges 1 8

Totalitemsthatmay be reclassifiedsubsequently toincome (106) (84) Itemsthatwillnotbe reclassifiedsubsequently toincome:

Remeasurementofdefinedbenefitplans (8) 21

Totalitemsthatwillnotbe reclassifiedsubsequently toincome (8) 21

Total incometaxbenefit (expense) includedinothercomprehensiveincome(loss) $ (114) $ (63)



CONSOLIDATEDSTATEMENTSOFFINANCIALPOSITION

AsatDecember31,(inmillionsofCanadiandollars) 2020 2019

Assets Cash,cashequivalentsandshort-termsecurities(Note 5) $ 13,527 $ 9,575

Debtsecurities(Notes 5 and 6) 89,089 81,606

Equity securities(Notes 5 and 6) 6,631 4,787

Mortgagesandloans(Notes 5 and6) 49,946 48,222

Derivative assets(Notes 5 and 6) 2,160 1,548

Otherinvestedassets(Note 5) 5,778 5,357

Policy loans(Note 5) 3,265 3,218

Investmentproperties(Note 5) 7,516 7,306

Investedassets 177,912 161,619

Otherassets(Note 8) 5,152 5,216

Reinsurance assets(Notes 10 and 11) 3,843 4,024

Deferredtaxassets(Note 20) 1,634 1,455

Intangible assets(Note 9) 2,477 2,083

Goodwill(Note 9) 6,072 5,832

Totalgeneralfundassets 197,090 180,229

Investmentsforaccountofsegregatedfundholders(Note 22) 125,921 116,973

Total assets $ 323,011 $ 297,202

Liabilitiesandequity

Liabilities Insurance contractliabilities(Note 10) $ 145,773 $ 131,184

Investmentcontractliabilities(Note 10) 3,189 3,116

Derivative liabilities(Notes 5 and 6) 1,744 2,040

Deferredtaxliabilities(Note 20) 383 406

Otherliabilities(Note 12) 14,858 14,937

Seniordebentures(Note 13) 500 500

Subordinateddebt(Note 14) 4,781 3,538

Totalgeneralfundliabilities 171,228 155,721

Insurance andinvestmentcontractsforaccountofsegregatedfundholders(Note 22) 125,921 116,973

Total liabilities $ 297,149 $ 272,694

Equity

Issuedshare capitalandcontributedsurplus $ 10,591 $ 10,619

Shareholders’retainedearningsandaccumulatedothercomprehensive income 13,878 12,779

Totalshareholders’equity 24,469 23,398

Participatingpolicyholders’equity 1,368 1,091

Non-controllinginterests’equity 25 19

Total equity $ 25,862 $ 24,508

Total liabilitiesandequity $ 323,011 $ 297,202

Exchangeratesat theendofthereportingperiods:U.S.dollars 1.27 1.30


ApprovedonbehalfoftheBoardofDire ctorsonFe bruary1 0,2021.

DeanA.Connor PresidentandChiefExecutiveOffice r

SaraGro otwassinkLewi s Director


CONSOLIDATEDSTATEMENTSOFCHANGESINEQUITY


Shareholders: Preferredshares(Note15)

Balance,beginningandendofyear $ 2,257 $ 2,257 Commonshares(Note15)

Balance,beginningofyear 8,289 8,419

Stockoptionsexercised 23 28

Commonsharespurchasedforcancellation (50) (158)

Balance,endofyear 8,262 8,289

Contributedsurplus Balance,beginningofyear 73 73

Share-basedpayments 4 5

Stockoptionsexercised (5) (5)

Balance,endofyear 72 73

Retainedearnings Balance,beginningofyear 11,318 11,267

Adjustmentforchange inaccountingpolicy (Note 2) — (22)

Balance,beginningofyear,afterchange inaccountingpolicy 11,318 11,245 Netincome (loss) 2,498 2,713

Dividendsoncommonshares (1,283) (1,236) Dividendsonpreferredshares (94) (95) Commonsharespurchasedforcancellation(Note 15) (150) (434) Changesattributable toacquisition(Note 3) — (875)


Accumulatedothercomprehensiveincome(loss),net oftaxes(Note27) Balance,beginningofyear 1,461 1,690

Totalothercomprehensive income (loss)forthe year 128 (229)


Total shareholders’equity,endofyear $ 24,469 $ 23,398

Participatingpolicyholders: Balance,beginningofyear $ 1,091 $ 864 Netincome (loss)(Note 21) 283 230

Totalothercomprehensive income (loss)forthe year(Note 27) (6) (3)

Total participatingpolicyholders’equity,endofyear $ 1,368 $ 1,091

Non-controllinginterests: Balance,beginningofyear $ 19 $ — Netincome (loss) 11 4

Changesattributable toacquisition(Note 3) — 15

Additionalcontribution 13 — Distributiontonon-controllinginterests (18) —

Total non-controllinginterests’equity,endofyear $ 25 $ 19

Total equity $ 25,862 $ 24,508



CONSOLIDATEDSTATEMENTSOFCASHFLOWS


Cashflowsprovidedby (usedin) operatingactivities Income (loss)before income taxes $ 3,287 $ 3,233 Adjustments:

Interestexpense relatedtofinancingactivities 209 249

Increase (decrease)ininsurance andinvestmentcontractliabilities 14,921 11,432

Decrease (increase)inreinsurance assets 204 (28) Realizedandunrealized(gains)lossesandforeigncurrency changesoninvestedassets (7,311) (7,285)

Sales,maturitiesandrepaymentsofinvestedassets 76,289 59,162

Purchasesofinvestedassets (81,709) (64,165) Income taxesreceived(paid) (690) (698) Mortgage securitization(Note 5) 197 264

Otheroperatingactivities(1) 1,856 310

Netcashprovidedby (usedin)operatingactivities 7,253 2,474

Cashflowsprovidedby (usedin) investingactivities Net(purchase)sale ofproperty andequipment (158) (114) Investmentinandtransactionswithjointventuresandassociates(Note 16) (1) 19

Dividendsreceivedfromjointventuresandassociates(Note 16) 29 45

Acquisitions,netofcashandcashequivalents(Note 3)(2) (469) (167) Otherinvestingactivities (287) (213)

Netcashprovidedby (usedin)investingactivities (886) (430)

Cashflowsprovidedby (usedin) financingactivities Increase in(repaymentof)borrowedfunds 81 132

Issuance ofsubordinateddebt,netofissuance costs(Note 14) 1,740 747

Repaymentofseniorfinancing(Note 12) (2,020) — Increase in(repaymentof)borrowingsfromcreditfacility(1) 275 73 Redemptionofseniordebenturesandsubordinateddebt(Notes 13 and 14) (500) (1,050) Issuance ofcommonsharesonexercise ofstockoptions 18 23

Transactionswithnon-controllinginterests (5) — Commonsharespurchasedforcancellation(Note 15) (200) (592) Dividendspaidoncommonandpreferredshares (1,360) (1,318) Paymentoflease liabilities (136) (125) Interestexpense paid (205) (253)

Netcashprovidedby (usedin)financingactivities (2,312) (2,363)

Changesdue tofluctuationsinexchange rates (92) (190)

Increase (decrease)incashandcashequivalents 3,963 (509)

Netcashandcashequivalents,beginningofyear 6,685 7,194

Netcashandcashequivalents,endofyear 10,648 6,685

Short-termsecurities,endofyear 2,873 2,860

Netcash,cashequivalentsandshort-termsecurities,endofyear(Note 5) $ 13,521 $ 9,545

(1)Reflects achang ein pr esentationfor our credit facilityeffect iveJanuar y1, 2020.W ehave updat edour prior periodt or eflect this changein pr esentation. (2) Consists oft otalcas hcons iderationpaid of $514 ($192 in2019 ), less cashand cas hequivalent s acquiredof $45 ($25 in2019 ).



NotestotheConsolidatedFinancialStatements

(Amounts in millions of Canadian dollars, except for per share amounts and where otherwise stated. All amounts stated in U.S. dollars are in millions.)

1.SignificantAccountingPolicies

DescriptionofBusiness SunLife FinancialInc.("SLFInc.")isapublicly tradedcompany domiciledinCanadaandisthe holdingcompany ofSunLife Assurance Company of Canada("SunLife Assurance").Bothcompaniesare incorporatedunderthe Insurance CompaniesAct (Canada),andare regulatedby the Office of the SuperintendentofFinancialInstitutions,Canada("OSFI").SLFInc.anditssubsidiariesare collectively referredtoas"us","our","ours","we",or "the Company".We are aninternationally diversifiedfinancialservicesorganizationprovidingsavings,retirementandpensionproducts,andlife and healthinsurance toindividualsandgroupsthroughouroperationsinCanada,the UnitedStates("U.S."),Asia,andthe UnitedKingdom("UK").We alsooperate mutualfundandinvestmentmanagementbusinesses,primarily inCanada,the U.S.,andAsia.

StatementofCompliance We preparedourConsolidatedFinancialStatementsinaccordance withInternationalFinancialReportingStandards("IFRS")asissuedandadopted by the InternationalAccountingStandardsBoard("IASB").Ouraccountingpolicieshave beenappliedconsistently withinourConsolidatedFinancial Statements.

BasisofPresentation OurConsolidatedStatementsofFinancialPositionare presentedinthe orderofliquidity andeachstatementoffinancialpositionline itemincludes bothcurrentandnon-currentbalances,asapplicable.

We have definedourreportable business segmentsandthe amountsdisclosedforthose segmentsbasedonourmanagementstructure andthe mannerinwhichourinternalfinancialreportingisconducted.Transactionsbetweensegmentsare executedandpricedonanarm’s-lengthbasisina mannersimilartotransactionswiththirdparties.

The significantaccountingpoliciesusedinthe preparationofourConsolidatedFinancialStatementsare summarizedbelowandare applied consistently by us.

Estimates,AssumptionsandJudgments The applicationofouraccountingpoliciesrequiresestimates,assumptionsandjudgmentsasthey relate tomattersthatare inherently uncertain. We have establishedprocedurestoensure thatouraccountingpoliciesare appliedconsistently andthatthe processesforchangingmethodologies fordeterminingestimatesare controlledandoccurinanappropriate andsystematicmanner.

UseofEstimatesandAssumptions The preparationofourConsolidatedFinancialStatementsrequiresustomake estimatesandassumptionsthataffectthe applicationofourpolicies andthe reportedamountsofassets,liabilities,revenue andexpenses.Key sourcesofestimationuncertainty include the measurementofinsurance contractliabilitiesandinvestmentcontractliabilities,determinationoffairvalue,impairmentoffinancialinstruments,determinationand impairmentofgoodwillandintangible assets,determinationofprovisionsandliabilitiesforpensionplans,otherpost-retirementbenefits,income taxes,andthe determinationoffairvalue ofshare-basedpayments.Actualresultsmay differfromourestimatesthereby impactingour ConsolidatedFinancialStatements.Informationonouruse ofestimatesandassumptionsare discussedinthisNote.

Judgments Inpreparationofthese ConsolidatedFinancialStatements,we use judgmentstoselectassumptionsanddetermine estimatesasdescribedabove. We alsouse judgmentwhenapplyingaccountingpoliciesandwhendeterminingthe classificationofinsurance contracts,investmentcontractsand service contracts;the substance ofwhetherourrelationshipwithastructuredentity,subsidiary,jointventure orassociate constitutescontrol,joint controlorsignificantinfluence;functionalcurrencies;contingencies;acquisitions;deferredincome taxassets;andthe determinationofcash generatingunit("CGU").

COVID-19PandemicConsiderations Inearly 2020,the worldwasimpactedby COVID-19,whichwasdeclareda pandemicby the WorldHealthOrganization.The overallimpactofthe COVID-19 pandemicisstilluncertainanddependentonthe progressionofthe virusandonactionstakenby governments,businessesand individuals,whichcouldvary by country andresultindifferingoutcomes.

The applicationofouraccountingpoliciesrequiresestimates,assumptionsandjudgmentsasthey relate tomattersthatare inherently uncertain. We have establishedprocedurestoensure thatouraccountingpoliciesare appliedconsistently andthatthe processesforchangingmethodologies fordeterminingestimatesare controlledandoccurinanappropriate andsystematicmanner.Forourinsurance contractliabilities,nomaterial COVID-19 specificprovisionsoradjustmentstoourlong-termassumptionshave beenmade,andwe continue tomonitorourexperience and exposure tothe COVID-19 pandemic.

112 SunLifeFinancialInc.AnnualReport2020 NotestoConsolidatedFinancialStatements

Significantestimatesandjudgmentshave beenmade inthe followingareasandare discussedasnoted:

Insurance contractandinvestmentcontractassumptions andmeasurement

Note 1 InsuranceContractLiabilitie sandInvestmentContractLiabilities Note1 0 InsuranceContractLiabilitie sandInvestmentContractLiabilities

Determinationoffairvalue Note 1 BasisofConsolidation Note 1De terminationofFairValue Note 3A cquisitionsandOther Note 5TotalInv estedAssetsandRelatedNetInvestmentIncome

Impairmentoffinancialinstruments Note 1FinancialA ssetsExcludingDerivativeFinancialInstrume nts Note 6FinancialInstrume ntRiskManagement

Incometaxe s Note 1 IncomeTaxe s Note2 0 IncomeTaxe s

Pensionplans Note 1Pe nsionPlansandOtherPost-RetirementBenefits Note2 5Pe nsionPlansandOtherPost-RetirementBenefits

Goodwillandintangibleasse tsonacquisitionand impairment

Note 1 Goodwill Note 1 IntangibleA ssets Note 3A cquisitionsandOther Note 9 GoodwillandIntangibleA ssets

Determinationofcontrolforpurpose ofconsolidation Note 1 BasisofConsolidation Note1 6Inte restsinOtherEntities

Share-basedpayments Note1 9Share -BasedPayments

BasisofConsolidation OurConsolidatedFinancialStatementsinclude the resultsofoperationsandthe financialpositionofsubsidiaries,whichincludesstructuredentities controlledby us,afterintercompany balancesandtransactionshave beeneliminated.Subsidiariesare fully consolidatedfromthe date we obtain control,anddeconsolidatedonthe date controlceases.The acquisitionmethodisusedtoaccountforthe acquisitionofasubsidiary froman unrelatedparty atthe date thatcontrolisobtained,withthe difference betweenthe considerationtransferredandthe fairvalue ofthe subsidiary’s netidentifiable assetsacquiredrecordedasgoodwill.Judgmentisrequiredtodetermine fairvalue ofthe netidentifiable assetsacquiredina businesscombination.

We controlanentity whenwe have poweroveranentity,exposure toorrightstovariable returnsfromourinvolvementwithanentity,andthe ability toaffectourreturnsthroughourpoweroveranentity.Powerexistswhenwe have rightsthatgive usthe ability todirectthe relevant activities,whichare those activitiesthatcouldsignificantly affectthe entity’sreturns.Powercanbe obtainedthroughvotingrightsorother contractualarrangements.Judgmentisrequiredtodetermine the relevantactivitiesandwhichparty haspoweroverthese activities.Whenwe have poweroverandvariable returnsfromanentity,includinganinvestmentfundthatwe manage,we alsoapply significantjudgmentindetermining whetherwe are actingasaprincipaloragent.Tomake thisdetermination,we considerfactorssuchashowmuchdiscretionwe have regardingthe managementofthe investmentfundandthe magnitude andextentofvariability associatedwithourinterestsinthe fund.Ifwe determine we are the principalratherthanthe agent,we wouldconsolidate the assetsandliabilitiesofthe fund.Interestsheldby externalpartiesininvestmentfunds thatwe consolidate are recordedasthird-party interestinconsolidatedinvestmentfundsinOtherliabilities.Ifwe lose controlofanentity,the assetsandliabilitiesofthatentity are derecognizedfromourConsolidatedStatementsofFinancialPositionatthe date atwhichcontrolislostand any investmentretainedisremeasuredtofairvalue.

A jointventure existswhenSLFInc.,orone ofitssubsidiaries,hasjointcontrolofajointarrangementandhasrightstothe netassetsofthe arrangement.Jointcontrolisthe contractually agreedsharingofcontrolandexistsonly whenthe decisionsaboutthe relevantactivitiesrequire the unanimousconsentofthe partiessharingcontrol.Associatesare entitiesoverwhichSLFInc.oritssubsidiariesare able toexercise significant influence.Significantinfluence isthe powertoparticipate inthe financialandoperatingpolicy decisionsofaninvestee butnothave controlorjoint controloverthose decisions.Significantinfluence isgenerally presumedtoexistwhenSLFInc.oritssubsidiariesholdsgreaterthan20%ofthe votingpowerofthe investee butdoesnothave controlorjointcontrol.The equity methodisusedtoaccountforourinterestsinjointventuresand associates.A jointoperationexistswhenSLFInc.,orone ofitssubsidiaries,hasjointcontrolofanarrangementthatgivesitrightstothe assetsand obligationsforthe liabilitiesofthe operation,ratherthanthe netassetsofthe arrangement.Forjointoperations,we recordourshare ofthe assets, liabilities,revenue andexpensesofthe jointoperation.Judgmentisrequiredtodetermine whethercontractualarrangementsbetweenmultiple partiesresultsincontrol,jointcontrolorsignificantinfluence,withconsiderationofthe relevantactivitiesofthe entity,votingrights,representation onboardsofdirectorsandotherdecision-makingfactors.Judgmentisalsorequiredtodetermine ifajointarrangementisajointventure orjoint operation,withconsiderationofourrightsandobligationsandthe structure andlegalformofthe arrangement.

DeterminationofFairValue Fairvalue isthe price thatwouldbe receivedtosellanassetorpaidtotransferaliability inanorderly transactionbetweenmarketparticipants.Fair value ismeasuredusingthe assumptionsthatmarketparticipantswoulduse whenpricinganassetorliability.We determine fairvalue by using quotedpricesinactive marketsforidenticalorsimilarassetsorliabilities.Whenquotedpricesinactive marketsare notavailable,fairvalue is determinedusingvaluationtechniquesthatmaximize the use ofobservable inputs.Whenobservable valuationinputsare notavailable,significant judgmentisrequiredtodetermine fairvalue by assessingthe valuationtechniquesandvaluationinputs.The use ofalternative valuationtechniques orvaluationinputsmay resultinadifferentfairvalue.A descriptionofthe fairvalue methodologies,assumptions,valuationtechniques,and valuationinputsby type ofassetisincludedin Note 5.

NotestoConsolidatedFinancialStatementsSunLifeFinancialInc.AnnualReport2020 113

ForeignCurrencyTranslation

TranslationofTransactionsinForeignCurrencies The financialresultsofSLFInc.anditssubsidiaries,jointventuresandassociatesare preparedinthe currency inwhichthey conducttheirordinary course ofbusiness,whichisreferredtoasfunctionalcurrency.Transactionsoccurringincurrenciesotherthanthe functionalcurrency are translated tothe functionalcurrency usingthe spotexchange ratesatthe datesofthe transactions.

Monetary assetsandliabilitiesinforeigncurrenciesare translatedtothe functionalcurrency atthe exchange rate atthe statementoffinancial positiondate.Non-monetary assetsandliabilitiesinforeigncurrenciesthatare heldatfairvalue are translatedusingthe exchange rate atthe statementoffinancialpositiondate,while non-monetary assetsandliabilitiesthatare measuredathistoricalcostare translatedusingthe exchange rate atthe date ofthe transaction.

The resultingexchange differencesfromthe translationofmonetary itemsandnon-monetary itemsheldatfairvalue,withchangesinfairvalue recordedtoincome,are recognizedinourConsolidatedStatementsofOperations.Formonetary assetsclassifiedasavailable-for-sale ("AFS"), translationdifferencescalculatedonamortizedcostare recognizedinourConsolidatedStatementsofOperationsandotherchangesincarrying amountare recognizedinothercomprehensive income ("OCI").The exchange differencesfromthe translationofnon-monetary itemsclassifiedas AFSare recognizedinOCI.

TranslationtothePresentationCurrency InpreparingourConsolidatedFinancialStatements,the financialstatementsofforeignoperationsare translatedfromtheirrespective functional currenciestoCanadiandollars,ourpresentationcurrency.Assetsandliabilitiesare translatedatthe closingexchange rate atthe statementof financialpositiondate,andincome andexpensesare translatedusingthe average exchange rates.The accumulatedgainsorlossesarisingfrom translationoffunctionalcurrenciestothe presentationcurrency,netofthe effectofany hedges,are includedasaseparate componentofOCI withinequity.Upondisposalofaforeignoperationthatincludeslossofcontrol,significantinfluence orjointcontrol,the cumulative exchange gain orlossrelatedtothatforeignoperationisrecognizedinincome.

InvestedAssets

FinancialAssetsExcludingDerivativeFinancialInstruments Financialassetsinclude cash,cashequivalentsandshort-termsecurities,debtsecurities,equity securities,mortgagesandloans,financialassets includedinotherinvestedassetsandpolicy loans.Financialassetsare designatedasfinancialassetsatfairvalue throughprofitorloss("FVTPL")or AFSassets,orare classifiedasloansandreceivablesatinitialrecognition.

The followingtablesummarize sthefinancialasse tsincludedinourConsolidatedStatementsofFinancialPositionandtheasse tclassifications applicabletothe seasse ts:

Cash,cashequivalentsandshort-termsecurities FVTPL Debtsecurities FVTPLandAFS

Equity securities FVTPLandAFS

Mortgagesandloans Loansandreceivables Otherinvestedassets FVTPLandAFS

Policy loans Loansandreceivables

Mortgagesandloansinclude mortgages,loansanddebtsecuritiesnotquotedinanactive market.FinancialassetsincludedinOtherinvestedassets include investmentsinlimitedpartnerships,segregatedfundsandmutualfunds.Cashequivalentsare highly liquidinstrumentswithatermto maturity ofthree monthsorless,while short-termsecuritieshave atermtomaturity exceedingthree monthsbutlessthanone year.Policy loans are fully securedby the policy valuesonwhichthe loansare made.The accountingforeachassetclassificationisdescribedinthe followingsections.

i)I nitialReco gnitionandSubsequentM easurement

Generally,debtsecurities,equity securitiesandotherinvestedassetssupportingourinsurance contractliabilitiesorinvestmentcontractliabilities measuredatfairvalue are designatedasFVTPL,while debtsecurities,equity securitiesandotherinvestedassetsnotsupportingourinsurance contractliabilitiesorthatare supportinginvestmentcontractliabilitiesare measuredatamortizedcostordesignatedasAFS.Mortgagesandloans andpolicy loansare classifiedasloansandreceivables.Financialassetsare recognizedinthe ConsolidatedStatementsofFinancialPositionontheir trade dates,whichare the datesthatwe committopurchase orsellthe assets.Originatedmortgagesandloansare recognizedinthe Consolidated StatementsofFinancialPositionontheirfundingdates.

FinancialAssetsatFairValue ThroughProfitorLoss

FinancialassetsatFVTPLinclude financialassetsthatare held-for-trading("HFT"),aswellasfinancialassetsthathave beendesignatedasFVTPLat initialrecognition.A financialassetisclassifiedasHFTifitisacquiredprincipally forthe purpose ofsellinginthe nearterm.A financialassetcanbe designatedasFVTPLifiteliminatesorsignificantly reducesameasurementorrecognitioninconsistency thatwouldotherwise arise frommeasuring assetsorliabilitiesorrecognizingthe gainsandlossesonthemondifferentbases;orifagroupoffinancialassets,financialliabilitiesorboth,is managedanditsperformance isevaluatedonafairvalue basis.Cashequivalentsandshort-termsecuritieshave beenclassifiedasHFT.

Generally,debtsecurities,equity securitiesandotherinvestedassetssupportinginsurance contractliabilitiesorinvestmentcontractliabilities measuredatfairvalue have beendesignatedasFVTPL.Thisdesignationhasbeenmade toeliminate orsignificantly reduce the measurement inconsistency thatwouldarise due tothe measurementofthe insurance contractorinvestmentcontractliabilities,whichare basedonthe carrying value ofthe assetssupportingthose liabilities.Because the carryingvalue ofinsurance contractliabilitiesisdeterminedby reference tothe assets supportingthose liabilities,changesinthe insurance contractliabilitiesgenerally offsetchangesinthe fairvalue ofdebtsecuritiesclassifiedas


FVTPL,exceptforchangesthatare due toimpairment.The majority ofequity securitiesandotherinvestedassetsclassifiedasFVTPLare heldto supportproductswhere investmentreturnsare passedthroughtopolicyholdersandtherefore,changesinthe fairvalue ofthose assetsare significantly offsetby changesininsurance contractliabilities.

FinancialassetsclassifiedasFVTPLare recordedatfairvalue inourConsolidatedStatementsofFinancialPositionandtransactioncostsare expensedimmediately.Changesinfairvalue aswellasrealizedgainsandlossesonsale are recordedinFairvalue andforeigncurrency changeson assetsandliabilitiesinourConsolidatedStatementsofOperations.Interestincome earnedanddividendsreceivedare recordedinInterestand otherinvestmentincome inourConsolidatedStatementsofOperations.

Available-for-Sale FinancialAssets

FinancialassetsclassifiedasAFSare recordedatfairvalue inourConsolidatedStatementsofFinancialPositionandtransactioncostsare capitalized oninitialrecognition.Transactioncostsfordebtsecuritiesare recognizedinincome usingthe effective interestmethod,while transactioncostsfor equity securitiesandotherinvestedassetsare recognizedinincome whenthe assetisderecognized.Changesinfairvalue are recordedto unrealizedgainsandlossesinOCI.Forforeigncurrency translation,exchange differencescalculatedonthe amortizedcostofAFSdebtsecuritiesare recognizedinincome andexchange differencescalculatedonotherchangesincarryingamountare recognizedinOCI.The exchange differences fromthe translationofAFSequity securitiesandotherinvestedassetsare recognizedinOCI.Interestincome earnedanddividendsreceivedare recordedinInterestandotherinvestmentincome inourConsolidatedStatementsofOperations.Netimpairmentlossesandrealizedgainsand lossesonthe sale ofassetsclassifiedasAFSare reclassifiedfromaccumulatedOCItoNetgains(losses)onavailable-for-sale assetsinour ConsolidatedStatementsofOperations.

LoansandReceivables

Loansandreceivablesare generally carriedatamortizedcost.Transactioncostsformortgagesandloansare capitalizedoninitialrecognitionand are recognizedinincome usingthe effective interestmethod.Realizedgainsandlossesonthe sale ofmortgagesandloans,interestincome earned, andfee income are recordedinInterestandotherinvestmentincome inourConsolidatedStatementsofOperations.

SolelyPaymentsofPrincipalandInterest("SPPI")Disclosures

InSeptember2016,the IASBissued Amendmentsto IFRS4 toallowinsurance entitieswhose predominantactivitiesare toissue contractswithinthe scope ofIFRS4 Insurance Contracts ("IFRS4")anoptionaltemporary exemptionfromapplyingIFRS9 FinancialInstruments ("IFRS9")("deferral approach").We qualify andhave electedtotake the deferralapproachasouractivitiesare predominantly connectedwithinsurance andwe will continue toapply IAS39 FinancialInstruments:RecognitionandMeasurement ("IAS39"),the existingfinancialinstrumentstandard.

Toenable acomparisontoentitiesapplyingIFRS9 we disclose those investedassetsthatpassthe SPPItest,excludingany thatare managedand whose performance isevaluatedonafairvalue basis.ExceptforDebtsecuritiesdesignatedasAFSandMortgagesandloans,ourfinancialassetsare managedandtheirperformance isevaluatedonafairvalue basis.Please refertoNote 5.A.iforthe relateddisclosure asat December31,2020 and 2019.

Financialassetsthatpassthe SPPItestare assetswithcontractualtermsthatgive rise onspecifieddatestocashflowsthatare solely paymentsof principalandinterestonthe principalamountoutstanding.

ii)Dereco gnition

Financialassetsare derecognizedwhenourrightstocontractualcashflowsexpire,whenwe transfersubstantially allourrisksandrewardsof ownership,orwhenwe nolongerretaincontrol.

iii)I mpairment

Financialassetsare assessedforimpairmentonaquarterly basis.Financialassetsare impairedandimpairmentlossesare incurredifthere is objective evidence ofimpairmentasaresultofone ormore losseventsandthateventhasanimpactonthe estimatedfuture cashflowsthatcanbe reliably estimated.Objective evidence ofimpairmentgenerally includessignificantfinancialdifficulty ofthe issuer,includingactualoranticipated bankruptcy ordefaultsanddelinquency inpaymentsofinterestorprincipalordisappearance ofanactive marketforthatfinancialasset.Objective evidence ofimpairmentforaninvestmentinanequity instrumentorotherinvestedassetalsoincludes,butisnotlimitedto,the financialcondition andnear-termprospectsofthe issuer,includinginformationaboutsignificantchangeswithadverse effectsthathave takenplace inthe technological,market,economic,orlegalenvironmentinwhichthe issueroperatesthatmay indicate thatthe carryingamountwillnotbe recovered,andasignificantorprolongeddecline inthe fairvalue ofanequity instrumentorotherinvestedassetbelowitscost.Management exercisesconsiderable judgmentinassessingforobjective evidence ofimpairment.Due tothe inherentrisksanduncertaintiesinourevaluationof assetsorgroupsofassetsforobjective evidence ofimpairment,the actualimpairmentamountandthe timingofthe recognitionofimpairmentmay differfrommanagementassessment.The impairmentassessmentprocessisdiscussedin Note 6.

FinancialAssetsatFairValue ThroughProfitorLoss

Since financialassetsclassifiedasFVTPLare carriedatfairvalue withchangesinfairvalue recordedtoincome,any reductioninvalue ofthe assets due toimpairmentisalready reflectedinincome.However,the impairmentofassetsclassifiedasFVTPLgenerally impactsthe change ininsurance contractliabilitiesdue tothe impactofassetimpairmentonestimatesoffuture cashflows.

Available-for-Sale FinancialAssets

Whenthere isobjective evidence thatafinancialassetclassifiedasAFSisimpaired,the lossinaccumulatedOCIisreclassifiedtoNetgains(losses) onavailable-for-sale assetsinourConsolidatedStatementsofOperations.Followingimpairmentlossrecognition,adebtsecurity continuestobe carriedatfairvalue withchangesinfairvalue recordedinOCI,anditisassessedquarterly forfurtherimpairmentlossorreversal.Subsequentlosses onanimpairedequity security orotherinvestedasset,includinglossesrelatingtoforeigncurrency changes,are reclassifiedfromOCItoincome in subsequentreportingperiodsuntilthe assetisderecognized.Once animpairmentlossonadebtsecurity classifiedasAFSisrecordedtoincome,any reversalofimpairmentlossthroughincome occursonly whenthe recovery infairvalue isobjectively relatedtoaneventoccurringafterthe impairmentwasrecognized.Impairmentlossesonanequity security orotherinvestedassetclassifiedasAFSare notreversedthroughincome.


LoansandReceivables

Ifanimpairmentlossonanindividualmortgage orloanhasbeenincurred,the amountofthe lossismeasuredasthe difference betweenthe asset’s carryingamountandthe presentvalue ofthe estimatedfuture cashflowsdiscountedatthe asset’soriginaleffective interestrate.Forcollateralized financialassets,the presentvalue ofthe estimatedfuture cashflowsreflectsthe cashflowsthatmay resultfromforeclosure lesscoststosell, whetherornotforeclosure isprobable.Ifnoevidence ofimpairmentexistsforanindividually assessedmortgage orloan,itisincludedinagroupof loanswithsimilarcreditriskcharacteristicsandcollectively assessedforimpairment.

Whenanimpairmentlosshasbeenincurred,the carryingamountofthe assetisreducedthroughthe use ofanallowance account,andthe amount ofthe lossisrecognizedinincome.Ifthe impairmentlosssubsequently decreasesandthe decrease canbe relatedobjectively toaneventoccurring afterthe initialimpairmentcharge wasrecognized,the previousimpairmentcharge isreversedby adjustingthe allowance accountandthe reversal isrecognizedinincome.Interestincome isrecognizedonimpairedmortgagesandloansusingthe effective interestrate methodanditisbasedon the estimatedfuture cashflowsusedtomeasure the impairmentloss.Changesinthe allowance account,otherthanwrite-offsnetofrecoveries,are chargedagainstInterestandotherinvestmentincome inourConsolidatedStatementsofOperations.Write-offs,netofrecoveries,are deducted fromthe allowance accountwhenthere isnorealisticprospectofrecovery,whichistypically notbefore derecognitionofthe assetthrough foreclosure orsale.

Collateral Cashreceived(pledged)ascollateralisrecognized(derecognized)inourConsolidatedStatementsofFinancialPositionwithcorrespondingamounts recognizedinOtherliabilities(Otherassets),respectively.Allothertypesofassetsreceived(pledged)ascollateralare notrecognized(derecognized) inourConsolidatedStatementsofFinancialPosition.

DerivativeFinancialInstruments Allderivative financialinstrumentsare recordedatfairvalue inourConsolidatedStatementsofFinancialPosition.Derivativeswithapositive fair value are recordedasDerivative assetswhile derivativeswithanegative fairvalue are recordedasDerivative liabilities.

The accountingforthe changesinfairvalue ofaderivative instrumentdependsonwhetherornotitisdesignatedasahedginginstrumentforhedge accountingpurposes.Changesin(i)fairvalue ofderivativesthatare notdesignatedforhedge accountingpurposes,whichare definedasderivative investments,and(ii)embeddedderivativesthatare bifurcated,are recordedinFairvalue andforeigncurrency changesonassetsandliabilitiesin ourConsolidatedStatementsofOperations.Income earnedorpaidonthese derivativesisrecordedinInterestandotherinvestmentincome inour ConsolidatedStatementsofOperations.Hedge accountingisappliedtocertainderivativestoreduce income statementvolatility.Whencertain qualificationcriteriaare met,hedge accountingrecognizesthe offsettingeffectsofhedginginstrumentsandhedgeditemsinincome ordefersthe effective portionofchangesinfairvalue ofhedginginstrumentsinOCIuntilthere isarecognitionevent,suchasthe occurrence ofaforecasted transactionorthe disposalofaninvestmentinaforeignoperation,orhedge accountingisdiscontinued.Allhedgingrelationshipsare documented atinceptionandhedge effectivenessisassessedatinceptionandonaquarterly basistodetermine whetherthe hedginginstrumentsare highly effective inoffsettingchangesattributable tothe hedgedriskinthe fairvalue orcashflowsofthe hedgeditems.

FairValueHedges

Certaininterestrate swapsandforeigncurrency forwardsare designatedashedginginstrumentsinfairvalue hedgesofthe interestrate orforeign exchange rate risksassociatedwithAFSassets.Changesinfairvalue ofthe derivativesare recordedinInterestandotherinvestmentincome inour ConsolidatedStatementsofOperations.The change infairvalue ofthe AFSassetsrelatedtothe hedgedriskisreclassifiedfromOCItoincome.Asa result,ineffectiveness,ifany,isrecognizedinincome tothe extentthatchangesinfairvalue ofthe derivativesandAFSassetsdonotoffset.Interest income earnedandpaidonthe AFSassetsandswapsinthe fairvalue hedgingrelationshipsare recordedinInterestandotherinvestmentincome in ourConsolidatedStatementsofOperations.

CashFlowHedges

Certainequity andforeigncurrency forwardsare designatedashedginginstrumentsincashflowhedgesforanticipatedpaymentsofawardsunder certainshare-basedpaymentplansandforanticipatedforeigncurrency purchasesofforeignoperations.Changesinthe fairvalue ofderivativesfor the effective portionofthe hedge are recognizedinOCI,while the ineffective portionofthe hedge andany itemsexcludedfromthe hedging relationship,suchasthe spot-to-forwarddifferential,are recognizedinInterestandotherinvestmentincome inourConsolidatedStatementsof Operations.A portionofthe amountrecognizedinOCIrelatedtothe equity forwardsisreclassifiedtoincome asacomponentofOperating expensesasthe liabilitiesforthe share-basedpaymentawardsare accruedoverthe vestingperiod.A portionofthe amountsrecognizedinOCI relatedtothe foreigncurrency forwardswouldbe reclassifiedtoincome upondisposalorimpairmentofthe foreignoperations.Allamounts recognizedin,orreclassifiedfrom,OCIare netofrelatedtaxes.

EmbeddedDerivatives

Anembeddedderivative isacomponentofahostcontractthatmodifiesthe cashflowsofthe hostcontractinamannersimilartoaderivative, accordingtoaspecifiedinterestrate,financialinstrumentprice,foreignexchange rate,underlyingindexorothervariable.We are requiredto separate embeddedderivativesfromthe hostcontract,ifanembeddedderivative haseconomicandriskcharacteristicsthatare notclosely related tothe hostcontract,meetsthe definitionofaderivative,andthe combinedcontractisnotmeasuredatfairvalue withchangesrecognizedin income.Ifanembeddedderivative isbifurcatedforaccountingpurposesfromthe hostcontract,itwillbe accountedforasaderivative.Forfurther detailsonembeddedderivativesininsurance contracts,see the Insurance ContractLiabilitiesaccountingpolicy inthisNote.

InvestmentProperties Investmentpropertiesare realestate heldtoearnrentalincome,forcapitalappreciation,orboth.Propertiesheldtoearnrentalincome orfor capitalappreciationthathave aninsignificantportionthatisowner-occupiedare classifiedasinvestmentproperties.Propertiesthatdonotmeet these criteriaare classifiedasproperty andequipment,includedinOtherassetsasdescribedbelow.Expendituresrelatedtoongoingmaintenance ofpropertiesincurredsubsequenttoacquisitionare expensed.Investmentpropertiesare initially recognizedatcostinourConsolidatedStatements ofFinancialPosition.Variouscostsincurredassociatedwiththe acquisitionofaninvestmentproperty are eithercapitalizedorexpenseddepending


onwhetherornotthe acquisitionisconsideredabusinesscombination.Investmentpropertiesare subsequently measuredatfairvalue with changesinvalue recordedtoFairvalue andforeigncurrency changesonassetsandliabilitiesinourConsolidatedStatementsofOperations.

Whenthe use ofaproperty changesfromowner-occupiedtoinvestmentproperty,any gainarisingonthe remeasurementofthe property tofair value atthe date oftransferisrecognizedinourConsolidatedStatementsofOperationstothe extentthatitreversesapreviousimpairmentloss. Any remainingincrease isrecognizedinOCI.

OtherInvestedAssets-Non-FinancialAssets Otherinvestedassetsalsoinclude non-financialassetssuchasinvestmentsinjointventuresandassociates,whichare accountedforusingthe equity method.Investmentsinjointventuresandassociatesare initially recordedatcost.The investmentinjointventuresandassociatesis increasedby ourshare ofcapitalcontributionsandforpurchasesofadditionalinterestsandisreducedby distributionsreceived.Inaddition, subsequentadjustmentstothe investmentare made forourshare ofnetincome orlossandourshare ofOCI.Ourshare ofnetincome isrecorded inInterestandotherinvestmentincome inourConsolidatedStatementsofOperationsandourshare ofOCIisrecordedinourConsolidated StatementsofComprehensive Income (Loss).Impairmentlossesonequity methodinvestmentsare recognizedwheneventsorchangesin circumstancesindicate thatthey are impaired.The impairmentlossrecognizedisthe difference betweenthe carryingamountandthe recoverable amount.

OtherAssets Otherassets,whichare measuredatamortizedcost,include accountsreceivable,investmentincome due andaccrued,deferredacquisitioncosts, property andequipment,and lessee’sright-of-use assets.Deferredacquisitioncostsarisingfromservice contractsorfromservice componentsof investmentcontractsare amortizedoverthe expectedlife ofthe contractsbasedonthe future expectedfees.Owner-occupiedpropertiesare amortizedtotheirresidualvalue over 25 to 49 years.Furniture,computers,otheroffice equipment,andleaseholdimprovementsare amortizedto theirresidualvalue over 2 to 20 years.The right-of-use assetissubsequently depreciatedonastraight-line basisoverthe lease term.

ReinsuranceAssets Inthe normalcourse ofbusiness,we use reinsurance tolimitexposure tolarge losses.We have aretentionpolicy thatrequiresthatsuch arrangementsbe placedwithwell-established,highly-ratedreinsurers.Reinsurance assetsare measuredconsistently withthe amountsassociated withthe underlyinginsurance contractsandinaccordance withthe termsofeachreinsurance contract.Amountsdue toorfromreinsurerswith respecttopremiumsreceivedorpaidclaimsare includedinOtherassetsandOtherliabilitiesinthe ConsolidatedStatementsofFinancialPosition. Premiumsforreinsurance cededare presentedaspremiumscededinthe ConsolidatedStatementsofOperations.Reinsurance expenses (recoveries),aspresentedinourConsolidatedStatementsofOperations,representreinsurance expensesandexpense recoveriesresultingfrom reinsurance agreements.

Reinsurance assetsare subjecttoimpairmenttesting.Ifimpaired,the carryingvalue isreduced,andanimpairmentlossisrecognizedinReinsurance expenses(recoveries)inourConsolidatedStatementsofOperations.Impairmentoccurswhenobjective evidence exists(asaresultofanevent) afterthe initialrecognitionofthe reinsurance assetindicatingthatnotallamountsdue underthe termsofthe contractwillbe received,andthe impairmentcanbe reliably measured.

Reinsurance assumedisaccountedforasaninsurance,investmentorservice contractdependingonthe underlyingnature ofthe agreementandif itmeetsthe definitionofaninsurance,investmentorservice contract.Forthe accountingforthese typesofcontracts,see the respective policy sectioninthisNote.

Leases Atinceptionofacontract,weasse sswhetheracontractis,orcontains,alease.Acontractis,orcontains,ale ase ifthecontractconv eysthe rightto controlthe useofanide ntifiedassetforaperiodoftimeine xchangeforconside ration.Forle aseswhere we actasthele ssee, were cognize aright-of-useasse tandalease liability atthecomme ncementdate ofthele ase.Forle aseswhere we actasthele ssor,weasse sswhetherthele asesshould beclassifie dasfinanceorope ratingleases.Ourleasesareclassifie dasoperatingleases.Operatingleasesarere cognizedintoincomeonas traight-line basis.

The right-of-use assetisinitially measuredatcost,whichiscomprisedofthe initialamountofthe lease liability withcertainadjustments,and subsequently depreciatedusingthe straight-line method,withdepreciationexpense includedinOperatingexpensesinthe ConsolidatedStatements ofOperations.The right-of-use assetisdepreciatedtothe earlierofthe lease termanditsusefullife.The right-of-use assetisassessedfor impairmentunderIAS36 ImpairmentofAssets.Right-of-use assetsare assessedforindicatorsofimpairmentateachreportingperiod.Ifthere isan indicationthataright-of-use assetmay be impaired,animpairmenttestisperformedby comparingthe asset’scarryingamounttoitsrecoverable amount.Ifanimpairmentlosshasbeenincurred,the carryingvalue ofthe right-of-use assetis reduced withthe correspondingamountrecognized inincome.

The lease liability isinitially measuredatthe presentvalue oflease paymentsoverthe termofthe lease usingadiscountrate thatisbasedonour incrementalborrowingrate.The discountrate isspecifictoeachlease andisdeterminedby variousfactors,suchasthe lease termandcurrency. The lease termincludesthe non-cancellable periodandthe optionalperiodwhere itisreasonably certainwe willexercise anextensionor terminationoption,consideringvariousfactorsthatcreate aneconomicincentive todoso. Subsequently,the lease liability ismeasuredat amortizedcostusingthe effective interestmethod,withinterestchargedtoInterestexpense inthe ConsolidatedStatementsofOperations.Lease liabilitiesandright-of-use assetsare remeasuredupon lease modifications. A lease modificationisconsideredasachange inthe scope ofalease,or the considerationforalease,thatwasnotpartofthe originaltermsandconditionsofthe lease.


IntangibleAssets Intangible assetsconsistoffinite life andindefinite life intangible assets.Finite life intangible assetsare amortizedonastraight-line basisorusinga units-of-productionmethod,overthe usefuleconomicliveswhichare varyingperiodsofupto 40 years.AmortizationischargedthroughOperating expensesinthe ConsolidatedStatementsofOperation. The usefullivesoffinite life intangible assetsare reviewedannually,andthe amortizationis adjustedasnecessary.Indefinite life intangiblesare notamortized,andare assessedforimpairmentannually ormore frequently ifeventsor changesincircumstancesindicate thatthe assetmay be impaired.Impairmentisassessedby comparingthe carryingvaluesofthe indefinite life intangible assetstotheirrecoverable amounts.The recoverable amountisthe higherofanasset’sfairvalue lesscoststosellanditsvalue inuse.If the carryingvaluesofthe indefinite life intangiblesexceedtheirrecoverable amounts,these assetsare consideredimpaired,andacharge for impairmentisrecognizedinourConsolidatedStatementsofOperations.The recoverable amountofintangible assetsisdeterminedusingvarious valuationmodels,whichrequire managementtomake certainjudgmentsandassumptionsthatcouldaffectthe estimatesofthe recoverable amount.

Goodwill Goodwillrepresentsthe excessofthe costofanacquisitionoverthe fairvalue ofthe netidentifiable tangible andintangible assetsofthe acquired businesses.Itiscarriedatoriginalcostlessany impairmentsubsequently incurred.Goodwillisassessedforimpairmentannually ormore frequently ifeventsorcircumstancesoccurthatmay resultinthe recoverable amountofaCGUoragroupofCGUsfallingbelowitscarryingvalue.A CGUisthe smallestidentifiable groupofassetsthatgeneratescashinflowsthatare largely independentofcashinflowsfromothergroupsofassets.We exercise significantjudgmentindeterminingourCGUs.The factorsconsideredindeterminingourCGUsinclude productcashinflows,product distribution,targetmarkets,andhowmanagementmonitorsandevaluatesthe operations.

The goodwillbalancesare allocatedtoeitherindividualorgroupsofCGUsthatare expectedtobenefitfromthe synergiesofthe business combination.Goodwillimpairmentisquantifiedby comparingaCGU’soragroupofCGUs’carryingvalue toitsrecoverable amount,whichisthe higheroffairvalue lesscostsofdisposalandvalue inuse.Impairmentlossesare recognizedimmediately andcannotbe reversedinfuture periods. Significantjudgmentisinvolvedinestimatingthe modelinputsusedtodetermine the recoverable amountofourCGUsorgroupofCGUs,including those fordiscountrates,capital,the value ofnewbusiness,expenses,cashflowprojections,andmarketmultiples,due tothe uncertainty andthe forward-lookingnature ofthese inputs.The assumptionsmay differfromthe actualexperience,andestimatesmay change fromperiodtoperiod basedonfuture eventsorrevisionsofassumptions.These key assumptionsare discussedin Note 9.

InsuranceContractLiabilities Insurance contractsare contractsunderwhichwe acceptsignificantinsurance riskfromapolicyholderby agreeingtocompensate the policyholder ifaspecifieduncertainfuture eventadversely affectsthe policyholder.The presence ofsignificantinsurance riskinindividualcontractsisassessed by reviewingbooksofcontractswithhomogeneousriskfeatures.Judgmentisrequiredtodetermine the classificationofacontractasaninsurance contract,investmentcontractoraservice contract.

Asdiscussedinthe SegregatedFundssectionofthisNote,certaininsurance contractsunderwhichthe policyholderbearsthe risksassociatedwith the underlyinginvestmentsare classifiedasInsurance contractsforaccountofsegregatedfundholdersinourConsolidatedStatementsofFinancial Position.

Insurance contractliabilities,includingpolicy benefitspayable andprovisionsforpolicyholderdividends,are determinedinaccordance with Canadianacceptedactuarialpractice andany requirementsofOSFI.Asconfirmedby guidance providedby the CanadianInstitute ofActuaries ("CIA"),the currentCanadianAssetLiability Method("CALM") ofvaluationofinsurance contractliabilitiessatisfiesthe IFRS4 requirementsfor eligibility foruse underIFRS.UnderCALM,liabilitiesare setequaltothe statementoffinancialpositionvalue ofthe assetsrequiredtosupportthem.

Some insurance contractscontaindiscretionary participationfeatures("DPF"),whereby the policyholderhasthe righttoreceive potentially significantadditionalbenefitsbasedonthe actualinvestmentsandotherexperience onablockofsimilarcontracts.IFRSallowsthe non-guaranteed, orparticipating,elementsofsuchcontractstobe classifiedaseitheraliability orasequity,dependingonthe nature ofourobligationtothe policyholder.The contractsissuedby uscontainconstructive obligationstothe policyholderwithrespecttothe DPFofthe contracts.We have therefore electedtoclassify these featuresasaliability,consistentwithaccountingtreatmentunderCALM,andinaccordance withguidance providedby the CIA.

Derivativesembeddedininsurance contractsare treatedasseparate derivativesandmeasuredatfairvalue withchangesinfairvalue recognizedin income,exceptwhenthe embeddedderivative itselfmeetsthe definitionofaninsurance contractunderIFRS,orwhenthe risksandcharacteristics are closely relatedtothose ofthe hostcontractsorwhenthe derivative isthe policyholder’soptiontosurrenderaninsurance contractforafixed amountoranamountbasedonafixedamountandaninterestrate.The derivativesthathave notbeenseparatedare accountedforasinsurance contractliabilities.

Significantjudgmentisrequiredindeterminingourliabilitiesforinsurance contractsincludingthe assumptionsrequiredfortheirdetermination. Applicationofdifferentassumptionsmay resultindifferentmeasurementofthe insurance contractliabilities.Actualexperience may differfrom assumptions,andestimatesmay change fromperiodtoperiodbasedonfuture eventsorrevisionsofassumptions.Key assumptionsand considerationsinchoosingassumptionsare discussedin Note 10 andsensitivitiesare discussedin Note 7.

FinancialLiabilities InvestmentContractLiabilities Contractsissuedby usthatdonottransfersignificantinsurance risk,butdotransferfinancialriskfromthe policyholdertous,are financialliabilities andare accountedforasinvestmentcontracts.Service componentsofinvestmentcontractsare treatedasservice contracts.Forfurtherdetailson howservice componentsofinvestmentcontractsare treated,see the Service Contractsaccountingpolicy inthisNote.


LiabilitiesforinvestmentcontractswithoutDPFare measuredatFVTPLoramortizedcost.ContractsrecordedatFVTPLare measuredatfairvalue at inceptionandeachsubsequentreportingperiod.Contractsrecordedatamortizedcostare initially recognizedatfairvalue,lesstransactioncosts directly attributable tothe issue ofthe contract.Ateachsubsequentperiod,the contractsare measuredatamortizedcostusingthe effective interestmethod.Changesinfairvalue ofinvestmentcontractliabilitiesrecordedatFVTPLandamortizationoncontractsrecordedatamortizedcost are recordedasanIncrease (decrease)ininvestmentcontractliabilitiesinourConsolidatedStatementsofOperations.Depositscollectedfromand paymentsmade tocontractholdersare recordedasanincrease anddecrease inInvestmentcontractliabilitiesinourConsolidatedStatementsof FinancialPosition.These liabilitiesare derecognizedwhenthe obligationofthe contractisdischarged,cancelledorexpired.

Asdiscussedinthe SegregatedFundssectionofthisNote,certaininvestmentcontractsunderwhichthe policyholderbearsthe risksassociatedwith the underlyinginvestmentsare classifiedasInvestmentcontractsforaccountofsegregatedfundholdersinthe ConsolidatedStatementsof FinancialPosition. The accountingforinvestmentcontractsthatcontainDPFisdescribedinthe Insurance ContractLiabilitiessectionofthisNote.

OtherLiabilities Otherliabilities whichare measuredatamortizedcost,include accountspayable, linesofcredit,repurchase agreements,accruedexpensesand taxes,seniorfinancing,provisions,lessee’s lease liabilitiesandadeferredpaymentliability.Liabilitiesforprovisions,otherthaninsurance contract liabilitiesandinvestmentcontractliabilities,are recognizedforpresentlegalorconstructive obligationsasaresultofapasteventifitisprobable thatthey willresultinanoutflowofeconomicresourcesandthe amountcanbe reliably estimated.The amountsrecognizedforthese provisionsare the bestestimatesofthe expendituresrequiredtosettle the presentobligationsortotransferthemtoathirdparty atthe statementoffinancial positiondate,consideringallthe inherentrisksanduncertainties,aswellasthe time value ofmoney.These provisionsare reviewedasrelevant factsandcircumstanceschange.

The lease liabilitiesare initially measuredatthe presentvalue oflease paymentsoverthe termofthe lease usingadiscountrate thatisbasedon ourincrementalborrowingrate.Subsequently,the lease liabilitiesare measuredatamortizedcostusingthe effective interestmethod.

Otherfinancialliabilitiesare measuredatamortizedcost.Forputoptionliabilities,uponinitialrecognition,the presentvalue iscalculatedusingour incrementalborrowingrate andsubsequentrevisionstothe expectedtimingoramountofcashflowspayable aswellasinterestexpense willbe recognizedinthe ConsolidatedStatementsofOperations.

Furtherdetailsonotherfinancialliabilities, the putoption andthe deferredpayment liability are includedinNote 3.

SeniorDebenturesandSubordinatedDebt Seniordebenturesandsubordinateddebtliabilitiesare recordedatamortizedcostusingthe effective interestmethod.Transactioncostsare recordedaspartofthe liability andare recognizedinincome usingthe effective interestmethod.These liabilitiesare derecognizedwhenthe obligationofthe contractisdischarged,cancelledorexpired.

ServiceContracts Contractsissuedby ustocustomersthatdonottransfersignificantinsurance riskanddonottransferfinancialriskfromthe customertous, includingcontractsforinvestmentmanagementservice,are classifiedasservice contracts.Service componentsofinvestmentcontractsare also accountedforasservice contracts.Fee income earnedfromthese contractsisdescribedinthe PremiumandFee Income Recognitionaccounting policy sectionofthisNote.Deferredacquisitioncostsare describedunderthe OtherAssetsaccountingpolicy sectionofthisNote.Where the costof meetingthe obligationsofthe contractexceedthe economicbenefitsexpectedtobe receivedunderit,aprovisionisrecognizedinOtherliabilities.

SegregatedFunds Segregatedfundsare productsforwhichwe issue acontractwhere the benefitamountisdirectly linkedtothe fairvalue ofthe investmentsheldin the particularsegregatedfund.Althoughthe underlyingassetsare registeredinourname andthe segregatedfundcontractholderhasnodirect accesstothe specificassets,the contractualarrangementsare suchthatthe segregatedfundpolicyholderbearsthe risksandrewardsofthe fund’s investmentperformance.Inaddition,certaincontractsinclude guaranteesfromus.We derive fee income fromsegregatedfunds,whichisincluded inFee income inourConsolidatedStatementsofOperations.Policyholdertransfersbetweengeneralfundsandsegregatedfundsare includedinNet transferto(from)segregatedfundsinourConsolidatedStatementsofOperations.Depositstosegregatedfundsare reportedasincreasesin segregatedfundsliabilitiesandare notreportedasrevenuesinourConsolidatedStatementsofOperations.

InvestmentsforAccountofSegregatedFundHolders Investmentsforaccountofsegregatedfundholdersare recordedseparately fromthe TotalgeneralfundassetsinourConsolidatedStatementsof FinancialPositionandare carriedatfairvalue.Fairvaluesare determinedusingquotedmarketvaluesor,where quotedmarketvaluesare not available,estimatedfairvaluesasdeterminedby us.

InsuranceandInvestmentContractsforAccountofS egregatedFundHolders Insurance contractsforaccountofsegregatedfundholdersare recordedseparately fromthe TotalgeneralfundliabilitiesinourConsolidated StatementsofFinancialPosition.Insurance contractsunderwhichthe segregatedfundholdersbearthe risksassociatedwiththe underlying investmentsare classifiedasInsurance contractsforaccountofsegregatedfundholders.The liabilitiesreportedasInsurance contractsforaccount ofsegregatedfundholdersare measuredatthe aggregate ofthe policyholderaccountbalances.Changesinthe fairvalue ofthe investedassetsof the segregatedfundsare recordedinnetrealizedandunrealizedgains(losses)withinthe segregatedfundandare notrecordedinourConsolidated StatementsofOperations.

Otherassetsandliabilitiesassociatedwiththese insurance contracts,suchasoriginationcostsandthe liabilitiesassociatedwithguarantees providedby us,are includedingeneralfundliabilitiesinInsurance contractliabilitiesinourConsolidatedStatementsofFinancialPosition.


Investmentcontractsforaccountofsegregatedfundholdersare recordedseparately fromthe TotalgeneralfundliabilitiesinourConsolidated StatementsofFinancialPosition.Investmentcontractsunderwhichthe segregatedfundholdersbearthe risksassociatedwiththe underlying investmentsare classifiedasInvestmentcontractsforaccountofsegregatedfundholders.The liabilitiesreportedasInvestmentcontractsfor accountofsegregatedfundholdersare measuredatthe aggregate ofthe policyholderaccountbalances.

Otherliabilitiesassociatedwiththese investmentcontracts,suchasonerouscontractprovisionsrequiredforservice components,are includedin generalfundliabilitiesinInvestmentcontractliabilitiesinourConsolidatedStatementsofFinancialPosition.

IncomeTaxes Currentincome taxassetsandliabilitiesforthe currentandpriorperiodsare measuredatthe amountexpectedtobe recoveredfromorpaidtothe taxationauthorities.Deferredincome taxisprovidedusingthe liability methodontemporary differencesatthe statementoffinancialpositiondate betweenthe taxbasesofassetsandliabilitiesandtheircarryingamountsforfinancialreportingpurposes.Currentanddeferredincome taxrelating toitemsrecognizedinthe currentorpreviousperiodinOCIordirectly inequity isaccordingly recognizedinOCIorequity andnotinour ConsolidatedStatementsofOperations.Interestandpenaltiespayable totaxationauthoritiesare recordedinInterestexpense andOperating expenses,respectively,inourConsolidatedStatementsofOperations.

Deferredincome taxassetsandliabilitiesare calculatedbasedonincome taxratesandlawsthatare expectedtoapply whenthe liability issettledor the assetisrealized,whichare normally those enactedorconsideredsubstantively enactedatourConsolidatedStatementsofFinancialPosition dates.Deferredincome taxassetsare recognizedforalldeductible temporary differences,carry forwardofunusedtaxcreditsandunusedtaxlosses tothe extentofthe probability thatfuture taxable profitwillbe available againstwhichthese assetscanbe utilized.Ateachreportingperiod,we assessallavailable evidence,bothpositive andnegative,todetermine the amountofdeferredincome taxassetstobe recognized.The recognition ofdeferredincome taxassetsrequiresestimatesandsignificantjudgmentaboutfuture events,suchasprojectionsoffuture taxable profits,based onthe informationavailable atthe reportingdate.

The determinationofthe requiredprovisionforcurrentanddeferredincome taxesrequiresthatwe interprettaxlegislationinthe jurisdictionsin whichwe operate.Foreachreportingperiod,ourincome taxprovisionreflectsourbestestimate,basedonthe informationavailable atthe reportingdate,oftaxpositionsthatare underauditorappealby relevanttaxauthorities.Tothe extentthatourestimate oftaxpositionsorthe timingofrealizationofdeferredincome taxassetsorliabilitiesare notasexpected,the provisionforincome taxesmay increase ordecrease inthe future toreflectthe actualexperience.

Deferredincome taxisprovidedontemporary differencesarisingoninvestmentsinsubsidiaries,jointventuresandassociates,exceptwhere we controlthe timingofthe reversalofthe temporary difference anditisapparentthatthe temporary difference willnotreverse inthe foreseeable future.Nodeferredincome taxassetorliability isrecognizedinrelationtotemporary differencesthatarise fromthe initialrecognitionofanasset orliability inatransactionthatisnotabusinesscombinationand,atthe time ofthe transaction,didnotaffecteitherthe accountingprofitor taxable profitorloss.Deferredincome taxassetsanddeferredincome taxliabilitiesare offsetifalegally enforceable rightexiststosetoffcurrent taxassetsagainstcurrenttaxliabilities,the deferredincome taxesrelate tothe same taxable entity andthe same taxationauthority andwe intend eithertosettle onanetbasis,ortorealize the assetandsettle the liability simultaneously.

Indeterminingthe impactoftaxes,we are requiredtocomply withCanadianacceptedactuarialpractice andIFRS.CALMrequiresthatallprojected cashflowsassociatedwithinsurance contractliabilities,includingincome taxes,be includedinthe determinationofinsurance contractliabilities. The insurance contractliabilitiesare therefore determinedincludingallpolicy-relatedincome taxeffectsonadiscountedbasis,andthenadjusted forany relateddeferredincome taxassetsandliabilitiesheldinaccordance withIFRS.The netresultofthisadjustmentistoleave the discounting effectofthe deferredincome taxesassociatedwithtemporary differencesonpolicy-relatedtaxitemsinthe insurance contractliabilities.

PensionPlansandOtherPost-RetirementBenefits Fordefinedbenefitplans,the presentvalue ofthe definedbenefitobligationiscalculatedby independentactuariesusingthe projectedunitcredit method,andactuarialassumptionsthatrepresentbestestimatesoffuture variablesthatwillaffectthe ultimate costofthese obligations.The discountrate usedforourmaterialdefinedbenefitplansisdeterminedwithreference tomarketyieldsofhigh-quality corporate bondsthatare denominatedinthe same currency inwhichthe benefitswillbe paid,andthathave termstomaturity approximatingthe termsofobligations.Plan assetsare measuredatfairvalue andare heldinseparate trustee administeredfundsorasqualifyinginsurance contracts.The difference between the fairvalue ofthe planassetsandthe presentvalue ofthe definedbenefitobligationisrecognizedonthe ConsolidatedStatementsofFinancial Positionasanassetorliability inOtherassetsorOtherliabilities,respectively.

CostschargedtoourConsolidatedStatementsofOperationsinclude currentservice cost,any pastservice costs,any gainsorlossesfrom curtailmentsorsettlements,andinterestonthe netdefinedbenefitliability (asset).Remeasurementofthe netdefinedbenefitliability (asset), whichincludesthe impactofchangestothe actuarialassumptionunderlyingthe liability calculations,liability experience gainsorlosses,the difference betweenthe returnonplanassetsandthe amountincludedinthe interestonthe netdefinedbenefitliability (asset),isreflected immediately inOCI.The calculationofthe definedbenefitexpensesandobligationsrequiresjudgmentasthe recognitionisdependentonvarious actuarialassumptionssuchasdiscountrates,healthcare costtrendratesandprojectedcompensationincreases.These key assumptionsare discussedin Note 25.

Dividends Dividendspayable toholdersofsharesofSLFInc.are recognizedinthe periodinwhichthey are authorizedorapproved.Dividendsthathave been reinvestedinadditionalcommonsharesunderthe DividendReinvestmentandShare Purchase Plan("DRIP")are alsoreflectedasdividendswithin retainedearnings.Where SLFInc.hasissuedcommonsharesfromtreasury underthe DRIP,the additionalshareshave beenreflectedincommon shares.


PremiumandFeeIncomeRecognition Grosspremiumsforalltypesofinsurance contractsexcludingsegregatedfundcontractsare generally recognizedasrevenue whendue.

Fee income isgeneratedfrominsurance contractsandservice contracts.

Fee income frominsurance contractsincludesfeesfromsegregatedfundcontracts,guarantee feesandotherfeesassociatedwithinsurance contractsandistypically recognizedasrevenue whenservicesare rendered.

Fee income fromservice contractsrepresentsfeesassociatedwithnon-insurance contractswithcustomersandincludesDistributionfees,Fund managementandotherasset-basedfees,andAdministrative servicesandotherfees.Distributionfeesincludesfeesearnedfromthe distributionof investmentproductsandotherintermediary activities.Fundmanagementandotherasset-basedfeesincludesfeesearnedfrominvestment managementservices.Administrative servicesandotherfeesincludesfeesearnedfromcontractadministrationandothermanagementservices. Fee income fromservice contractsistypically recognizedasrevenue whenservicesare renderedateitherapointintime orovertime.The majority offee income fromservice contractsiscomprisedofvariable considerationwhichisbasedonapercentage ofassetsundermanagementoranother variable metricandisrecognizedasrevenue whenitishighly probable thatasignificantreversalinthe amountofthe revenue recognizedwillnot occur.

Share-BasedPayments StockoptionsofSLFInc.grantedtoemployeesare accountedforasequity-settledshare-basedpaymenttransactions.The totalcompensation expense forstockoptionsiscomputedbasedonthe fairvalue ofthe stockoptionatthe date ofgrantandthe estimatednumberofoptions expectedtovestatthe endofthe vestingperiod.The expense isrecognizedoverthe vestingperiodascompensationexpense inOperating expensesinourConsolidatedStatementsofOperations,withanoffsettocontributedsurplusinourConsolidatedStatementsofChangesinEquity. Whenoptionsare exercised,newcommonsharesare issued,contributedsurplusisreversedandthe commonsharesissuedare creditedto commonsharesinourConsolidatedStatementsofChangesinEquity.

Othershare-basedpaymentplansbasedonthe value ofSLFInc.’scommonsharesare accountedforascash-settledshare-basedpayment transactions.The totalliabilitiesforthese plansare computedbasedonthe estimatednumberofawardsexpectedtovestatthe endofthe vesting period.The liabilitiesare recomputedatthe endofeachreportingperiodandare measuredatthe fairvalue ofthe awardatthatreportingdate. The liabilitiesare accruedandexpensedonastraight-line basisoverthe vestingperiods.The liabilitiesare settledincashatthe endofthe vesting period.

Share-basedpaymentawards withinMFSInvestmentManagement("MFS"),whichare basedontheirownshares,are accountedforascash-settled share-basedpaymentawards.The vestedandunvestedawards,aswellasthe sharesthathave beenissuedunderthese plans,are recognizedas liabilitiesbecause MFShasapractice ofpurchasingthe issuedsharesfromemployeesafteraspecifiedholdingperiod.The totalliabilitiesforthese plansare computedbasedonthe estimatednumberofawardsexpectedtovestatthe endofthe vestingperiod.The liabilitiesare accruedoverthe vestingperiodandare measuredatfairvalue ateachreportingperiodwiththe change infairvalue recognizedascompensationexpense in OperatingexpensesinourConsolidatedStatementsofOperations.The liabilitiesare settledincashwhenthe sharesare purchasedfromthe employees.

BasicandDilutedEarningsPerShare("EPS") BasicEPSiscalculatedby dividingthe commonshareholders’netincome by the weightedaverage numberofcommonsharesissuedand outstanding.

DilutedEPSadjustscommonshareholders’netincome andthe weightedaverage numberofcommonsharesforthe effectsofalldilutive potential commonsharesunderthe assumptionthatconvertible instrumentsare convertedandthatoutstandingoptionsare exercised.DilutedEPSis calculatedby dividingthe adjustedcommonshareholders’netincome by the adjustedweightedaverage numberofcommonsharesoutstanding. Forconvertible instruments,commonshareholders’netincome isincreasedby the after-taxexpense onthe convertible instrumentwhile the weightedaverage commonsharesare increasedby the numberofcommonsharesthatwouldbe issuedatconversion.Forstockoptions,itis assumedthatthe proceedsfromthe exercise ofoptionswhose exercise price islessthanthe average marketprice ofcommonsharesduringthe periodare usedtorepurchase commonsharesatthe average marketprice forthe period.The difference betweenthe numberofcommonshares issuedforthe exercise ofthe dilutive optionsandthe numberofcommonsharesthatwouldhave beenrepurchasedatthe average marketprice of the commonsharesduringthe periodisadjustedtothe weightedaverage numberofcommonsharesoutstanding.


2.ChangesinAccountingPolicies

2.ANewandAmendedInternationalFinancialReportingStandardsAdoptedin2020 We adoptedthe followingamendmentsonJanuary 1,2020:

InMarch2018,the IASBissuedarevised ConceptualFrameworkforFinancialReporting ("ConceptualFramework"),whichreplacedthe Conceptual Frameworkissuedin2010.The revisedConceptualFrameworkincludesreviseddefinitionsofanassetandaliability,aswellasnewguidance on measurement,derecognition,presentationanddisclosure,tobe appliedprospectively.The adoptionofthisguideline didnothave amaterialimpact onourConsolidatedFinancialStatements.

InOctober2018,the IASBissued DefinitionofaBusiness,whichamendedIFRS3 BusinessCombinations ("IFRS3").The amendmentsclarify the definitionofabusinesstoassistentitiesindeterminingwhetheratransactionrepresentsabusinesscombinationoranacquisitionofassets,andare appliedprospectively.The adoptionofthese amendmentsdidnothave amaterialimpactonourConsolidatedFinancialStatements.

InOctober2018,the IASBissued DefinitionofMaterial(AmendmentstoIAS1 andIAS8).The amendmentsclarify the definitionofmaterialand provide guidance toimprove consistency initsapplicationinIFRSstandards.The adoptionofthese amendmentsdidnothave amaterialimpacton ourConsolidatedFinancialStatements.

InSeptember2019,the IASBissuedthe InterestRate BenchmarkReform,whichincludesamendmentstoIFRS9,IAS39 andIFRS7 Financial Instruments:Disclosures ("IFRS7").We have deferredadoptionofIFRS9 andcontinue toapply IAS39.The amendmentsclarify thatentitiescan continue toapply certainhedge accountingrequirementsassumingthatthe interestrate benchmarkonwhichthe hedgedcashflowsandcashflows fromthe hedginginstrumentare basedwillnotbe alteredasaresultofinterestrate benchmarkreform.The adoptionofthe IAS39 amendments didnothave amaterialimpactonourConsolidatedFinancialStatements.

We adoptedthe followingamendmentonJune 1,2020:

InMay 2020,the IASBissued COVID-19-RelatedRentConcessions,whichisanamendmenttoIFRS16 Leases ("IFRS16").The amendmentprovides lesseeswithapracticalexpedienttonotaccountforCOVID-19-relatedrentconcessionsaslease modifications.The amendmentdoesnotaffect lessors.The adoptionofthisamendmentdidnothave amaterialimpactonourConsolidatedFinancialStatements.The amendmentwasapplied retrospectively.

2.BAmendedInternationalFinancialReportingStandardstobeAdo ptedin2021 The followingnewandamendedIFRSwere issuedby the IASBandare expectedtobe adoptedby usin2021:

InAugust2020,the IASBissuedthe InterestRate BenchmarkReformPhase 2,whichincludesamendmentstoIFRS9,IAS39,IFRS7,IFRS4 and IFRS16.They addressissuesthatarise fromthe implementationofthe reforms,includingthe replacementofone benchmarkwithanalternative one.We donotexpectthe adoptionofthisamendmenttohave amaterialimpactonourConsolidatedFinancialStatements.

2.CAmendedInternationalFinancialReportingStandardstobeAdo ptedin2022orLater We are currently assessingthe impactthe adoptionthese amendmentswillhave onourConsolidatedFinancialStatements:

InMay 2020,the IASBissued Reference tothe ConceptualFramework,whichincludesamendmentstoIFRS3.The amendmentsupdate anoutdated reference tothe ConceptualFrameworkinIFRS3 withoutsignificantly changingthe requirementsinthe standard.The amendmentsare effective to businesscombinationsforwhichthe acquisitiondate isonorafterJanuary 1,2022.

InMay 2020,the IASBissued Property,PlantandEquipment-Proceedsbefore IntendedUse,whichincludesamendmentstoIAS16 Property,Plant andEquipment.The amendmentsprohibitdeductingfromthe costofanitemofproperty,plantandequipmentany proceedsfromsellingitems producedwhile bringingthatassettothe locationandconditionnecessary forittobe capable ofoperatinginthe mannerintendedby management. The amendmentsapply retrospectively toassetsready foruse inthe comparative period.The amendmentsare effective forannualperiods beginningonorafterJanuary 1,2022.

InMay 2020,the IASBissued OnerousContracts-CostofFulfillingaContract,whichincludesamendmentstoIAS37 Provisions,ContingentLiabilities andContingentAssets.The amendmentsspecify thatthe 'costoffulfilling' acontractcomprisesthe 'coststhatrelate directly tothe contract'.Costs thatrelate directly toacontractcaneitherbe incrementalcostsoffulfillingthatcontractoranallocationofothercoststhatrelate directly to fulfillingcontracts.The amendmentsare effective forannualperiodsbeginningonorafterJanuary 1,2022.

InMay 2020,the IASBissued AnnualImprovementstoIFRSStandards2018-2020,whichincludesminoramendmentstothree IFRSstandards applicable toourConsolidatedFinancialStatements.The amendmentsapply prospectively.The amendmentsare effective forannualperiods beginningonorafterJanuary 1,2022.

InMay 2017,the IASBissuedIFRS17 Insurance Contracts (“IFRS17”),whichreplacesIFRS4.InJune 2020,the IASBissuedamendmentstoIFRS17, whichinclude deferralofthe effective date toannualperiodsbeginningonorafterJanuary 1,2023.The deferraloptionofIFRS9 forinsurerswas alsoextendedtothatsame date.IFRS17 establishesthe principlesforthe recognition,measurement,presentation,anddisclosure ofinsurance contracts.IFRS17 requiresentitiestomeasure insurance contractliabilitiesattheircurrentfulfillmentvaluesusingone ofthree measurement models,dependingonthe nature ofthe contract.IFRS17 istobe appliedretrospectively toeachgroupofinsurance contractsunlessimpracticable. If,andonly if,itisimpracticable toapply IFRS17 retrospectively foragroupofinsurance contracts,anentity shallapply IFRS17 usingamodified retrospective approachorafairvalue approach.IFRS17 willaffecthowwe accountforourinsurance contractsandhowwe reportourfinancial


performance inourConsolidatedStatementsofOperations.We are currently assessingIFRS17,whichwillhave asignificantimpactonour ConsolidatedFinancialStatements.

InJuly 2014,the IASBissuedthe finalversionofIFRS9,whichreplacesIAS39.IFRS9 includesguidance onthe classificationandmeasurement offinancialinstruments,impairmentoffinancialassets,andhedge accounting.Financialassetclassificationisbasedonthe cashflowcharacteristics andthe businessmodelinwhichanassetisheld.The classificationdetermineshowafinancialinstrumentisaccountedforandmeasured.IFRS9 alsointroducesanimpairmentmodelforfinancialinstrumentsnotmeasuredatfairvalue throughprofitorlossthatrequiresrecognitionof expectedlossesatinitialrecognitionofafinancialinstrumentandthe recognitionoffulllifetime expectedlossesifcertaincriteriaare met.In addition,anewmodelforhedge accountingwasintroducedtoachieve betteralignmentwithriskmanagementactivities.Thisstandardiseffective forannualperiodsbeginningonorafterJanuary 1,2018.InOctober2017,the IASBissuednarrow-scope amendmentstoIFRS9.The amendments clarify the classificationofcertainprepayable financialassetsandthe accountingoffinancialliabilitiesfollowingmodification.The amendmentsare effective forannualperiodsbeginningonorafterJanuary 1,2019.However,pursuanttothe aforementionedamendmentstoIFRS4,we electedthe deferralapproachpermittedunderIFRS4 tocontinue toapply IAS39.We are currently assessingthe impactthatIFRS9,alongwiththese amendments,willhave onourConsolidatedFinancialStatements.

3.AcquisitionsandOther

InfraRedCapitalPartners OnJuly 1,2020,we acquired 80% ofInfraRedCapitalPartners("InfraRed"),aUK-basedglobalinfrastructure andrealestate investmentmanager,as wellasthe ability toacquire the remaininginterestinthe future.InfraRedisreportedinthe SLCManagementbusinessunitwithinourAsset Managementbusinesssegment.Considerationincludedapproximately $517 incashand $29 ofcontingentconsiderationtothe formerownersof InfraRed.InfraRed'sinfrastructure platformfocusesonvalue-addinvestinginbothgreenfieldandbrownfieldassetsworldwide acrosssocial, transportation,andrenewable energy sectors;while InfraRed'srealestate platformisacombinationofEuropeanandAsianvalue-addstrategies. ThisacquisitionprovidedSLCManagementwithcapabilitiesininfrastructure equity,afit with SLCManagement’smissiontoprovide abroad spectrumofsolutionsbuiltonalternative assetclassesandliability-driveninvestingstrategies.

The fairvaluesofthe identifiable assetsandliabilitiesacquiredwere:

AsatJuly1 ,2020

Intangible assets $ 357

Netassets 97

Deferredtaxliabilities (67)

Totalidentifiable netassetsatfairvalue 387

Financialliability (129) Goodwillarisingonacquisition(1) 288

Totalconsideration(2) $ 546

(1) Goodwill of $288 reflects InfraRed’s non-contractual customer relationships. (2) Amount includes $29 of contingent consideration.

The fairvaluesofthe identifiable assetsandliabilitiesare subjecttorefinementandmay be retroactively adjustedtoreflectnewinformation obtainedaboutfactsandcircumstancesthatexistedatthe acquisitiondate duringthe measurementperiod.

The non-controllinginterest("NCI")of 20% willbe recognizedasafinancialliability initially measuredatfairvalue andsubsequently measuredat amortizedcost. Any changestothe carryingvalue ofthe financialliability willbe recognizedinthe ConsolidatedStatementsofOperations.Aspartof the transaction,InfraRedminority shareholdershave the optiontorequire ustopurchase theirsharesin2024.We have acalloptiontoacquire the remainingoutstandingsharesinInfraRedcommencingin2025.

BentallGreenOak OnJuly 1,2019,we acquired 56% ofBentallGreenOak("BGO"),whichwasthe productofthe mergerofthe BentallKennedy groupofcompanies ("BentallKennedy")andGreenOakRealEstate ("GreenOak"),aglobalrealestate investmentfirm.The formerGreenOakshareholdersholdthe remaininginterestinBGO.Totalconsiderationof $411 includedapproximately $192 incashand 44% ofourinterestinBentallKennedy which, valuedonadiscountedcashflowbasis,representsconsiderationof $219.The combinedentity isreportedinourAssetManagementbusiness segment.


Thefairv aluesoftheide ntifiableasse tsandliabilitiesacquiredwere:

AsatJuly 1,2019

Intangible assets $ 238

Netassets 23

Deferredtaxliabilities (48)

Totalidentifiable netassetsatfairvalue 213

Non-controllinginterests(1) (339) Goodwillarisingonacquisition 537

Totalconsideration $ 411

(1) We have elected to measure NCI at fair value for this acquisition. The fair value was determined by calculating the proportionate share of the present value of future cash flows relating to NCI. Significant assumptions inherent in the valuation of NCI include the estimated after-tax cash flows expected to be received and an assessment of the appropriate discount rate.

Thistransactionhastwoadditionalcomponents("Additionalcomponents"): A. We have the optiontoacquire the remainingoutstandingsharesinBGOcommencingin2026 ("calloption"),andBGOminority

shareholdershave the optiontorequire ustopurchase theirsharesin2027 ("putoption"). B. Inadditiontoour 56% ownershipinterestinBGO,we have acquiredthe rightto 75% offormerGreenOakshareholders’share ofBGO’s

earningsforthe periodfromJuly 2019 toDecember2027.Considerationistobe paidinquarterly instalmentsoverthatperiod("deferred payments").

The presentvaluesofthe putoptionanddeferredpaymentsare calculatedusingourincrementalborrowingrate;the subsequentinterestexpense recordedusingthe effective interestmethodwillbe recognizedinthe ConsolidatedStatementsofOperations.Subsequentrevisionstothe expected exercise price payable forthe putoptionwillbe recognizedinthe ConsolidatedStatementsofOperations.Ifthe putoptionexpiresunexercisedoris cancelled,the carryingvalue ofthe financialliability willbe releasedfirsttoNCI,withexcessamountsifany recognizedagainstRetainedearnings.If the calloptionisexercised,the liabilitiesrelatingtothe Additionalcomponentswillbe extinguishedandrecognizedagainstRetainedearnings.

The Additionalcomponentsare financialliabilities.Amountswere initially measuredatthe presentvalue of $951 forthe putoptionand $467 forthe deferredpaymentsinOtherliabilities,withacorrespondingreductiontoNCI,limitedtothe originalamountrecordeduponthe acquisitionofBGO. Excessamountswere recognizedagainstRetainedearnings.Atthe date ofacquisition,the impacttoourassets,liabilities,andequity isasfollows:


AsatJuly 1,2019 Share purchase Additional

components Total

Cashconsideration $ (192) $ — $ (192) Netassets 23 — 23 Intangibleasse ts 238 — 238

Goodwill(1) 537 — 537

Totalassets $ 606 $ — $ 606

Deferredtaxliability $ (48) $ — $ (48) Putoptionliability — (951) (951)

Deferredpaymentsliability — (467) (467)

Totalliabilities $ (48) $ (1,418) $ (1,466)

Non-controllinginterests-BentallKennedy $ (171) (2) $ 171 $ —

Non-controllinginterests-GreenOak(3) (339) 324 (15) Retainedearnings (48) (2) 923 875

Totalequity $ (558) $ 1,418 $ 860

(1) Goodwill of $537 reflects GreenOak’s non-contractual customer relationships. Approximately $285 of goodwill is tax-deductible. (2) The aggregate amount of $219 represents the fair value of our interest in Bentall Kennedy transferred as consideration. (3) The remaining $15 represents specifically identifiable assets where the risks and rewards accrue to the former GreenOak shareholders and are distributed

through a separate class of shares.

AcquisitionsandOtherinAsia OnOctober17,2019,we enteredintoa 15-yearbancassurance partnershipwithTienPhongCommercialBank("TPBank").TPBankisfastgrowing withastrongClientfocus,andisadigitalleaderinVietnam.The newpartnershipalignswithourstrategicpriority tobe aleaderinAsiathrough distributionexcellence.The agreementincludesaninitialpaymentofapproximately $107,which wasfundedwithinternalresources.The initial paymentiscapitalizedasanintangible assetandwillbe amortizedover 15 yearsbasedonaunits-of-productionmethod.

4.SegmentedInformation

We have five reportable businesssegments:Canada,U.S.,AssetManagement,Asia,andCorporate. These businesssegmentsoperate inthe financialservicesindustry andreflectourmanagementstructure andinternalfinancialreporting.Corporate includesthe resultsofour UK business unitandourCorporate Supportoperations,whichinclude run-offreinsurance operationsaswellasinvestmentincome,expenses,capital,andother itemsnotallocatedtoourotherbusinessgroups.

Revenuesfromourbusinesssegmentsare derivedprimarily fromlife andhealthinsurance,investmentmanagementandannuities,andmutual funds.Revenuesnotattributedtothe strategicbusinessunitsare derivedprimarily fromCorporate investmentsandearningsoncapital. Transactionsbetweensegmentsare executedandpricedatanarm’s-lengthbasisinamannersimilartotransactionswiththirdparties.

The expensesineachbusinesssegmentmay include costsorservicesdirectly incurredorprovidedontheirbehalfatthe enterprise level.Forother costsnotdirectly attributable toone ofourbusinesssegments,we use amanagementreportingframeworkthatusesassumptions,judgments,and methodologiesforallocatingoverheadcostsandindirectexpensestoourbusinesssegments.

Intersegmenttransactionsconsistprimarily ofinternalfinancingagreementswhichare measuredatfairvaluesprevailingwhenthe arrangements are negotiated.Intersegmentinvestmentincome consistsprimarily ofinterestpaidby U.S.toCorporate.Intersegmentfee income isprimarily asset managementfeespaidby ourbusinesssegmentstoAssetManagement.Effective January 1,2020,SLCManagementiscollectingfee income andis incurringthe operationalexpensesassociatedwiththe managementofthe generalfundassets.Intersegmenttransactionsare eliminatedinthe Consolidationadjustmentscolumninthe followingtables.

ManagementconsidersitsexternalClientstobe individualsandcorporations.We are notreliantonany individualClientasnone isindividually significanttoouroperations.


Resultsbyse gmentforthey earsendedDecember31,are asfollows:

Canada U.S. Asset

Management(1) Asia Corporate Consolidation adjustments(1) Total

2020

Grosspremiums: Annuities $ 3,594 $ — $ — $ 108 $ 27 $ — $ 3,729 Life insurance 5,358 1,548 — 4,821 85 — 11,812

Healthinsurance 6,011 4,583 — 33 22 — 10,649

Totalgrosspremiums 14,963 6,131 — 4,962 134 — 26,190

Less:Cededpremiums 1,530 695 — 212 15 — 2,452

Netinvestmentincome (loss) 6,823 2,610 23 2,550 758 (46) 12,718

Fee income 1,376 92 5,014 572 103 (276) 6,881

Totalrevenue 21,632 8,138 5,037 7,872 980 (322) 43,337

Less: Totalbenefitsandexpenses 20,669 7,825 3,712 7,137 1,029 (322) 40,050

Income taxexpense (benefit) 50 56 334 54 1 — 495

Totalnetincome (loss) $ 913 $ 257 $ 991 $ 681 $ (50) $ — $ 2,792 Less:

Netincome (loss)attributable to participatingpolicyholders 196 — — 87 — — 283

Netincome (loss)attributable to non-controllinginterests — — 11 — — — 11

Shareholders’netincome (loss) $ 717 $ 257 $ 980 $ 594 $ (50) $ — $ 2,498

2019

Grosspremiums: Annuities $ 3,276 $ 1 $ — $ 2 $ 23 $ — $ 3,302 Life insurance 5,178 1,605 — 2,597 90 — 9,470

Healthinsurance 5,629 4,232 — 31 16 — 9,908

Totalgrosspremiums 14,083 5,838 — 2,630 129 — 22,680

Less:Cededpremiums 1,488 662 — 222 20 — 2,392

Netinvestmentincome (loss) 6,474 2,802 83 2,865 905 11 13,140

Fee income 1,320 86 4,471 531 118 (275) 6,251

Totalrevenue 20,389 8,064 4,554 5,804 1,132 (264) 39,679

Less: Totalbenefitsandexpenses 19,317 7,878 3,391 5,172 1,014 (326) 36,446

Income taxexpense (benefit) 15 28 262 51 (70) — 286

Totalnetincome (loss) $ 1,057 $ 158 $ 901 $ 581 $ 188 $ 62 $ 2,947 Less:

Netincome (loss)attributable to participatingpolicyholders 174 (5) — 61 — — 230

Netincome (loss)attributable to non-controllinginterests — — 4 — — — 4

Shareholders’netincome (loss) $ 883 $ 163 $ 897 $ 520 188 $ 62 $ 2,713

(1) Reflects a change in presentation for our Asset Management segment effective January 1, 2020. We have updated the prior period to reflect this change in presentation.


Assetsandliabilitiesbyse gmentare asfollows:

Canada U.S. Asset

Management Asia Corporate Consolidation adjustments Total

Asat December31,2020

Totalgeneralfundassets $ 106,318 $ 33,790 $ 6,957 $ 36,414 $ 13,897 $ (286) $ 197,090

Investmentsforaccountof segregatedfundholders $ 107,494 $ 541 $ — $ 7,211 $ 10,675 $ — $ 125,921

Totalgeneralfundliabilities $ 97,728 $ 30,354 $ 4,898 $ 30,004 $ 8,530 $ (286) $ 171,228

AsatDecember31,2019

Totalgeneralfundassets $ 94,909 $ 34,711 $ 5,666 $ 31,285 $ 13,930 $ (272) $ 180,229

Investmentsforaccountof segregatedfundholders $ 98,758 $ 514 $ — $ 6,675 $ 11,026 $ — $ 116,973

Totalgeneralfundliabilities $ 86,847 $ 31,044 $ 4,250 $ 25,750 $ 8,102 $ (272) $ 155,721

The revenue andassetsofourbusinesssegmentsdifferfromgeographicsegmentsprimarily due tothe geographicsegmentingofourAsset ManagementandCorporate segments.

The followingtable showsrevenue by country forAssetManagementandCorporate:

AssetM anagement Corporate

Forthe yearsendedDecember31, 2020 2019 2020 2019

Revenue: UnitedStates(1) $ 4,505 $ 4,185 $ 169 $ 129 UnitedKingdom 174 32 725 903 Canada(1) 311 326 (2)'' 79 93 Othercountries 47 11 7 7

Totalrevenue $ 5,037 $ 4,554 $ 980 $ 1,132

(1) Reflects a change in presentation for our Asset Management segment effective January 1, 2020. We have updated the prior period to reflect this change in presentation.

(2) Consists of the Canadian operations of Bentall Kennedy and Sun Life Institutional Investments (Canada) Inc. for Asset Management.

The followingtable showstotalassetsby country forAssetManagementandCorporate:

AssetM anagement Corporate

AsatDecember31, 2020 2019 2020 2019

Totalgeneralfundassets: UnitedStates $ 5,124 $ 4,770 $ 2,227 $ 2,329 UnitedKingdom 1,037 145 7,766 8,210 Canada 580 534 (1)'' 3,716 3,202 Othercountries 216 217 188 189

Totalgeneralfundassets $ 6,957 $ 5,666 $ 13,897 $ 13,930

Investmentforaccountofsegregatedfundholders: UnitedKingdom $ — $ — $ 10,675 $ 11,026

Totalinvestmentforaccountofsegregatedfundholders $ — $ — $ 10,675 $ 11,026

(1) Consists of the Canadian operations of Bentall Kennedy and Sun Life Institutional Investments (Canada) Inc. for Asset Management.


5.TotalInvestedAssetsandRelatedNetInvestmentIncome

5.AFairValueofInvestedAssets 5.A.iCarryingValueandFairValueofFinancialAssetsandOtherFinancialLiabilities Thecarry ingvaluesandfairv aluesofourfinancialassetsare showninthefollowingtable :

Asat December31,2020 December31,2019

Carrying value

Fair value

Carrying value

Fair value

Assets Cash,cashequivalentsandshort-termsecurities $ 13,527 $ 13,527 $ 9,575 $ 9,575

Debtsecurities-fairvalue throughprofitorloss 77,834 77,834 67,894 67,894

Debtsecurities-available-for-sale(1) 11,255 11,255 13,712 13,712

Equity securities-fairvalue throughprofitorloss 6,369 6,369 4,474 4,474

Equity securities-available-for-sale 262 262 313 313

Mortgagesandloans(1) 49,946 56,231 48,222 52,028

Derivative assets 2,160 2,160 1,548 1,548

Otherinvestedassets-fairvalue throughprofitorloss(2) 3,339 3,339 3,016 3,016

Otherinvestedassets-available-for-sale(2) 828 828 813 813

Policy loans 3,265 3,265 3,218 3,218

Totalfinancialassets(3) $ 168,785 $ 175,070 $ 152,785 $ 156,591

(1) As at December 31, 2020, the fair value of invested assets that have contractual cash flows that qualify as SPPI include $11,159 of Debt securities - AFS ($13,602 as at December 31, 2019), $51,480 of Mortgages and loans supporting insurance contract liabilities ($47,398 as at December 31, 2019), and $4,741 of Mortgages and loans not supporting insurance contract liabilities ($4,315 as at December 31, 2019).

(2) Other invested assets (FVTPL and AFS) include our investments in segregated funds, mutual funds and limited partnerships. (3) Invested assets on our Consolidated Statements of Financial Position of $177,912 ($161,619 as at December 31, 2019) includes Total financial assets in this

table, Investment properties of $7,516 ($7,306 as at December 31, 2019), and Other invested assets - non-financial assets of $1,611 ($1,528 as at December 31, 2019).

Ourmortgagesandloansare generally carriedatamortizedcost.The fairvalue ofmortgagesandloans,fordisclosure purposes,isdetermined basedonthe methodology andassumptionsdescribedin Note 5.A.ii.Asat December31,2020, $43,904 and $12,327 are categorizedinLevel2 and Level3,respectively,ofthe fairvalue hierarchy describedinthisNote ($41,858 and $10,170, respectively,asat December31,2019).

Otherfinancialliabilitiesare carriedatamortizedcost.The fairvalue ofOtherfinancialliabilities,fordisclosure purposes,isdeterminedbasedon the methodology andassumptionsdescribedinNote 5.A.ii.AsatDecember31,2020,carryingvalue of $1,136 andfairvalue of $1,233 are categorizedinLevel3 ofthe fairvalue hierarchy describedinthisNote ($956 and $972,respectively,asatDecember31, 2019).Effective December31, 2020,we have updatedourdisclosurestoreflectthisclassification andhave excluded these itemsfrom5.A.iiiFairValue Hierarchy disclosures.

Derivative liabilitieswithafairvalue of $1,744 ($2,040 asat December31,2019)are alsoincludedonthe ConsolidatedStatementsofFinancial Position.

Policy loansare carriedattheirunpaidprincipalbalances.The fairvalue ofpolicy loans,fordisclosure purposes,isapproximatedby theircarrying value,aspolicy loansare fully securedby policy valuesonwhichthe loansare made andare categorizedinLevel2 ofthe fairvalue hierarchy.

5.A.iiFairValueMethodologiesandAssumptions The fairvalue ofgovernmentandcorporate debtsecuritiesisdeterminedusingquotedpricesinactive marketsforidenticalorsimilarsecurities. Whenquotedpricesinactive marketsare notavailable,fairvalue isdeterminedusingmarketstandardvaluationmethodologies,whichinclude discountedcashflow analysis,consensuspricingfromvariousbrokerdealersthatare typically the marketmakers,orothersimilartechniques.The assumptionsandvaluationinputsinapplyingthese marketstandardvaluationmethodologiesare determinedprimarily usingobservable market inputs,whichinclude,butare notlimitedto,benchmarkyields,reportedtradesofidenticalorsimilarinstruments,broker-dealerquotes,issuer spreads,bidprices,andreference dataincludingmarketresearchpublications.Inlimitedcircumstances,non-bindingbrokerquotesare used.

The fairvalue ofasset-backedsecuritiesisdeterminedusingquotedpricesinactive marketsforidenticalorsimilarsecurities,whenavailable,or valuationmethodologiesandvaluationinputssimilartothose usedforgovernmentandcorporate debtsecurities.Additionalvaluationinputs include structuralcharacteristicsofthe securities,andthe underlyingcollateralperformance,suchasprepaymentspeedsanddelinquencies. Expectedprepaymentspeedsare basedprimarily onthose previously experiencedinthe marketatprojectedfuture interestrate levels.Ininstances where there isalackofsufficientobservable marketdatatovalue the securities,non-bindingbrokerquotesare used.

The fairvalue ofequity securitiesisdeterminedusingquotedpricesinactive marketsforidenticalsecuritiesorsimilarsecurities.Whenquoted pricesinactive marketsare notavailable,fairvalue isdeterminedusingequity valuationmodels,whichinclude discountedcashflowanalysisand othertechniquesthatinvolve benchmarkcomparison.Valuationinputsprimarily include projectedfuture operatingcashflowsandearnings, dividends,marketdiscountrates,andearningsmultiplesofcomparable companies.


Thefairv alueofmortgage sandloansisdeterminedby discountingthee xpectedfuturecashflowsusingacurre ntmarketinterestrate applicable to financialinstrumentswithasimilaryield,creditquality,andmaturitycharacte ristics.Valuationinputstypically includebe nchmarkyieldsandrisk-adjustedspreadsfromcurrentlendingactivitiesorloanissuances.Therisk-adjuste dspreadsarede terminedbasedontheborrowe r’screditand liquidity,aswellastermandotherloan-specificfeatures.Long-termmortgagesandloansarege nerallycate gorizedinLevel3 ofthefairv alue hierarchy.Thesignificantunobse rvableinputisaportionofthe serisk-adjuste dspreadsatorbeyondthe 20-yearpointformortgagesandator beyondthe 10-yearpointforloans.

The fairvalue ofotherfinancialliabilitiesisdeterminedby usingthe discountedcashflowmethodology atthe incrementalborrowingrate orthe effective interestrate.OtherfinancialliabilitiescategorizedasLevel3 representthe presentvalue ofthe estimatedprice we wouldpay toacquire any remainingoutstandingsharesuponexercise ofaputoptionandany mandatory income distributions.The fairvalue ofthe liabilitiesisbasedon the average earningsbefore income tax,depreciationandamortization("EBITDA")forthe precedingyearsbefore the options’exercise datesand EBITDA multiplesinaccordance withthe putagreementsaswellasthe expectedamountofany mandatory income distributions.A change in EBITDA wouldimpactthe fairvalue ofotherfinancialliabilitiesandournetincome (loss).

The fairvalue ofderivative financialinstrumentsdependsuponderivative types.The fairvalue ofexchange-tradedfuturesandoptionsis determinedusingquotedpricesinactive markets,while the fairvalue ofover-the-counter("OTC")derivativesisdeterminedusingpricingmodels, suchasdiscountedcashflowanalysisorothermarketstandardvaluationtechniques,withprimarily observable marketinputs.Valuationinputs usedtoprice OTCderivativesmay include swapinterestrate curves,foreignexchange spotandforwardrates,indexprices,the value ofunderlying securities,projecteddividends,volatility surfaces,andinlimitedcircumstances,counterparty quotes.The fairvalue ofOTCderivative financial instrumentsalsoincludescreditvaluationadjustmentstoreflectthe creditriskofboththe derivative counterparty andourselvesaswellasthe impactofcontractualfactorsdesignedtoreduce ourcreditexposure,suchascollateralandlegalrightsofoffsetundermasternettingagreements. Inputsintodeterminingthe appropriate creditvaluationadjustmentsare typically obtainedfrompublicly available informationandinclude credit defaultswapspreadswhenavailable,creditspreadsderivedfromspecificbondyields,orpublishedcumulative defaultexperience dataadjustedfor currenttrendswhencreditdefaultswapspreadsare notavailable.

The fairvalue ofotherinvestedassetsisdeterminedusingquotedpricesinactive marketsforidenticalsecuritiesorsimilarsecurities.Whenquoted pricesinactive marketsare notavailable,fairvalue isdeterminedusingequity valuationmodels,whichinclude discountedcashflowanalysisand othertechniquesthatinvolve benchmarkcomparison.Valuationinputsprimarily include projectedfuture operatingcashflowsandearnings, dividends,marketdiscountrates,andearningsmultiplesofcomparable companies.

The fairvalue ofinvestmentpropertiesisgenerally determinedusingproperty valuationmodelsthatare basedonexpectedcapitalizationratesand modelsthatdiscountexpectedfuture netcashflowsatcurrentmarketinterestratesreflective ofthe characteristics,location,andmarketofeach property.Expectedfuture netcashflowsinclude contractualandprojectedcashflowsandforecastedoperatingexpenses,andtake intoaccount interest,rental,andoccupancy ratesderivedfrommarketsurveys.The estimatesoffuture cashinflowsinadditiontoexpectedrentalincome from currentleases,include projectedincome fromfuture leasesbasedonsignificantassumptionsthatare consistentwithcurrentmarketconditions. The future rentalratesare estimatedbasedonthe location,type,andquality ofthe properties,andtake intoaccountmarketdataandprojections atthe valuationdate.The fairvaluesare typically comparedtomarket-basedinformationforreasonability,includingrecenttransactionsinvolving comparable assets.The methodologiesandinputsusedinthese modelsare inaccordance withrealestate industry valuationstandards.Valuations are preparedexternally orinternally by professionally accreditedrealestate appraisers.

The fairvalue ofshort-termsecuritiesisapproximatedby theircarryingamount,adjustedforcreditriskwhere appropriate.

The fairvalue ofinvestmentsforaccountofsegregatedfundholdersisdeterminedusingquotedpricesinactive marketsorindependentvaluation informationprovidedby investmentmanagers.The fairvalue ofdirectinvestmentswithininvestmentsforaccountofsegregatedfundholders,such asshort-termsecuritiesandgovernmentandcorporate debtsecurities,isdeterminedaccordingtovaluationmethodologiesandinputsdescribed above inthe respective assettype sections.

The methodologiesandassumptionsfordeterminingthe fairvaluesofinvestmentcontractliabilitiesare includedin Note 10.B.

5.A.iiiFairValueHierarchy We categorize ourassetsandliabilitiescarriedatfairvalue,basedonthe priority ofthe inputstothe valuationtechniquesusedtomeasure fair value,intoathree-levelfairvalue hierarchy asfollows:

Level1:Fairvalue isbasedonthe unadjustedquotedpricesforidenticalassetsorliabilitiesinanactive market.The typesofassetsandliabilities classifiedasLevel1 generally include cashandcashequivalents,certainU.S.governmentandagency securities,exchange-tradedequity securities, andcertainsegregatedandmutualfundunitsheldforaccountofsegregatedfundholders.

Level2:Fairvalue isbasedonquotedpricesforsimilarassetsorliabilitiestradedinactive markets,orpricesfromvaluationtechniquesthatuse significantobservable inputs,orinputsthatare derivedprincipally fromorcorroboratedwithobservable marketdatathroughcorrelationorother means.The typesofassetsandliabilitiesclassifiedasLevel2 generally include Canadianfederal,provincialandmunicipalgovernment,otherforeign governmentandcorporate debtsecurities,certainasset-backedsecurities,OTCderivatives,andcertainsegregatedandmutualfundunitsheldfor accountofsegregatedfundholders.

Level3:Fairvalue isbasedonvaluationtechniquesthatrequire one ormore significantinputsthatare notbasedonobservable marketinputs. These unobservable inputsreflectourexpectationsaboutthe assumptionsmarketparticipantswoulduse inpricingthe assetorliability.The types ofassetsandliabilitiesclassifiedasLevel3 generally include certaincorporate bonds,certainotherinvestedassets andinvestmentproperties.


Ourassetsandliabilitiesthatare carriedatfairvalue onarecurringbasisby hierarchy levelare asfollows:

As at December 31, 2020 December 31, 2019

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Assets

Cash, cashequivalent s ands hort-terms ecurities $ 12,428 $ 1,099 $ — $ 13,527 $ 9,044 $ 531 $ — $ 9,575

Debt securities -fair valuet hroughpr ofit or loss 1,537 76,072 225 77,834 1,641 66,005 248 67,894

Debt securities -available-for-sale 796 10,392 67 11,255 1,363 12,299 50 13,712

Equitys ecurities -fair valuet hroughpr ofit or loss 3,777 2,411 181 6,369 1,868 2,418 188 4,474

Equitys ecurities -available-for-sale 144 71 47 262 152 126 35 313

Derivativeas sets 36 2,124 — 2,160 20 1,528 — 1,548

Other investedas sets 1,094 428 2,645 4,167 1,000 384 2,445 3,829

Investment properties — — 7,516 7,516 — — 7,306 7,306

Totalinves tedas sets measuredat fair value $ 19,812 $ 92,597 $ 10,681 $123,090 $ 15,088 $ 83,291 $ 10,272 $108,651

Investments for account ofs egregatedfund holder s 26,832 98,539 550 125,921 26,380 90,044 549 116,973

Total assets measured at fair value $ 46,644 $191,136 $ 11,231 $249,011 $ 41,468 $173,335 $ 10,821 $225,624

Liabilities

Investment contract liabilities $ — $ — $ 2 $ 2 $ — $ — $ 2 $ 2

Derivative liabilities 13 1,731 — 1,744 14 2,026 — 2,040

Total liabilities measured at fair value $ 13 $ 1,731 $ 2 $ 1,746 $ 14 $ 2,026 $ 2 $ 2,042

Debtsecurities-fairvalue throughprofitorlossconsistofthe following:



Canadian federal government $ — $ 4,546 $ 14 $ 4,560 $ — $ 3,875 $ 15 $ 3,890

Canadian provincial and municipal government — 16,909 — 16,909 — 13,811 15 13,826

U.S. government and agency 1,537 141 — 1,678 1,641 106 1 1,748

Other foreign government — 5,274 7 5,281 — 5,172 9 5,181

Corporate — 42,507 157 42,664 — 37,508 173 37,681

Asset-backed securities:

Commercial mortgage-backed securities — 2,199 6 2,205 — 1,753 6 1,759

Residential mortgage-backed securities — 2,459 — 2,459 — 2,176 — 2,176

Collateralized debt obligations — 389 — 389 — 157 — 157

Other — 1,648 41 1,689 — 1,447 29 1,476

Total debt securities - fair value through profit or loss $ 1,537 $ 76,072 $ 225 $ 77,834 $ 1,641 $ 66,005 $ 248 $ 67,894

Debtsecurities-available-for-sale consistofthe following:



Canadian federal government $ — $ 1,929 $ — $ 1,929 $ — $ 2,556 $ — $ 2,556

Canadian provincial and municipal government — 1,333 — 1,333 — 1,139 — 1,139

U.S. government and agency 796 1 — 797 1,363 — — 1,363

Other foreign government — 822 1 823 — 735 1 736

Corporate — 4,258 52 4,310 — 5,039 45 5,084

Asset-backed securities:

Commercial mortgage-backed securities — 750 2 752 — 777 — 777

Residential mortgage-backed securities — 292 — 292 — 362 — 362

Collateralized debt obligations — 531 — 531 — 730 — 730

Other — 476 12 488 — 961 4 965

Total debt securities - available-for-sale $ 796 $ 10,392 $ 67 $ 11,255 $ 1,363 $ 12,299 $ 50 $ 13,712

During 2020 and 2019,we did not have any significanttransfersbetweenLevel1 andLevel2.


ThefollowingtableprovidesareconciliationofthebeginningandendingbalancesforassetsthatarecategorizedinLevel3:

Fortheyearended

Debtsecurities-fairvaluethroughprofitor

loss

Debtsecurities-available-for-sale

Equitysecurities-fairvaluethroughprofitor

loss

Equitysecurities-available-for-sale

Otherinvestedassets

Investmentproperties

Totalinvestedassets

measuredatfairvalue

Investmentsforaccount

ofsegregated

fundholders

Totalassets

measuredatfairvalue

December31,2020

Beginningbalance $ 248 $ 50 $ 188 $ 35 $ 2,445 $ 7,306 $ 10,272 $ 549 $ 10,821

Includedinnetincome(1)(2)(3) 11 — — — (87) (63) (139) (22) (161)

IncludedinOCI(2) — 2 — — 19 — 21 — 21

Purchases 67 15 11 46 594 620 1,353 30 1,383

Sales/Payments (10) — (2) (33) (304) (325) (674) (14) (688)

Settlements (9) (2) (15) — — — (26) (1) (27)

TransfersintoLevel3(4) 3 2 — — — — 5 1 6

Transfers(out)ofLevel3(4) (88) (1) — — — — (89) (1) (90)

Foreigncurrencytranslation(5) 3 1 (1) (1) (22) (22) (42) 8 (34)

Endingbalance $ 225 $ 67 $ 181 $ 47 $ 2,645 $ 7,516 $ 10,681 $ 550 $ 11,231

Gains(losses)includedinearningsrelatingtoinstrumentsstillheldatthereportingdate(1) $ 2 $ — $ — $ — $ (68) $ 13 $ (53) $ (23) $ (76)

December31,2019

Beginningbalance $ 373 $ 43 $ 202 $ 36 $ 2,241 $ 7,157 $ 10,052 $ 1,596 $ 11,648

Acquisitions — — — — 13 — 13 — 13

Includedinnetincome(1)(2)(3) 28 — (2) (23) (80) 238 161 45 206

IncludedinOCI(2) — 4 — 2 13 — 19 — 19

Purchases 85 35 5 22 521 689 1,357 152 1,509

Sales/Payments (49) — (9) — (122) (701) (881) (59) (940)

Settlements (40) — — — — — (40) (1) (41)

TransfersintoLevel3(4) 15 — — — — — 15 — 15

Transfers(out)ofLevel3(4)(6) (159) (31) (4) — (110) — (304) (1,178) (1,482)

Foreigncurrencytranslation(5) (5) (1) (4) (2) (31) (77) (120) (6) (126)

Endingbalance $ 248 $ 50 $ 188 $ 35 $ 2,445 $ 7,306 $ 10,272 $ 549 $ 10,821

Gains(losses)includedinearningsrelatingtoinstrumentsstillheldatthereportingdate(1) $ 4 $ — $ (3) $ — $ (78) $ 272 $ 195 $ 25 $ 220

(1) IncludedinNetinvestmentincome(loss)forTotalinvestedassetsmeasuredatfairvalueinourConsolidatedStatementsofOperations.(2) Totalgainsandlossesinnetincome(loss)andOCIarecalculatedassumingtransfersintooroutofLevel3occuratthebeginningoftheperiod.Foranasset

orliabilitythattransfersintoLevel3duringthereportingperiod,theentirechangeinfairvaluefortheperiodisincludedinthetableabove.FortransfersoutofLevel3duringthereportingperiod,thechangeinfairvaluefortheperiodisexcludedfromthetableabove.

(3) Investmentpropertiesincludedinnetincomeiscomprisedoffairvaluechangesoninvestmentpropertiesof$19($305in2019),netofamortizationofleasingcommissionsandtenantinducementsof$82($67in2019).AsatDecember31,2020,wehaveusedassumptionsthatreflectknownchangesinthepropertyvaluesincludingchangesinexpectedfuturecashflows.

(4) TransfersintoLevel3occurwhentheinputsusedtopricetheassetsandliabilitieslackobservablemarketdata,andasaresult,nolongermeettheLevel1or2definitionsatthereportingdate.TransfersoutofLevel3occurwhenthepricinginputsbecomemoretransparentandsatisfytheLevel1or2criteriaandareprimarilytheresultofobservablemarketdatabeingavailableatthereportingdate,thusremovingtherequirementtorelyoninputsthatlackobservability.

(5) ForeigncurrencytranslationrelatestotheforeignexchangeimpactoftranslatingLevel3assetsandliabilitiesofforeignsubsidiariesfromtheirfunctionalcurrenciestoCanadiandollars.

(6) Anupdateofcertainspecificcriteriausedtodeterminethelevelingclassificationofthefinancialinstrumentswasmadein2019toalignwithindustrypractice.ThisresultedintransfersoutofLevel3,including$1,178forInvestmentsforaccountofsegregatedfundholdersaswellas$110forOtherinvestedassets,andtransferredintoLevel2basedontheavailabilityofobservableinputsandothercriteria.

UnobservableInputsandSensitivityforLevel3Assets

OurassetscategorizedinLevel3ofthefairvaluehierarchyareprimarilyInvestmentproperties,DebtsecuritiesandOtherinvestedassets.

ThefairvalueofInvestmentpropertiesisdeterminedbyusingthediscountedcashflowmethodologyasdescribedinNote5.A.ii.ThekeyunobservableinputsusedinthevaluationofinvestmentpropertiesasatDecember31,2020includethefollowing:• Estimatedrentalvalue:Theestimatedrentalvalueisbasedoncontractualrentandotherlocalmarketleasetransactions,netofreimbursable

operatingexpenses.Anincrease(decrease)intheestimatedrentalvaluewouldresultinahigher(lower)fairvalue.Theestimatedrentalvaluevariesdependingonthepropertytypes,whichincluderetail,office,andindustrialproperties.Theestimatedrentalvalue(indollars,persquarefoot,perannum)rangesfrom$12.00to$76.00forretailandofficepropertiesandfrom$3.00to$21.50forindustrialproperties.

• Rentalgrowthrate:Therentalgrowthrateistypicallyestimatedbasedonexpectedmarketbehaviour,whichisinfluencedbythetypeofpropertyandgeographicregionoftheproperty.Anincrease(decrease)intherentalgrowthratewouldresultinahigher(lower)fairvalue.The

NotestoConsolidatedFinancialStatementsSunLifeFinancialInc.AnnualReport2020131

rentalgrowthrate(pe rannum)rangesfrom0 .00%to 3 .00%,howeverthe one-totwo-yearshort-termrentcurveise itherbeloworabove this rangeforse lectproperties.

• Long-termvacancy rate:The long-termvacancy rate istypically estimatedbasedonexpectedmarketbehaviour,whichisinfluencedby the type ofproperty andgeographicregionofthe property.Anincrease (decrease)inthe long-termvacancy rate wouldresultinalower(higher) fairvalue.The long-termvacancy rate rangesfrom 2.00% to 10.00%.

• Discountrate:The discountrate isderivedfrommarketactivity acrossvariousproperty typesandgeographicregionsandisareflectionofthe expectedrate ofreturntobe realizedonthe investmentoverthe next 10 years.Anincrease (decrease)inthe discountrate wouldresultina lower(higher)fairvalue.The discountrate rangesfrom 4.00% to 10.25%.

• Terminalcapitalizationrate:The terminalcapitalizationrate isderivedfrommarketactivity acrossvariousproperty typesandgeographic regionsandisareflectionofthe expectedrate ofreturntobe realizedonthe investmentoverthe remainderofitslife afterthe 10-yearperiod. Anincrease (decrease)inthe terminalcapitalizationrate wouldresultinalower(higher)fairvalue.The terminalcapitalizationrate rangesfrom 4.25% to 8.75%.

Changesinthe estimatedrentalvalue are positively correlatedwithchangesinthe rentalgrowthrate.Changesinthe estimatedrentalvalue are negatively correlatedwithchangesinthe long-termvacancy rate,the discountrate,andthe terminalcapitalizationrate.

OurDebtsecuritiescategorizedinLevel3,whichare includedinDebtsecurities-FVTPLandDebtsecurities-AFSinthe Level3 rollforwardtable, consistprimarily ofcorporate bonds.The fairvalue ofthese corporate bondsisgenerally determinedusingbrokerquotesthatcannotbe corroboratedwithobservable markettransactions.Significantunobservable inputsforthese corporate bondswouldinclude issuerspreads,which are comprisedofcredit,liquidity,andothersecurity-specificfeaturesofthe bonds.Anincrease (decrease)inthese issuerspreadswouldresultina lower(higher)fairvalue.Due tothe unobservable nature ofthese brokerquotes,we donotassesswhetherapplyingreasonably possible alternative assumptionswouldhave animpactonthe fairvalue ofthe Level3 corporate bonds.The majority ofourdebtsecuritiescategorizedinLevel3 are FVTPLassetssupportinginsurance contractliabilities.Changesinthe fairvalue ofthese assetssupportinginsurance contractliabilitiesare largely offsetby changesinthe correspondinginsurance contractliabilitiesunderCALM.Asaresult,thoughusingreasonably possible alternative assumptionsmay have animpactonthe fairvalue ofthe Level3 debtsecurities,itwouldnothave asignificantimpactonourConsolidatedFinancial Statements.

The OtherinvestedassetscategorizedinLevel3,whichare includedinOtherinvestedassets-FVTPLandOtherinvestedassets-AFSinthe Level3 rollforwardtable,consistsprimarily oflimitedpartnershipinvestments.The fairvalue ofourlimitedpartnershipinvestmentsisbasedonnetasset value ("NAV")providedby managementofthe limitedpartnershipinvestments.Basedonthe unobservable nature ofthese NAVs,we donotassess whetherapplyingreasonably possible alternative assumptionswouldhave animpactonthe fairvalue ofthe Level3 limitedpartnership investments.

ValuationProcessforLevel 3 Assets

OurassetscategorizedinLevel3 ofthe fairvalue hierarchy are primarily Investmentproperties,Debtsecurities andlimitedpartnershipinvestments includedinOtherinvestedassets.Ourvaluationprocessesforthese assetsare asfollows:

The fairvalue ofinvestmentpropertiesare basedonthe resultsofappraisalsperformedannually andreviewedquarterly formaterialchanges.The valuationmethodology usedtodetermine the fairvalue isinaccordance withthe standardsofthe AppraisalInstitute ofCanada,the U.S.,andthe UK.Investmentpropertiesare appraisedexternally atleastonce every three years.Investmentpropertiesnotappraisedexternally inagivenyear are reviewedby qualifiedappraisers.A managementcommittee,includinginvestmentprofessionals,reviewsthe fairvalue ofinvestmentproperties foroverallreasonability.

The fairvalue ofDebtsecuritiesisgenerally obtainedby externalpricingservices.We obtainanunderstandingofinputsandvaluationmethodsused by externalpricingservices.Whenfairvalue cannotbe obtainedfromexternalpricingservices,brokerquotes,orinternalmodelssubjecttodetailed reviewandvalidationprocessesare used.The fairvalue ofdebtsecuritiesissubjecttoprice validationandreviewprocedurestoensure overall reasonability.

The fairvalue oflimitedpartnershipinvestments,includedinOtherinvestedassets,isbasedonNAV.The financialstatementsusedincalculating the NAVare generally auditedannually.We reviewthe NAVofthe limitedpartnershipinvestmentsandperformanalyticalandotherproceduresto ensure the fairvalue isreasonable.


5.BInterestandOtherInvestmentIncomeInterestandotherinvestmentincomepresentedinourConsolidatedStatementsofOperationsconsistofthefollowing:

FortheyearsendedDecember31, 2020 2019

Interestincome:Cash,cashequivalentsandshort-termsecurities $ 71 $ 164Debtsecurities-fairvaluethroughprofitorloss 2,485 2,395Debtsecurities-available-for-sale 317 411Mortgagesandloans 2,189 2,208Derivativeinvestments 46 30Policyloans 188 188

Totalinterestincome 5,296 5,396Equitysecurities-dividendsonfairvaluethroughprofitorloss 165 137Equitysecurities-dividendsonavailable-for-sale 4 8Investmentpropertiesrentalincome(1) 551 575Investmentpropertiesexpenses (243) (252)Otherincome (154) 196Investmentexpensesandtaxes (212) (205)

Totalinterestandotherinvestmentincome $ 5,407 $ 5,855

(1)Includesoperatingleaserentalincomefrominvestmentproperties.

5.CFairValueandForeignCurrencyChangesonAssetsandLiabilitiesFairvalueandforeigncurrencychangesonassetsandliabilitiespresentedinourConsolidatedStatementsofOperationsconsistofthefollowing:


Fairvaluechange:Cash,cashequivalentsandshort-termsecurities $ (10) $ (2)Debtsecurities 5,209 5,686Equitysecurities 357 629Derivativeinvestments 1,306 772Otherinvestedassets (3) 77

Totalchangeinfairvaluethroughprofitorlossassetsandliabilities 6,859 7,162Fairvaluechangesoninvestmentproperties 19 305Foreignexchangegains(losses)(1) (18) (349)

Fairvalueandforeigncurrencychangesonassetsandliabilities $ 6,860 $ 7,118

(1) PrimarilyarisesfromthetranslationofforeigncurrencydenominatedAFSmonetaryassetsandmortgageandloans.Anyoffsettingamountsarisingfromforeigncurrencyderivativesareincludedinthefairvaluechangeonderivativeinvestments.

5.DCash,CashEquivalentsandShort-TermSecuritiesCash,cashequivalentsandshort-termsecuritiespresentedinourConsolidatedStatementsofFinancialPositionandNetcash,cashequivalentsandshort-termsecuritiespresentedinourConsolidatedStatementsofCashFlowsconsistofthefollowing:

AsatDecember31, 2020 2019

Cash $ 2,498 $ 1,656Cashequivalents 8,156 5,059Short-termsecurities 2,873 2,860Cash,cashequivalentsandshort-termsecurities 13,527 9,575Less:Bankoverdraft,recordedinOtherliabilities 6 30

Netcash,cashequivalentsandshort-termsecurities $ 13,521 $ 9,545


5.EDerivativeFinancialInstrumentsandHedgingActivities Thefairv aluesofderivativefinancialinstrume ntsbymajorclassofde rivativesare asfollows:


Fairvalue Fairvalue

Assets Liabilities Assets Liabilities

Interestrate contracts $ 1,409 $ (340) $ 1,198 $ (517) Foreignexchange contracts 659 (1,382) 242 (1,516)

Othercontracts 92 (22) 108 (7)

Totalderivatives $ 2,160 $ (1,744) $ 1,548 $ (2,040)

The followingtable presentsthe fairvaluesofderivative assetsandliabilitiescategorizedby type ofhedge foraccountingpurposesandderivative investments:


Totalno tional amount

Fairvalue Totalnotional amount

Fairvalue

Assets Liabilities Assets Liabilities

Derivativeinv estments(1) $ 61,680 $ 2,140 $ (1,722) $ 60,707 $ 1,517 $ (1,831) Fairvalue hedges 278 5 (2) 616 — (208) Cashflowhedges 834 15 (20) 808 31 (1)

Totalderivatives $ 62,792 $ 2,160 $ (1,744) $ 62,131 $ 1,548 $ (2,040)

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

Wedidnothav e anyne tinvestmenthedgesin2 020or 2 019.

Hedgeine ffectivenessrecognizedinInterestandotherinvestmentincome consistsofthe following:

Forthe yearsendedDecember31, 2020 2019

Fairvaluehe dgingineffectiveness: Gains(losses)onthehe dgeditemsattributable tothehe dgedrisk $ (209) $ 71 Gains(losses)onthehe dgingderivatives 207 (64)

Netineffectivenessonfairvalue hedges $ (2) $ 7

Forcashflowhedges,we hadhedge ineffectivenessof $1 in2020 ($1 in2019).We expecttoreclassify againof $6 fromaccumulatedOCItonet income withinthe next12 monthsthatrelatesto cashflowhedgesofanticipatedawardpaymentsundercertainshare-basedpaymentplansthat are expectedtooccurin 2021,2022 and 2023 andcashflowhedgeswhichhedge againstforeignexchange exposure.The reclassificationof accumulatedOCItoincome relatingtothese foreigncurrency forwardsoccursupondisposalorimpairmentofthe foreignoperation.

5.FTransfersofFinancialAssets We enterintotransactions,includingmortgage securitization,repurchase agreementsandsecuritieslending,where we transferfinancialassets while retainingthe risksandrewardsofownershipofthe assets.These transferredfinancialassetsare notderecognizedandremainonour ConsolidatedStatementsofFinancialPosition.The carryingvalue ofthe transferredassetsandthe associatedliabilitiesare describedinthe sections below.

5.F.iMortgageSecuritization We securitize certaininsured fixed-rate commercialmortgagesthroughthe creationofmortgage-backedsecuritiesunderthe NationalHousingAct Mortgage-BackedSecurities("NHA MBS")Programsponsoredby the CanadaMortgage andHousingCorporation("CMHC").The NHA MBSare then soldtoCanadaHousingTrust,agovernment-sponsoredsecurity trustthatissuessecuritiestothird-party investorsunderthe CanadianMortgage Bond("CMB")program.The securitizationofthese assetsdoesnotqualify forderecognitionaswe have nottransferredsubstantially allofthe risks andrewardsofownership.Specifically,we continue tobe exposedtopre-paymentandinterestrate riskassociatedwiththese assets.There are no expectedcreditlossesonthe securitizedmortgages,asthe mortgageswere already insuredby the CMHCpriortosecuritization.These assets continue tobe recognizedasMortgagesandloansinourConsolidatedStatementsofFinancialPosition.Proceedsfromsecuritizationtransactions are recognizedassecuredborrowingsandincludedinOtherliabilitiesinourConsolidatedStatementsofFinancialPosition.

Receiptsofprincipalonthe securitizedmortgagesare depositedintoaprincipalreinvestmentaccount("PRA")tomeetourrepaymentobligation uponmaturity underthe CMBprogram.The assetsinthe PRA are typically comprisedofcashandcashequivalentsandcertainasset-backed securities.We are exposedtoreinvestmentriskdue tothe amortizingnature ofthe securitizedmortgagesrelative toourrepaymentobligationfor the fullprincipalamountdue atmaturity.We mitigate thisreinvestmentriskusinginterestrate swaps.

The carryingvalue andfairvalue ofthe securitizedmortgagesasat December31,2020 are $1,781 and $1,873,respectively ($1,587 and $1,592, respectively,asat December31,2019).The carryingvalue andfairvalue ofthe associatedliabilitiesasat December31,2020 are $1,912 and $2,032,


respectively ($1,715 and $1,734,respectively,asat December31,2019).The carryingvalue ofasset-backedsecuritiesinthe PRA asat December31,2020 is$145 ($124 asat December31,2019).There are nocashandcashequivalentsinthe PRA asat December31,2020 and 2019.

The fairvalue ofthe securedborrowingsfrommortgage securitizationisbasedonthe methodologiesandassumptionsforasset-backedsecurities describedin Note 5.A.ii.The fairvalue ofthese liabilitiesiscategorizedinLevel2 ofthe fairvalue hierarchy asat December31,2020 and 2019.

5.F.iiRepurchaseAgreements We enterintorepurchase agreementsforoperationalfundingandliquidity purposes.Repurchase agreementshave maturitiesrangingfrom 7 to 365 days,averaging 86 days,andbearinterestatanaverage rate of 0.37% asat December31,2020 (1.81% asat December31,2019).The carrying valuesofthe transferredassetsandthe obligationsrelatedtotheirrepurchase,whichapproximate theirfairvalues,are $2,208 asat December31,2020 ($1,850 asat December31,2019).These liabilitiesare categorizedinLevel2 ofthe fairvalue hierarchy.Collateralprimarily consistsofcashandcashequivalentsaswellasgovernmentguaranteedsecurities.Detailsonthe collateralpledgedare includedin Note 6.A.ii.

5.F.iiiSecuritiesLending The Company engagesinsecuritieslendingtogenerate additionalincome.Certainsecuritiesfromitsportfolioare lenttootherinstitutionsforshort periods.Collateralexceedingthe fairvalue ofthe securitieslentisdepositedby the borrowerwithalendingagent,usually asecuritiescustodian, andmaintainedby the lendingagentuntilthe underlyingsecurity hasbeenreturnedtous.The fairvalue ofthe securitieslentismonitoredona daily basiswithadditionalcollateralobtainedorrefundedasthe fairvaluesfluctuate.Collateralprimarily consistsofCanadianfederalandprovincial governmentsecuritiesandcashandcashequivalents.Certainarrangementsallowustoinvestthe cashcollateralreceivedforthe securitieslent. The carryingvaluesofthe securitieslentapproximate theirfairvalues.The carryingvaluesofthe securitieslentandthe relatedcollateralheldare $1,974 and $2,063,respectively,asat December31,2020 ($2,006 and $2,128,respectively,asat December31,2019). Ofthe collateralheld,we heldcashcollateralof $306 asat December31,2020 ($nil asat December31,2019),whichisrecognizedonourConsolidatedStatementsof FinancialPosition.

6.FinancialInstrumentRiskManagement

The significantrisksrelatedtofinancialinstrumentsare creditrisk,marketrisk(includingequity risk,interestrate andspreadrisk,andforeign currency risk)andliquidity risk.The followingsectionsdescribe howwe manage these risks.

Some ofourfinancialinstrumentsriskmanagementpoliciesandproceduresare describedinourAnnualManagement’sDiscussionandAnalysis ("MD&A")forthe yearended December31,2020.The shadedtextandtablesinthe RiskManagementsectionofthe MD&A representpartofour disclosuresoncredit,marketandliquidity risksandinclude adescriptionofhowwe measure ourriskandourobjectives,policiesandmethodologies formanagingthese risks.Therefore,the shadedtextandtablesare anintegralpartofthese ConsolidatedFinancialStatements.

We use derivative instrumentstomanage marketrisksrelatedtoequity market,interestrate andcurrency fluctuationsandinreplicationstrategies forpermissible investments.We donotengage inspeculative investmentinderivatives. The gapinmarketsensitivitiesorexposuresbetween liabilitiesandsupportingassetsismonitoredandmanagedwithindefinedtolerance limits,by usingderivative instruments,where appropriate.We use modelsandtechniquestomeasure the effectivenessofourriskmanagementstrategies.

6.ACreditRisk RiskDescription Creditriskisthe possibility oflossfromamountsowedby ourborrowersorfinancialcounterparties.We are subjecttocreditriskinconnectionwith issuersofsecuritiesheldinourinvestmentportfolio,debtors,structuredsecurities,reinsurers,counterparties(includingderivative,repurchase agreementandsecuritieslendingcounterparties),otherfinancialinstitutionsandotherentities. Lossesmay occurwhenacounterparty failstomake timely paymentspursuanttothe termsofthe underlyingcontractualarrangementorwhenthe counterparty'screditratingorriskprofile otherwise deteriorates.Creditriskcanalsoarise inconnectionwithdeteriorationinthe value of,orability torealize,any underlyingsecurity thatmay be used ascollateralforthe debtobligation. Creditriskcanoccurasaresultofbroadeconomicconditions,challengeswithinspecificsectorsofthe economy,orfromissuesaffectingindividualcompanies.Eventsthatresultindefaults,impairmentsordowngradesofthe securitiesinour investmentportfoliowouldcause the Company torecordrealizedorunrealizedlossesandmay cause anincrease inourprovisionsforassetdefault, adversely impactingearnings.

CreditRiskManagementGovernanceandControl We employ awide range ofcreditriskmanagementpracticesandcontrols,asoutlinedbelow: • Creditriskgovernance practicesare inplace,includingindependentmonitoringandreviewandreportingtoseniormanagementandthe Risk

Committee. • Riskappetite limitshave beenestablishedforcreditrisk. • Income andregulatory capitalsensitivitiesare monitored,managedandreportedagainstpre-establishedrisklimits. • Comprehensive InvestmentandCreditRiskManagementPolicy,guidelinesandpracticesare inplace. • Specificinvestmentdiversificationrequirementsare inplace,suchasdefinedinvestmentlimitsforassetclass,geography,andindustry. • Risk-basedcreditportfolio,counterparty,andsectorexposure limitshave beenestablished. • Mandatory use ofcreditquality ratingsforportfolioinvestmentshasbeenestablishedandisreviewedregularly.These internalratingdecisions

fornewfixedincome investmentsandongoingreviewofexistingratingdecisionsare independently adjudicatedby Corporate Risk Management.

• Comprehensive due diligence processesandongoingcreditanalysesare conducted. • Regulatory solvency requirementsinclude risk-basedcapitalrequirementsandare monitoredregularly. • Comprehensive compliance monitoringpracticesandproceduresincludingreportingagainstpre-establishedinvestmentlimitsare inplace.


• Reinsurance exposuresare monitoredtoensure thatnosingle reinsurerrepresentsanundue levelofcreditrisk. • Stress-testingtechniques,suchas FinancialConditionTesting("FCT"),are usedtomeasure the effectsoflarge andsustainedadverse credit

developments. • Insurance contractliabilitiesare establishedinaccordance withCanadianactuarialstandardsofpractice. • Internalcapitaltargetsare establishedatanenterprise leveltocoverallrisksandare above minimumregulatory andsupervisory levels.Actual

capitallevelsare monitoredtoensure they exceedinternaltargets.

6.A.iMaximumExposuretoCreditRisk Ourmaximumcreditexposure relatedtofinancialinstrumentsasatDecember31 isthe balance aspresentedinourConsolidatedStatementsof FinancialPositionaswe believe thatthese carryingamountsbestrepresentthe maximumexposure tocreditrisk.The creditexposure fordebt securitiesmay be increasedtothe extentthatthe amountsrecoveredfromdefaultare insufficienttosatisfy the actuarialliability cashflowsthatthe assetsare intendedtosupport.

The positive fairvalue ofderivative assetsisusedtodetermine the creditriskexposure ifthe counterpartieswere todefault.The creditrisk exposure isthe costofreplacing,atcurrentmarketrates,allderivative contractswithapositive fairvalue.Additionally,we have creditexposure to itemsnotonthe ConsolidatedStatementsofFinancialPositionasfollows:


Off-balanceshe etitem: Loancommitments(1) $ 1,890 $ 2,175

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

6.A.iiRightofOffsetandCollateral We investinfinancialassetswhichmay be securedby realestate properties,poolsoffinancialassets,third-party financialguarantees,credit insurance,andotherarrangements.

ForOTCderivatives,collateraliscollectedfromandpledgedtocounterpartiestomanage creditexposure accordingtothe CreditSupportAnnex ("CSA"),whichformspartofthe InternationalSwapsandDerivativesAssociation's("ISDA")masteragreements.Itiscommonpractice toexecute a CSA inconjunctionwithanISDA masteragreement.Underthe ISDA masteragreementsforOTCderivatives,we have arightofoffsetinthe eventof default,insolvency,bankruptcy,orotherearly termination.Inthe ordinary course ofbusiness,bilateralOTCexposuresunderthese agreementsare substantially mitigatedthroughassociatedcollateralagreementswithamajority ofourcounterparties.

Forexchange-tradedderivativessubjecttoderivative clearingagreementswiththe exchangesandclearinghouses,there isnoprovisionforset-offat default.Initialmarginisexcludedfromthe table belowasitwouldbecome partofapooledsettlementprocess.

Forrepurchase agreementsandreverse repurchase agreements,assetsare soldorpurchasedwithacommitmenttoresellorrepurchase atafuture date.Additionalcollateralmay be pledgedtoorcollectedfromcounterpartiestomanage creditexposure accordingtobilateralrepurchase or reverse repurchase agreements.Inthe eventofdefaultby acounterparty,we are entitledtoliquidate the assetswe holdascollateraltooffset againstobligationstothe same counterparty.

Inthe case ofsecuritieslending,assetsare lentwithacommitmentfromthe counterparty toreturnatafuture date.Cashorsecuritiesare received ascollateralfromthe counterparty.Inthe eventofdefaultby the counterparty,we are entitledtoliquidate the assetswe holdascollateraltooffset againstobligationstothe same counterparty.


We donotoffsetfinancialinstrumentsinourConsolidatedStatementsofFinancialPosition,asourrightsofoffsetare conditional.The following tablespresentthe effectofconditionalnettingandsimilararrangements.Similararrangementsinclude globalmasterrepurchase agreements, security lendingagreements,andany relatedrightstofinancialcollateral.


Relateda mountsnot set offi nthe Consol idated Statementsof Fi nancial

Position

Relatedamount s not set offin t heCons olidated Statements ofFinancial

Position Financial

instruments presented

inthe Consolidated Statements ofFi nancial Position(1)

Financial instruments subjectto

master nettingor

similar agreements

Financial collateral (received) pledged(2)

Netamount

Financial instruments presented

int he Consolidated Statements ofFinancial Position(1)

Financial instruments subject to

master netting or

similar agreements

Financialcollateral (received) pledged(2)

Net amount

Financialassets: Derivative assets(Note 6.A.v) $ 2,160 $ (883) $ (1,139) $ 138 $ 1,548 $ (737) $ (730) $ 81

Reverse repurchase agreements(Note 8) 4 (4) — — 3 (3) — —

Totalfinancialassets $ 2,164 $ (887) $ (1,139) $ 138 $ 1,551 $ (740) $ (730) $ 81

Financialliabilities: Derivative liabilities $ (1,744) $ 883 $ 736 $ (125) $ (2,040) $ 737 $ 937 $ (366)

Repurchase agreements(Note 5.F.ii) (2,208) 4 2,204 — (1,850) 3 1,847 —

Cashcollateralonsecuritieslent (Note 5.F.iii) (306) — 301 (5) — — — —

Totalfinancialliabilities $ (4,258) $ 887 $ 3,241 $ (130) $ (3,890) $ 740 $ 2,784 $ (366)

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

(2) Financial collateral excludes overcollateralization and, for exchange-traded derivatives, initial margin. Total financial collateral, including initial margin and overcollateralization, received on derivative assets was $1,275 ($939 as at December 31, 2019), received on reverse repurchase agreements was $4 ($3 as at December 31, 2019), pledged on derivative liabilities was $1,830 ($1,706 as at December 31, 2019), and pledged on repurchase agreements was $2,208 ($1,850 as at December 31, 2019).

6.A.iiiConcentrationRisk Concentrationsofcreditriskarise fromexposurestoasingle debtor,agroupofrelateddebtors,orgroupsofdebtorsthathave similarcreditrisk characteristics,suchasgroupsofdebtorsinthe same economicorgeographicregionsorinsimilarindustries.Relatedissuersmay have similar economiccharacteristicssothattheirability tomeetcontractualobligationsmay be impactedsimilarly by changesinthe economicorpolitical conditions.We manage thisriskby appropriately diversifyingourinvestmentportfoliothroughthe use ofconcentrationlimits.Inparticular,we maintainpolicieswhichsetcounterparty exposure limitstomanage the creditexposure forinvestmentsinany single issuerortothe same underlyingcredit.Exceptionsexistforinvestmentsinsecuritieswhichare issuedorguaranteedby the GovernmentofCanada,U.S.orUK andissuers forwhichthe RiskCommittee have grantedspecificapproval.Mortgagesare collateralizedby the relatedproperty,andgenerally donotexceed75% ofthe value ofthe property atthe time the originalloanismade.Ourmortgagesandloansare diversifiedby type andlocationand,formortgages, by borrower.Loansprovide diversificationbenefits(name,industry andgeography)andoftenprovide strongercovenantsandcollateralthanpublic debtsecurities,thereby providingbothbettercreditprotectionandpotentially higherrecoveriesinthe eventofdefault.The followingtables provide detailsofthe debtsecurities,mortgagesandloansheldby issuercountry,geographiclocationandindustry sector,where applicable.

The carryingvalue ofdebtsecuritiesby geographiclocationisshowninthe followingtable.The geographiclocationisbasedonthe country ofthe creditor'sparent.


Fairvalue through

profit orloss Available-for-sale

Total debt securities

Fairvalue through

profitorloss Available-for-sale

Totaldebt securities

Canada $ 34,005 $ 4,685 $ 38,690 $ 28,221 $ 5,031 $ 33,252

UnitedStates 27,183 3,984 31,167 24,224 5,822 30,046

UnitedKingdom 4,592 487 5,079 4,874 528 5,402

Other 12,054 2,099 14,153 10,575 2,331 12,906

Balance $ 77,834 $ 11,255 $ 89,089 $ 67,894 $ 13,712 $ 81,606


The carryingvalue ofdebtsecuritiesby issuerandindustry sectorisshowninthe followingtable:


Fairvalue through

profito rloss

Available-for-sale


Fairvaluethrough

profitorlossAvailable-for-sale

Totaldebtsecurities

Debtsecuritiesissuedorguaranteedby: Canadianfederalgovernment $ 4,560 $ 1,929 $ 6,489 $ 3,890 $ 2,556 $ 6,446

Canadianprovincialandmunicipalgovernment 16,909 1,333 18,242 13,826 1,139 14,965

U.S.governmentandagency 1,678 797 2,475 1,748 1,363 3,111

Otherforeigngovernment 5,281 823 6,104 5,181 736 5,917

Totalgovernmentissuedorguaranteeddebtsecurities 28,428 4,882 33,310 24,645 5,794 30,439

Corporate debtsecuritiesby industry sector: Financials 10,644 1,212 11,856 9,341 1,585 10,926

Utilities 7,561 682 8,243 6,693 565 7,258

Industrials 5,659 567 6,226 4,800 629 5,429

Energy 4,452 350 4,802 3,867 365 4,232

Communicationservices 3,644 322 3,966 3,075 471 3,546

Realestate 2,438 329 2,767 2,595 368 2,963

Healthcare 1,986 186 2,172 1,886 236 2,122

Consumerstaples 1,893 158 2,051 1,703 221 1,924

Consumerdiscretionary 1,606 165 1,771 1,268 219 1,487

Materials 1,473 152 1,625 1,331 212 1,543

Informationtechnology 1,308 187 1,495 1,122 213 1,335

Totalcorporate debtsecurities 42,664 4,310 46,974 37,681 5,084 42,765

Asset-backedsecurities 6,742 2,063 8,805 5,568 2,834 8,402

Totaldebtsecurities $ 77,834 $ 11,255 $ 89,089 $ 67,894 $ 13,712 $ 81,606

The carryingvalue ofmortgagesandloansby geographiclocationandtype isshowninthe followingtables.The geographiclocationformortgagesis basedonlocationofproperty,while forcorporate loansitisbasedonthe country ofthe creditor'sparent.

Asat December31,2020 Canada UnitedStates UnitedKingdom Other Total

Mortgages: Retail $ 1,963 $ 1,747 $ — $ — $ 3,710 Office 1,635 1,846 — — 3,481

Multi-family residential 3,950 1,681 — — 5,631

Industrialandland 996 949 — — 1,945

Other 575 86 — — 661

Totalmortgages(1) $ 9,119 $ 6,309 $ — $ — $ 15,428

Loans $ 13,107 $ 13,773 $ 3,798 $ 3,840 $ 34,518

Totalmortgagesandloans $ 22,226 $ 20,082 $ 3,798 $ 3,840 $ 49,946

(1) $4,008 of mortgages in Canada are insured by the CMHC.

AsatDecember31,2019 Canada UnitedStates UnitedKingdom Other Total

Mortgages: Retail $ 1,981 $ 1,921 $ — $ — $ 3,902

Office 1,854 2,068 — — 3,922

Multi-family residential 3,900 1,791 — — 5,691

Industrialandland 861 1,037 — — 1,898

Other 714 98 — — 812

Totalmortgages(1) $ 9,310 $ 6,915 $ — $ — $ 16,225

Loans $ 13,249 $ 11,994 $ 3,297 $ 3,457 $ 31,997

Totalmortgagesandloans $ 22,559 $ 18,909 $ 3,297 $ 3,457 $ 48,222

(1) $3,966 of mortgages in Canada are insured by the CMHC.


6.A.ivContractualMaturities The contractualmaturitiesofdebtsecuritiesare showninthe followingtable.Actualmaturitiescoulddifferfromcontractualmaturitiesbecause of the borrower'srighttocallorextendorrighttoprepay obligations,withorwithoutprepaymentpenalties.


Fairvalue through

profito rloss Available-for-sale


Fairvalue through



Due in1 yearorless $ 3,048 $ 721 $ 3,769 $ 2,094 $ 2,025 $ 4,119

Dueiny ears2-5 10,526 3,549 14,075

9,692 3,954 13,646

Dueiny ears6-10

10,459 3,540 13,999 9,655 3,301 12,956

Due after10 years 53,801 3,445 57,246 46,453 4,432 50,885


Thecarry ingvalueofmortgage sbysche duledmaturity,beforeallowance sforlosses,isasfollows:


Due in1 yearorless $ 1,230 $ 1,099

Due inyears2-5 5,465 5,255

Due inyears6-10 5,884 6,787

Due after10 years 2,915 3,154

Totalmortgages $ 15,494 $ 16,295

Thecarry ingvalue ofloansbysche duledmaturity,beforeallowance sforlosses,isasfollows:


Due in1 yearorless $ 2,192 $ 1,834

Due inyears2-5 6,954 6,872

Due inyears6-10 6,670 5,449

Due after10 years 18,751 17,889

Totalloans $ 34,567 $ 32,044


Notionalamountsofderivative financialinstrumentsare the basisforcalculatingpaymentsandare generally notthe actualamountsexchanged. The followingtable providesthe notionalamountsofderivative instrumentsoutstandingby type ofderivative andtermtomaturity:


Termto maturity Termtomaturity

Under 1 Year

1 to 5 Years

Over5 Years Total

Under 1 Year

1 to5 Years

Over5 Years Total

Over-the-countercontracts: Interestrate contracts:

Forwardcontracts $ — $ 6 $ — $ 6 $ 50 $ — $ — $ 50

Swapcontracts 1,010 3,363 13,302 17,675 1,906 3,052 14,649 19,607

Optionspurchased 757 3,246 2,285 6,288 617 3,279 2,850 6,746

Optionswritten(1) — 465 — 465 357 474 — 831

Foreignexchange contracts: Forwardcontracts 12,205 31 — 12,236 5,289 4,137 — 9,426

Swapcontracts 1,260 2,797 14,467 18,524 867 3,723 12,366 16,956

Othercontracts: Optionspurchased 119 8 — 127 1,164 — — 1,164

Forwardcontracts 132 175 — 307 128 176 — 304

Swapcontracts 170 1 — 171 178 1 — 179

Creditderivatives 175 737 — 912 343 878 6 1,227

Exchange-tradedcontracts: Interestrate contracts:

Futurescontracts 3,389 — — 3,389 2,917 — — 2,917

Equity contracts: Futurescontracts 2,553 — — 2,553 2,507 — — 2,507

Optionspurchased 127 — — 127 200 — — 200

Optionswritten 12 — — 12 17 — — 17

Totalnotionalamount $ 21,909 $ 10,829 $ 30,054 $ 62,792 $ 16,540 $ 15,720 $ 29,871 $ 62,131 (1) These are covered short derivative positions that may include interest rate options, swaptions, or floors.

The followingtable providesthe fairvalue ofderivative instrumentsoutstandingby termtomaturity:


Termto maturity Termtomaturity

Under 1 Year

1 to 5 Years

Over5 Years Total

Under 1 Year

1 to5 Years

Over5 Years Total

Derivative assets $ 329 $ 223 $ 1,608 $ 2,160 $ 180 $ 231 $ 1,137 $ 1,548

Derivative liabilities $ (215) $ (245) $ (1,284) $ (1,744) $ (73) $ (377) $ (1,590) $ (2,040)


6.A.vAssetQuality The followingsectionsdescribe ourassessmentofthe creditquality ofourfinancialassets.We monitorcreditquality basedoninternalriskratings aswellasratingsassignedby externalratingagencieswhere available.

Debt Securitiesby Credit Rating

Investmentgrade debtsecuritiesare those ratedBBBandabove.Ourdebtsecurity portfoliowas 98% investmentgrade basedoncarryingvalue as at December31,2020 (99% asat December31,2019).The creditriskratingswere establishedinaccordance withthe internalratingprocess describedinthe CreditRiskManagementGovernance andControlsection.

The followingtable summarizesourdebtsecuritiesby creditquality:


Fairvalue through

profit orloss Available-for-sale


Fairvalue through



Debtsecuritiesby creditrating: AAA $ 12,794 $ 4,810 $ 17,604 $ 11,097 $ 6,630 $ 17,727

AA 11,870 1,586 13,456 10,503 1,670 12,173

A 30,812 2,600 33,412 27,341 3,037 30,378

BBB 21,203 2,091 23,294 18,339 2,248 20,587

BBandlower 1,155 168 1,323 614 127 741


MortgagesandLoansby Credit Rating

The creditquality ofmortgagesandloansisevaluatedinternally throughregularmonitoringofcredit-relatedexposures.We use judgmentand experience todetermine whatfactorsshouldbe consideredwhenassigninganinternalcreditrating,whichisvalidatedthroughthe use ofcredit scoringmodels,toaparticularmortgage orcorporate loan.The internalcreditratingsreflectthe creditquality ofthe borroweraswellasthe value ofany collateralheldassecurity.

The followingtablessummarize ourmortgagesandloansby creditquality indicator:


Mortgagesby creditrating: Insured $ 4,008 $ 3,966

AAA — 1

AA 1,435 2,087

A 4,031 5,481

BBB 4,524 3,943

BBandlower 1,404 670

Impaired 26 77

Totalmortgages $ 15,428 $ 16,225


Loansby creditrating: AAA $ 212 $ 224

AA 4,906 5,044

A 13,183 12,516

BBB 13,758 12,920

BBandlower 2,427 1,207

Impaired 32 86

Totalloans $ 34,518 $ 31,997

DerivativeFinancial Instrumentsby Counterparty Credit Rating

Derivativeinstrume ntsconsistofbilateralOTCcontractsnegotiateddirectlybe tweencounterparties,OTCcontractsclearedthroughcentralclearing housesorexchange-tradedcontracts.Sinceacounte rparty failureinanOTCde rivativetransactioncouldre nderitineffectiveforhe dgingpurposes, wege nerallytransactourde rivativecontractswithhighly -ratedcounterparties.Inlimitedcircumstances,wee nterintotransactionswithlower-ratedcounterpartiesifcreditenhancementfeaturesareinclude d.

Weple dgeandholdasse tsascollateralunderCSAsforbilateralOTCderivative contracts.Thecollate ralisrealizedinthee ventofearlyte rmination asdefinedintheagre ements.Theasse tsheldandpledgedare primarilycashandde btsecuritiesissuedby theCanadianfe deralgovernmentand U.S.governmentandagencies.While we arege nerallype rmittedtosellorre-pledge theasse tsheldascollateral,wehav enotsoldorre -pledged


anyasse ts.Exchange-tradedandclearedOTCderivativesrequire thepostingofinitialmargin,aswe llasdailycashse ttlementofvariationmargin. Thete rmsandconditionsrelatedtothe use ofthecollate ralareconsiste ntwithindustrypractice .

Furtherdetailsoncollateralheldandpledgedaswellastheimpactofne ttingarrangementsareinclude dinNote6 .A.ii.

The followingtable showstheOTCde rivativefinancialinstrume ntswithapositivefairv alue splitbycounte rpartycre ditrating:


Grosspositive replacement

cost(2)

Impact of masternetting agreements(3)

Net replacement

cost(4)

Grosspositive replacement

cost(2)

Impactof masternetting agreements(3)

Net replacement

cost(4)

Over-the-countercontracts: AA $ 596 $ (293) $ 303 $ 439 $ (210) $ 229

A 1,430 (575) 855 1,008 (517) 491

BBB 98 (15) 83 82 (10) 72

Totalover-the-counterderivatives(1) $ 2,124 $ (883) $ 1,241 $ 1,529 $ (737) $ 792

(1) Exchange-traded derivatives with a positive fair value of $36 in 2020 ($19 in 2019) are excluded from the table above, as they are subject to daily margining requirements. Our credit exposure on these derivatives is with the exchanges and clearinghouses.

(2) Used to determine the credit risk exposure if the counterparties were to default. The credit risk exposure is the cost of replacing, at current market rates, all contracts with a positive fair value.

(3) The credit risk associated with derivative assets subject to master netting arrangements is reduced by derivative liabilities due to the same counterparty in the event of default or early termination. Our overall exposure to credit risk reduced through master netting arrangements may change substantially following the reporting date as the exposure is affected by each transaction subject to the arrangement.

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

Credit Default Swapsby UnderlyingFinancial Instrument Credit Rating

Creditdefaultswaps("CDS")are OTCcontractsthattransfercreditriskrelatedtoanunderlyingreferencedfinancialinstrumentfromone counterparty toanother.The purchaserreceivesprotectionagainstthe decline inthe value ofthe referencedfinancialinstrumentasaresultof specifiedcrediteventssuchasdefaultorbankruptcy.The sellerreceivesaperiodicpremiuminreturnforpaymentcontingentonacreditevent affectingthe referencedfinancialinstrument.CDSindexcontractsare those where the underlyingreferencedfinancialinstrumentsare agroupof assets.The Company entersintocreditderivativestoreplicate creditexposure ofanunderlyingreference security andenhance investmentreturns. The creditriskratingsofthe underlyingreference securitiesforsingle name contractswere establishedinaccordance withthe internalrating processdescribedinthe CreditRiskManagementGovernance andControlsection.

The followingtable providesasummary ofthe creditdefaultswapprotectionsoldby creditratingofthe underlyingreference security:


Notional amount

Fair value

Notional amount

Fair value

Single name creditdefaultswapcontracts: AA $ 38 $ 1 $ 45 $ 1

A 325 4 574 9

BBB 530 12 608 19

BB 19 — — —

Totalsingle name creditdefaultswapcontracts $ 912 $ 17 $ 1,227 $ 29

Totalcreditdefaultswapcontractssold $ 912 $ 17 $ 1,227 $ 29

ReinsuranceAssetsby Credit Rating

The table belowpresentsthe distributionofReinsurance assetsby creditrating:


Grossexposure Collateral Net exposure Grossexposure Collateral Netexposure

Reinsurance assetsby creditrating: AA $ 2,222 $ 8 $ 2,214 $ 2,131 $ 5 $ 2,126

A 1,156 73 1,083 1,170 68 1,102

BBB 213 127 86 200 128 72

BB 1,779 1,740 39 1,707 1,663 44

CCC 168 164 4 181 168 13

Notrated 90 75 15 78 67 11

Total $ 5,628 $ 2,187 $ 3,441 $ 5,467 $ 2,099 $ 3,368

Less:Negative reinsurance assets 1,785 1,443

TotalReinsurance assets $ 3,843 $ 4,024


6.A.viImpairmentofAssets Managementassessesdebtandequity securities,mortgagesandloans,andotherinvestedassetsforobjective evidence ofimpairmentateach reportingdate.We employ aportfoliomonitoringprocesstoidentify assetsorgroupsofassetsthathave objective evidence ofimpairment,having experiencedalosseventoreventsthathave animpactonthe estimatedfuture cashflowsofthe assetorgroupofassets.There are inherentrisks anduncertaintiesinourevaluationofassetsorgroupsofassetsforobjective evidence ofimpairment,includingbothinternalandexternalfactors suchasgeneraleconomicconditions,issuers' financialconditionsandprospectsforeconomicrecovery,marketinterestrates,unforeseenevents whichaffectone ormore issuersorindustry sectors,andportfoliomanagementparameters,includingassetmix,interestrate risk,portfolio diversification,durationmatching,andgreaterthanexpectedliquidity needs.Allofthese factorscouldimpactourevaluationofanassetorgroupof assetsforobjective evidence ofimpairment.

Managementexercisesconsiderable judgmentinassessingforobjective evidence ofimpairmentand,basedonitsassessment,classifiesspecific assetsaseitherperformingorintoone ofthe followingcreditquality lists:

"MonitorList" -the timely collectionofallcontractually specifiedcashflowsisreasonably assured,butchangesinissuer-specificfactsand circumstancesrequire monitoring.Noimpairmentcharge isrecordedforunrealizedlossesonassetsrelatedtothese debtors.

"WatchList" -the timely collectionofallcontractually specifiedcashflowsisreasonably assured,butchangesinissuer-specificfactsand circumstancesrequire heightenedmonitoring.Anassetismovedfromthe MonitorListtothe WatchListwhenchangesinissuer-specificfactsand circumstancesincrease the possibility thatasecurity may experience alosseventonanimminentbasis.Noimpairmentcharge isrecordedfor unrealizedlossesonassetsrelatedtothese debtors.

"ImpairedList" -the timely collectionofallcontractually specifiedcashflowsisnolongerreasonably assured.Forthese investmentsthatare classifiedasAFSoramortizedcost,animpairmentcharge isrecordedorthe assetissoldandarealizedlossisrecordedasacharge toincome. Impairmentchargesandrealizedlossesare recordedonassetsrelatedtothese debtors.

Ourapproachtodeterminingwhetherthere isobjective evidence ofimpairmentvariesby assettype.However,we have aprocesstoensure thatin allinstanceswhere adecisionhasbeenmade tosellanassetataloss,the assetisimpaired.

DebtSecurities

Objective evidence ofimpairmentondebtsecuritiesinvolvesanassessmentofthe issuer'sability tomeetcurrentandfuture contractualinterest andprincipalpayments.Indeterminingwhetherdebtsecuritieshave objective evidence ofimpairment,we employ ascreeningprocess.The process identifiessecuritiesinanunrealizedlossposition,withparticularattentionpaidtothose securitieswhose fairvalue toamortizedcostpercentages have beenlessthan80%foranextendedperiodoftime.Discrete creditevents,suchasaratingsdowngrade,are alsousedtoidentify securitiesthat may have objective evidence ofimpairment.The securitiesidentifiedare thenevaluatedbasedonissuer-specificfactsandcircumstances,including anevaluationofthe issuer'sfinancialconditionandprospectsforeconomicrecovery,evidence ofdifficulty beingexperiencedby the issuer'sparent oraffiliate,andmanagement'sassessmentofthe outlookforthe issuer'sindustry sector.

Managementalsoassessespreviously impaireddebtsecuritieswhose fairvalue hasrecoveredtodetermine whetherthe recovery isobjectively relatedtoaneventoccurringsubsequenttothe impairmentlossthathasanimpactonthe estimatedfuture cashflowsofthe asset.

Asset-backedsecuritiesare assessedforobjective evidence ofimpairment.Specifically,we periodically update ourbestestimate ofcashflowsover the life ofthe security.Inthe eventthatthere isanadverse change inthe expectedcashflows,the assetisimpaired.Estimatingfuture cashflowsis aquantitative andqualitative processthatincorporatesinformationreceivedfromthirdparties,alongwithassumptionsandjudgmentsaboutthe future performance ofthe underlyingcollateral.Lossesincurredonthe respective mortgage-backedsecuritiesportfoliosare basedonlossmodels usingassumptionsaboutkey systematicrisks,suchasunemploymentratesandhousingprices,andloan-specificinformationsuchasdelinquency ratesandloan-to-value ratios.

EquitySecuritiesandOtherInvestedAssets

Objective evidence ofimpairmentforequity securitiesandinvestmentsinlimitedpartnerships,segregatedfunds,andmutualfundsinvolvesan assessmentofthe prospectofrecoveringthe costofourinvestment.Instrumentsinanunrealizedlosspositionare reviewedtodetermine if objective evidence ofimpairmentexists.Objective evidence ofimpairmentforthese instrumentsincludes,butisnotlimitedto,the financial conditionandnear-termprospectsofthe issuer,includinginformationaboutsignificantchangeswithadverse effectsthathave takenplace inthe technological,market,economic,orlegalenvironmentinwhichthe issueroperates,andasignificantorprolongeddecline inthe fairvalue ofthe instrumentsbelowtheircost.

We apply presumptive impairmentteststodetermine whetherthere hasbeenasignificantorprolongeddecline inthe fairvalue ofaninstrument belowitscost,andunlessextenuatingcircumstancesexist,the instrumentisconsideredtobe impaired.

MortgagesandLoans

Objective evidence ofimpairmentonmortgagesandloansinvolvesanassessmentofthe borrower'sability tomeetcurrentandfuture contractual interestandprincipalpayments.Indeterminingwhetherobjective evidence ofimpairmentexists,we consideranumberoffactorsincluding,butnot limitedto,the financialconditionofthe borrowerand,forcollateraldependentmortgagesandloans,the fairvalue ofthe collateral.

Mortgagesandloanscausingconcernare monitoredclosely andevaluatedforobjective evidence ofimpairment.Forthese mortgagesandloans,we reviewinformationthatisappropriate tothe circumstances,includingrecentoperatingdevelopments,strategy review,timelinesforremediation, financialpositionofthe borrowerand,forcollateral-dependentmortgagesandloans,the value ofsecurity aswellasoccupancy andcashflow considerations.


Inadditiontospecificallowances,circumstancesmay warrantacollective allowance basedonobjective evidence ofimpairmentforagroupof mortgagesandloans.We considerregionaleconomicconditions,developmentsforvariousproperty types,andsignificantexposure tostruggling tenantsindeterminingwhetherthere isobjective evidence ofimpairmentforcertaincollateraldependentmortgagesandloans,eventhoughitis notpossible toidentify specificmortgagesandloansthatare likely tobecome impairedonanindividualbasis.

Managementalsoassessespreviously impairedmortgagesandloanstodetermine whetherarecovery isobjectively relatedtoaneventoccurring subsequenttothe impairmentlossthathasanimpactonthe estimatedfuture cashflowsofthe asset.

Impairment ofFairValueThroughProfit orLossAssets

Since financialassetsclassifiedasFVTPLare carriedatfairvalue withchangesinfairvalue recordedtoincome,any reductioninvalue ofthe assets due toimpairmentisalready reflectedinincome.However,the impairmentofassetsclassifiedasFVTPLgenerally impactsthe change ininsurance contractliabilitiesdue tothe impactofassetimpairmentonestimatesoffuture cashflows.

Impairment ofAvailable-for-SaleAssets

We recognizednetimpairmentlossesonAFSassetsof $19 forthe yearended December31,2020 ($36 during 2019).

We did notreverse any impairmentonAFSdebtsecuritiesduring 2020 and 2019.

Past DueandImpairedMortgagesandLoans

The distributionofmortgagesandloanspastdue orimpairedisshowninthe followingtables:

Grosscarryingvalue Allowanceforlosses

AsatDecember3 1,2020 Mortgages Loans Total Mortgages Loans Total

Notpastdue $ 15,402 $ 34,486 $ 49,888 $ — $ — $ — Impaired 92 81 173 66 49 115

Total $ 15,494 $ 34,567 $ 50,061 $ 66 $ 49 $ 115

Grosscarryingvalue Allowance forlosses

AsatDecember31,2019 Mortgages Loans Total Mortgages Loans Total

Notpastdue $ 16,148 $ 31,911 $ 48,059 $ — $ — $ — Impaired 147 133 280 70 47 117

Total $ 16,295 $ 32,044 $ 48,339 $ 70 $ 47 $ 117

ChangesinAllowancesforLosses

Thechange sintheallowance sforlossesare asfollows:

Mortgages Loans Total

Balance,January 1,2019 $ 25 $ 50 $ 75

Provisionfor(reversalof)losses 46 (1) 45

Foreignexchange ratemov ements (1) (2) (3)

Balance,December31,2019 $ 70 $ 47 $ 117

Provisionfor(reversalof)losses 6 17 23

Write-offs,netofrecoveries,andotheradjustments (9) (15) (24) Foreignexchange rate movements (1) — (1)

Balance,December31,2020 $ 66 $ 49 $ 115

6.BMarketRisk RiskDescription We are exposedtofinancialandcapitalmarketrisk,whichisdefinedasthe riskthatthe fairvalue orfuture cashflowsofaninsurance contractor financialinstrumentwillfluctuate because ofchangesorvolatility inmarketprices.Marketriskincludesequity,interestrate andspread,realestate andforeigncurrency risks.

MarketRiskManagementGovernanceandControl We employ awide range ofmarketriskmanagementpracticesandcontrolsasoutlinedbelow: • Marketriskgovernance practicesare inplace,includingindependentmonitoringandreviewandreportingtoseniormanagementandthe Risk

Committee. • Riskappetite limitshave beenestablishedforequity,interestrate,realestate andforeigncurrency risks. • Income andregulatory capitalsensitivitiesare monitored,managedandreportedagainstpre-establishedrisklimits. • Comprehensive asset-liability managementandhedgingpolicies,programsandpracticesare inplace. • Regulatory solvency requirementsinclude risk-basedcapitalrequirementsandare monitoredregularly. • ProductDesignandPricingPolicy requiresadetailedriskassessmentandpricingprovisionsformaterialrisks. • Stress-testingtechniques,suchasFCT,are usedtomeasure the effectsoflarge andsustainedadverse marketmovements.


• Insurance contractliabilitiesare establishedinaccordance withCanadianactuarialstandardsofpractice. • Internalcapitaltargetsare establishedatanenterprise leveltocoverallrisksandare above minimumregulatory andsupervisory levels.Actual


Specificmarketrisksandourriskmanagementstrategiesare discussedbelowinfurtherdetail.

6.B.iEquity Risk Equity riskisthe potentialforfinanciallossarisingfromdeclinesorvolatility inequity marketprices.We are exposedtoequity riskfromanumberof sources.A portionofourexposure toequity riskarisesinconnectionwithbenefitguaranteesonsegregatedfundproducts.These benefit guaranteesmay be triggeredupondeath,maturity,withdrawalorannuitization.The costofprovidingthese guaranteesisuncertainanddepends uponanumberoffactors,includinggeneralcapitalmarketconditions,ourhedgingstrategies,policyholderbehaviourandmortality experience, eachofwhichmay resultinnegative impactsonnetincome andcapital.

We generate revenue inourassetmanagementbusinessesandfromcertaininsurance andannuity contractswhere feesare leviedonaccount balancesthatare affecteddirectly by equity marketlevels.Accordingly,we have furtherexposure toequity riskasadverse fluctuationsinthe marketvalue ofsuchassetswillresultincorrespondingadverse impactsonourrevenue andnetincome.Inaddition,decliningandvolatile equity marketsmay have anegative impactonsalesandredemptions(surrenders)inthese businesses,andthismay resultinfurtheradverse impactson ournetincome andfinancialposition.

We alsohave directexposure toequity marketsfromthe investmentssupportingothergeneralaccountliabilities,surplus,andemployee benefit plans.These exposuresfallwithinourrisk-takingphilosophy andappetite,andare therefore generally nothedged.

The carryingvalue ofequitiesby issuercountry isshowninthe followingtable:


Fairvalue through

profito rloss Available-for-sale

Total equities

Fairvalue through


Total equities

Canada $ 3,064 $ 15 $ 3,079 $ 2,813 $ 22 $ 2,835 UnitedStates 1,046 148 1,194 550 137 687 UnitedKingdom 163 6 169 132 5 137 Other 2,096 93 2,189 979 149 1,128

Totalequities $ 6,369 $ 262 $ 6,631 $ 4,474 $ 313 $ 4,787

6.B.iiEmbeddedDerivativesRisk Anembeddedderivative iscontainedwithinahostinsurance contractifitincludesanidentifiable conditiontomodify the cashflowsthatare otherwise payable.Thissectionisapplicable tothose embeddedderivativeswhere we are notrequiredto,andhave notmeasured(either separately ortogetherwiththe hostcontract)the embeddedderivative atfairvalue.

A significantmarketriskexposure fromembeddedderivativesarisesinconnectionwiththe benefitguaranteesonsegregatedfundcontracts.These benefitguaranteesare linkedtounderlyingfundperformance andmay be triggeredupondeath,maturity,withdrawal,orannuitization.We have implementedhedgingprogramstomitigate aportionofthismarketriskexposure.

We are alsoexposedtosignificantinterestrate riskfromembeddedderivativesincertaingeneralaccountproductsandsegregatedfundcontracts, whichcontainexplicitorimplicitinvestmentguaranteesinthe formofminimumcreditingrates,guaranteedpremiumrates,settlementoptions,and benefitguarantees.Ifinvestmentreturnsfallbelowguaranteedlevels,we may be requiredtoincrease liabilitiesorcapitalinrespectofthese contracts.The guaranteesattachedtothese productsmay be applicable tobothpastpremiumscollectedandfuture premiumsnotyetreceived. Segregatedfundcontractsprovide benefitguaranteesthatare linkedtounderlyingfundperformance andmay be triggeredupondeath,maturity, withdrawal,orannuitization.These productsare includedinourasset-liability managementprogramandthe residualinterestrate exposure is managedwithinourriskappetite limits.

We are alsoexposedtointerestrate riskthroughguaranteedannuitizationoptionsincludedprimarily inretirementcontractsandpensionplans. These embeddedoptionsgive policyholdersthe righttoconverttheirinvestmentintoapensiononaguaranteedbasis,thereby exposingusto declininglong-terminterestratesasthe annuity guarantee ratescome intoeffect.Embeddedoptionsonunit-linkedpensioncontractsgive policyholdersthe righttoconverttheirfundatretirementintopensionsonaguaranteedbasis,thereby exposingustodeclininginterestratesand increasingequity marketreturns(increasingthe size ofthe fundwhichiseligible forthe guaranteedconversionbasis).Guaranteedannuity options are includedinourasset-liability managementprogramandmostofthe interestrate andequity exposure ismitigatedthroughhedging.

Significantchangesorvolatility ininterestratesorspreadscouldhave anegative impactonsalesofcertaininsurance andannuity products,and adversely impactthe expectedpatternofredemptions(surrenders)onexistingpolicies.Increasesininterestratesorwideningspreadsmay increase the riskthatpolicyholderswillsurrendertheircontracts,potentially forcingustoliquidate assetsatalossandaccelerate recognitionofcertain acquisitionexpenses.While we have establishedhedgingprogramsinplace andourinsurance andannuity productsoftencontainsurrender mitigationfeatures,these may notbe sufficienttofully offsetthe adverse impactofthe underlyinglosses.

Certainannuity andlong-termdisability contractscontainembeddedderivativesasbenefitsare linkedtothe ConsumerPrice Index;howevermost ofthisexposure ishedgedthroughthe Company’songoingasset-liability managementprogram.


6.CLiquidityRisk RiskDescription Liquidity riskisthe possibility thatwe willnotbe able tofundallcashoutflowcommitmentsandcollateralrequirementsasthey falldue.This includesthe riskofbeingforcedtosellassetsatdepressedpricesresultinginrealizedlossesonsale.Thisriskalsoincludesrestrictionsonourability toefficiently allocate capitalamongoursubsidiariesdue tovariousmarketandregulatory constraintsonthe movementoffunds.Ourfunding obligationsarise inconnectionwiththe paymentofpolicyholderbenefits,expenses,reinsurance settlements,assetpurchases,investment commitments,interestondebt,anddividendsoncommonandpreferredshares.Sourcesofavailable cashflowinclude generalfundpremiumsand deposits,investmentrelatedinflows(suchasmaturities,principalrepayments,investmentincome andproceedsofassetsales),proceedsgenerated fromfinancingactivities,anddividendsandinterestpaymentsfromsubsidiaries.We have variousfinancingtransactionsandderivative contracts underwhichwe may be requiredtopledge collateralortomake paymentstoourcounterpartiesforthe decline inmarketvalue ofspecifiedassets. The amountofcollateralorpaymentsrequiredmay increase undercertaincircumstances(suchaschangestointerestrates,creditspreads,equity marketsorforeignexchange rates),whichcouldadversely affectourliquidity.

Liquidity RiskManagementGovernanceandControl We generally maintainaconservative liquidity positionandemploy awide range ofliquidity riskmanagementpracticesandcontrols,whichare describedbelow: • Liquidity riskgovernance practicesare inplace,includingindependentmonitoringandreviewandreportingtoseniormanagementandthe

RiskCommittee. • Liquidity ismanagedinaccordance withourAssetLiability ManagementPolicy andoperatingguidelines. • Liquidity contingency plansare maintainedforthe managementofliquidity inaliquidity event. • Stresstestingisperformedby comparingliquidity coverage riskmetricsunderaone-monthstressscenariotoourpolicy thresholds.These

liquidity coverage riskmetricsare measuredandmanagedatthe enterprise andlegalentity levels. • Stresstestingofourcollateralisperformedby comparingcollateralcoverage ratiostoourpolicy threshold. • CashManagementandasset-liability managementprogramssupportourability tomaintainourfinancialpositionby ensuringthatsufficient

cashflowandliquidassetsare available tocoverpotentialfundingrequirements.We investinvarioustypesofassetswithaviewofmatching themtoourliabilitiesofvariousdurations.

• Internalcapitaltargetsare establishedatanenterprise leveltocoverallrisksandare above minimumregulatory andsupervisory levels.Actual capitallevelsare monitoredtoensure they exceedinternaltargets.

• We actively manage andmonitorourcapitalandassetlevels,andthe diversificationandcreditquality ofourinvestments. • Variouscreditfacilitiesforgeneralcorporate purposesare maintained.

We are subjecttovariousregulationsinthe jurisdictionsinwhichwe operate.The ability ofSLFInc.'ssubsidiariestopay dividendsandtransfer fundsisregulatedincertainjurisdictionsandmay require localregulatory approvalsandthe satisfactionofspecificconditionsincertain circumstances. Througheffective cashmanagementandcapitalplanning,SLFInc.ensuresthatitssubsidiaries,asawhole andonastand-alone basis,are properly fundedandmaintainadequate liquidity tomeetobligations,bothindividually andinaggregate. Basedonourhistoricalcashflowsandliquidity managementprocesses,we believe thatthe cashflowsfromouroperatingactivitieswillcontinue to provide sufficientliquidity forustosatisfy debtservice obligationsandtopay otherexpensesasthey falldue.

7.InsuranceRiskManagement

7.AInsuranceRisk RiskDescription Insurance riskisthe uncertainty ofproductperformance due toactualexperience emergingdifferently thanexpectedinthe areasofpolicyholder behaviour,mortality,morbidity andlongevity.Inaddition,productdesignandpricing,expense andreinsurance risksimpactmultiple riskcategories, includinginsurance risk.

InsuranceRiskManagementGovernanceandControl We employ awide range ofinsurance riskmanagementpracticesandcontrols,asoutlinedbelow: • Insurance riskgovernance practicesare inplace,includingindependentmonitoringandreviewandreportingtoseniormanagementandthe

RiskCommittee. • Income andregulatory capitalsensitivitiesare monitored,managedandreportedagainstpre-establishedriskappetite limitsforpolicyholder

behaviour,mortality,morbidity andlongevity risks. • Comprehensive Insurance RiskPolicy,guidelinesandpracticesare inplace. • The globalunderwritingmanualalignsunderwritingpracticeswithourcorporate riskmanagementstandardsandensuresaconsistent

approachininsurance underwriting. • Board-approvedmaximumretentionlimitsare inplace.Amountsissuedinexcessofthese limitsare reinsured. • Detailedprocedures,includingcriteriaforapprovalofrisksandforclaimsadjudicationare establishedandmonitoredforeachbusiness

segment. • Underwritingandriskselectionstandardsandproceduresare establishedandoverseenby the corporate underwritingandclaimsrisk

managementfunction. • Diversificationandriskpoolingismanagedby aggregationofexposuresacrossproductlines,geography anddistributionchannels. • The Insurance RiskPolicy andInvestment&CreditRiskPolicy establishacceptance criteriaandprotocolstomonitorthe levelofreinsurance

cededtoany single reinsurerorgroupofreinsurers. • Reinsurance counterparty riskismonitored,includingannualreportingofreinsurance exposure tothe RiskCommittee.


• Concentrationriskexposure ismonitoredongrouppoliciesinasingle locationtoavoidacatastrophiceventoccurrence resultingina significantimpact.

• Variouslimits,restrictionsandfee structuresare introducedintoplandesignsinordertoestablishamore homogeneouspolicy riskprofile and limitpotentialforanti-selection.

• Regulatory solvency requirementsinclude risk-basedcapitalrequirementsandare monitoredregularly. • The ProductDesignandPricingPolicy requiresdetailedriskassessmentandpricingprovisionformaterialrisks. • Company specificandindustry levelexperience studiesandsourcesofearningsanalysisare monitoredandfactoredintovaluation,renewal

andnewbusinesspricingprocesses. • Stress-testingtechniques,suchasFCT,are usedtomeasure the effectsoflarge andsustainedadverse movementsininsurance riskfactors. • Insurance contractliabilitiesare establishedinaccordance withCanadianactuarialstandardsofpractice. • Internalcapitaltargetsare establishedatanenterprise leveltocoverallrisksandare above minimumregulatory andsupervisory levels.Actual


OurInsurance RiskPolicy setsmaximumglobalretentionlimitsandrelatedmanagementstandardsandpracticesthatare appliedtoreduce our exposure tolarge claims.Amountsinexcessofthe Board-approvedmaximumretentionlimitsare reinsured.Onasingle life orjoint-first-to-die basis retentionlimitis $40 inCanadaandUS$40 outside ofCanada.Forsurvivorshiplife insurance,ourmaximumglobalretentionlimitis $50 inCanada andUS$50 outside ofCanada.Incertainmarketsandjurisdictions,retentionlevelsbelowthe maximumare applied.Reinsurance isutilizedfor numerousproductsinmostbusinesssegments,andplacementisdone onanautomaticbasisfordefinedinsurance portfoliosandonafacultative basisforindividualriskswithcertaincharacteristics.

Ourreinsurance coverage iswelldiversifiedandcontrolsare inplace tomanage exposure toreinsurance counterparties.Reinsurance exposuresare monitoredtoensure thatnosingle reinsurerrepresentsanundue levelofcreditrisk.Thisincludesperformingperiodicdue diligence onour reinsurance counterpartiesaswellasinternalcreditassessmentsoncounterpartieswithwhichwe have materialexposure.While reinsurance arrangementsprovide forthe recovery ofclaimsarisingfromthe liabilitiesceded,we retainprimary responsibility tothe policyholders.

Specificinsurance risksandourriskmanagementstrategiesare discussedbelowinfurtherdetail.The sensitivitiesprovidedbelowreflectthe impactofany applicable cededreinsurance arrangements.

7.A.iPolicyholderBehaviourRisk Risk Description

We canincurlossesdue toadverse policyholderbehaviourrelative tothe assumptionsusedinthe pricingandvaluationofproductswithregardto lapse ofpoliciesorexercise ofotherembeddedpolicy options.

Uncertainty inpolicyholderbehaviourcanarise fromseveralsourcesincludingunexpectedeventsinthe policyholder'slife circumstances,the generallevelofeconomicactivity (whetherhigherorlowerthanexpected),changesinthe financialandcapitalmarkets,changesinpricingand availability ofcurrentproducts,the introductionofnewproducts,changesinunderwritingtechnology andstandards,aswellaschangesinour financialstrengthorreputation. Uncertainty infuture cashflowsaffectedby policyholderbehaviourcanbe furtherexacerbatedby irrational behaviourduringtimesofeconomicturbulence oratkey optionexercise pointsinthe life ofaninsurance contract.

Forindividuallife insurance productswhere fewerterminationswouldbe financially adverse tous,shareholders' netincome andequity wouldbe decreasedby about $295 ($265 in2019)ifthe terminationrate assumptionwere reducedby 10%.Forproductswhere more terminationswouldbe financially adverse tous,shareholders' netincome andequity wouldbe decreasedby about $200 ($195 in2019)ifthe terminationrate assumption were increasedby 10%.These sensitivitiesreflectthe impactofany applicable cededreinsurance arrangements.

PolicyholderBehaviourRisk Management GovernanceandControl

Varioustypesofprovisionsare builtintomany ofourproductstoreduce the impactofuncertainpolicyholderbehaviour.These provisionsinclude: • Surrenderchargesthatadjustthe payouttothe policyholderby takingintoaccountprevailingmarketconditions. • Limitsonthe amountthatpolicyholderscansurrenderorborrow. • Restrictionsonthe timingofpolicyholders' ability toexercise certainoptions. • Restrictionsonboththe typesoffunds Clients canselectandthe frequency withwhichthey canchange funds. • Policyholderbehaviourriskisalsomitigatedthroughreinsurance onsome insurance contracts.

Internalexperience studiesare usedtomonitor,reviewandupdate policyholderbehaviourassumptionsasneeded,whichcouldresultinupdates topolicy liabilities.

7.A.iiMortality andMorbidity Risk Risk Description

Mortality andmorbidity riskisthe riskthatfuture experience couldbe worse thanthe assumptionsusedinthe pricingandvaluationofproducts. Mortality andmorbidity riskcanarise inthe normalcourse ofbusinessthroughrandomfluctuationinrealizedexperience,throughcatastrophes,as aresultofapandemic,orinassociationwithotherriskfactorssuchasproductdevelopmentandpricingormodelrisk.Adverse mortality and morbidity experience couldalsooccurthroughsystemicanti-selection,whichcouldarise due topoorplandesign,orunderwritingprocessfailure or the developmentofinvestor-ownedandsecondary marketsforlife insurance policies.

Externalfactorscouldadversely affectourlife insurance,healthinsurance,criticalillness,disability,long-termcare insurance andannuity businesses.Morbidity experience couldbe unfavourably impactedby externalevents,suchaspandemics,increasesindisability claimsduring economicslowdownsandincreasesinhighmedicaltreatmentcostsandgrowthinutilizationofspecialty drugs.Thisintroducesthe potentialfor adverse financialvolatility inourfinancialresults.


Forlife insurance products,a 2% increase inthe bestestimate assumptionwoulddecrease shareholders' netincome andequity by about $25 ($35 in2019). Thissensitivity reflectsthe impactofany applicable cededreinsurance arrangements.

Forproductswhere morbidity isasignificantassumption,a 5% adverse change inthe assumptionswouldreduce shareholders' netincome and equity by about $250 ($205 in2019).Thissensitivity reflectsthe impactofany applicable cededreinsurance arrangements.

Mortality andMorbidity Risk Management GovernanceandControl

Detaileduniformunderwritingprocedureshave beenestablishedtodetermine the insurability ofapplicantsandtomanage exposure tolarge claims.These underwritingrequirementsare regularly scrutinizedagainstindustry guidelinesandoversightisprovidedthroughacorporate underwritingandclaimmanagementfunction.

We donothave ahighdegree ofconcentrationrisktosingle individualsorgroupsdue toourwell-diversifiedgeographicandbusinessmix.The largestportionofmortality riskwithinthe Company isinNorthAmerica.Individualandgroupinsurance policiesare underwrittenpriortoinitial issue andrenewals,basedonriskselection,plandesign,andratingtechniques.

The Insurance RiskPolicy approvedby the RiskCommittee includeslimitsonthe maximumamountofinsurance thatmay be issuedunderone policy andthe maximumamountthatmay be retained.These limitsvary by geographicregionandamountsinexcessoflimitsare reinsuredtoensure there isnoexposure tounreasonable concentrationofrisk.

7.A.iiiLongevity Risk Risk Description

Longevity riskisthe potentialforeconomicloss,accountinglossorvolatility inearningsarisingfromadverse changesinratesofmortality improvementrelative tothe assumptionsusedinthe pricingandvaluationofproducts.Thisriskcanmanifestitselfslowly overtime as socioeconomicconditionsimprove andmedicaladvancescontinue.Itcouldalsomanifestitselfmore quickly,forexample,due tomedical breakthroughsthatsignificantly extendlife expectancy.Longevity riskaffectscontractswhere benefitsorcostsare baseduponthe likelihoodof survivalandhigherthanexpectedimprovementsinpolicyholderlife expectancy couldtherefore increase the ultimate costofthese benefits(for example,annuities,pensions,pure endowments,reinsurance,segregatedfunds,andspecifictypesofhealthcontracts).Additionally,ourlongevity riskexposure isincreasedforcertainannuity productssuchasguaranteedannuity optionsby anincrease inequity marketlevels.

Forannuitiesproductsforwhichlowermortality wouldbe financially adverse tous,a 2% decrease inthe mortality assumptionwoulddecrease shareholders' netincome andequity by about $150 ($135 in2019).These sensitivitiesreflectthe impactofany applicable cededreinsurance arrangements.

Longevity Risk Management GovernanceandControl

Toimprove managementoflongevity risk,we monitorresearchinthe fieldsthatcouldresultinachange inexpectedmortality improvement. Stress-testingtechniquesare usedtomeasure andmonitorthe impactofextreme mortality improvementonthe aggregate portfolioofinsurance andannuity productsaswellasourownpensionplans.

7.A.ivProductDesignandPricingRisk Risk Description

Productdesignandpricingriskisthe riskaproductdoesnotperformasexpected,causingadverse financialconsequences.Thisriskmay arise from deviationsinrealizedexperience versusassumptionsusedinthe pricingofproducts.Riskfactorsinclude uncertainty concerningfuture investment yields,policyholderbehaviour,mortality andmorbidity experience,saleslevels,mixofbusiness,expensesandtaxes.Althoughsome ofourproducts permitustoincrease premiumsoradjustotherchargesandcreditsduringthe life ofthe policy orcontract,the termsofthese policiesorcontracts may notallowforsufficientadjustmentstomaintainexpectedprofitability.Thiscouldhave anadverse effectonourprofitability andcapital position.

Product DesignandPricingGovernanceandControl

OurProductDesignandPricingPolicy,approvedby the RiskCommittee,establishesthe frameworkgoverningourproductdesignandpricing practicesandisdesignedtoalignourproductofferingswithourstrategicobjectivesandrisk-takingphilosophy.Consistentwiththispolicy,product development,designandpricingprocesseshave beenimplementedthroughoutthe Company.Newproductsfollowastage-gate processwith definedmanagementapprovalsbasedonthe significance ofthe initiative.Eachinitiative issubjecttoariskassessmentprocesstoidentify key risks andriskmitigationrequirements,andisreviewedby multiple stakeholders.Additionalgovernance andcontrolproceduresare listedbelow: • Pricingmodels,methods,andassumptionsare subjecttoperiodicinternalpeerreviews. • Experience studies,sourcesofearningsanalysis,andproductdashboardsare usedtomonitoractualexperience againstthose assumedin

pricingandvaluation. • Onexperience rated,participating,andadjustable products,emergingexperience isreflectedthroughchangesinpolicyholderdividendscales

aswellasotherpolicy adjustmentmechanismssuchaspremiumandbenefitlevels. • Limitsandrestrictionsmay be introducedintothe designofproductstomitigate adverse policyholderbehaviourorapply upperthresholdson

certainbenefits.

7.A.vExpenseRisk Risk Description

Expense riskisthe riskthatfuture expensesare higherthanthe assumptionsusedinthe pricingandvaluationofproducts.Thisriskcanarise from generaleconomicconditions,unexpectedincreasesininflation,slowerthananticipatedgrowth,orreductioninproductivity leadingtoincreasesin unitexpenses.Expense riskoccursinproductswhere we cannotorwillnotpassincreasedcostsontothe Client andwillmanifestitselfinthe formof aliability increase orareductioninexpectedfuture profits.


The sensitivity ofliabilitiesforinsurance contractstoa 5% increase inunitexpenseswouldresultinadecrease inshareholders' netincome and equity ofabout $175 ($170 in2019).These sensitivitiesreflectthe impactofany applicable cededreinsurance arrangements.

ExpensesRisk Management GovernanceandControl

We closely monitorexpensesthroughanannualbudgetingprocessandongoingmonitoringofany expense gapsbetweenunitexpensesassumedin pricingandactualexpenses.

7.A.viReinsuranceRisk Risk Description

We purchase reinsurance forcertainrisksunderwrittenby ourvariousinsurance businesses.Reinsurance riskisthe riskoffinanciallossdue to adverse developmentsinreinsurance markets(forexample,discontinuance ordiminutionofreinsurance capacity,oranincrease inthe costof reinsurance),insolvency ofareinsurerorinadequate reinsurance coverage.

Changesinreinsurance marketconditions,includingactionstakenby reinsurerstoincrease ratesonexistingandnewcoverage andourability toobtainappropriate reinsurance,may adversely impactthe availability orcostofmaintainingexistingorsecuringnewreinsurance capacity, withadverse impactsonourbusinessstrategies,profitability andfinancialposition.There isanincreasedpossibility ofrate increasesor renegotiationoflegacy reinsurance contractsby ourreinsurers,asthe globalreinsurance industry continuestoreviewandoptimize their businessmodels.Inaddition,changestothe regulatory treatmentofreinsurance arrangementscouldhave anadverse impactonourcapital position.

ReinsuranceRisk Management GovernanceandControl

We have anInsurance RiskPolicy andanInvestment&CreditRiskPolicy approvedby the RiskCommittee,whichsetacceptance criteriaand processestomonitorthe levelofreinsurance cededtoany single reinsurer.These policiesalsosetminimumcriteriafordeterminingwhich reinsurance companiesqualify assuitable reinsurance counterpartieshavingthe capability,expertise,governance practicesandfinancialcapacity to assume the risksbeingconsidered.Additionally,these policiesrequire thatallagreementsinclude provisionstoallowactiontobe taken,suchas recapture ofcededrisk(atapotentialcosttothe Company),inthe eventthatthe reinsurerlosesitslegalability tocarry onbusinessthrough insolvency orregulatory action.Periodicdue diligence isperformedonthe reinsurance counterpartieswithwhichwe dobusinessandinternalcredit assessmentsare performedonreinsurance counterpartieswithwhichwe have materialexposure.Reinsurance counterparty creditexposuresare monitoredclosely andreportedannually tothe RiskCommittee.

Newsalesofourproductscanbe discontinuedorchangedtoreflectdevelopmentsinthe reinsurance markets.Ratesforourin-force reinsurance treatiescanbe eitherguaranteedoradjustable forthe life ofthe cededpolicy.Inordertodiversify reinsurance risk,there is generally more thanone reinsurersupportingareinsurance pool.

8.OtherAssets

Otherassetsconsistofthe following:


Accountsreceivable $ 1,191 $ 1,294

Investmentincome due andaccrued 1,127 1,122

Property andequipment 664 630

Right-of-use assets 730 770 Deferredacquisitioncosts(1) 150 139

Prepaidexpenses 325 319

Premiumreceivable 621 662

Accruedpost-retirementbenefitassets(Note 25) 197 187

Other 147 93

Totalotherassets $ 5,152 $ 5,216

(1) Amortization of deferred acquisition cost charged to income during the year amounted to $21 in 2020 ($18 in 2019).


9.GoodwillandIntangibleAssets

9.AGoodwillChangesinthecarryingamountofgoodwillacquiredthroughbusinesscombinationsbyreportablebusinesssegmentareasfollows:

Canada U.S. AsiaAsset

Management Corporate Total

Balance,January1,2019 $ 2,607 $ 1,138 $ 705 $ 775 $ 187 $ 5,412Acquisitions — — — 537 — 537Foreignexchangeratemovements — (55) (29) (31) (2) (117)

Balance,December31,2019 $ 2,607 $ 1,083 $ 676 $ 1,281 $ 185 $ 5,832Acquisitions(Note3) — — — 278 — 278Foreignexchangeratemovements — (21) (11) (8) 2 (38)

Balance,December31,2020 $ 2,607 $ 1,062 $ 665 $ 1,551 $ 187 $ 6,072

Goodwillwasnotimpairedin2020or2019.ThecarryingamountsofgoodwillallocatedtoourCGUsorgroupsofCGUsareasfollows:


Canada(1) $ 2,607 $ 2,607U.S.Employeebenefitsgroup 1,062 1,083Asia 665 676AssetManagement

MFS 486 494SLCManagement-excludingInfraRed 777 787

InfraRed 288 —Corporate

UK 187 185

Total $ 6,072 $ 5,832

(1)ReflectsachangeinpresentationtocombineCGUsinCanadaasonegroupeffectiveJanuary1,2020.Wehaveupdatedthepriorperiodtoreflectthischangeinpresentation.

GoodwillacquiredinbusinesscombinationsisallocatedtotheCGUsorgroupsofCGUsthatareexpectedtobenefitfromthesynergiesoftheparticularacquisition.

GoodwillisassessedforimpairmentannuallyormorefrequentlyifeventsorcircumstancesoccurthatmayresultintherecoverableamountofaCGUfallingbelowitscarryingvalue.Therecoverableamountisthehigheroffairvaluelesscostsofdisposalandvalueinuse.Weusefairvaluelesscostsofdisposalastherecoverableamount.

WeusethebestevidenceoffairvaluelesscostsofdisposalasthepriceobtainableforthesaleofaCGU,orgroupofCGUs.Fairvaluelesscostsofdisposalisinitiallyassessedbylookingatrecentlycompletedmarketcomparabletransactions.Intheabsenceofsuchcomparables,weuseeitheranappraisalmethodology(withmarketassumptionscommonlyusedinthevaluationofinsurancecompaniesorassetmanagementcompanies)oravaluationmultiplesmethodology.ThefairvaluemeasurementsarecategorizedinLevel3ofthefairvaluehierarchy.

Themostrecentcalculationsfrom2018forcertainCGUsandgroupsofCGUswerecarriedforwardandusedintheimpairmenttestinthecurrentperiodas:(i)therecoverableamountfortheseCGUsandgroupsofCGUsexceededthecarryingamountbyasubstantialmargin,(ii)theassetsandliabilitiesmakinguptheCGUsandgroupsofCGUshadnotchangedsignificantly,and(iii)thelikelihoodthatthecarryingvaluewouldexceedtherecoverableamountwasremote,basedonananalysisofeventsthathaveoccurredandcircumstancesthathavechanged.Thekeydriversimpactingtherecoverableamountfrom2018areconsistentwiththekeyassumptionsbelow.

Undertheappraisalmethodology,fairvalueisassessedbasedonbestestimatesoffutureincome,expenses,levelandcostofcapitaloverthelifetimeofthepoliciesand,whereappropriate,adjustedforitemssuchastransactioncosts.Thevalueascribedtonewbusinessisbasedonsalesanticipatedinourbusinessplans,salesprojectionsforthevaluationperiodbasedonreasonablegrowthassumptions,andanticipatedlevelsofprofitabilityofthatnewbusiness.Incalculatingthevalueofnewbusiness,futuresalesareprojectedfor10to15years.Insomeinstances,marketmultiplesareusedtoapproximatetheexplicitprojectionofnewbusiness.

ThediscountratesappliedreflectthenatureoftheenvironmentforthatCGU.Thediscountratesusedrangefrom9.25%to12.50%(aftertax).MoreestablishedCGUswithastrongerbrandandcompetitivemarketpositionusediscountratesatthelowendoftherangeandCGUswithaweakercompetitivepositionusediscountratesatthehighendoftherange.Thecapitallevelsusedarealignedwithourbusinessobjectives.

Underthevaluationmultiplesmethodology,fairvalueisassessedwithreferencetomultiplesorratiosofcomparablebusinesses.Forlifeinsurersandassetmanagers,thesevaluationmultiplesandratiosmayincludeprice-to-earningsorprice-to-assets-under-managementmeasures.Thisassessmenttakesintoconsiderationavarietyofrelevantfactorsandassumptions,includingexpectedgrowth,risk,andmarketconditionsamongothers.Theprice-to-earningsmultiplesusedrangefrom10.5to11.5.Theprice-to-assets-under-managementratiosusedrangefrom0.8%to2.0%.

150SunLifeFinancialInc.AnnualReport2020NotestoConsolidatedFinancialStatements

Judgmentisusedinestimatingthe recoverable amountsofCGUsandthe use ofdifferentassumptionsandestimatescouldresultinmaterial adjustmentstothe valuationofCGUsandthe size ofany impairment.Any materialchange inthe key assumptionsincludingthose forcapital, discountrates,the value ofnewbusiness,andexpenses,aswellascashflowprojectionsusedinthe determinationofrecoverable amounts,may resultinimpairmentcharges,whichcouldbe material.

Inconsideringthe sensitivity ofthe key assumptionsabove,managementdeterminedthatthere isnoreasonably possible change inany ofthe above thatwouldresultinthe recoverable amountofany ofthe CGUstobe lessthanitscarryingamount.

9.BIntangibleAssets Changesinintangible assetsare asfollows:

Finitelife

Internally generated software Other

Indefinite life Total

Grosscarryingamount Balance,January1 ,2019 $ 722 $ 1,266 $ 673 $ 2,661

Additions 151 115 — 266

Acquisitions — 238 — 238

Foreignexchange ratemov ements (16) (28) (27) (71)

Balance,December31,2019 $ 857 $ 1,591 $ 646 $ 3,094

Additions 230 — — 230

Acquisitions — 63 295 358

Disposals (4) (5) — (9) Foreignexchange rate movements (13) (15) (3) (31)

Balance,December31,2020 $ 1,070 $ 1,634 $ 938 $ 3,642

Accumulatedamortizationandimpairmentlosses Balance,January 1,2019 $ (417) $ (461) $ (4) $ (882)

Amortizationcharge forthe year (73) (64) — (137) Impairmentofintangible assets (13) — (2) (15) Foreignexchange rate movements 15 8 — 23

Balance,December31,2019 $ (488) $ (517) $ (6) $ (1,011)

Amortizationcharge forthey ear (78) (78) — (156) Impairmentofintangibleasse ts (2) — (9) (11) Foreignexchange ratemov ements 7 5 1 13

Balance,December31,2020 $ (561) $ (590) $ (14) $ (1,165)

Netcarryingamount,endofperiod: AsatDecember31,2019 $ 369 $ 1,074 $ 640 $ 2,083

Asat December31,2020 $ 509 $ 1,044 $ 924 $ 2,477

The componentsofthe intangible assetsare asfollows:


Finite life intangible assets: Distribution,salespotentialoffieldforce $ 316 $ 339 Clientrelationshipsandassetadministrationcontracts 728 735

Internallyge neratedsoftware 509 369

Totalfinite life intangible assets 1,553 1,443

Indefinite life intangible assets: Fundmanagementcontracts(1) 924 640

Totalindefinite life intangible assets 924 640

Totalintangible assets $ 2,477 $ 2,083

(1) Fund management contracts are attributable to Asset Management, where its competitive position in, and the stability of, its markets support their classification as indefinite life intangible assets.


10.InsuranceContractLiabilitiesandInvestmentContractLiabilities

10.AInsuranceContractLiabilities 10.A.iDescriptionofBusiness The majority ofthe productssoldby the Company are insurance contracts.These contractsinclude allformsoflife,healthandcriticalillness insurance soldtoindividualsandgroups,life contingentannuities,accumulationannuities,andsegregatedfundproductswithguarantees.

10.A.iiMethodsandAssumptions General

The liabilitiesforinsurance contractsrepresentthe estimatedamountswhich,togetherwithestimatedfuture premiumsandnetinvestment income,willprovide foroutstandingclaims,estimatedfuture benefits,policyholders' dividends,taxes(otherthanincome taxes),andexpenseson in-force insurance contracts.

Indeterminingourliabilitiesforinsurance contracts,assumptionsmustbe made aboutmortality andmorbidity rates,lapse andotherpolicyholder behaviour("policyholderbehaviour"),interestrates,equity marketperformance,assetdefault,inflation,expenses,andotherfactorsoverthe life of ourproducts.Mostofthese assumptionsrelate toeventsthatare anticipatedtooccurmany yearsinthe future.Assumptionsrequire significant judgmentandregularreviewand,where appropriate,revision.

We use bestestimate assumptionsforexpectedfuture experience andapply marginsforadverse deviationstoprovide foruncertainty inthe choice ofthe bestestimate assumptions.The amountofinsurance contractliabilitiesrelatedtothe applicationofmarginsforadverse deviationstobest estimate assumptionsiscalledaprovisionforadverse deviations.

Best EstimateAssumptions

Bestestimate assumptionsare intendedtobe current,neutralestimatesofthe expectedoutcome asguidedby Canadianactuarialstandardsof practice.The choice ofbestestimate assumptionstakesintoaccountcurrentcircumstances,pastexperience data(Company and/orindustry),the relationshipofpasttoexpectedfuture experience,anti-selection,the relationshipamongassumptions,andotherrelevantfactors.Forassumptions oneconomicmatters,the assetssupportingthe liabilitiesandthe expectedpolicy forasset-liability managementare relevantfactors.

MarginsforAdverseDeviations

The appropriate levelofmarginforadverse deviationsonanassumptionisguidedby Canadianactuarialstandardsofpractice.Formost assumptions,the standardrange ofmarginsforadverse deviationsis5%to20%ofthe bestestimate assumption,andthe actuary choosesfrom withinthatrange basedonanumberofconsiderationsrelatedtothe uncertainty inthe determinationofthe bestestimate assumption.The levelof uncertainty,andhence the marginchosen,willvary by assumptionandby line ofbusinessandotherfactors.Considerationsthatwouldtendto indicate achoice ofmarginatthe highendofthe range include: • The statisticalcredibility ofthe Company'sexperience istoolowtobe the primary source ofdataforchoosingthe bestestimate assumption • Future experience isdifficulttoestimate • The cohortofriskslackshomogeneity • Operationalrisksadversely impactthe ability toestimate the bestestimate assumption • Pastexperience may notbe representative offuture experience andthe experience may deteriorate

Provisionsforadverse deviationsinfuture interestratesare includedby testinganumberofscenariosoffuture interestrates,some ofwhichare prescribedby Canadianactuarialstandardsofpractice,anddeterminingthe liability basedonthe range ofpossible outcomes.A scenariooffuture interestratesincludes,foreachforecastperiodbetweenthe statementoffinancialpositiondate andthe lastliability cashflow,interestratesfor risk-free assets,premiumsforassetdefault,ratesofinflation,andaninvestmentstrategy consistentwiththe Company'sinvestmentpolicy.The startingpointforallfuture interestrate scenariosisconsistentwiththe currentmarketenvironment.Iffewscenariosare tested,the liability would be atleastasgreatasthe largestofthe outcomes.Ifmany scenariosare tested,the liability wouldbe withinarange definedby the average ofthe outcomesthatare above the 60thpercentile ofthe range ofoutcomesandthe correspondingaverage forthe 80thpercentile.

Provisionsforadverse deviationsinfuture equity returnsare includedby scenariotestingorby applyingmarginsforadverse deviations.Inblocksof businesswhere the valuationofliabilitiesusesscenariotestingoffuture equity returns,the liability wouldbe withinarange definedby the average ofthe outcomesthatare above the 60thpercentile ofthe range ofoutcomesandthe correspondingaverage forthe 80thpercentile.Inblocksof businesswhere the valuationofliabilitiesdoesnotuse scenariotestingoffuture equity returns,the marginforadverse deviationsoncommonshare dividendsisbetween5%and20%,andthe marginforadverse deviationsoncapitalgainswouldbe 20%plusanassumptionthatthose assetsreduce invalue by 20%to50%atthe time whenthe reductionismostadverse.A 30%reductionisappropriate foradiversifiedportfolioofNorthAmerican commonsharesand,forotherportfolios,the appropriate reductiondependsonthe volatility ofthe portfoliorelative toadiversifiedportfolioof NorthAmericancommonshares.

Inchoosingmargins,we ensure that,whentakenone atatime,eachmarginisreasonable withrespecttothe underlyingbestestimate assumption andthe extentofuncertainty presentinmakingthatassumption,andalsothat,inaggregate,the cumulative impactofthe marginsforadverse deviationsisreasonable withrespecttothe totalamountofourinsurance contractliabilities.Ourmarginsare generally stable overtime andare generally only revisedtoreflectchangesinthe levelofuncertainty inthe bestestimate assumptions.Ourmarginstendtobe atthe highendofthe range forexpensesandinthe mid-range orhigherforotherassumptions.Whenconsideringthe aggregate impactofmargins,the actuary assesses the consistency ofmarginsforeachassumptionacrosseachblockofbusinesstoensure there isnodouble countingoromissionandtoavoid choosingmarginsthatmightbe mutually exclusive.Inparticular,the actuary choosessimilarmarginsforblocksofbusinesswithsimilar characteristics,andalsochoosesmarginsthatare consistentwithotherassumptions,includingassumptionsabouteconomicfactors.The actuary is guidedby Canadianactuarialstandardsofpractice inmakingthese professionaljudgmentsaboutthe reasonablenessofmarginsforadverse deviations.


The bestestimate assumptionsandmarginsforadverse deviationsare reviewedatleastannually andrevisionsare made whenappropriate.The choice ofassumptionsunderlyingthe valuationofinsurance contractliabilitiesissubjecttoexternalactuarialpeerreview.

Mortality

Mortality referstothe ratesatwhichdeathoccursfordefinedgroupsofpeople.Life insurance mortality assumptionsare generally basedonthe pastfive totenyearsofexperience.Ourexperience iscombinedwithindustry experience where ourownexperience isinsufficienttobe statistically valid.Assumedmortality ratesforlife insurance andannuity contractsinclude assumptionsaboutfuture mortality improvementbasedonrecent trendsinpopulationmortality andouroutlookforfuture trends.

Morbidity

Morbidity referstoboththe ratesofaccidentorsicknessandthe ratesofrecovery therefrom.Mostofourdisability insurance ismarketedona groupbasis.We offercriticalillnesspoliciesonanindividualbasisinCanadaandAsia,long-termcare onanindividualbasisinCanada,andmedical stop-lossinsurance isofferedonagroupbasisinthe U.S.InCanada,groupmorbidity assumptionsare basedonourfive-yearaverage experience, modifiedtoreflectany emergingtrendinrecovery rates.Forlong-termcare andcriticalillnessinsurance,assumptionsare developedin collaborationwithourreinsurersandare largely basedontheirexperience.Inthe U.S.,ourexperience isusedforbothmedicalstop-lossand disability assumptions,withsome considerationofindustry experience.

PolicyholderBehaviour

Lapse

Policyholdersmay allowtheirpoliciestolapse priortothe endofthe contractualcoverage periodby choosingnottocontinue topay premiumsor by surrenderingtheirpolicy forthe cashsurrendervalue.Assumptionsforlapse experience onlife insurance are generally basedonourfive-year average experience.Lapse ratesvary by plan,age atissue,methodofpremiumpayment,andpolicy duration.

PremiumPaymentPatterns

Foruniversallife contracts,itisnecessary tosetassumptionsaboutpremiumpaymentpatterns.Studiespreparedby industry orthe actuarial professionare usedforproductswhere ourexperience isinsufficienttobe statistically valid.Premiumpaymentpatternsusually vary by plan,age at issue,methodofpremiumpayment,andpolicy duration.

Expense

Future policy-relatedexpensesinclude the costsofpremiumcollection,claimsadjudicationandprocessing,actuarialcalculations,preparationand mailingofpolicy statements,andrelatedindirectexpensesandoverhead.Expense assumptionsare mainly basedonourrecentexperience usingan internalexpense allocationmethodology.Inflationary increasesassumedinfuture expensesare consistentwiththe future interestratesusedin scenariotesting.

Investment Returns

InterestRates

We generally maintaindistinctassetportfoliosforeachmajorline ofbusiness.Inthe valuationofinsurance contractliabilities,the future cashflows frominsurance contractsandthe assetsthatsupportthemare projectedunderanumberofinterestrate scenarios,some ofwhichare prescribed by Canadianactuarialstandardsofpractice.Reinvestmentsanddisinvestmentstake place accordingtothe specificationsofeachscenario,andthe liability issetbasedonthe range ofpossible outcomes.

Non-FixedIncome RatesofReturn

We are exposedtoequity marketsthroughoursegregatedfundproducts(includingvariable annuities)thatprovide guaranteeslinkedtounderlying fundperformance andthroughinsurance productswhere the insurance contractliabilitiesare supportedby non-fixedincome assets.

Forsegregatedfundproducts(includingvariable annuities),we have implementedhedgingprogramsinvolvingthe use ofderivative instrumentsto mitigate alarge portionofthe equity marketriskassociatedwiththe guarantees.The costofthese hedgingprogramsisreflectedinthe liabilities. The equity marketriskassociatedwithanticipatedfuture fee income isnothedged.

The majority ofnon-fixedincome assetsthatare designatedasFVTPLsupportourparticipatinganduniversallife productswhere investmentreturns are passedthroughtopolicyholdersthroughroutine changesinthe amountofdividendsdeclaredorinthe rate ofinterestcredited.Inthese cases, changesinnon-fixedincome assetvaluesare largely offsetby changesininsurance contractliabilities.

AssetDefault

Asrequiredby Canadianactuarialstandardsofpractice,insurance contractliabilitiesinclude aprovisionforpossible future defaultofthe assets supportingthose liabilities.The amountofthe provisionforassetdefaultincludedinthe insurance contractliabilitiesisbasedonpossible reductions infuture investmentyieldthatvary by factorssuchastype ofasset,assetcreditquality (rating),duration,andcountry oforigin.The assetdefault assumptionsare comprisedofabestestimate plusamarginforadverse deviations,andare intendedtoprovide forlossofbothprincipaland income.Bestestimate assetdefaultassumptionsby assetcategory andgeography are derivedfromlong-termstudiesofindustry experience and the Company'sexperience.Marginsforadverse deviationare chosenfromthe standardrange (of25%to100%)asrecommendedby Canadian actuarialstandardsofpractice basedonthe amountofuncertainty inthe choice ofbestestimate assumption.The creditquality ofanassetisbased onexternalratingsifavailable (publicbonds)andinternalratingsifnot(mortgagesandloans).Any assetswithoutratingsare treatedasifthey are ratedbelowinvestmentgrade.

IncontrasttoassetimpairmentprovisionsandchangesinFVTPLassetsarisingfromimpairments,bothofwhicharise fromknowncreditevents,the assetdefaultprovisioninthe insurance contractliabilitiescoverslossesrelatedtopossible future (unknown)creditevents.Canadianactuarial standardsofpractice require the assetdefaultprovisiontobe determinedtakingintoaccountknownimpairmentsthatare recognizedelsewhere on the statementoffinancialposition.The assetdefaultprovisionincludedinthe insurance contractliabilitiesisreassessedeachreportingperiodin lightofimpairments,changesinassetquality ratings,andothereventsthatoccurredduringthe period.


10.A.iiiInsuranceContractLiabilities Insurance contractliabilitiesconsistofthe following:

Asat December31,2020 Canada U.S. Asia Corporate(1) Total

Individualparticipatinglife $ 25,839 $ 5,374 $ 11,981 $ 952 $ 44,146 Individualnon-participatinglife andhealth 15,533 15,010 12,183 373 43,099

Grouplife andhealth 11,167 5,578 40 23 16,808

Individualannuities 10,497 22 5 5,382 15,906

Groupannuities 17,670 7 97 — 17,774

Insurance contractliabilitiesbefore otherpolicy liabilities 80,706 25,991 24,306 6,730 137,733

Add:Otherpolicy liabilities(2) 3,521 1,807 2,499 213 8,040

Totalinsurance contractliabilities $ 84,227 $ 27,798 $ 26,805 $ 6,943 $ 145,773

(1) Primarilybus iness fromt heUK andr un-offr einsuranceoper ations.Includes UK business of$851 for Individualpar ticipating life, $237 for Individualnon -participating lifeand healt h, $5,162 for Individualannuit ies, and$163 for Other policyliabilit ies.

(2) Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.

AsatDecember31,2019 Canada U.S. Asia Corporate(1) Total

Individualparticipatinglife $ 23,526 $ 5,611 $ 8,497 $ 987 $ 38,621 Individualnon-participatinglife andhealth 13,527 13,832 12,188 386 39,933

Grouplife andhealth 10,493 5,541 39 14 16,087

Individualannuities 9,529 24 (17) 5,335 14,871

Groupannuities 14,276 7 99 — 14,382

Insurance contractliabilitiesbefore otherpolicy liabilities 71,351 25,015 20,806 6,722 123,894

Add:Otherpolicy liabilities(2) 2,959 1,724 2,401 206 7,290

Totalinsurance contractliabilities $ 74,310 $ 26,739 $ 23,207 $ 6,928 $ 131,184

(1) Primarilybus iness fromt heUK andr un-offr einsuranceoper ations.Includes UK business of$893 for Individualpar ticipating life, $238 for Individualnon -participating lifeand healt h, $5,107 for Individualannuit ies, and$156 for Other policyliabilit ies.


10.A.ivChangesinInsuranceContractLiabilitiesandReinsuranceAssets ChangesinInsurance contractliabilitiesandReinsurance assetsare asfollows:


Insurance contract liabilities

Reinsurance assets Net

Insurance contract liabilities

Reinsurance assets Net

Balances,before Otherpolicy liabilitiesand assetsasatJanuary 1, $ 123,894 $ 3,395 $ 120,499 $ 114,902 $ 3,653 $ 111,249

Change inbalancesonin-force policies(1) 9,919 (107) 10,026 8,559 268 8,291

Balancesarisingfromnewpolicies(1) 5,004 82 4,922 3,171 136 3,035

Methodandassumptionchanges (63) (179) 116 (363) (376) 13

Increase (decrease)inInsurance contract liabilitiesandReinsurance assets 14,860 (204) 15,064 11,367 28 11,339

Other(2) — — — (123) (123) — Foreignexchange rate movements (1,021) (65) (956) (2,252) (163) (2,089)

Balancesbefore Otherpolicy liabilitiesand assets 137,733 3,126 134,607 123,894 3,395 120,499

Otherpolicy liabilitiesandassets 8,040 717 7,323 7,290 629 6,661

TotalInsurancecontractliabilitie sand Reinsuranceasse ts,December31 $ 145,773 $ 3,843 $ 141,930 $ 131,184 $ 4,024 $ 127,160

(1) Comparative figures in 2019 have been amended to conform to the current year’s methodology. (2) Termination of reinsurance contracts.


10.A.vImpactofMethodandAssumptionChanges ImpactsofmethodandassumptionchangesonInsurance contractliabilities,netofReinsurance assets,are asfollows:

FortheyearendedDecember31,2020 Net increase(decrease) beforeincometaxes Description

Mortality /Morbidity $ 113 Updatestoreflectmortality/morbidity experience inall jurisdictions.The largestitemswere unfavourable mortality impactsinindividuallife andhealthinCanadaandIn-force Managementinthe U.S.,partially offsetby favourable groupdisability governmentpensionplanoffsetsinCanada.

Policyholderbehaviour 207 Updatestopolicyholderbehaviourinalljurisdictions.The largestitemwasinIn-force Managementinthe U.S.

Expenses (28) Updatestoreflectexpense experience inalljurisdictions.

Investmentreturns (10) Updatestovariousinvestment-relatedassumptionsacross the Company.

Modelenhancementsandother (166) Variousenhancementsandmethodology changesacrossall jurisdictions.

Totalimpactofmethodandassumptionchanges $ 116

Forthe yearendedDecember31,2019 Netincrease (decrease) before income taxes Description

Mortality /Morbidity $ (347) Updatestoreflectmortality/morbidity experience inall jurisdictions.The largestitemswere favourable mortality impactsinthe UK inCorporate andinGroupRetirement ServicesinCanada.

Policyholderbehaviour 102 Updatestopolicyholderbehaviourinalljurisdictions.The largestitemwasanunfavourable lapse update in InternationalinAsia.

Expenses 6 Updatestoreflectexpense experience inalljurisdictions.

Investmentreturns 6 Updatestovariousinvestment-relatedassumptionsacross the Company,partially offsetby updatestopromulgated ultimate reinvestmentrates.

Modelenhancementsandother 246 Variousenhancementsandmethodology changesacrossall jurisdictions.The largestitemwasanunfavourable strengtheningofreinsurance provisionsinIn-force Managementinthe U.S.,partially offsetby afavourable change toparticipatingaccountsinthe UK inCorporate and the PhilippinesinAsia.

Totalimpactofmethodandassumptionchanges $ 13 n

10.BInvestmentContractLiabilities 10.B.iDescriptionofBusiness The followingare the typesofinvestmentcontractsin-force: • TermcertainpayoutannuitiesinCanada • GuaranteedInvestmentContractsinCanada • Unit-linkedproductsissuedinthe UK andHongKong • Non-unit-linkedpensionscontractsissuedinthe UK andHongKong

10.B.iiMethodandAssumptionChanges Investment ContractswithDiscretionary ParticipationFeatures

InvestmentcontractswithDPFare measuredusingthe same approachasinsurance contracts.

Investment Contractswithout Discretionary ParticipationFeatures

InvestmentcontractswithoutDPFare measuredatFVTPLifby doingso,apotentialaccountingmismatchiseliminatedorsignificantly reducedorif the contractismanagedonafairvalue basis.OtherinvestmentcontractswithoutDPFare measuredatamortizedcost.

The fairvalue liability ismeasuredthroughthe use ofprospective discountedcash-flowtechniques.Forunit-linkedcontracts,the fairvalue liability is equaltothe currentunitfundvalue,plusadditionalnon-unitliability amountsonafairvalue basisifrequired.Fornon-unit-linkedcontracts,the fair value liability isequaltothe presentvalue ofcashflows.


Amortizedcostismeasuredatthe date ofinitialrecognitionasthe fairvalue ofconsiderationreceived,lessthe neteffectofprincipalpayments suchastransactioncostsandfront-endfees.Ateachreportingdate,the amortizedcostliability ismeasuredasthe presentvalue offuture cash flowsdiscountedatthe effective interestrate where the effective interestrate isthe rate thatequatesthe discountedcashflowstothe liability at the date ofinitialrecognition.

10.B.iiiInvestmentContractLiabilities Investmentcontractliabilitiesconsistofthe following:

AsatDecember3 1,2020 Canada Asia Corporate Total

Individualparticipatinglife $ — $ — $ 5 $ 5

Individualnon-participatinglife andhealth — 269 2 271

Individualannuities 2,690 — 35 2,725

Groupannuities — 188 — 188

Totalinvestmentcontractliabilities $ 2,690 $ 457 $ 42 $ 3,189

Forthe yearendedDecember31,2020, Investmentcontractliabilitiesof $3,189 are comprisedofinvestmentcontractswithDPFof $497, investmentcontractswithoutDPFmeasuredatamortizedcostof $2,690,andforinvestmentcontractswithoutDPFmeasuredatfairvalue of $2.

AsatDecember31,2019 Canada Asia Corporate Total

Individualparticipatinglife $ — $ — $ 5 $ 5

Individualnon-participatinglife andhealth — 258 2 260

Individualannuities 2,612 — 39 2,651

Groupannuities — 200 — 200

Totalinvestmentcontractliabilities $ 2,612 $ 458 $ 46 $ 3,116

Forthe yearendedDecember31,2019, Investmentcontractliabilitiesof $3,116 are comprisedofinvestmentcontractswithDPFof $502, investmentcontractswithoutDPFmeasuredatamortizedcostof $2,612,andinvestmentcontractswithoutDPFmeasuredatfairvalue of $2.

10.B.ivChangesinInvestmentContractLiabilities ChangesininvestmentcontractliabilitieswithoutDPFare asfollows:


Measuredat fairvalue

Measuredat amortizedcost

Measuredat fairvalue

Measuredat amortizedcost

Balance asatJanuary 1 $ 2 $ 2,612 $ 3 $ 2,646

Deposits — 467 — 360

Interest — 59 — 57

Withdrawals — (457) — (464) Fees — (7) — (6) Other — 16 — 20

Foreignexchange rate movements — — (1) (1)

Balance asatDecember31 $ 2 $ 2,690 $ 2 $ 2,612

ChangesininvestmentcontractliabilitieswithDPFare asfollows:


Balance asatJanuary 1 $ 502 $ 515

Change inliabilitiesonin-force 2 2

Changesinassumptionsormethodology — 6

Increase (decrease)inliabilities 2 8

Foreignexchange rate movements (7) (21)

Balance asatDecember31 $ 497 $ 502


10.CGrossClaimsandBenefitsPaid Grossclaimsandbenefitspaidconsistofthe following:


Maturitiesandsurrenders $ 2,993 $ 2,956 Annuitypay ments 1,979 1,909 Deathanddisabilitybe nefits 4,594 4,246 Healthbenefits 6,913 7,222 Policyholderdividendsandinterestonclaimsanddeposits 1,828 1,088

Totalgrossclaimsandbenefitspaid $ 18,307 $ 17,421

10.DTotalAssetsSupportingLiabilitiesandEquity The followingtablesshowthe totalassetssupporting liabilitiesforthe productlinesshown(includinginsurance contractandinvestmentcontract liabilities)andassetssupportingequity andother:

Asat December31,2020 Debt

securities Equity

securities Mortgages andloans

Investment properties Other Total

Individualparticipatinglife $ 25,574 $ 4,601 $ 8,992 $ 4,950 $ 5,331 $ 49,448

Individualnon-participatinglife andhealth 24,810 1,611 14,208 2,052 10,132 52,813

Grouplife andhealth 7,789 61 9,354 36 3,112 20,352

Individualannuities 11,979 47 6,219 — 1,185 19,430

Groupannuities 9,598 48 8,142 — 909 18,697

Equity andother 9,339 263 3,031 478 23,239 36,350

Totalassets $ 89,089 $ 6,631 $ 49,946 $ 7,516 $ 43,908 $ 197,090

AsatDecember31,2019 Debt

securities Equity

securities Mortgages andloans

Investment properties Other Total

Individualparticipatinglife $ 22,533 $ 2,899 $ 8,372 $ 4,941 $ 4,754 $ 43,499 Individualnon-participatinglife andhealth 21,301 1,418 14,145 1,790 9,353 48,007 Grouplife andhealth 6,858 72 9,301 — 2,897 19,128 Individualannuities 11,711 48 6,065 — 793 18,617 Groupannuities 7,323 37 7,261 — 697 15,318 Equity andother 11,880 313 3,078 575 19,814 35,660

Totalassets $ 81,606 $ 4,787 $ 48,222 $ 7,306 $ 38,308 $ 180,229

10.ERoleoftheAppointedActuary The AppointedActuary isappointedby the Boardandisresponsible forensuringthatthe assumptionsandmethodsusedinthe valuationofpolicy liabilitiesandreinsurance recoverablesare inaccordance withacceptedactuarialpractice inCanada,applicable legislation,andassociated regulationsordirectives.

The AppointedActuary isrequiredtoprovide anopinionregardingthe appropriatenessofthe policy liabilities,netofreinsurance recoverables,at the statementdatestomeetallpolicy obligationsofthe Company.Examinationofsupportingdataforaccuracy andcompletenessandanalysisof ourassetsfortheirability tosupportthe amountofpolicy liabilities,netofreinsurance recoverables,are importantelementsofthe workrequired toformthisopinion.

The AppointedActuary isrequiredeachyeartoinvestigate the financialconditionofthe Company andprepare areportforthe Board. The 2020 analysistestedourcapitaladequacy untilDecember31,2024,undervariousadverse economicandbusinessconditions.The AppointedActuary reviewsthe calculationofourLife Insurance CapitalAdequacy Test("LICAT")Ratios.


11.Reinsurance

Reinsuranceisuse dprimarilytolimite xposure tolargelosse s.Wehav eare tentionpolicythatre quiresthatsucharrangementsbeplace dwithwell-established,highly-ratedreinsurers.Coverageiswe ll-diversifiedandcontrolsare inplace tomanagee xposuretore insurancecounte rparties.While reinsurancearrange mentsprovide forthere covery ofclaimsarisingfromtheliabilitie sceded,were tainprimaryre sponsibility tothepolicy holders.

11.AReinsuranceAssets Reinsurance assetsare measuredusingthe amountsandassumptionsassociatedwiththe underlyinginsurance contractsandinaccordance with the termsofeachreinsurance contract.Reinsurance assetsare comprisedofthe following:

Asat December31,2020 Canada U.S. Asia Corporate(1) Total

Individualparticipatinglife $ 57 $ 9 $ 263 $ — $ 329

Individualnon-participatinglife andhealth (636) 882 49 18 313

Grouplife andhealth 403 1,920 4 — 2,327

Individualannuities — — — 17 17

Groupannuities 140 — — — 140

Reinsurance assetsbefore otherpolicy assets (36) 2,811 316 35 3,126

Add:Otherpolicy assets(2) 104 508 65 40 717

TotalReinsurance assets $ 68 $ 3,319 $ 381 $ 75 $ 3,843

(1) Primarily business from the UK and run-off reinsurance operations. Includes UK business of $18 for Individual non-participating life and health, and $17 for Individual annuities.


AsatDecember31,2019 Canada U.S. Asia Corporate(1) Total

Individualparticipatinglife $ 35 $ 10 $ 322 $ — $ 367

Individualnon-participatinglife andhealth (377) 913 48 20 604

Grouplife andhealth 384 1,881 2 — 2,267

Individualannuities — — — 26 26

Groupannuities 131 — — — 131

Reinsurance assetsbefore otherpolicy assets 173 2,804 372 46 3,395

Add:Otherpolicy assets(2) 73 456 57 43 629

TotalReinsurance assets $ 246 $ 3,260 $ 429 $ 89 $ 4,024

(1) Primarily business from the UK and run-off reinsurance operations. Includes UK business of $20 for Individual non-participating life and health, and $26 for Individual annuities.


There was noimpairmentofReinsurance assetsin 2020 or 2019.ChangesinReinsurance assetsare includedin Note 10.A.iv.

11.BReinsurance(Expenses) Recoveries Reinsurance (expenses)recoveriesare comprisedofthe following:


Recoveredclaimsandbenefits $ 2,182 $ 1,955

Commissions 69 70

Reserve adjustments 22 26

Operatingexpensesandother 80 80

Totalreinsurance (expenses)recoveries $ 2,353 $ 2,131

11.CReinsuranceGainsorLosses In2020,we enteredinto anew reinsurance agreement thatresultedinalossof $66 oninception. We did notenterintoreinsurance arrangements thatresultedinagainorlossoninceptionin 2019.


12.OtherLiabilities

12.ACompositionofOtherLiabilitiesOtherliabilitiesconsistofthefollowing:


Accountspayable(1) $ 2,438 $ 1,830Bankoverdraftsandcashpooling 6 30Repurchaseagreements(Note5) 2,208 1,850Accruedexpensesandtaxes 3,723 3,251Creditfacilities(1) 338 73Borrowedfunds(2) 401 320Seniorfinancing(3) — 1,967Accruedpost-retirementbenefitliability(Note25) 625 675Securedborrowingsfrommortgagesecuritization(Note5) 1,912 1,715Leaseliabilities 864 902Otherfinancialliabilities(Note5)(4) 1,136 956Deferredpaymentsliability 382 438Other 825 930

Totalotherliabilities $ 14,858 $ 14,937

(1) ReflectsachangeinpresentationforourcreditfacilityeffectiveJanuary1,2020.Wehaveupdatedourpriorperiodtoreflectthischangeinpresentation.(2) ThechangeinBorrowedfundsrelatestonetcashflowchangesof$81in2020($132in2019)andforeignexchangeratemovementsof$1in2020($nilin

2019).(3) TheSeniorfinancinghasbeenpaidfullyattheendof2020.ThechangeinSeniorfinancingrelatestoforeignexchangeratemovementsof$(99)in2019.(4) Comprisesfinancialliabilitiesrelatedtoacquisitions,includingputoptionliabilitiesandfinancialliabilitiesduetonon-controllinginterest.

12.BBorrowedFundsBorrowedfundsincludethefollowing:

AsatDecember31,Currencyofborrowing Maturity 2020 2019

Encumbrancesonrealestate Cdn.dollars Current-2033 $ 292 $ 320Encumbrancesonrealestate U.S.dollars Current-2020 109 —

Totalborrowedfunds $ 401 $ 320

Interestexpensefortheborrowedfundswas$22and$13for2020and2019,respectively.TheaggregatematuritiesofborrowedfundsareincludedinNote6.

12.CSeniorFinancingOnNovember8,2007,astructuredentityconsolidatedbyusissuedaUS$1,000variableprincipalfloatingratecertificate(the"Certificate")toafinancialinstitution(the"Lender").Atthesametime,SunLifeAssuranceCompanyofCanada-U.S.OperationsHoldings,Inc.("U.S.Holdings"),asubsidiaryofSLFInc.,enteredintoanagreementwiththeLender,pursuanttowhichU.S.HoldingswillbeartheultimateobligationtorepaytheoutstandingprincipalamountoftheCertificateandbeobligatedtomakequarterlyinterestpaymentsatthree-monthLIBORplusafixedspread.SLFInc.hasfullyguaranteedtheobligationofU.S.Holdings.Thestructuredentityissuedadditionalcertificatesaftertheinitialissuance,totalingtoUS$515.

AsatSeptember30,2020,werepaidthe$2,020(US$1,515)variableprincipalfloatingratecertificatestotheLender,whichwereissuedbyastructuredentityconsolidatedbyus.PursuanttotheletterofunderstandingwiththeLender,theCertificateshavebeenrepaidandalladditionalagreementshavebeenterminated.Therepaymentwasfundedfromsaleofbonds,existingcashandotherliquidassets,resultinginNetgains(losses)onavailable-for-saleassetsof$282.Aspartofthistransaction,wealsounwoundthefairvaluehedgesrelatedtothestructure,whichresultedinalossof$342inInterestandotherinvestmentincome.FortheyearendedDecember31,2020,werecorded$28ofinterestexpenserelatingtothisobligation($64in2019).Thefairvalueoftheobligationis$nil($1,874in2019).ThefairvalueisdeterminedbydiscountingtheexpectedfuturecashflowsusingacurrentmarketinterestrateadjustedbySLFInc.’screditspreadandiscategorizedinLevel3ofthefairvaluehierarchy.


13.SeniorDebenturesandInnovativeCapitalInstruments

13.ASeniorDebentures(1)

The followingobligationsare includedinSeniordebenturesasatDecember31:

Interest rate

Earliestparcallor redemptiondate Maturity 2020 2019

SLFInc.seniordebentures: SeriesEissuedAugust23,2011(2) 4.57 % n/a 2021 300 300

SunLifeA ssurancese niordebentures:(3)

IssuedtoSunLife CapitalTrust("SLCTI") SeriesBissuedJune2 5,2002 7.09 % June 30,2032(4) 2052 200 200

Totalseniordebentures $ 500 $ 500

Fairvalue $ 590 $ 585

(1) All senior debentures are unsecured. (2) Redeemable in whole or in part at any time prior to maturity at a price equal to the greater of par and a price based on the yield of a corresponding

Government of Canada bond plus 0.53% for the Series E debentures. (3) Redemption is subject to regulatory approval. (4) Redeemable in whole or in part on any interest payment date or in whole upon the occurrence of a Regulatory Event or Tax Event, as described in the

debenture. Prior to June 30, 2032, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.32%; from June 30, 2032, the redemption price is par.

Fairvalue isdeterminedbasedonquotedmarketpricesforidenticalorsimilarinstruments.Whenquotedmarketpricesare notavailable,fairvalue isdeterminedfromobservable marketdataby dealersthatare typically the marketmakers.The fairvalue iscategorizedinLevel2 ofthe fairvalue hierarchy.

Interestexpense forseniordebentureswas $28 and $67 for 2020 and 2019,respectively.

The seniordebenturesissuedby SLFInc.are directseniorunsecuredobligationsandrankequally withotherunsecuredandunsubordinated indebtednessofSLFInc.

13.BInnovativeCapitalInstruments Innovative capitalinstrumentsconsistofSunLife ExchangEable CapitalSecurities("SLEECS"),whichwere issuedby SLCTI,establishedasatrust underthe lawsofOntario.SLCTIissuedSunLife ExchangEable CapitalSecurities-SeriesB("SLEECSB"),whichare unitsrepresentinganundivided beneficialownershipinterestinthe assetsofthattrust.SLEECSBare non-votingexceptincertainlimitedcircumstances. Holdersofthe SLEECSBare eligible toreceive semi-annualnon-cumulative fixedcashdistributions.

The proceedsofthe issuance ofthe SLEECSBwere usedby SLCTItopurchase seniordebenturesofSunLife Assurance.SLCTIisnotconsolidatedby us.Asaresult,the innovative capitalinstrumentsare notreportedonourConsolidatedFinancialStatements.However,the seniordebentures issuedby SunLife Assurance toSLCTIare reportedonourConsolidatedFinancialStatements.

The SLEECSBarestructure dtoachieveTie r1re gulatorycapitaltre atmentforSLFInc.andSunLifeA ssuranceand,assuch,hav efe aturesofequity capital.Nointerestpaymentsordistributionswillbe paidincashby SLCTIonthe SLEECSBifSunLifeA ssurancefailstode clarere gulardividends (i)onitsClassBNon-CumulativePre ferredSharesSeriesA,or(ii)onitspublicpreferredshares,ifany areoutstanding(e ach,a"MissedDividend Event").IfaMisse dDividendEventoccurs,thene tdistributable fundsofSLCTIwillbedistribute dtoSunLifeA ssurance astheholde rofSpecial TrustSecuritiesofthattrust.

IfSLCTIfailstopay incashthe semi-annualinterestpaymentsordistributionsonthe SLEECSBinfullforany reasonotherthanaMissedDividend Event,then,foraspecifiedperiodoftime,SunLife Assurance willnotdeclare dividendsofany kindonany ofitspublicpreferredshares,andifno suchpublicpreferredsharesare outstanding,SLFInc.willnotdeclare dividendsofany kindonany ofitspreferredsharesorcommonshares.

EachSLEECSBunitwillbe automatically exchangedfor 40 non-cumulative perpetualpreferredsharesofSunLife Assurance ifany one ofthe followingeventsoccurs:(i)proceedingsare commencedoranorderismade forthe winding-upofSunLife Assurance;(ii)OSFItakescontrolofSun Life Assurance oritsassets;(iii)SunLife Assurance’scapitalratiosfallbelowapplicable thresholds;or(iv)OSFIdirectsSunLife Assurance toincrease itscapitalorprovide additionalliquidity andSunLife Assurance eitherfailstocomply withsuchdirectionorelectstohave the SLEECSB automatically exchanged("AutomaticExchange Event").UponanAutomaticExchange Event,formerholdersofthe SLEECSBwillcease tohave any claimorentitlementtodistributions,interestorprincipalagainstSLCTIandwillrankaspreferredshareholdersofSunLife Assurance inaliquidation ofSunLife Assurance.


The table belowpresentsadditionalsignificanttermsandconditionsofthe SLEECS:

Issuer Issuance date Distributionorinterest

paymentdates Annual yield

Redemptiondate at the issuer’soption

Conversiondate at the holder’soption

Principal amount

Sun Life Capital Trust ("SLCT I")(1)(2)(3)(4)

SLEECSB June 25,2002 June 30,December31 7.093 % June 30,2007 Any time $ 200

(1) Subject to regulatory approval, SLCT I may (i) redeem any outstanding SLEECS, in whole or in part, on the redemption date specified above or on any distribution date thereafter and (ii) may redeem all, but not part of any class of SLEECS upon occurrence of a Regulatory Event or a Tax Event, prior to the redemption date specified above.

(2) The SLEECS B may be redeemed for cash equivalent to (i) the greater of the Early Redemption Price or the Redemption Price if the redemption occurs prior to June 30, 2032 or (ii) the Redemption Price if the redemption occurs on or after June 30, 2032. Redemption Price is equal to one thousand dollars plus the unpaid distributions, other than unpaid distributions resulting from a Missed Dividend Event, to the redemption date. Early Redemption Price for the SLEECS B is the price calculated to provide an annual yield, equal to the yield of a Government of Canada bond issued on the redemption date that has a maturity date of June 30, 2032, plus 32 basis points, plus the unpaid distributions, other than unpaid distributions resulting from a Missed Dividend Event, to the redemption date.

(3) The non-cumulative perpetual preferred shares of Sun Life Assurance issued upon an Automatic Exchange Event in respect of the SLEECS B will become convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after December 31, 2032.

(4) Holders of SLEECS B may exchange, at any time, all or part of their SLEECS B units for non-cumulative perpetual preferred shares of Sun Life Assurance at an exchange rate for each SLEECS of 40 non-cumulative perpetual preferred shares of Sun Life Assurance. SLCT I will have the right, at any time before the exchange is completed, to arrange for a substituted purchaser to purchase SLEECS tendered for surrender to SLCT I so long as the holder of the SLEECS so tendered has not withheld consent to the purchase of its SLEECS. Any non-cumulative perpetual preferred shares issued in respect of an exchange by the holders of SLEECS B will become convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after December 31, 2032.


14.SubordinatedDebt

The followingobligationsare includedinSubordinateddebtasatDecember31,andqualify ascapitalforCanadianregulatory purposes:

Interestrate Earliestparcallor redemptiondate(1) Maturity 2020 2019

SunLife Assurance: IssuedMay 15,1998(2) 6.30% n/a 2028 $ 150 $ 150

SunLife FinancialInc.: IssuedMay 29,2007(3) 5.40% May2 9,2037 (4) 2042 398 398 IssuedSeptember25,2015(5) 2.60% September25,2020 2025 — 500 IssuedFebruary 19,2016(6) 3.10% February1 9,2021 2026 350 349 IssuedSeptember19,2016(7) 3.05% September19,2023 2028 997 996 IssuedNovember23,2017(8) 2.75% November23,2022 2027 399 399 IssuedAugust13,2019(9) 2.38% August13,2024 2029 747 746 IssuedMay 8,2020(10) 2.58% May1 0,2027 2032 995 — IssuedOctober1,2020(11) 2.06% October1,2030 2035 745 —

Totalsubordinateddebt $ 4,781 $ 3,538

Fairvalue $ 5,190 $ 3,727

(1) The debentures issued by SLF Inc. in 2007 are redeemable at any time, the debentures issued by SLF Inc. in September 2016, May 2020 and October 2020 are all redeemable 5-years after issuance and the debentures issued by SLF Inc. on February 2016, 2017 and 2019 are redeemable on or after the date specified. From the date noted, the redemption price is par and redemption may only occur on a scheduled interest payment date. Redemption of all subordinated debentures is subject to regulatory approval.

(2) 6.30% Debentures, Series 2, due 2028, issued by The Mutual Life Assurance Company of Canada, which subsequently changed its name to Clarica Life Insurance Company ("Clarica") and was amalgamated with Sun Life Assurance. These debentures are redeemable at any time. Prior to May 15, 2028, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.16%.

(3) Series 2007-1 Subordinated Unsecured 5.40% Fixed/Floating Debentures due 2042. From May 29, 2037, interest is payable at 1.00% over Canadian dollar offered rate for three-month bankers’ acceptances ("CDOR").

(4) For redemption of the 2007 debentures prior to the date noted, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.25%.

(5) Series 2015-1 Subordinated Unsecured 2.60% Fixed/Floating Debentures due 2025. On September 25, 2020, SLF Inc. redeemed all of the outstanding $500 principal amount of these debentures in accordance with the redemption terms attached to such debentures.

(6) Series 2016-1 Subordinated Unsecured 3.10% Fixed/Floating Debentures due 2026. From February 19, 2021, interest is payable at 2.20% over CDOR. (7) Series 2016-2 Subordinated Unsecured 3.05% Fixed/Floating Debentures due 2028. From September 19, 2023, interest is payable at 1.85% over CDOR.

Between September 19, 2021 and September 19, 2023, the redemption price is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus 0.52%.

(8) Series 2017-1 Subordinated Unsecured 2.75% Fixed/Floating Debentures due 2027. From November 23, 2022, interest is payable at 0.74% over CDOR. (9) Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating Debentures due 2029. From August 13, 2024, interest is payable at 0.85% over CDOR. (10)Series 2020-1Subor dinatedUns ecured2.58% Fixed/Floating Debentures due2032. Fr omM ay10, 2027, interest is payableat 1.66% over CDOR.Bet ween

May10, 2025and M ay10, 2027, ther edemptionpr iceis theg reater ofpar anda pr icebas edon t heyield of a cor responding Government ofCanada bond plus 0.52%.

(11)Series 2020-2Subor dinatedUns ecured2.06% Fixed/Floating Debentures due2035. Fr omOct ober 1, 2030, interest is payableat 1.03% over CDOR. BetweenOct ober 1, 2025and Oct ober 1, 2030, ther edemptionpr iceis theg reater ofpar anda pr icebas edon t heyield of a cor responding Government of Canadabond plus 0.38%.

Fairvalue isdeterminedbasedonquotedmarketpricesforidenticalorsimilarinstruments.Whenquotedmarketpricesare notavailable,fairvalue isdeterminedfromobservable marketdataby dealersthatare typically the marketmakers.The fairvalue iscategorizedinLevel2 ofthe fairvalue hierarchy.

Interestexpense onsubordinateddebtwas $131 and$105 for 2020 and 2019,respectively.

15.ShareCapital

The authorizedshare capitalofSLFInc.consistsofthe following: • Anunlimitednumberofcommonshareswithoutnominalorparvalue.Eachcommonshare isentitledtoone vote atmeetingsofthe

shareholdersofSLFInc.There are nopre-emptive,redemption,purchase,orconversionrightsattachedtothe commonshares. • AnunlimitednumberofClassA andClassBnon-votingshares,issuable inseries.The Boardisauthorizedbefore issuingthe shares,tofixthe

number,the considerationpershare,the designationof,andthe rightsandrestrictionsofthe ClassA andClassBsharesofeachseries,subject tothe specialrightsandrestrictionsattachedtoallthe ClassA andClassBshares.The Boardhasauthorized 13 seriesofClassA non-voting preferredshares, 10 ofwhichare outstanding.

The commonandpreferredsharesofSLFInc.qualify ascapitalforCanadianregulatory purposes.See Note 21.


DividendsandRestrictionsonthePaymentofDividends Underthe Insurance CompaniesAct (Canada),SLFInc.andSunLife Assurance are eachprohibitedfromdeclaringorpayingadividendonany ofits sharesifthere are reasonable groundsforbelievingthatitis,orby payingthe dividendwouldbe,incontraventionof:(i)the requirementthatit maintainsadequate capitalandadequate andappropriate formsofliquidity,(ii)any regulationsunderthe Insurance CompaniesAct (Canada)in relationtocapitalandliquidity,and(iii)any orderby whichOSFIdirectsittoincrease itscapitalorprovide additionalliquidity.

SLFInc.andSunLife Assurance have eachcovenantedthat,ifadistributionisnotpaidwhendue onany outstandingSLEECSissuedby SLCTI, then(i)SunLife Assurance willnotpay dividendsonitspublicpreferredshares,ifany are outstanding,and(ii)ifSunLife Assurance doesnothave any publicpreferredsharesoutstanding,thenSLFInc.willnotpay dividendsonitspreferredsharesorcommonshares,ineachcase,untilthe 12th month followingthe failure topay the requireddistributioninfull,unlessthe requireddistributionispaidtothe holdersofSLEECS.Publicpreferred sharesmeanspreferredsharesissuedby SunLife Assurance which:(a)have beenissuedtothe public(excludingany preferredsharesheld beneficially by affiliatesofSunLife Assurance);(b)are listedonarecognizedstockexchange;and(c)have anaggregate liquidationentitlementofat least $200.Asat December31,2020,SunLife Assurance didnothave outstandingany sharesthatqualify aspublicpreferredshares.

The termsofSLFInc.’soutstandingpreferredsharesprovide thatforsolongasSunLife Assurance isasubsidiary ofSLFInc., nodividendsonsuch preferredsharesare tobe declaredorpaidifSunLife Assurance’sminimumregulatory capitalratiofallsbelowthe applicable threshold.

Inaddition,underthe termsofSLFInc.’soutstandingpreferredshares,SLFInc.cannotpay dividendsonitscommonshareswithoutthe approvalof the holdersofthose preferredsharesunlessalldividendsonthe preferredsharesforthe lastcompletedperiodforwhichdividendsare payable have beendeclaredandpaidorsetapartforpayment.

Currently,the above limitationsdonotrestrictthe paymentofdividendsonSLFInc.’spreferredorcommonshares.

The declarationandpaymentofdividendsonSLFInc.’ssharesare atthe sole discretionofthe BoardofDirectorsandwillbe dependentuponour earnings,financialconditionandcapitalrequirements.Dividendsmay be adjustedoreliminatedatthe discretionofthe Boardonthe basisofthese orotherconsiderations.

15.ACommonShares The changesincommonsharesissuedandoutstandingforthe yearsendedDecember31 were asfollows:

2020 2019

Commonshares(inmillionsofshares) Numberof

shares Amount Numberof

shares Amount

Balance,January 1 587.8 $ 8,289 598.5 $ 8,419

Stockoptionsexercised(Note 19) 0.8 23 0.8 28

Commonsharespurchasedforcancellation (3.5) (50) (11.5) (1) (158)

Balance,December31 585.1 $ 8,262 587.8 $ 8,289

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

OnAugust14,2019,SLFInc.launchedanormalcourse issuerbidtopurchase andcancelupto 15 million commonsharesofSLFInc. ("commonshares")betweenAugust14,2019 andAugust13,2020 (the "2019 NCIB")andimplementedanautomaticrepurchase planwithits designatedbrokerinordertofacilitate purchasesofcommonsharesundersuchbid.Undersuchautomaticrepurchase plan,SLFInc.’sdesignated brokerwasable topurchase common sharespursuanttothe 2019 NCIBattimeswhenSLFInc.ordinarily wouldnotbe active inthe marketdue to regulatory restrictionsorself-imposedblackoutperiods.

Pursuanttothe 2019 NCIB,commonsharespurchasedforcancellationwere able tobe purchasedthroughthe facilitiesofthe TorontoStock Exchange,otherCanadianstockexchanges,and/oralternative Canadiantradingplatforms,atprevailingmarketrates,orby way ofprivate agreementsorshare repurchase programsunderissuerbidexemptionordersissuedby securitiesregulatory authoritiesatadiscounttothe prevailingmarketprice.

In 2020,SLFInc.purchasedandcancelledapproximately 3.5 million commonsharesatanaverage price pershare of $56.86 foratotalamountof $200 underthe 2019 NCIB.The totalamountpaidtopurchase the sharesisallocatedtoCommonsharesandRetainedearningsinourConsolidated StatementsofChangesinEquity.The amountallocatedtoCommonsharesisbasedonthe average costpercommonshare andamountspaidabove the average costare allocatedtoRetainedearnings.

OnMarch13,2020,OSFIsetthe expectationforallfederally regulatedfinancialinstitutionsthatdividendincreasesandshare buybacksshouldbe haltedforthe time being.Assuch,SLFInc.hasnotpurchasedandcancelledcommonsharessince thatdate norrenewedthe 2019 NCIB.

15.BPreferredShares OnJune 30,2020, 0.1 million ofthe 5.2 million ClassA Non-cumulative Rate ResetPreferredSharesSeries8R(the "Series8RShares")were convertedintoClassA Non-cumulative FloatingRate PreferredSharesSeries9QR(the "Series9QRShares")onaone-for-one basisand 1.1 million of the 6.0 million Series9QRShareswere convertedintoSeries8RSharesonaone-for-one basis.Asaresult,asofJune 30,2020,SLFInc.has approximately 6.2 million Series8RSharesand 5.0 million Series9QRSharesissuedandoutstanding. There were nootherchangesinpreferred sharesissuedandoutstandingforthe yearsended December31,2020 and December31,2019.


Furtherinformationonthepre ferredsharesoutstandingasatDe cember31,2020,isasfollows:

ClassAPreferred shares (inmillionsofshares) Issuedate

Annual dividend

rate

Annual dividend pershare

Earliestpa rcallo r redemptiondate(1)

Numberofshares

Face amount

Net amount(2)

Series1 February 25,2005 4.75% $ 1.19 Any time 16.0 $ 400 $ 394 Series2 July 15,2005 4.80% $ 1.20 Any time 13.0 325 318

Series3 January 13,2006 4.45% $ 1.11 Any time 10.0 250 245

Series4 October10,2006 4.45% $ 1.11 Any time 12.0 300 293

Series5 February 2,2007 4.50% $ 1.13 Any time 10.0 250 245

Series8R(3) May 25,2010 1.825% (3) $ 0.51 June 30,2025(4) 6.2 155 152

Series9QR(5) June 30,2015 Floating (6) Floating June 30,2025(7) 5.0 125 122

Series10R(3) August12,2011 2.842% (3) $ 0.71 (8) September30,2021(4) 6.9 173 169

Series11QR(5) September30,2016 Floating (6) Floating September30,2021(7) 1.1 27 26

Series12R(3) November10,2011 3.806% (3) $ 0.95 (8) December31,2021(4) 12.0 300 293

Totalpreferredshares 92.2 $ 2,305 $ 2,257

(1) Redemption of all preferred shares is subject to regulatory approval. (2) Net of after-tax issuance costs. (3) Ont heear liest redemptiondat eand ever yfive year s thereafter, thedividend r atew illr eset toan annual r ateequal t ot he5- year Government ofCanada

bondyield plus as preads pecifiedfor eachs eries.The s pecifieds preadfor Class A shares is:Ser ies 8R- 1.41%, Series 10R- 2.17%, andClas s A Non-Cumulative5- Year RateRes et PreferredShar es Series 12R(" Series 12RShar es")- 2.73%.On t heear liest redemptiondat eand ever yfive year s thereafter, holders willhave t her ight, at their option, toconver t their shares intot hes eries that is onenumber higher thant heir existing series.

(4) Redeemable on the redemption date and every five years thereafter, in whole or in part, at $25.00 per share. (5) On the earliest redemption date and every five years thereafter, holders will have the right, at their option, to convert those shares into the series that is

one number lower than their existing series. (6) Holders are entitled to receive quarterly floating rate non-cumulative dividends at an annual rate equal to the then 3-month Government of Canada

treasury bill yield plus a spread specified for each series. The specified spread for Class A shares is: Series 9QR - 1.41% and Series 11QR - 2.17%. (7) Redeemable on the redemption date and every five years thereafter, in whole or in part, at $25.00 per share, and on any other date at $25.50 per share. (8) The annual dividend per share in the table above is the amount paid per share in 2020.

16.InterestsinOtherEntities

16.ASubsidiaries Ourprincipalsubsidiariesare SunLife Assurance andSunLife GlobalInvestmentsInc.SunLife Assurance isourprincipaloperatinginsurance company andholdsourinsurance operationsinCanada,the U.S.,the UK,the Philippines,HongKong,IndonesiaandVietnam.These insurance operationsare operateddirectly by SunLife Assurance orthroughothersubsidiaries.SunLife GlobalInvestmentsInc.isanon-operatingholding company thatholdsourassetmanagementbusinesses,including MassachusettsFinancialServicesandthe groupofcompaniesunder SLC Management.

We are requiredtocomply withvariousregulatory capitalandsolvency requirementsinthe jurisdictionsinwhichwe operate thatmay restrictour ability toaccessoruse the assetsofthe groupandtopay dividends.Furtherdetailsonthese restrictionsare includedinNotes15 and21.

16.BJointVenturesandAssociates We have interestsinvariousjointventuresandassociatesthatprincipally operate inIndia,Malaysia,China,andthe Philippines.We alsohave interestsinjointventuresrelatedtocertainrealestate investmentsinCanada.Ourinterestsinthese jointventuresandassociatesrange from 24.99% to 50%.The followingtable summarizes,inaggregate,the financialinformationofthese jointventuresandassociates:

Asatorforthe yearsendedDecember31, 2020 2019

Carryingamountofinterestsinjointventuresandassociates $ 1,579 $ 1,510 Ourshare of:

Netincome (loss) 51 86

Othercomprehensive income (loss) (9) (9)

Totalcomprehensive income (loss) $ 42 $ 77

In 2020,ourinvestmentinourjointventuresandassociateschangedby $(1) ($19 in2019),primarily inCanada.

During 2020,we receiveddividendsfromourjointventuresandassociatesof $29 ($45 in2019). We alsoincurredrentalexpensesof $17 ($17 in 2019)relatedtoleaseswithourjointventuresandassociates,withthe remainingfuture rentalpaymentspayable toourjointventuresand associatestotaling $197 over 12 years.


16.CJointOperations We investjointly ininvestmentpropertiesandowner-occupiedpropertieswhichare co-managedundercontractualrelationshipswiththe other investors.We share inthe revenuesandexpensesgeneratedby these propertiesinproportiontoourinvestment. The carryingamountofthese jointly controlledassets,whichisincludedinInvestmentpropertiesandinOtherAssetsforowner-occupiedproperties,is $1,802 asat December31,2020 ($1,503 asat December31,2019).The fairvalue ofthese jointly controlledassetsis $1,892 asat December31,2020 ($1,595 as at December31,2019).

16.DUnconsolidatedStructuredEntities SLFInc.anditssubsidiarieshave interestsinvariousstructuredentitiesthatare notconsolidatedby us.A structuredentity isanentity thathasbeen designedsothatvotingorsimilarrightsare notthe dominantfactorindecidingwhocontrolsthe entity,suchaswhenany votingrightsrelate to administrative tasksonly andthe relevantactivitiesare directedby meansofcontractualarrangements.We have aninterestinastructuredentity whenwe have acontractualornon-contractualinvolvementthatexposesustovariable returnsfromthe performance ofthe entity.Ourinterest includesinvestmentsheldinsecuritiesorunitsissuedby these entitiesandfeesearnedfrommanagementofthe assetswithinthese entities.

Informationonourinterestsinunconsolidatedstructuredentitiesisasfollows:


Typeofstructuredentity Typeofinvestment held

ConsolidatedStatements ofFinancial Position

lineitem Carrying amount

Maximum exposureto

loss(1) Carrying amount

Maximum exposure to

loss(1)

Securitizationentities-third-party managed

Debtsecurities Debtsecurities $ 8,805 $ 8,805 $ 8,402 $ 8,402

Securitizationentities-third-party managed

Short-termsecurities Cash,cashequivalents andshort-term

securities

$ 1,115 $ 1,115 $ 498 $ 498

Investmentfunds-third-party managed

Investmentfundunits Equity securities $ 5,102 $ 5,102 $ 3,453 $ 3,453

Investmentfunds-company managed(2)

Investmentfundunitsand Limitedpartnershipunits

Equity securitiesand Otherinvestedassets

$ 2,299 $ 2,299 $ 2,293 $ 2,293

Limitedpartnerships-third-party managed

Limitedpartnershipunits Otherinvestedassets $ 1,842 $ 1,842 $ 1,682 $ 1,682

(1) The maximum exposure to loss is the maximum loss that we could record through comprehensive income as a result of our involvement with these entities.

(2) Includes investments in funds managed by our joint ventures with a carrying amount of $155 ($204 in 2019).

16.D.iSecuritizationEntities Securitizationentitiesare structuredentitiesthatare generally financedprimarily throughthe issuance ofdebtsecuritiesthatare backedby apool ofassets,suchasmortgagesorloans.

Third-Party Managed

Ourinvestmentsinthird-party managedsecuritizationentitiesconsistofasset-backedsecurities,suchascommercialmortgage-backedsecurities, residentialmortgage-backedsecurities,collateralizeddebtobligations("CDOs"),andcommercialpaper.These securitiesare generally large-issue debtsecuritiesdesignedtotransformthe cashflowsfromaspecificpoolofunderlyingassetsintotranchesprovidingvariousriskexposuresfor investmentpurposes.We donotprovide financialorothersupporttothese entitiesotherthanouroriginalinvestmentandtherefore ourmaximum exposure tolossonthese investmentsislimitedtothe carryingamountofourinvestment.We donothave controloverthese investmentssince we donothave powertodirectthe relevantactivitiesofthese entities,regardlessofthe levelofourinvestment.

Company Managed

We provide collateralmanagementservicestovarioussecuritizationentities,primarily CDOs,fromwhichwe earnafee forourservices.The financialsupportprovidedtothese entitiesislimitedtothe carryingamountofourinvestmentinthese entities.We provide noguaranteesorother contingentsupporttothese entities.We have notconsolidatedthese entitiessince we donothave significantvariability fromourinterestsinthese entitiesandwe donothave any investmentinthese entities.

16.D.iiInvestmentFundsandLimitedPartnerships Investmentfundsandlimitedpartnershipsare investmentvehiclesthatconsistofapooloffundscollectedfromagroupofinvestorsforthe purpose ofinvestinginassetssuchasmoney marketinstruments,debtsecurities,equity securities,realestate,andothersimilarassets.The precedingtable includesourinvestmentsinallinvestmentfunds,includingmutualfunds,exchange-tradedfunds,andsegregatedfunds,andourinvestmentsin certainlimitedpartnerships.Some ofthese investmentfundsandlimitedpartnershipsare structuredentities.Forallinvestmentfundsandlimited partnerships,ourmaximumexposure tolossisequivalenttothe carryingamountofourinvestmentinthe fundorpartnership.Investmentfunds andlimitedpartnershipsare generally financedthroughthe issuance ofinvestmentfundunitsorlimitedpartnershipunits.

Third-Party Managed

We holdunitsininvestmentfundsandlimitedpartnershipsmanagedby third-party assetmanagers.Ourinvestmentsinfundunitsandlimited partnershipunitsgenerally give usanundividedinterestinthe investmentperformance ofaportfolioofunderlyingassetsmanagedortrackedtoa specificinvestmentmandate forinvestmentpurposes.We donothave controloverinvestmentfundsorlimitedpartnershipsthatare structured entitiessince we donothave powertodirecttheirrelevantactivities.


Company Managed

We holdunitsinCompany managedinvestmentfundsandlimitedpartnerships.We generally have poweroverCompany managedinvestment fundsandlimitedpartnershipsthatare structuredentitiessince we have powertodirectthe relevantactivitiesofthe fundsandlimited partnerships.However,we have notconsolidatedthese fundsandlimitedpartnershipssince we donothave significantvariability fromourinterests inthese fundsandlimitedpartnerships.We earnmanagementfeesfromthe managementofthese investmentfundsandlimitedpartnershipsthat are commensurate withthe servicesprovidedandare reportedinFee income.Managementfeesare generally basedonthe value ofthe assets undermanagement.Therefore,the feesearnedare impactedby the compositionofthe assetsundermanagementandfluctuationsinfinancial markets.The fee income earnedisincludedinFundmanagementandotherassetbasedfeesin Note 17.We alsoholdunitsininvestmentfundsand limitedpartnershipsmanagedby ourjointventures.Ourshare ofthe managementfeesearnedisincludedaspartofthe Netincome (loss)reported inNote 16.B.

16.EConsolidatedStructuredEntities We controlandconsolidate the entity thatissuedthe seniorfinancingthatisdescribedinmore detailin Note 12.C.We alsocontrolandconsolidate certaininvestmentfundsmanagedby SLCManagementthatinvestprimarily inpublicfixedincome andinvestmentproperties.

17.FeeIncome

Fee income forthe yearsendedDecember31 consistsofthe following:

2020 2019

Fee income frominsurance contracts $ 1,059 $ 1,017 Fee income fromservice contracts:

Distributionfees 858 820

Fundmanagementandotherasset-basedfees 4,180 3,662

Administrative service andotherfees 784 752

Totalfee income $ 6,881 $ 6,251

DistributionfeesandFundmanagementandotherasset-basedfeesare primarily earnedinthe AssetManagementsegment.Administrative service andotherfeesare primarily earnedinthe Canadasegment.The fee income by businesssegmentispresentedin Note 4.

18.OperatingExpenses

Operatingexpensesforthey earsendedDecember31 consistofthe following:

2020 2019

Employeee xpenses(1) $ 4,445 $ 4,090 Premisesandequipment 158 163 Capitalassetdepreciation 250 241 Servicefe es 946 919 Amortizationofintangibleasse ts(Note9 ) 156 137 Impairmentofintangibleasse ts(Note9 ) 11 15 Otherexpenses 1,435 1,468

Totaloperatingexpenses $ 7,401 $ 7,033

(1) See table below for further details.

Employee expensesforthe yearsendedDecember31 consistofthe following:

2020 2019

Salaries,bonus,employee benefits $ 3,879 $ 3,497 Share-basedpayments(Note 19) 540 549

Otherpersonnelcosts 26 44

Totalemployee expenses $ 4,445 $ 4,090


19.Share-BasedPayments

19.AStockOptionPlans SLFInc.hasgrantedstockoptionstoeligible employeesunderthe Executive StockOptionPlan.These optionsare grantedatthe closingprice ofthe commonsharesonthe TorontoStockExchange ("TSX")onthe grantdate.The optionsgrantedunderthe stockoptionplansvestovera four-year period.Alloptionshave amaximumexercise periodof 10 years.The maximumnumberofcommonsharesthatmay be issuedunderthe Executive StockOptionPlanis 29,525,000 shares.

The activitiesinthe stockoptionplansforthe yearsendedDecember31 are asfollows:

2020 2019

Numberofstock options

(thousands)

Weighted averageexercise

price

Numberof stockoptions (thousands)

Weighted average

exercise price

Balance,January 1, 3,074 $ 42.36 3,101 $ 37.06

Granted 730 $ 61.88 745 $ 50.58

Exercised (631) $ 28.29 (772) $ 29.01

Balance,December31, 3,173 $ 49.65 3,074 $ 42.36 Exercisable,December31, 1,537 $ 42.87 1,670 $ 35.51

Theav erage share price atthe dateofe xercise ofstockoptionsforthey earendedDe cember31,2020was $ 57.21( $53.22for 2 019).

Compensationexpense forstockoptionswas $4 forthe yearended December31,2020 ($4 for 2019).

The stockoptionsoutstandingasat December31,2020,by exercise price,are asfollows:

Range ofexercise prices

Numberofstock options

(thousands)

Weighted average

remaining contractuall ife

(years)

Weighted averageexercise

price

$18.00 to $24.00 48 1.16 $ 21.53 $24.01 to $30.00 168 2.15 $ 28.20 $30.01 to $35.00 23 0.17 $ 31.65 $35.01 to $45.00 589 4.37 $ 39.53 $45.01 to $62.12 2,345 7.96 $ 54.48

Totalstockoptions 3,173 6.83 $ 49.65

The weightedaverage fairvaluesofthe stockoptions,calculatedusingthe Black-Scholesoptionpricingmodel,grantedduringthe yearended December31,2020 was $5.99 ($5.56 for 2019). The Black-Scholesoptionpricingmodelusedthe followingassumptionstodetermine the fairvalue ofoptionsgrantedduringthe yearsendingDecember31:

Weightedaverage assumptions 2020 2019

Risk-free interestrate 1.2% 1.8% Expectedvolatility 19.2% 19.5% Expecteddividendyield 4.0% 4.0% Expectedlife ofthe option(inyears) 6.3 6.3

Exercise price $ 61.88 $ 50.58

Expectedvolatility isbasedonhistoricalvolatility ofthe commonshares,impliedvolatilitiesfromtradedoptionsonthe commonshares,andother factors.The expectedtermofoptionsgrantedisderivedbasedonhistoricalemployee exercise behaviourandemployee terminationexperience. The risk-free rate forperiodswithinthe expectedtermofthe optionisbasedonthe Canadiangovernmentbondyieldcurve ineffectatthe time of grant.

19.BEmployeeShareOwnershipPlan InCanada,we matcheligible employees’contributionstothe SunLife FinancialEmployee StockPlan.Employeesmay electtocontribute from 1% to 20% oftheirtargetannualcompensationtothe SunLife FinancialEmployee StockPlan.Underthisplanthe matchisprovidedforemployeeswho have met one year ofemploymenteligibility andisequalto 50% ofthe employee’scontributionsupto 5% ofanemployee’sannualcompensation. The matchisfurthercappedby a one thousandfive hundred dollarannualmaximum.Ourcontributionsvestimmediately andare expensed.

In2019,we introducedthe SunLife FinancialU.S.Employee StockPurchase Planwhichallowseligible employeesto buy shares ofSLFInc.ata 10% discountatthe endof six-month offeringperiods.Underthisplan,employeeswhoenrollcancontribute from 1% to 10% oftheirbase salary.Atthe endofeachperiod,accumulatedemployee amountsare usedtopurchase stock,withthe Company financingthe 10% discount.The totalannual contribution,includingthe company discount,islimitedtoU.S. twenty-five thousand dollarsbasedonitsfairmarketvalue onthe offeringdate.


Werecordedanexpenseof$9fortheyearendedDecember31,2020($8for2019).

19.COtherShare-BasedPaymentPlansAllothershare-basedpaymentplansusenotionalunitsthatarevaluedbasedonthecommonsharepriceontheTSX.Anyfluctuationinthecommonsharepricechangesthevalueoftheunits,whichaffectsourshare-basedpaymentcompensationexpense.Uponredemptionoftheseunits,paymentsaremadetotheemployeeswithacorrespondingreductionintheaccruedliability.Weuseequityswapsandforwardstohedgeourexposuretovariationsincashflowsduetochangesinthecommonsharepriceforalloftheseplans.

Detailsoftheseplansareasfollows:

SeniorExecutives’DeferredShareUnit("DSU")Plan:UndertheDSUplan,designatedexecutivesmayelecttoreceivealloraportionoftheirannualincentiveawardintheformofDSUs.EachDSUisequivalentinvaluetoonecommonshareandearnsdividendequivalentsintheformofadditionalDSUsatthesamerateasthedividendsoncommonshares.Thedesignatedexecutivesmustelecttoparticipateintheplanpriortothebeginningoftheplanyearandthiselectionisirrevocable.Awardsgenerallyvestimmediately;however,participantsarenotpermittedtoredeemtheDSUsuntilaftertermination,death,orretirement.Thevalueatthetimeofredemptionwillbebasedonthefairvalueofthecommonsharesimmediatelybeforetheirredemption.

SunShareUnit("SunShare")Plan:UndertheSunShareplan,participantsaregrantedunitsthatareequivalentinvaluetoonecommonshareandhaveagrantpriceequaltotheaverageoftheclosingpriceofacommonshareontheTSXonthefivetradingdaysimmediatelypriortothedateofgrant.Participantsgenerallyholdunitsforupto36monthsfromthedateofgrant.Theunitsearndividendequivalentsintheformofadditionalunitsatthesamerateasthedividendsoncommonshares.Underthisplan,someunitsareperformance-basedthatmayvestorbecomepayableifwemeetspecifiedthresholdperformancetargets.Theplanprovidesforperformancefactorstomotivateparticipantstoachieveahigherreturnforshareholders(performancefactorsaredeterminedthroughamultiplierthatcanbeaslowaszeroorashighastwotimesthenumberofunitsthatvest).PaymentstoparticipantsarebasedonthenumberofunitsvestedmultipliedbytheaverageclosingpriceofacommonshareontheTSXonthefivetradingdaysimmediatelypriortothevestingdate.

Additionalinformationforothershare-basedpaymentplans:TheunitsoutstandingundertheseplansandtheliabilitiesrecognizedfortheseunitsinourConsolidatedStatementsofFinancialPositionaresummarizedinthefollowingtable:

Numberofunits(inthousands) SunShares DSUs Total

UnitsoutstandingDecember31,2020 4,971 860 5,831UnitsoutstandingDecember31,2019 5,521 930 6,451LiabilityaccruedasatDecember31,2020 $ 258 $ 48 $ 306LiabilityaccruedasatDecember31,2019 $ 257 $ 51 $ 308

CompensationexpenseandtheIncometaxexpense(benefit)forothershare-basedpaymentplansfortheyearsendedDecember31areshowninthefollowingtable.SinceexpensesfortheDSUsareaccruedaspartofincentivecompensationintheyearawarded,theexpensesbelowdonotincludetheseaccruals.TheexpensespresentedinthefollowingtableincludeincreasesintheliabilitiesforSunSharesandDSUsduetochangesinthefairvalueofthecommonsharesandtheaccrualsoftheSunSharesliabilitiesoverthevestingperiod,andexcludeanyadjustmentinexpensesduetotheimpactofhedging.


Compensationexpense $ 140 $ 205Incometaxexpense(benefit) $ (34) $ (53)

19.DShare-BasedPaymentPlansofMFSShare-basedpaymentawardswithinMFSarebasedontheirownshares.RestrictedshareawardsandstockoptionawardsaresettledinMFSsharesandrestrictedstockunitawardsaresettledincash.Restrictedshareawards,restrictedstockunitawards,andstockoptionawardsgenerallyvestoverafour-yearperiodandcontinuedemploymentisgenerallytheonlyservicerequirementfortheseawards.Holdersofrestrictedshareawardsandrestrictedstockunitawardsareentitledtoreceivenon-forfeitabledividendequivalentpaymentsduringthevestingperiodatthesamerateasthedividendsonMFS’sshares.

Althoughrestrictedshareawardsandstockoptionawardsaresettledinshares,alloftheMFSshare-basedawards,includingoutstandingMFSshares,areaccountedforascash-settledshare-basedpaymentawardsduetothefactthatMFShasapracticeofrepurchasingitsoutstandingsharesafteraspecifiedholdingperiod.ThefairvalueofstockoptionawardsisdeterminedusingtheBlack-Scholesoptionpricingmodel,whilethefairvalueofrestrictedshareawards,restrictedstockunitawards,andoutstandingMFSsharesareestimatedusingamarketconsistentsharevaluationmodel.Theamountofperiodiccompensationexpenserecognizedisimpactedbygrantsofnewawards,vesting,exercise,andforfeitureofunvestedawards,sharerepurchases,changesinfairvalueofawards,andoutstandingMFSshares.ThetotalliabilityaccruedattributabletoallMFSshare-basedpaymentplansasatDecember31,2020was$902($810asatDecember31,2019)whichincludesaliabilityof$713($644asatDecember31,2019)forthestockoptions,restrictedshares,andoutstandingMFSshares.

CompensationexpenseandtheIncometaxexpense(benefit)fortheseawardsfortheyearsendedDecember31areshowninthefollowingtable:


Compensationexpense $ 387 $ 332Incometaxexpense(benefit) $ (64) $ (58)

168SunLifeFinancialInc.AnnualReport2020NotestoConsolidatedFinancialStatements

20.IncomeTaxes

20.ADeferredIncomeTaxes The followingrepresentsthe deferredtaxassetsandliabilities inthe ConsolidatedStatementsofFinancialPosition:


Deferredtaxassets(1) $ 1,634 $ 1,455 Deferredtaxliabilities(1) 383 406

Netdeferredtaxasset $ 1,251 $ 1,049

(1) Our deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority.

The movementinnetdeferredtaxassetsforthe yearsendedDecember31,are asfollows:

Investments Policy

liabilities(1)

Deferred acquisition

costs

Losses available forcarry forward

Pension andother employee benefits Other(2) Total

AsatDecember31,2019 $ (1,040) $ 1,121 $ 83 $ 697 $ 338 (150) $ 1,049

Acquisitions(disposals)throughbusiness combinations — — — — — (67) (67)

Chargedtostatementofoperations (149) 494 — 62 (5) (31) 371

Chargedtoothercomprehensive income (54) — — (50) (8) — (112)

Chargedtoequity,otherthanother comprehensive income — — — (1) — — (1)

Foreignexchange rate movementsandOther 3 6 (1) — (3) 6 11

Asat December31,2020 $ (1,240) $ 1,621 $ 82 $ 708 $ 322 $ (242) $ 1,251

(1) Consists ofIns urancecont ract liabilities andInves tment contract liabilities, net ofReins uranceas sets. (2) Includes unusedt axcr edits.

Investments Policy

liabilities(1)

Deferred acquisition

costs

Losses available forcarry forward

Pension andother employee benefits Other(2) Total

AsatDecember31,2018 $ (746) $ 737 $ 96 $ 648 $ 319 $ (167) $ 887

Acquisitions(disposals)throughbusiness combinations — — — — — (48) (48)

Chargedtostatementofoperations (263) 406 (9) 63 7 50 254

Chargedtoothercomprehensive income (52) (9) — (10) 21 (1) (51)

Chargedtoequity,otherthanother comprehensive income — — — — — 9 9

Foreignexchange rate movementsandOther 21 (13) (4) (4) (9) 7 (2)

AsatDecember31,2019 $ (1,040) $ 1,121 $ 83 $ 697 $ 338 $ (150) $ 1,049

(1) Consists of Insurance contract liabilities and Investment contract liabilities, net of Reinsurance assets. (2) Includes unused tax credits.

We have accumulatednon-capitaltaxlosses,primarily inCanada,the Philippines,the UK andIndonesia,totaling $3,382 ($3,317 in2019).The benefitofthese taxlosseshasbeenrecognizedtothe extentthatitisprobable thatthe benefitwillbe realized.Inaddition,inthe U.S.,we have net capitallossesof $19 ($1 in2019)forwhichadeferredtaxassetof $4 ($1 in2019)hasbeenrecognized.Unusedtaxlossesforwhichadeferredtax assethasnotbeenrecognizedamountto $587 asof December31,2020 ($553 in2019)primarily inthe PhilippinesandIndonesia.We alsohave capitallossesof $460 inthe UK ($455 in2019)and $169 inCanada($178 in2019)forwhichadeferredtaxassetof $110 ($101 in2019)hasnotbeen recognized.

We willrealize the benefitoftaxlossescarriedforwardinfuture yearsthroughareductionincurrentincome taxesasandwhenthe lossesare utilized.These taxlossesare subjecttoexaminationby varioustaxauthoritiesandcouldbe reducedasaresultofthe adjustmentstotaxreturns. Furthermore,legislative,businessorotherchangesmay limitourability toutilize these losses.

Includedinthe deferredtaxassetrelatedtolossesavailable forcarry forwardare taxbenefitsthathave beenrecognizedonlossesincurredineither the currentorthe precedingyear.Indeterminingifitisappropriate torecognize these taxbenefits,we rely onprojectionsoffuture taxable profits, andwe alsoconsidertaxplanningopportunitiesthatwillcreate taxable income inthe periodinwhichthe unusedtaxlossescanbe utilized.

The non-capitallossescarriedforwardinCanadaexpire beginningin2030 andthe capitallossescanbe carriedforwardindefinitely.The operating andcapitallossesinthe UK canbe carriedforwardindefinitely.The non-capitallossesinthe Philippinescanbe carriedforwardthree years,andthe


$

non-capitallossesinIndonesiacanbe carriedforwardfive years.The capitallossesinthe U.S.canbe carriedforwardfive yearsandexpire beginning in2024.

We recognize adeferredtaxliability onalltemporary differencesassociatedwithinvestmentsinsubsidiaries,branches,jointventuresand associatesunlesswe are able tocontrolthe timingofthe reversalofthese differencesanditisprobable thatthese differenceswillnotreverse inthe foreseeable future. AsatDecember31,2020,temporary differencesassociatedwithinvestmentsinsubsidiaries,branches,jointventuresand associatesforwhichadeferredtaxliability hasnotbeenrecognizedamountto $5,299 ($5,489 in2019).

20.BIncomeTaxExpense(Benefit) 20.B.iInourConsolidate dStatementsofOperations,Incometaxe xpense(be nefit)forthey earsendedDecember31 hasthefollowingcompone nts:

2020 2019

Currentincome taxexpense (benefit): Currentyear $ 859 $ 620

Adjustmentsinrespectofprioryears,includingresolutionoftaxdisputes 7 (80)

Totalcurrentincome taxexpense (benefit) 866 540

Deferredincome taxexpense (benefit): Originationandreversaloftemporary differences (435) (240) Adjustmentsinrespectofprioryears,includingresolutionoftaxdisputes 48 (24) Taxexpense (benefit)arisingfromunrecognizedtaxlosses 15 8

Taxrate andotherlegislative changes 1 2

Totaldeferredincome taxexpense (benefit) (371) (254)

Totalincome taxexpense (benefit) $ 495 $ 286

20.B.ii Income taxbenefit(expense)recognizeddirectly inequity forthe yearsendedDecember31:

2020 2019

Recognizedinothercomprehensive income: Currentincome taxbenefit(expense) $ (2) $ (12) Deferredincome taxbenefit(expense) (112) (51)

Totalrecognizedinothercomprehensive income (114) (63) Recognizedinequity,otherthanothercomprehensive income:

Deferredincome taxbenefit(expense) (1) 9

Totalincome taxbenefit(expense)recordedinequity,includingtaxbenefit(expense)recordedin Othercomprehensive income $ (115) $ (54)

20.B.iii Oureffective income taxratediffe rsfromthecombine dCanadianfederalandprovincialstatutory income taxrate as follows:

Forthey earsendedDecember31, 2020 2019

% %

Totalnetincome (loss) $ 2,792 $ 2,947

Add:Income taxexpense (benefit) 495 286

Totalnetincome (loss)before income taxes $ 3,287 $ 3,233

Taxesatthecombine dCanadianfederalandprovincialstatutory income taxrate $ 871 2 6.5 $ 857 2 6.5 Increase(de crease)inratere sultingfrom:

Tax-exemptinvestment(income)loss (253) (7.7) (260) (8.0) Higher(lower)effectiverate sonincomesubje cttotaxationinforeignjurisdictions (218) (6.6) (194) (6.0) Adjustmentsinrespectofprioryears,includingresolutionoftaxdisputes 55 1.7 (104) (3.2) Tax(benefit)costofunrecognizedtaxlossesandtaxcredits 15 0.5 8 0.2

Taxrateandothe rlegislativechange s 1 — 2 0.1

Other 24 0.7 (23) (0.8)

Totaltaxexpense(be nefit)andeffective income taxrate $ 495 1 5.1 $ 286 8 .8

Tax-exemptinvestment(income)lossincludestaxrate differencesrelatedtovarioustypesofinvestmentincome orlossesthatare taxedatrates lowerthanourstatutory income taxrate.Examplesinclude,butare notlimitedto,dividendincome capitalgainsarisinginCanadaandchangesin marketvaluesincludingthose resultingfromfluctuationsinforeignexchange rates.

Statutory income taxratesinotherjurisdictionsinwhichwe conductbusinessrange from 0% to 30%,whichcreatesataxrate differentialand correspondingtaxprovisiondifference comparedtothe Canadianfederalandprovincialstatutory rate whenappliedtoforeignincome notsubject totaxinCanada.Generally,higherearningsinjurisdictionswithhigherstatutory taxratesresultinanincrease ofourtaxexpense,while earnings


arisingintaxjurisdictionswithstatutory rateslowerthan 26.5% reduce ourtaxexpense.These differencesare reportedinHigher(lower)effective ratesonincome subjecttotaxationinforeignjurisdictions. The benefitreportedin2020 includedhigherincome injurisdictionswithlowstatutory income taxratescomparedto2019.

Adjustmentsinrespectofpriorperiods,includingthere solutionoftaxdisputes,relatesmainly tothe finalizationofthepriory ear’sCanadianand U.S.taxfilingsin2020.In2019,itrelatedtothere solutionofCanadiantaxmattersandthe finalizationofthepriory ear'sCanadianandU.S.tax filings.

Tax(benefit)costofunrecognizedtaxlossesandtaxcreditsreflectsunrecognizedlossesinAsia.

Taxrate andotherlegislative changes includesaremeasurement ofourdeferredtaxbalancesinthe UK due tothe reversalofanenactedfuture corporate taxrate reduction,whichhasbeenpartially offsetby the remeasurementofourdeferredtaxbalancesinCanadadue toanenacted corporate taxrate reductioninthe province ofAlberta. The Albertataxrate reductionwilldecrease ourstatutory taxrate to 26.25% in2021 and future years.

Otherprimarily reflectswithholdingtaxesondistributionsfromourforeignsubsidiariesandthe benefitrelatingtoinvestmentsinjointventuresin Asia.In2019,Otheralsoreflectsthe reversalofwithholdingtaxesnolongerexpectedtobe paid.

21.CapitalManagement

Ourcapitalbase isstructuredtoexceedminimumregulatory andinternalcapitaltargetsandmaintainstrongcreditandfinancialstrengthratings, while maintainingacapitalefficientstructure.We strive toachieve anoptimalcapitalstructure by balancingthe use ofdebtandequity financing. Capitalismanagedbothonaconsolidatedbasisunderthe principlesthatconsiderallthe risksassociatedwiththe business,aswellasatthe businessgrouplevelunderthe principlesappropriate tothe jurisdictioninwhicheachoperates.We manage the capitalforallofourinternational subsidiariesonalocalstatutory basisinamannercommensurate withtheirindividualriskprofiles.

The BoardofDirectorsofSLFInc.isresponsible forthe annualreviewandapprovalofthe Company’scapitalplanandcapitalriskpolicy. Managementoversightofourcapitalprogramsandpositionisprovidedby the Company’sExecutive RiskCommittee,the membershipofwhich includesseniormanagementfromthe finance,actuarial,andriskmanagementfunctions.

We engage inacapitalplanningprocessannually inwhichcapitaldeploymentoptions,fundraising,anddividendrecommendationsare presentedto the Risk Committee ofthe BoardofDirectors.Capitalreviewsare regularly conductedwhichconsiderthe potentialimpactsundervariousbusiness, interestrate,andequity marketscenarios.Relevantcomponentsofthese capitalreviews,includingdividendrecommendations,are presentedto the RiskCommittee onaquarterly basis.The BoardofDirectorsisresponsible forthe approvalofthe dividendrecommendations.

The capitalriskpolicy isdesignedtoensure thatadequate capitalismaintainedtoprovide the flexibility necessary totake advantage ofgrowth opportunities,tosupportthe risksassociatedwithourbusinessesandtooptimize returntoourshareholders.Thispolicy isalsointendedtoprovide anappropriate levelofriskmanagementovercapitaladequacy risk,whichisdefinedasthe riskthatcapitalisnotorwillnotbe sufficientto withstandadverse economicconditions,tomaintainfinancialstrengthortoallowusandoursubsidiariestosupportongoingoperationsandtotake advantage ofopportunitiesforexpansion.SLFInc.managesitscapitalinamannercommensurate withitsriskprofile andcontrolenvironment.

SLFInc.isanon-operatinginsurance company andissubjecttothe LICATguideline.Asat December31,2020,SLFInc.’sLICATratioexceedsthe regulatory minimumratioassetoutby OSFI.

SunLife Assurance,SLF’sprincipaloperatinglife insurance subsidiary inCanada,isalsosubjecttothe LICATguideline.WithaLICATRatioof 127% as at December31,2020,SunLife Assurance’sLICATRatioisabove OSFI’sSupervisory TargetTotalRatioof 100% andminimumTotalRatioof 90%.

OSFImay intervene andassume controlofaCanadianlife insurance company ifitdeemsthe amountofavailable capitalinsufficient.Capital requirementsmay be adjustedby OSFIinthe future,asexperience developsorthe riskprofile ofCanadianlife insurerschangesortoreflectother risks.SunLife Assurance exceededlevelsthatwouldrequire regulatory orcorrective actionasat December31,2020 and December31,2019.

The Company’sregulatedsubsidiariesmustcomply withthe capitaladequacy requirementsimposedinthe jurisdictionsinwhichthey operate.In certainjurisdictions,the paymentofdividendsfromoursubsidiariesissubjecttomaintainingcapitallevelsexceedingregulatory targetsand/or receivingregulatory approval.We maintainedcapitallevelsabove minimumlocalrequirementsasat December31,2020 and December31,2019.

Inthe U.S.,SunLife Assurance operatesthroughabranchwhichissubjecttoU.S.regulatory supervisionanditexceededthe levelsunderwhich regulatory actionwouldbe requiredasat December31,2020 and December31,2019.Inthe U.S.,we use captive reinsurance arrangementsto provide efficientfinancingofU.S.statutory reserve requirementsinexcessofthose requiredunderIFRS. Under twosucharrangements,the funding ofthese reserve requirementsissupportedby aguarantee fromSLFInc.


Ourcapitalbase consistsmainly ofcommonshareholders’equity,preferredshareholders’equity,participatingpolicyholders’equity,non-controlling interests’equity andcertainothercapitalsecuritiesthatqualify asregulatory capital. Forregulatory reportingpurposesunderthe LICATframework, there were furtheradjustments,includinggoodwill,non-life investments,andothersaswasprescribedby OSFI,tothe totalcapitalfigure presented inthe table below:


Subordinateddebt $ 4,781 $ 3,538

Innovative capitalinstruments(1) 200 200

Equity: Preferredshareholders’equity 2,257 2,257

Commonshareholders’equity 22,212 21,141

Participatingpolicyholders’equity 1,368 1,091

Non-controllinginterests’equity 25 19

Totalcapital $ 30,843 $ 28,246

(1) Innovative capital instruments are SLEECS issued by SLCT I (Note 13). SLCT I is not consolidated by us.

22.SegregatedFunds

We have segregatedfundproducts,includingvariable annuities,unit-linkedproductsanduniversallife insurance policies,inCanada,the U.S.,the UK,andAsia.Underthese contracts,the benefitamountiscontractually linkedtothe fairvalue ofthe investmentsinthe particularsegregatedfund. Policyholderscanselectfromavariety ofcategoriesofsegregatedfundinvestments.Althoughthe underlyingassetsare registeredinourname and the segregatedfundcontractholderhasnodirectaccesstothe specificassets,the contractualarrangementsare suchthatthe segregatedfund policyholderbearsthe riskandrewardsofthe funds’investmentperformance.Therefore,netrealizedgainsandlosses,othernetinvestment income earned,andexpensesincurredonthe segregatedfundsare attributable topolicyholdersandnottous.However,certaincontractsinclude guaranteesfromus.We are exposedtoequity marketriskandinterestrate riskasaresultofthese guarantees.Furtherdetailsonthese guarantees andourriskmanagementactivitiesrelatedtothese guaranteesare includedinthe RiskManagementsectionofthe MD&A.

We derive fee income fromsegregatedfunds.Marketvalue movementsinthe investmentsheldforsegregatedfundholdersimpactthe managementfeesearnedonthese funds.

The segregatedfundtypesoffered,by percentage oftotalinvestmentsforaccountofsegregatedfundholders,were withinthe followingrangesas at December31,2020 and 2019:

Typeoffund %

Money market 1 to 5

Fixedincome 10 to 15

Balanced 40 to 45

Equity 40 to 45

Money marketfundsinclude investmentsthathave atermtomaturity oflessthanone year.Fixedincome fundsare fundsthatinvestprimarily in investmentgrade fixedincome securitiesandwhere lessthan 25% canbe investedindiversifiedequitiesorhigh-yieldbonds.Balancedfundsare a combinationoffixedincome securitieswithalargerequity component.The fixedincome componentisgreaterthan 25% ofthe portfolio.Equity consistsprimarily ofbroad-baseddiversifiedfundsthatinvestinawell-diversifiedmixofCanadian,U.S.orglobalequities.Otherfundsinthis category include lowvolatility funds,intermediate volatility funds,andhighvolatility funds.

22.AInvestmentsforAccountofSegregatedFundHolders The carryingvalue ofinvestmentsheldforsegregatedfundholdersare asfollows:


Segregatedandmutualfundunits $ 111,789 $ 102,071

Equity securities 9,733 10,565

Debtsecurities 3,874 3,825

Cash,cashequivalentsandshort-termsecurities 693 589

Investmentproperties 387 403

Mortgages 19 21

Otherassets 140 146

Totalassets $ 126,635 $ 117,620

Less:Liabilitiesarisingfrominvestingactivities 714 647

Totalinvestmentsforaccountofsegregatedfundholders $ 125,921 $ 116,973


22.BChangesinInsuranceContractsandInvestmentContractsforAccountofSegregatedFund Holders Effective December31,2020,we combinedourInsurance contractsforaccountofsegregatedfundholdersandInvestmentcontractsforaccountof segregatedfundholders.We have updatedthe priorperiodtoreflectthischange inpresentation.

Changesininsurance contractsandinvestmentcontractsforaccountofsegregatedfundholdersare asfollows:


Balance asatJanuary 1 $ 116,973 $ 103,062

Additionstosegregatedfunds: Deposits 12,880 11,958

Nettransfer(to)fromgeneralfunds (1,825) (437) Netrealizedandunrealizedgains(losses) 5,643 11,544

Otherinvestmentincome 4,275 4,665

Totaladditions $ 20,973 $ 27,730

Deductionsfromsegregatedfunds: Paymentstopolicyholdersandtheirbeneficiaries 10,618 12,024

Managementfees 1,126 1,109

Taxesandotherexpenses 396 385

Foreignexchange rate movements (115) 301

Totaldeductions $ 12,025 $ 13,819

Netadditions(deductions) $ 8,948 $ 13,911

Balance asatDecember31 $ 125,921 $ 116,973

23.Commitments,GuaranteesandContingencies

23.ALeaseCommitments We lease officesandcertainequipment.These are operatingleaseswithrentschargedtooperationsinthe yeartowhichthey relate.Totalfuture rentalpaymentsforthe remainderofthese leasestotal$1,082 ($1,114 asat December31,2019).The future rentalpaymentsby yearofpayment are includedinthe MD&A asdescribedin Note 6.

23.BContractualCommitments Inthe normalcourse ofbusiness,variouscontractualcommitmentsare outstanding,whichare notreflectedinourConsolidatedFinancial Statements.Inadditiontoloancommitmentsfordebtsecuritiesandmortgagesincludedin Note 6.A.i,we have equity,investmentproperty,and property andequipmentcommitments.Asat December31,2020,we hadatotalof $3,583 ofcontractualcommitmentsoutstanding($3,583 asat December31,2019).The expectedmaturitiesofthese commitmentsare includedinthe MD&A asdescribedin Note 6.

23.CLettersofCredit We issue commerciallettersofcreditinthe normalcourse ofbusiness.Asat December31,2020,we hadcreditfacilitiesof $846 available forthe issuance oflettersofcredit($859 asat December31,2019),fromwhichatotalof $122 inlettersofcreditwere outstanding($214 asat December31,2019).

23.DCommissiononRelease CommissionsonRelease ("CORe")isaprogramdesignedtofacilitate the transferofblocksofbusinessbetweenadvisorsinordertoprovide ongoing service andadvice toourClients.We facilitate andadministerthese transactionsincludingpaymentandcollectionstreams.Underthe CORe program,whenaneligible advisorreleasesClientsthey are servicing,we are contractually obligatedtopay themthe associatedCORe value,based onaspecifiedformulaasstipulatedinthe advisorcontract.The value ofthe CORe commitmentwillvary forblocksofbusinesswhichhave notbeen releasedby anactive advisor.The occurrence offuture eventsthatwilltriggeranadvisortorelease theirblockofbusinessandthe value ofthe relatedCORe commitmentatthatfuture release date isdifficulttopredict.Asaresultofuncertainty inthe timingofthe triggeringevent,we cannot reliably estimate ourcommitmentunderthe CORe program.Due tothe nature ofthe program,inthe normalcourse ofbusiness,the commitment relatedtothe future paymenttoadvisorsonrelease ofablockofbusinesswouldbe expectedtobe matchedorpartially matchedby a correspondingamountrelatedtothe receivable onthe assignmentofblocksofbusinesstonewadvisors,resultinginanimmaterialimpactto earningsandliquidity inany reportingperiod.

23.EIndemnitiesandGuarantees Inthe normalcourse ofourbusiness,we have enteredintoagreementsthatinclude indemnitiesinfavourofthirdparties,suchasconfidentiality agreements,engagementletterswithadvisorsandconsultants,outsourcingagreements,leasingcontracts,trade-marklicensingagreements, underwritingandagency agreements,informationtechnology agreements,distributionagreements,financingagreements,the sale ofequity


interests,andservice agreements.These agreementsmay require ustocompensate the counterpartiesfordamages,lossesorcostsincurredby the counterpartiesasaresultofbreachesinrepresentation,changesinregulations(includingtaxmatters),orasaresultoflitigationclaimsorstatutory sanctionsthatmay be sufferedby the counterparty asaconsequence ofthe transaction.We have alsoagreedtoindemnify ourdirectorsandcertain ofourofficersandemployeesinaccordance withourby-laws.These indemnificationprovisionswillvary baseduponthe nature andtermsofthe agreements.Inmany cases,these indemnificationprovisionsdonotcontainlimitsonourliability,andthe occurrence ofcontingenteventsthatwill triggerpaymentunderthese indemnitiesisdifficulttopredict.Asaresult,we cannotestimate ourpotentialliability underthese indemnities.We believe thatthe likelihoodofconditionsarisingthatwouldtriggerthese indemnitiesisremote and,historically,we have notmade any significant paymentundersuchindemnificationprovisions.Incertaincases,we have recourse againstthirdpartieswithrespecttothe aforesaidindemnities, andwe alsomaintaininsurance policiesthatmay provide coverage againstcertainofthese claims.

Inthe normalcourse ofourbusiness,we have enteredintopurchase andsale agreementsthatinclude indemnitiesinfavourofthirdparties.These agreementsmay require ustocompensate the counterpartiesfordamages,losses,orcostsincurredby the counterpartiesasaresultofbreachesin representation.Asat December31,2020,we are notaware ofany breachesinrepresentationsthatwouldresultinany paymentrequiredunder these indemnitiesthatwouldhave amaterialimpactonourConsolidatedFinancialStatements.

Guaranteesmade by usthatcanbe quantifiedare includedin Note 6.A.i.

23.FGuaranteesofSunLifeAssurancePreferredSharesandSubordinatedDebentures SLFInc.hasprovidedaguaranteeonthe $150of6 .30%subordinate ddebenturesdue2 028issue dby SunLifeA ssurance.Claimsunderthis guaranteewillranke quallywithallothe rsubordinatedindebtednessofSLFInc.SLFInc.hasalsoprovidedasubordinatedguarantee ofthepre ferred sharesissuedby SunLifeA ssurance fromtimetotime ,otherthansuchpreferredshareswhicharehe ldbySLFInc.anditsaffiliate s.SunLife Assurancehas nooutstandingpre ferredsharessubjecttotheguarante e.Asaresultoftheseguarante es,SunLifeA ssuranceise ntitledtorely on exemptivere lieffrommostcontinuousdisclosure andthece rtificationrequirementsofCanadiansecuritieslaws.

The followingtablessetforthcertainconsolidatingsummary financialinformationforSLFInc.andSunLife Assurance (consolidated):

Resultsforthe yearsended SLFInc.

(unconsolidated)

SunLife Assurance

(consolidated)

Other subsidiariesof

SLFInc. (combined)

Consolidation adjustments

SLFInc. (consolidated)

December31,2020

Revenue $ 266 $ 35,801 $ 9,430 $ (2,160) $ 43,337

Shareholders’netincome (loss) $ 2,498 $ 1,349 $ 1,030 $ (2,379) $ 2,498

December31,2019

Revenue $ 213 $ 33,693 $ 7,516 $ (1,743) $ 39,679

Shareholders’netincome (loss) $ 2,713 $ 1,750 $ 881 $ (2,631) $ 2,713

Assetsandliabilitiesasat SLFInc.

(unconsolidated)

SunLife Assurance

(consolidated)

Other subsidiariesof

SLFInc. (combined)

Consolidation adjustments

SLFInc. (consolidated)

December31,2020

Investedassets $ 26,019 $ 172,439 $ 9,974 $ (30,520) $ 177,912

Totalothergeneralfundassets $ 7,800 $ 24,327 $ 20,691 $ (33,640) $ 19,178

Investmentsforaccountofsegregated fundholders $ — $ 125,859 $ 62 $ — $ 125,921

Insurance contractliabilities $ — $ 145,949 $ 10,637 $ (10,813) $ 145,773

Investmentcontractliabilities $ — $ 3,189 $ — $ — $ 3,189

Totalothergeneralfundliabilities $ 9,350 $ 25,920 $ 13,741 $ (26,745) $ 22,266

December31,2019

Investedassets $ 23,639 $ 152,512 $ 8,552 $ (23,084) $ 161,619

Totalothergeneralfundassets $ 4,135 $ 24,000 $ 11,955 $ (21,480) $ 18,610

Investmentsforaccountofsegregated fundholders $ — $ 116,918 $ 55 $ — $ 116,973

Insurance contractliabilities $ — $ 131,428 $ 9,644 $ (9,888) $ 131,184

Investmentcontractliabilities $ — $ 3,116 $ — $ — $ 3,116

Totalothergeneralfundliabilities $ 4,376 $ 23,780 $ 8,053 $ (14,788) $ 21,421

23.GLegalandRegulatoryProceedings We are regularly involvedinlegalactions,bothasadefendantandasaplaintiff.Legalactionsnamingusasadefendantordinarily involve our activitiesasaproviderofinsurance protectionandwealthmanagementproducts,asaninvestorandinvestmentadvisor,andasanemployer.In addition,governmentandregulatory bodiesinCanada,the U.S.,the UK,andAsia,includingfederal,provincial,andstate securitiesandinsurance regulatorsandgovernmentauthorities,fromtime totime,make inquiriesandrequire the productionofinformationorconductexaminationsor investigationsconcerningourcompliance withinsurance,securities,andotherlaws.


Provisionsforlegalproceedingsrelatedtoinsurance contracts,suchasfordisability andlife insurance claimsandthe costoflitigation,are included inInsurance contractliabilitiesinourConsolidatedStatementsofFinancialPosition.Otherprovisionsare establishedoutside ofthe Insurance contractliabilitiesif,inthe opinionofmanagement,itisbothprobable thatapaymentwillbe requiredandareliable estimate canbe made ofthe amountofthe obligation.Managementreviewsthe statusofallproceedingsonanongoingbasisandexercisesjudgmentinresolvingtheminsuch mannerasmanagementbelievestobe inourbestinterest.

Two classactionlawsuitshave beenfiledagainstSunLife Assurance inconnectionwithsalespracticesrelatingto,andthe administrationof, individualpoliciesissuedby the MetropolitanLife Insurance Company ("MLIC").These policieswere assumedby ClaricawhenClaricaacquiredthe bulkofMLIC’sCanadianoperationsin1998 andsubsequently assumedby SunLife Assurance asaresultofitsamalgamationwithClarica.One ofthe lawsuits(Fehretalv SunLife Assurance CompanyofCanada)isissuedinOntarioandthe other(Alamwalav SunLife Assurance CompanyofCanada) isinBritishColumbia. The Fehr actionhasbeencertifiedasaclassactionandnotice willbe made toclassmembersduringthe firsthalfof2021.Sun Life Assurance hasbroughtamotionscheduledformid-February 2022 forsummary judgmentseekingtodismissallofthe claims. The otheraction (Alamwalav SunLife Assurance CompanyofCanada)hasremainedlargely dormantsince itwascommencedin2011 andhasnotbeencertified.We willcontinue tovigorously defendagainstthe claimsinthese actions.Inconnectionwiththe acquisitionofthe CanadianoperationsofMLIC,MLIC agreedtoindemnify Claricaforcertainlosses,includingthose incurredrelatingtothe salesofitspolicies.Shouldeitherofthe Fehr orthe Alamwala lawsuitsresultinaloss,SunLife Assurance willseekrecourse againstMLICunderthatindemnity througharbitration.

Managementdoesnotbelieve thatthe probable conclusionofany currentlegalorregulatory matter,eitherindividually orinthe aggregate,will have amaterialadverse effectonthe ConsolidatedStatementsofFinancialPositionorthe ConsolidatedStatementsofOperations.

24.RelatedPartyTransactions

SLFInc.anditssubsidiaries,jointventuresandassociatestransactbusinessworldwide.AlltransactionsbetweenSLFInc.anditssubsidiarieshave beeneliminatedonconsolidation.Transactionswithjointventuresandassociates,whichare alsorelatedparties,are disclosedin Note 16. Transactionsbetweenthe Company andrelatedpartiesare executedandpricedonanarm’s-lengthbasisinamannersimilartotransactionswith thirdparties.

24.ATransactionswithKeyManagementPersonnel,RemunerationandOtherCompensation Key managementpersonnelreferstothe executive teamandBoardofDirectorsofSLFInc.These individualshave the authority andresponsibility forplanning,directing,andcontrollingthe activitiesofthe Company. The aggregate compensationtothe executive teamanddirectorsare as follows:


Executiveteam Directors Executive team Directors

Numberofindividuals 12 10 12 10

Base salary andannualincentive compensation $ 18 $ — $ 17 $ — Additionalshort-termbenefitsandother $ 1 $ 1 $ 1 $ 1

Share-basedlong-termincentive compensation $ 23 $ 2 $ 22 $ 2

Value ofpensionandpost-retirementbenefits $ 2 $ — $ 2 $ —

24.BOtherRelatedPartyTransactions We provide investmentmanagementservicesforourpensionplans.The servicesare providedonsubstantially the same termsasforcomparable transactionswiththirdparties. We alsoholdunitsofinvestmentfundsmanagedby certainofourjointventures.The carryingamountofour investmentinthese fundsisincludedin Note 16.D.

25.PensionPlansandOtherPost-RetirementBenefits

We sponsordefinedbenefitpensionplansanddefinedcontributionplansforeligible employees.Allofourmaterialdefinedbenefitplansworldwide are closedtonewentrantswithnewhiresparticipatingindefinedcontributionplans.Materialdefinedbenefitplansare locatedinCanada,the U.S., andthe UK.The definedbenefitpensionplansofferbenefitsbasedonlengthofservice andfinalaverage earningsandcertainplansoffersome indexationofbenefits.The specificfeaturesofthese plansvary inaccordance withthe employee groupandcountriesinwhichemployeesare located.Inaddition,we maintainsupplementary non-contributory definedbenefitpensionarrangementsforeligible employees,whichare primarily forbenefitswhichare inexcessoflocaltaxlimits.AsatDecember31,2014,there are noactive membersinthe UK andthe U.S.definedbenefit planscontinuingtoaccrue future service benefits.OnJanuary 1,2009,the Canadiandefinedbenefitplanswere closedtonewemployees.Canadian employeeshiredbefore January 1,2009 continue toearnfuture service benefitsinthe previousplans,whichincludesbothdefinedbenefitand definedcontributioncomponents,while newhiressince thenare eligible tojoinadefinedcontributionplan.Inaddition, one smalldefinedbenefit planinthe Philippinesremainsopentonewhires.

Ourfundingpolicy fordefinedbenefitpensionplansistomake atleastthe minimumannualcontributionsrequiredby regulationsinthe countries inwhichthe plansare offered.OurUK definedbenefitpensionscheme isgovernedby pensiontrustees.Inothercountriesinwhichwe operate,the definedbenefitpensionarrangementsare governedby localpensioncommittees.Significantplanchangesrequire the approvalofthe Boardof Directorsofthe sponsoringsubsidiary ofSLFInc.


We alsoestablisheddefinedcontributionplansforeligible employees.Ourcontributionstothese definedcontributionpensionplansmay be subject tocertainvestingrequirements.Generally,ourcontributionsare asetpercentage ofemployees’annualincome andmay be asetpercentage of employee contributions,uptospecifiedlevels.

Inadditiontoourpensionplans,inCanadaandthe U.S.,we provide certainpost-retirementhealthcare andlife insurance benefitstoeligible employeesandtotheirdependentsuponmeetingcertainrequirements.Eligible retireesmay be requiredtopay aportionofthe premiumsfor these benefitsand,ingeneral,deductible amountsandco-insurance percentagesapply tobenefitpayments.These post-retirementbenefitsare not pre-funded.InCanada,certainpost-retirementhealthcare andlife insurance benefitsare providedforeligible employeeswhoretiredbefore December31,2015.Eligible employeesinCanadawhoretire afterDecember31,2015 willhave accesstovoluntary retiree-paidhealthcare coverage.Inthe U.S.,certainpost-retirementhealthcare andlife insurance benefitsare providedtoeligible retirees.Inthe U.S.,employeeswho were notage 50 with 10 years ofservice asofDecember31,2015 only have accesstosubsidizedretiree healthcare coverage untileligible for Medicare.Eligible existingandfuture retireesandcovereddependentseligible forMedicare receive anannualcontributiontoahealth reimbursementaccounttobe appliedagainstindividualcoverage andothereligible expenses.

25.ARisksAssociatedwithEmployeeDefinedBenefitPlans Withthe closure ofthe materialdefinedbenefitpensionandretiree benefitplanstonewentrants,the volatility associatedwithfuture service accrualsforactive membershasbeenlimitedandwilldecline overtime.

Themajorrisksre maininginrelationtopastservice obligationsareincre asesinliabilitiesduetoade clineindiscountrate s,greaterlifee xpectancy thanassumedandadverseasse treturns.Wehav e significantlyde -riskedtheinv estmentsofourmaterialdefinedbenefitpensionplansCompany-wide by shiftingthepe nsionassetmixawayfrome quitiesandintomorefixe dincomeandliability -matchinginvestments.In2018,the riskinourUK pensionplanwasreducedthroughabuy-ininsurancecontractprote ctingthe majorityofpe nsionerbenefits.Thetarge tforourmaterialfunded definedbenefitplansistominimizev olatilityinfunde dstatusarisingfromchangesindiscountratesandexposuretoe quitymarke ts.


25.BDefinedBenefitPensionandOtherPost-RetirementBenefitPlans The followingtablessetforththe statusofthe definedbenefitpensionandotherpost-retirementbenefitplans:

2020 2019

Pension Otherpost-retirement Total Pension

Otherpost-retirement Total

Change indefinedbenefitobligations: Definedbenefitobligation,January 1 $ 3,805 $ 279 $ 4,084 $ 3,458 $ 262 $ 3,720

Currentservice cost 58 6 64 52 5 57 Interestcost 110 9 119 123 10 133 Actuariallosses(gains) 278 (1) 277 360 20 380 Benefitspaid (184) (14) (198) (158) (14) (172) Curtailmentlosses(gains) — — — 1 — 1

Settlements (5) — (5) — — — Foreignexchange rate movement (2) (2) (4) (31) (4) (35)

Definedbenefitobligation,December31 $ 4,060 $ 277 $ 4,337 $ 3,805 $ 279 $ 4,084

Change inplanassets: Fairvalue ofplanassets,January 1 $ 3,596 $ — $ 3,596 $ 3,253 $ — $ 3,253

Administrative expense (1) — (1) (1) — (1) Interestincome onplanassets 102 — 102 115 — 115

Returnonplanassets(excludingamounts includedinnetinterestexpense) 305 — 305 306 — 306

Employercontributions 97 14 111 111 14 125

Benefitspaid (184) (14) (198) (158) (14) (172) Settlements (7) — (7) — — — Foreignexchange rate movement 1 — 1 (30) — (30)

Fairvalueofplanasse ts,December31 $ 3,909 $ — $ 3,909 $ 3,596 $ — $ 3,596

AmountsrecognizedonStatementofFinancial Position: Fairvalue ofplanassets $ 3,909 $ — $ 3,909 $ 3,596 $ — $ 3,596 Definedbenefit(obligation) (4,060) (277) (4,337) (3,805) (279) (4,084)

Netrecognized(liability)asset,December31 $ (151) $ (277) $ (428) $ (209) $ (279) $ (488)

Componentsofnetbenefitexpense recognized:

Currentservice cost $ 58 $ 6 $ 64 $ 52 $ 5 $ 57 Administrative expense 1 — 1 1 — 1 Netinterestexpense (income) 8 9 17 8 10 18 Curtailmentlosses(gains) — — — 1 — 1 Settlements 2 — 2 — — — Otherlong-termemployee benefitlosses(gains) — — — — 5 5

Netbenefitexpense $ 69 $ 15 $ 84 $ 62 $ 20 $ 82

Remeasurementofnetrecognized(liability)asset:

Returnonplanassets(excludingamounts includedinnetinterestexpense) $ 305 $ — $ 305 $ 306 $ — $ 306

Actuarialgains(losses)arisingfromchangesin demographicassumptions (3) 2 (1) 28 1 29

Actuarialgains(losses)arisingfromchangesin financialassumptions (278) (19) (297) (393) (18) (411)

Actuarialgains(losses)arisingfromexperience adjustments 3 18 21 5 2 7

Foreignexchange rate movement — 2 2 2 4 6

Componentsofdefinedbenefitcostsrecognizedin Othercomprehensive income (loss) $ 27 $ 3 $ 30 $ (52) $ (11) $ (63)


25.CPrincipalAssumptionsforSignificantPlans

2020 2019

Canada % UK % U.S.% Canada% UK % U.S.%

Todetermine definedbenefitobligationatendofyear: Discountrate forpensionplans 2.70 1.30 2.65 3.00 2.00 3.45

Rate ofcompensationincrease 2.80 n/a n/a 3.00 n/a n/a

Pensionincreases 0.00-0.05 2.95 n/a 0.00-0.15 2.95 n/a

Todetermine netbenefitexpense foryear: Discountrate forpensionplans 3.00 2.00 3.45 3.60 2.85 4.40

Rate ofcompensationincrease 3.00 n/a n/a 3.00 n/a n/a

Pensionincreases 0.00-0.015 2.95 n/a 0.00-0.15 3.15 n/a

Healthcare trendrates: Initialhealthcare trendrate 5.30 n/a 6.50 5.36 n/a 6.50

Ultimate healthcare trendrate 4.00 n/a 5.00 4.50 n/a 5.00

Yearultimate healthcare trendrate reached 2040 n/a 2025 2030 n/a 2025

2020 2019

Canada UK U.S. Canada UK U.S.

Mortality rates:

Life expectancy (inyears)forindividuals currently atage 65: Male 23 23 22 23 23 22

Female 25 25 23 25 24 24

Life expectancy (inyears)at65 forindividuals currently atage 45: Male 24 25 23 24 25 24

Female 26 27 25 26 27 25

Average duration(inyears)ofpensionobligation 17.2 17.7 12.7 16.7 16.6 13.4

DiscountRate,RateofCompensationIncreaseandHealthCareCost The majoreconomicassumptionswhichare usedindeterminingthe actuarialpresentvalue ofthe accruedbenefitobligationsvary by country.

The discountrate assumptionusedformaterialplansisdeterminedby reference tothe marketyields,asofDecember31,ofhigh-quality corporate bondsthathave termstomaturity approximatingthe termsofthe relatedobligation.Incountrieswhere adeepcorporate marketdoesnotexist, governmentbondsare used.Compensationandhealthcare trendassumptionsare basedonexpectedlong-termtrendassumptionswhichmay differfromactualresults.

25.DSensitivityofKeyAssumptions The followingtableprov idesthepote ntialimpactofchangesinkey assumptionsonthede finedbenefitobligationforpensionandotherpost-retirementbenefitplansasatDe cember31,2020.Thesese nsitivitiesarehy potheticalandshouldbeuse dwithcaution.The impactofchange sin eachkey assumptionmayre sultingreaterthanproportionalchangesinsensitivities.

Pension

Post-retirement

benefits

Interest/discountrate sensitivity:(1)

1% decrease $ 754 $ 34 1% increase $ (586) $ (29)

Rate ofcompensationincrease assumption: 1% decrease $ (82) n/a

1% increase $ 86 n/a

Healthcare trendrate assumption: 1% decrease n/a $ (13) 1% increase n/a $ 15

Mortality rates:(2)

10%decrease $ 98 $ 6

(1) Represents a parallel shift in interest rates across the entire yield curve, resulting in a change in the discount rate assumption. (2) Represents 10% decrease in mortality rates at each age.


25.EFairValueofPlanAssets Compositionoffairvalueofplanasse ts,December31:

2020 2019

Equity investments 3% 3% Fixedincome investments 73% 77% Realestate investments 7% 7% Qualifyinginsurance contract 8% 8% Other 9% 5%

Totalcompositionoffairvalue ofplanassets 100% 100%

The fairvalue ofourequity investmentsin 2020 and 2019 are consistentwithLevel1 orLevel2 fairvalue hierarchy. In 2020, 2% ofourfixedincome investments(3% in2019) are determinedbasedonvaluationtechniquesconsistentwithLevel1 ofthe fairvalue hierarchy.

The assetsofthe definedbenefitpensionplansare primarily heldintrustforplanmembers,andare managedwithinthe provisionsofeachplan’s investmentpoliciesandprocedures.Diversificationofthe investmentsisusedtolimitcredit,market,andforeigncurrency risks.We have significantly de-riskedthe investmentsofourmaterialdefinedbenefitpensionplansby shiftingthe pensionassetmixaway fromequitiesandinto more fixedincome andliability-matchinginvestments.In2018,the riskinourUK pensionplanwasreducedthroughabuy-ininsurance contract, protectingthe majority ofpensionerbenefits.The long-terminvestmentobjectivesofthe definedbenefitpensionplansare toequalorexceedthe rate ofgrowthofthe liabilities.Overshorterperiods,the objective ofthe definedbenefitpensionplaninvestmentstrategy istominimize volatility inthe fundedstatus.Liquidity ismanagedwithconsiderationtothe cashflowrequirementsofthe liabilities.

25.FFutureCashFlows The followingtablessetforththe expectedcontributionsandexpectedfuture benefitpaymentsofthe definedbenefitpensionandotherpost-retirementbenefitplans:

Pension Post-retirement Total

Expectedcontributionsforthe next12 months $ 84 $ 16 $ 100

ExpectedFutureBenefitPayments

2021 2022 2023 2024 2025 2026 to2030

Pension $ 153 $ 149 $ 159 $ 161 $ 167 $ 899 Post-retirement 16 16 17 17 18 93

Total $ 169 $ 165 $ 176 $ 178 $ 185 $ 992

25.GDefinedContributionPlans We expensed $144 in2020 ($131 for 2019)withrespecttodefinedcontributionplans.

26.Earnings(Loss)PerShare

Detailsofthe calculationofthe netincome (loss)andthe weightedaverage numberofsharesusedinthe earningspershare computationsare as follows:


Commonshareholders’netincome(loss)forbasice arningspershare $ 2,404 $ 2,618 Add:Increase inincome duetoconv ertibleinstrume nts(1) 10 10

Commonshareholders’netincome(loss)onadilute dbasis $ 2,414 $ 2,628

Weightedaveragenumbe rofcommonsharesoutstandingforbasicearningspershare (inmillions) 585 592 Add:Dilutive impactofstockoptions(2) (inmillions) — 1

Dilutiveimpactofconv ertibleinstrume nts(1) (inmillions) 4 4

Weightedaveragenumbe rofcommonsharesoutstandingonadilutedbasis(inmillions) 589 597

Basicearnings(loss)pershare $ 4.11 $ 4.42 Dilutedearnings(loss)pershare $ 4.10 $ 4.40

(1) Theconver tibleins truments aret heSLEECS B is suedby SLCT I. (2) Excludes theimpact of1 million stock options for theyear endedDecember 31, 2020 (1million for theyear endedDecember 31, 2019)becaus et hese

stock options wereant i-dilutivefor theper iod.


27.AccumulatedOtherComprehensiveIncome(Loss)

Changesinaccumulatedothercomprehensive income(loss),ne toftaxes,are asfollows:

2020 2019

Forthe yearsendedDecember31,

Balance, beginning ofperiod

Other comprehensive income(loss)

Balance, endof period

Balance, beginning ofperiod

Other comprehensive income (loss)

Balance, endof period

Itemsthatmay be reclassifiedsubsequently toincome:

Unrealizedforeigncurrency translationgains(losses),net ofhedgingactivities $ 1,359 $ (204) $ 1,155 $ 1,923 $ (564) $ 1,359

Unrealizedgains(losses)onavailable-for-sale assets 313 319 632 (56) 369 313

Unrealizedgains(losses)oncashflowhedges (7) (6) (13) (21) 14 (7)

Share ofothercomprehensive income (loss)injoint venturesandassociates (33) (9) (42) (24) (9) (33)

Itemsthatwillnotbe reclassifiedsubsequently toincome: Remeasurementofdefinedbenefitplans (305) 22 (283) (263) (42) (305) Revaluationsurplusontransferstoinvestmentproperties 145 — 145 145 — 145

Total $ 1,472 $ 122 $ 1,594 $ 1,704 $ (232) $ 1,472

Totalattributable to: Participatingpolicyholders $ 11 $ (6) $ 5 $ 14 $ (3) $ 11

Shareholders 1,461 128 1,589 1,690 (229) 1,461

Total $ 1,472 $ 122 $ 1,594 $ 1,704 $ (232) $ 1,472

28.SubsequentEvents

OnNovember18,2020,we enteredintoa 15-yearexclusive bancassurance partnershipwithAsiaCommercialJointStockBank("ACB") effective January 1,2021.The partnershipsignificantly expandsourdistributioncapabilitiesandsupportsourambitiontobe aleaderinAsiathrough distributionexcellence inhighergrowthmarkets.Aninitialpaymentof approximately $472 wasmade inJanuary 2021,basedonthe contractual termsofthe agreement.The initialpaymentwillbe capitalizedasanintangible assetandwillbe amortizedoverthe life ofthe contractbasedona units-of-productionmethod.

OnDecember21,2020,SLFInc.announceditsintentiontoredeemallofthe outstanding $350 principalamountofSeries2016-1 Subordinated Unsecured 3.10% Fixed/FloatingDebentures(the "Debentures")inaccordance withthe redemptiontermsattachedtothe Debentures.The redemptionwillbe fundedfromexistingcashandliquidassets.The Debenturesare redeemable atSLFInc.'soptiononorafterFebruary 19,2021 at aredemptionprice perDebenture equaltothe principalamounttogetherwithaccruedandunpaidinteresttothe date ofthe redemption.SLFInc. intendstoredeemthe DebenturesonFebruary 19,2021.

OnJanuary 5,2021,we purchased 51% ofCrescentCapitalGroupLP("Crescent"),aU.S.based globalalternative creditinvestmentmanager. CrescentwillformpartofourAssetManagementbusinesssegment.OnJanuary 5,2021,totalcashconsiderationof $308 cashwaspaid.The acquisitionwillextendSLCManagement'ssolutionsinalternative credit,whichwillbenefitexistingandprospective clients. Crescentminority shareholders alsohave the optiontorequire ustopurchase theirshares("putoption") in2026.We have acalloptiontoacquire the remaining outstandingsharesheldby these minority shareholderscommencingin2026.The fairvalue ofthe putoptionliability willbe accountedforas“other financialliabilities”andany excessoverthe carryingamountsarisingfromtransactionsrelatingtonon-controllingshareholdersrecordedasa reductiontoretainedearnings.The agreementalsoincludescontingentpaymentbasedonthe achievementofcertainmilestones.Due tothe recent close ofthistransaction,the fairvalue determinationandpurchase accountinghave notbeencompleted.


Documents

Consolidated Financial Statements and Notes