Report of Foreign Issuer (6-k)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of

1934


For the month of May 2015		Commission File Number: 001-15014

SUN LIFE FINANCIAL INC.

(the “Company”)

(Translation of registrant’s name into English)

150 King Street West, Toronto, Ontario, M5H 1J9

(Address of principal executive offices)

[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.]


Form 20-F		Form 40-F X

[Indicate be check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.]


Yes		No X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

N/A


Exhibit

99.1		Shareholders’ Report

99.2		Certificates of the Chief Executive Officer and Chief Financial Officer pursuant to Canadian Multilateral Instrument 52-109 – Certification of Issuers’ Annual and Interim Filings

99.3		Earnings Coverage Ratio pursuant to Canadian National Instrument 44-102 – Shelf Offerings

SIGNATURE

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	*Sun Life Financial Inc.*
		(Registrant)

Date: May 6, 2015	By	/s/ “Eric Weinheimer”
		Eric Weinheimer,
		Vice-President and Associate General Counsel

Exhibit 99.1


		Q1
		Q1		2015

SHAREHOLDERS’ REPORT

SUN LIFE FINANCIAL INC.

For the period ended

March 31, 2015

sunlife.com

LOGO

CANADIAN RESIDENTS PARTICIPATING IN THE SHARE ACCOUNT

Shareholders holding shares in the Canadian Share Account can sell their shares for $15 plus 5 cents per share.

Complete Form A on the front of your Share Ownership Statement, tear it off and return it by mail to Canadian Stock Transfer Company Inc.

For more information call Canadian Stock Transfer Company Inc. at 1 877 224-1760.

Sun Life Financial Reports First Quarter 2015 Results

TORONTO – (May 5, 2015) – Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF)

The information contained in this document concerning the first quarter of 2015 is based on the unaudited interim financial results of Sun Life Financial Inc. for the period ended March 31, 2015. Sun Life Financial Inc., and its subsidiaries and joint ventures, are collectively referred to as “the Company”, “Sun Life Financial”, “we”, “our”, and “us”. Unless otherwise noted, all amounts are in Canadian dollars.

First Quarter 2015 Financial Highlights

•

Operating net income⁽¹⁾ of $446 million or $0.73 per share⁽¹⁾⁽²⁾, compared to $454 million or $0.74 per share in the first quarter of 2014. Reported net income of $441 million or $0.72 per share, compared to $400 million or $0.65 per share in the same period last year

•

Underlying net income⁽¹⁾ of $516 million or $0.84 per share⁽¹⁾⁽²⁾ in the first quarter of 2015, compared to $440 million or $0.72 per share in the first quarter of 2014

•

Operating return on equity⁽¹⁾ (“ROE”) of 10.4% and underlying ROE⁽¹⁾of 12.1% in the first quarter of 2015, compared to operating ROE of 12.0% and underlying ROE of 11.6% in the same period last year

•

Quarterly dividend declared of $0.38 per share

•

Minimum Continuing Capital and Surplus Requirements ratio for Sun Life Assurance Company of Canada of 216%

“Our first quarter underlying earnings were strong at $516 million, driven by solid contributions from all four pillars,” said Dean Connor, President and Chief Executive Officer, Sun Life Financial. “We are pleased to announce an increase of two cents per share in our quarterly dividend to 38 cents per share based on these results and our business momentum.”

“In Canada, Sun Life entered into a groundbreaking longevity insurance agreement, transferring the longevity risk for $5 billion of Bell Canada’s pension plan liability to Sun Life, further strengthening our leadership position in the Canadian pension de-risking market,” Connor said. “Sun Life Global Investments performed well, delivering strong investment performance results to customers and expanding its product shelf, which drove growth of total sales 41% over the prior year to $811 million.”

“Global assets under management rose 20% to $813 billion from the first quarter of 2014 reflecting the continued strengthening of the U.S. dollar and market movement, with assets under management at MFS increasing to US$441 billion,” Connor said. “We continue to grow our asset management pillar, completing the purchase of Ryan Labs Inc. which further extends our asset management footprint in the U.S.”

“We were pleased with earnings in SLF U.S.’s Group Benefits business. While it will take several quarters to achieve sustainable results, these results indicate that the management actions taken in 2014 are having a positive impact on the business.”

“Our business in Asia continued its steep growth trajectory, delivering strong underlying net income of $62 million, with individual insurance sales up 15% from the first quarter of the prior year excluding currency impact.”

Reported net income was $441 million in the first quarter of 2015, compared to reported net income of $400 million in the same period last year. The following table sets out our operating net income and underlying net income for the first quarter of 2015 and 2014.


($ millions, after-tax)	Q1’15			Q1’14
Operating net income		446			454
Market related impacts		(22	)		(26	)
Assumption changes and management actions		(48	)		40
Underlying net income		516			440

The Board of Directors of Sun Life Financial Inc. today declared a quarterly shareholder dividend of $0.38 per common share.

⁽¹⁾

Operating net income (loss) and financial information based on operating net income (loss), such as operating earnings (loss) per share, operating ROE, underlying net income (loss), underlying earnings (loss) per share and underlying ROE, are not based on International Financial Reporting Standards. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

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


		Sun Life Financial Inc.		First Quarter 2015		1

Operational Highlights

Our strategy is focused on four key pillars of growth. We detail our continued progress against these pillars below.

Leader in financial protection and wealth solutions in our Canadian home market

Defined Benefit Solutions, part of our Group Retirement Services business, completed a transfer of longevity risk for $5 billion of pension plan liabilities from Bell Canada to Sun Life. The transaction, of which a significant portion was reinsured, further advances our leadership position in helping employers de-risk their defined benefit pension plans.

Our group businesses continue to grow in Canada with business in-force in Group Benefits at $9 billion and assets under administration of $77 billion in Group Retirement Services. The recently released 2014 Benefits Canada results confirmed that Group Benefits has retained the #1 ranking⁽¹⁾, extending its lead over the competition. Rollover pension sales in the first quarter experienced strong growth of 24% over the first quarter of 2014.

Wealth sales in SLF Canada’s Individual business grew 4% to $1.5 billion compared to the same period last year, as strong sales of retail mutual funds were partially offset by lower sales of guaranteed and fixed income products in a low interest rate environment. Total wealth sales in SLF Canada decreased by $1.4 billion from the first quarter of 2014 to $2.8 billion driven mainly by the decrease in Group Retirement Services wealth sales, which were down 52% to $1.3 billion due to significant large case sales during the first quarter of 2014.

Sun Life Financial ranked #1 among life and health insurers in a recent study of the most admired organizations in Quebec according to Les Affaires publication.

Premier global asset manager, anchored by MFS

Global assets under management (“AUM”) reached $813 billion at the end of the first quarter of 2015.

MFS Investment Management (“MFS”) AUM increased to US$441 billion at the end of the first quarter of 2015 driven by positive market movements. MFS gross sales were $22.8 billion, up 2% from the same period last year, with non-U.S. retail sales up by 47% to $5.2 billion from the first quarter of 2014. Net outflows of $0.2 billion were driven by institutional funds largely offset by retail net inflows.

MFS’s long-term retail fund performance remains strong with 95% and 97% of MFS’s mutual fund assets ranked in the top half of their Lipper categories based on five- and ten-year performance, respectively, as at March 31, 2015. For the fourth consecutive year, MFS ranked top 10 in the Barron’s Fund Family rankings for the ten-year category. In the U.S., the MFS Diversified Income Fund received a Lipper Award as the top performing fund in its three- and five-year category.

We completed the purchase of New York-based asset manager Ryan Labs Inc. on April 2, 2015, increasing our capacity for liability-driven investing and total return fixed income strategies in the U.S.

Leader in U.S. group benefits and International high net worth solutions

SLF U.S.’s medical stop-loss business had continued strong performance, with sales increasing by 21% compared to the first quarter of 2014.

During the quarter we continued to expand distribution opportunities through private exchanges by being selected to participate on the Mercer Marketplace, one of the largest and fastest growing private exchange networks in the U.S.

As a result of our pricing actions, group life and disability sales were down in the quarter, but pricing levels for new business and persistency of existing business were both in line with our expectations.

International life sales in the first quarter of 2015 were US$12 million, or 50% below the first quarter of 2014, as we maintained our disciplined approach to pricing in a low interest rate environment. International wealth sales in the first quarter of 2015 were US$59 million lower than the first quarter of 2014 as we continue to align our product design, marketing efforts, and distribution model to focus on select regions, distributors, and customer segments.

Growing Asia through distribution excellence in higher growth markets

SLF Asia continued to grow agency capabilities in the region. Agency sales in the Philippines, Indonesia, and Hong Kong were up 38%, 38%, and 24%, respectively, measured in local currency. Total wealth sales also increased compared to the same quarter in the prior year, driven by India and China.

⁽¹⁾	As measured by Benefits Canada magazine based on December 31, 2014 full year premium and premium equivalents.


2		Sun Life Financial Inc.		First Quarter 2015

Sun Life of Canada (Philippines), Inc. ranked first among life insurers in the Philippines in total premium income for the fourth consecutive year and first in new business premiums for the sixth year, as reported by the country’s Insurance Commission during the first quarter of 2015.

Other Highlights

Sun Life Financial celebrated its 150th birthday during the quarter. Sun Life was granted its charter in Montreal on March 18, 1865. The milestone was marked by the opening of the Toronto, New York, and Philippine stock exchanges on March 2, 2015.

About Sun Life Financial

Celebrating 150 years in 2015, Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth products and services to individuals and corporate customers. Sun Life Financial and its partners have operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of March 31, 2015, the Sun Life Financial group of companies had total assets under management of $813 billion. For more information please visit www.sunlife.com.

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


		Sun Life Financial Inc.		First Quarter 2015		3

Management’s Discussion and Analysis

For the period ended March 31, 2015

Dated May 5, 2015

How We Report Our Results

Sun Life Financial Inc. (“SLF Inc.”), and its subsidiaries and joint ventures, are collectively referred to as “the Company”, “Sun Life Financial”, “we”, “our”, and “us”. We manage our operations and report our financial results in five business segments: Sun Life Financial Canada (“SLF Canada”), Sun Life Financial United States (“SLF U.S.”), MFS Investment Management (“MFS”), Sun Life Financial Asia (“SLF Asia”), and Corporate. Our Corporate segment includes the operations of our United Kingdom business unit (“SLF U.K.”) and Corporate Support operations. Our Corporate Support operations includes our Run-off reinsurance business and investment income, expenses, capital and other items not allocated to other business segments. Information concerning these segments is included in our annual and interim consolidated financial statements and accompanying notes (“Annual Consolidated Financial Statements” and “Interim Consolidated Financial Statements”, respectively). We prepare our unaudited Interim Consolidated Financial Statements using International Financial Reporting Standards (“IFRS”), and in accordance with the International Accounting Standard 34 Interim Financial Reporting. The information contained in this document is in Canadian dollars unless otherwise noted.

Use of Non-IFRS Financial Measures

We report certain financial information using non-IFRS financial measures, as we believe that these measures provide information that is useful to investors in understanding our performance and facilitate a comparison of our quarterly and full year results from period to period. These non-IFRS financial measures do not have any standardized meaning and may not be comparable with similar measures used by other companies. For certain non-IFRS financial measures, there are no directly comparable amounts under IFRS. These non-IFRS financial measures should not be viewed as alternatives to measures of financial performance determined in accordance with IFRS. Additional information concerning these non-IFRS financial measures and reconciliations to the closest IFRS measures are included in our annual and interim management’s discussion and analysis (“MD&A”) and the Supplementary Financial Information packages that are available on www.sunlife.com under Investors – Financial results & reports. Reconciliations to IFRS measures are also available in this document under the heading Reconciliation of Non-IFRS Financial Measures.

Operating net income (loss) and financial measures based on operating net income (loss), consisting of operating earnings per share (“EPS”) or operating loss per share, and operating return on equity (“ROE”), are non-IFRS financial measures. Operating net income (loss) excludes from reported net income the impact of the following amounts that are not operational or ongoing in nature to assist investors in understanding our business performance: (i) certain hedges in SLF Canada that do not qualify for hedge accounting; (ii) fair value adjustments on share-based payment awards at MFS; (iii) the loss on the sale of our U.S. Annuity Business⁽¹⁾; (iv) the impact of assumption changes and management actions related to the sale of our U.S. Annuity Business⁽¹⁾; (v) restructuring and other related costs (including impacts related to the sale of our U.S. Annuity Business); (vi) goodwill and intangible asset impairment charges; and (vii) other items that are not operational or ongoing in nature. Operating EPS also excludes the dilutive impact of convertible instruments.

Underlying net income (loss) and financial measures based on underlying net income (loss), consisting of underlying EPS or underlying loss per share, and underlying ROE, are non-IFRS financial measures. Underlying net income (loss) removes from operating net income (loss) the impact of the following items that create volatility in our results under IFRS and when removed assist in explaining our results from period to period: (a) market related impacts; (b) assumption changes and management actions; and (c) other items that have not been treated as adjustments to operating net income and when removed assist in explaining our results from period to period. Market related impacts include: (i) the impact of changes in interest rates that differ from our best estimate assumptions in the reporting period on investment returns and the value of derivative instruments used in our hedging programs, including changes in credit and swap spreads, and any changes to the assumed fixed income reinvestment rates in determining the actuarial liabilities; (ii) the impact of changes in equity markets, net of hedging, above or below our best estimate assumptions of approximately 2% growth per quarter in the reporting period and of basis risk inherent in our hedging program for products that provide benefit guarantees; and (iii) the impact of changes in the fair value of real estate properties in the reporting period. Additional information regarding these adjustments is available in the footnotes to the table included under the heading Q1 2015 vs. Q1 2014 in the Financial Summary section in this document. Assumption changes reflect the impact of revisions to the assumptions used in determining our liabilities for insurance contracts and investment contracts. The impact on our liabilities for insurance contracts and investment contracts of actions taken by management in the current reporting period, referred to as management actions include, for example, changes in the prices of in-force products, new or revised reinsurance on in-force business, or material changes to investment policies for asset segments supporting our liabilities. Underlying EPS also excludes the dilutive impact of convertible instruments.

⁽¹⁾

Effective August 1, 2013, we completed the sale of our U.S. annuities business and certain of our U.S. life insurance businesses (collectively, our “U.S. Annuity Business”). For information on our discontinued operations, refer to our 2014 Annual Consolidated Financial Statements and 2013 annual MD&A.


4		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Other non-IFRS financial measures that we use include adjusted revenue, administrative services only (“ASO”), premium and deposit equivalents, mutual fund assets and sales, managed fund assets and sales, premiums and deposits, adjusted premiums and deposits, assets under management (“AUM”) and assets under administration, and operating effective income tax rate on an operating net income basis.

Unless indicated otherwise, all factors discussed in this document that impact our results are applicable to reported net income (loss), operating net income (loss), and underlying net income (loss). Reported net income (loss) refers to Common shareholders’ net income (loss) determined in accordance with IFRS. Reported net income (loss), operating net income (loss) including adjustments, underlying net income (loss) including adjustments, and net income and other comprehensive income (“OCI”) sensitivities are expressed on an after-tax basis unless otherwise noted.

All EPS measures in this document refer to fully diluted EPS, unless otherwise stated.

Additional Information

Additional information about SLF Inc. can be found in our Annual and Interim Consolidated Financial Statements, annual and interim MD&A and Annual Information Form (“AIF”). These documents are filed with securities regulators in Canada and are available at www.sedar.com. SLF Inc.’s Annual Consolidated Financial Statements, annual MD&A and AIF are filed with the United States Securities and Exchange Commission (“SEC”) in SLF Inc.’s annual report on Form 40-F and SLF Inc.’s interim MD&As and Interim Consolidated Financial Statements are furnished to the SEC on Form 6-Ks and are available at www.sec.gov.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		5

Financial Summary


	Quarterly results
($ millions, unless otherwise noted)	Q1’15		Q4’14		Q3’14		Q2’14		Q1’14
Net income (loss)
Operating net income (loss)⁽¹⁾		446		511		467		488		454
Reported net income (loss)		441		502		435		425		400
Underlying net income (loss)⁽¹⁾		516		360		517		499		440
Diluted EPS ($)
Operating EPS (diluted)⁽¹⁾		0.73		0.83		0.76		0.80		0.74
Reported EPS (diluted)		0.72		0.81		0.71		0.69		0.65
Underlying EPS (diluted)⁽¹⁾		0.84		0.59		0.84		0.81		0.72
Reported basic EPS ($)		0.72		0.82		0.71		0.70		0.66
Avg. common shares outstanding (millions)		613		613		612		611		610
Closing common shares outstanding (millions)		611.2		613.1		612.7		611.4		610.6
Dividends per common share ($)		0.36		0.36		0.36		0.36		0.36
MCCSR ratio⁽²⁾		216%		217%		218%		222%		221%
Return on equity (%)
Operating ROE⁽¹⁾		10.4%		12.6%		11.9%		12.6%		12.0%
Underlying ROE⁽¹⁾		12.1%		8.8%		13.1%		12.9%		11.6%
Premiums and deposits
Net premium revenue		2,207		2,701		2,695		2,372		2,228
Segregated fund deposits		2,411		2,155		1,907		2,611		2,576
Mutual fund sales⁽¹⁾		22,124		17,071		14,714		16,267		18,567
Managed fund sales⁽¹⁾		8,243		7,988		8,170		6,131		7,579
ASO premium and deposit equivalents⁽¹⁾		1,769		1,855		1,638		1,495		1,760
Total premiums and deposits⁽¹⁾		36,754		31,770		29,124		28,876		32,710
Assets under management
General fund assets		148,725		139,419		133,623		129,253		128,171
Segregated funds		89,667		83,938		82,058		82,461		80,054
Mutual funds, managed funds and other AUM⁽¹⁾		574,166		511,085		482,499		472,677		467,662
Total AUM⁽¹⁾		812,558		734,442		698,180		684,391		675,887
Capital
Subordinated debt and innovative capital instruments⁽³⁾		2,881		2,865		2,857		2,849		2,606
Participating policyholders’ equity		142		141		133		131		133
Total shareholders’ equity		19,761		18,731		18,156		17,641		17,818
Total capital		22,784		21,737		21,146		20,621		20,557

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

⁽²⁾	Minimum Continuing Capital and Surplus Requirements (“MCCSR”) ratio of Sun Life Assurance Company of Canada (“Sun Life Assurance”).

⁽³⁾

Innovative capital instruments consist of Sun Life ExchangEable Capital Securities and qualify as capital for Canadian regulatory purposes. However, under IFRS they are reported as Senior debentures in our Annual and Interim Consolidated Financial Statements. For additional information see Capital and Liquidity Management – Capital in our 2014 annual MD&A.

Unless indicated otherwise, all factors discussed in this document that impact our results are applicable to reported net income (loss), operating net income (loss), and underlying net income (loss).

Q1 2015 vs. Q1 2014

Our reported net income was $441 million in the first quarter of 2015, compared to $400 million in the first quarter of 2014. Operating net income was $446 million for the quarter ended March 31, 2015, compared to $454 million for the same period last year. Underlying net income was $516 million, compared to $440 million in the first quarter of 2014.

Operating ROE and underlying ROE in the first quarter of 2015 were 10.4% and 12.1%, respectively. Operating and underlying ROE in the first quarter of 2014 were 12.0% and 11.6%, respectively. The decrease in operating ROE compared to the first quarter of 2014 was largely due to the growth in equity as a result of foreign currency effects and retained earnings over the past twelve months.


6		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table reconciles our net income measures and sets out the impact that other notable items had on our net income in the first quarter of 2015 and 2014.


	Quarterly results
($ millions, after-tax)	Q1’15			Q1’14
Reported net income		441			400
Certain hedges that do not qualify for hedge accounting in SLF Canada		15			5
Fair value adjustments on share-based payment awards at MFS		(20	)		(51	)
Restructuring and other related costs		–			(8	)
Operating net income⁽¹⁾		446			454
Equity market impact
Impact from equity market changes		23			30
Basis risk impact		(14	)		3
Equity market impact⁽²⁾		9			33
Interest rate impact
Impact from interest rate changes		(54	)		(58	)
Impact of credit spread movements		(10	)		(13	)
Impact of swap spread movements		23			7
Interest rate impact⁽³⁾		(41	)		(64	)
Increases (decreases) from changes in the fair value of real estate		10			5
Market related impacts		(22	)		(26	)
Assumption changes and management actions		(48	)		40
Underlying net income⁽¹⁾		516			440
Impact of other notable items on our net income:
Experience related items⁽⁴⁾
Impact of investment activity on insurance contract liabilities		25			36
Mortality		11			(10	)
Morbidity		2			(12	)
Credit		5			16
Lapse and other policyholder behaviour		(16	)		(19	)
Expenses		(14	)		(14	)
Other		4			–

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

⁽²⁾

Equity market impact consists primarily of the effect of changes in equity markets during the quarter, net of hedging, that differ from the best estimate assumptions used in the determination of our insurance contract liabilities of approximately 2% growth per quarter in equity markets. Equity market impact also includes the income impact of the basis risk inherent in our hedging program, which is the difference between the return on underlying funds of products that provide benefit guarantees and the return on the derivative assets used to hedge those benefit guarantees.

⁽³⁾

Interest rate impact includes the effect of interest rate changes on investment returns that differ from best estimate assumptions, and on the value of derivative instruments used in our hedging programs. Our exposure to interest rates varies by product type, line of business, and geography. Given the long-term nature of our business, we have a higher degree of sensitivity in respect of interest rates at long durations. Interest rate impact also includes the income impact of declines in assumed fixed income reinvestment rates and of credit and swap spread movements.

⁽⁴⁾	Experience related items reflect the difference between actual experience during the reporting period and best estimate assumptions used in the determination of our insurance contract liabilities.

Our reported net income for the first quarter of 2015 and 2014 included items that are not operational or ongoing in nature and are, therefore, excluded in our calculation of operating net income. Operating net income for the first quarter of 2015 and 2014 excluded the net impact of certain hedges that do not qualify for hedge accounting in SLF Canada, fair value adjustments on share-based payment awards at MFS, and restructuring and other related costs. The net impact of these items reduced reported net income by $5 million in the first quarter of 2015 compared to a reduction of $54 million in the first quarter of 2014. In addition, our operating net income in the first quarter of 2015 increased by $33 million as a result of movements in currency rates relative to the average exchange rates in the first quarter of 2014.

Our underlying net income for the first quarter of 2015 and 2014 excludes market related impacts and assumption changes and management actions. Assumption changes and management actions in the quarter were primarily due to a $61 million revision to insurance contract liabilities relating to certain universal life products in SLF U.S. The net impact of market related impacts and assumption changes and management actions reduced operating net income by $70 million in the first quarter of 2015, compared to an increase of $14 million in the first quarter of 2014.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		7

Net income in the first quarter of 2015 also reflected gains from investment activity on insurance contract liabilities and positive mortality experience, offset by lapse and other policyholder behaviour and expense experience.

Net income in the first quarter of 2014 also reflected gains from investment activity on insurance contract liabilities and positive credit experience, offset by unfavourable mortality and morbidity, lapse and other policyholder behaviour, and expense experience.

Impact of Foreign Exchange Rates

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

Items impacting our Consolidated Statements of Operations, such as Revenue, Benefits and expenses, and income, are translated to Canadian dollars using average exchange rates for the respective period. For items impacting our Consolidated Statements of Financial Position, such as Assets and Liabilities, period end rates are used for currency translation purposes. The following table provides the most relevant foreign exchange rates over the past five quarters.


	Quarterly
Exchange Rate	Q1’15		Q4’14		Q3’14		Q2’14		Q1’14
Average
U.S. Dollar		1.240		1.136		1.088		1.090		1.102
U.K. Pounds		1.878		1.797		1.817		1.835		1.824
Period end
U.S. Dollar		1.269		1.162		1.120		1.067		1.105
U.K. Pounds		1.880		1.809		1.815		1.824		1.841

In general, our net income benefits from a weakening Canadian dollar and is adversely affected by a strengthening Canadian dollar as net income from the Company’s international operations is translated back to Canadian dollars. However, in a period of losses, the weakening of the Canadian dollar has the effect of increasing the losses. The relative impact of foreign exchange in any given period is driven by the movement of currency rates as well as the proportion of earnings generated in our foreign operations. We generally express the impact of foreign exchange on net income on a year-over-year basis. During the first quarter of 2015, our operating net income increased by $33 million as a result of movements in currency rates relative to the average exchange rates in the first quarter of 2014.


8		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Performance by Business Group

SLF Canada

SLF Canada is the Canadian market leader in a number of its businesses, providing products and services to 6 million Canadians. Our distribution breadth, strong service culture, technology leadership, and brand recognition provide an excellent platform for growth. SLF Canada has three main business units – Individual Insurance & Wealth, Group Benefits, and Group Retirement Services – which offer a full range of protection, wealth accumulation, and income products and services to individuals in their communities and their workplaces.


	Quarterly results
($ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Underlying net income (loss)⁽¹⁾		201			181			237			195			210
Market related impacts		(69	)		(54	)		(33	)		(2	)		12
Assumption changes and management actions		3			(4	)		35			4			16
Operating net income (loss)⁽¹⁾		135			123			239			197			238
Hedges that do not qualify for hedge accounting		15			(6	)		2			(8	)		5
Reported net income (loss)		150			117			241			189			243
Underlying ROE (%)⁽¹⁾		10.6			9.7			12.8			10.6			11.6
Operating ROE (%)⁽¹⁾		7.1			6.6			12.9			10.7			13.1
Operating net income (loss) by business unit⁽¹⁾
Individual Insurance & Wealth⁽¹⁾		38			80			68			96			140
Group Benefits⁽¹⁾		54			55			124			53			58
Group Retirement Services⁽¹⁾		43			(12	)		47			48			40
Total operating net income (loss)⁽¹⁾		135			123			239			197			238

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

Q1 2015 vs. Q1 2014

SLF Canada’s reported net income was $150 million in the first quarter of 2015, compared to $243 million in the first quarter of 2014. Operating net income was $135 million, compared to $238 million in the first quarter of 2014. Operating net income in SLF Canada excludes the impact of certain hedges that do not qualify for hedge accounting, which is set out in the table above.

Underlying net income in the first quarter of 2015 was $201 million, compared to $210 million in the first quarter of 2014. Underlying net income in SLF Canada excludes from operating net income market related impacts and assumption changes and management actions, which are set out in the table above. In the first quarter of 2015, we experienced downward pressure on net income from declining interest rates. The unfavourable effect of market related impacts in the first quarter of 2015 was primarily driven by interest rate changes partially offset by equity markets, compared to the favourable effect in the first quarter of 2014 primarily driven by equity markets partially offset by interest rates.

Net income in the first quarter of 2015 also reflected gains from investment activities on insurance contract liabilities, partially offset by unfavourable morbidity experience within Group Benefits (“GB”) including high cost drug claims, and unfavourable lapse and other policyholder experience.

Net income in the first quarter of 2014 also reflected gains from investment activities on insurance contract liabilities, partially offset by unfavourable morbidity experience in GB in our disability line of business.

In the first quarter of 2015, individual life and health insurance product sales increased to $67 million, up 3% compared to the same period last year driven by improved Career Sales Force sales. Sales of individual wealth products increased 4% over the first quarter of 2014 due to strong mutual fund sales, partially offset by declines in sales of guaranteed and fixed income products driven in part by the continued low interest rate environment. Sales of Sun Life Global Investments (Canada) Inc. (“SLGI”) demonstrated strong growth with gross sales of $811 million, up 41% over the same quarter in the prior year.

Group Retirement Services (“GRS”) new sales increased to $5.7 billion, mainly attributable to a record $5.3 billion Defined Benefit Solutions large case longevity insurance contract with BCE Inc., of which a significant portion was reinsured to a syndicate of reinsurers. GRS pension rollover sales increased 24% over the same quarter in the prior year due in part to higher average member deposits. GB sales declined 3% compared to the same quarter in the prior year, primarily driven by timing of sales in the large case market segment.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		9

SLF U.S.

SLF U.S. has three business units: Group Benefits, International, and In-force Management. Group Benefits provides protection solutions to employers and employees including group life, disability, medical stop-loss, and dental insurance products, as well as a suite of voluntary benefits products. International offers individual life insurance and investment wealth products to high net worth clients in international markets. In-force Management includes certain closed individual life insurance products, primarily universal life, and participating whole life insurance.


	Quarterly results
(US$ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Underlying net income (loss)⁽¹⁾		65			9			45			101			85
Market related impacts		8			16			(6	)		(13	)		(34	)
Assumption changes and management actions		(54	)		121			(42	)		4			19
Operating net income (loss)⁽¹⁾		19			146			(3	)		92			70
Reported net income (loss)		19			146			(3	)		92			70
Underlying ROE (%)⁽¹⁾		9.7			1.3			6.8			15.1			12.0
Operating ROE (%)⁽¹⁾		2.8			22.0			(0.4	)		13.7			9.9
Operating net income (loss) by business unit⁽¹⁾
Group Benefits⁽¹⁾		38			(64	)		(11	)		3			17
International⁽¹⁾		2			78			33			36			14
In-force Management⁽¹⁾		(21	)		132			(25	)		53			39
Total operating net income (loss)⁽¹⁾		19			146			(3	)		92			70

(C$ millions)
Underlying net income (loss)⁽¹⁾		81			13			48			111			94
Operating net income (loss)⁽¹⁾		35			168			(4	)		100			77
Reported net income (loss)		35			168			(4	)		100			77

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

Q1 2015 vs. Q1 2014

SLF U.S.’s reported net income and operating net income were C$35 million in the first quarter of 2015, compared to reported net income and operating net income of C$77 million in the first quarter of 2014. There were no operating net income adjustments in SLF U.S. in 2015 or 2014. Underlying net income was C$81 million, compared to C$94 million in the first quarter of 2014. The weakening of the Canadian dollar in the first quarter of 2015 relative to average exchange rates in the first quarter of 2014 increased operating net income by $4 million.

In U.S. dollars, SLF U.S.’s reported net income and operating net income were US$19 million in the first quarter of 2015, compared to reported net income and operating net income of US$70 million in the first quarter of 2014. Underlying net income was US$65 million in the first quarter of 2015, compared to US$85 million in the first quarter of 2014. Underlying net income excludes from operating net income market related impacts and assumption changes and management actions, which are set out in the table above. The favourable effect of market related impacts in the first quarter of 2015 was primarily driven by interest rates, compared to the unfavourable effect in the first quarter of 2014 primarily driven by interest rates. The unfavourable impact of assumption changes and management actions in 2015 were primarily due to a revision to insurance contract liabilities relating to certain universal life products.

Net income in the first quarter of 2015 also reflected favourable morbidity and mortality experience in Group Benefits and net realized gains on the sale of available for sale (“AFS”) assets, partially offset by adverse mortality and policyholder behaviour experience in In-force Management.

Net income in the first quarter of 2014 also reflected net realized gains on the sale of AFS assets, partially offset by unfavourable mortality experience in Group Benefits and In-force Management.

Sales in Group Benefits in the first quarter of 2015 decreased 11% compared to the first quarter of 2014, reflecting the impact of price increases. Within Group Benefits, medical stop-loss sales increased 21%.

Sales in International decreased 33% compared to the first quarter of 2014, as we maintained pricing discipline in recognition of the low interest rate environment, and continued to realign our marketing and distribution to focus on select regions, distributors, and customer segments.


10		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

MFS Investment Management

MFS is a premier global asset management firm which offers a comprehensive selection of products and services. Drawing on an investment heritage that emphasizes collaboration and integrity, MFS actively manages assets for retail and institutional investors around the world through mutual and commingled funds, separately managed accounts, institutional products, and retirement strategies.


	Quarterly results
(US$ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Underlying net income⁽¹⁾		135			137			154			133			133
Operating net income⁽¹⁾		135			137			154			133			133
Fair value adjustments on share-based payment awards		(16	)		–			(28	)		(40	)		(46	)
Reported net income		119			137			126			93			87

(C$ millions)
Underlying net income⁽¹⁾		168			156			168			145			147
Operating net income⁽¹⁾		168			156			168			145			147
Fair value adjustments on share-based payment awards		(20	)		1			(31	)		(44	)		(51	)
Reported net income		148			157			137			101			96
Pre-tax operating profit margin ratio⁽²⁾		40%			39%			43%			40%			42%
Average net assets (US$ billions)⁽²⁾		436.4			427.3			434.7			427.9			412.0
Assets under management (US$ billions)⁽²⁾⁽³⁾		441.4			431.0			424.8			438.6			420.6
Gross sales (US$ billions)⁽²⁾		22.8			20.5			20.1			19.5			22.4
Net sales (US$ billions)⁽²⁾		(0.2	)		(1.9	)		(2.0	)		1.4			3.7
Asset appreciation (depreciation) (US$ billions)		10.6			8.1			(11.8	)		16.6			4.1

S&P 500 Index (daily average)		2,064			2,012			1,977			1,879			1,834
MSCI EAFE Index (daily average)		1,817			1,795			1,924			1,942			1,894

⁽¹⁾	Represents a non-IFRS financial measure that excludes fair value adjustments on share-based payment awards at MFS. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

⁽²⁾	Pre-tax operating profit margin ratio, AUM, average net assets, and sales are non-IFRS financial measures. See Reconciliation of Non-IFRS Financial Measures.

⁽³⁾	Monthly Information on AUM is provided by MFS on its Corporate Fact Sheet, which can be found in the “About MFS” link for U.S. individual investors at www.mfs.com/wps/portal.

Q1 2015 vs. Q1 2014

MFS’s reported net income was C$148 million in the first quarter of 2015, compared to C$96 million in the first quarter of 2014. MFS had operating net income and underlying net income of C$168 million in the first quarter of 2015, compared to C$147 million in the first quarter of 2014. Operating net income and underlying net income in MFS exclude the impact of fair value adjustments on share-based payment awards, which is set out in the table above. The weakening of the Canadian dollar in the first quarter of 2015 relative to average exchange rates in the first quarter of 2014 increased operating net income by $19 million.

In U.S. dollars, MFS’s reported net income was US$119 million in the first quarter of 2015, compared to US$87 million in the first quarter of 2014. Operating net income and underlying net income were US$135 million in the first quarter of 2015, compared to US$133 million in the first quarter of 2014.

Net income increased in the first quarter of 2015 compared to the same period in 2014 driven primarily by higher average net assets partially offset by higher advertising expense and our continued investment in technological infrastructure. MFS’s pre-tax operating profit margin ratio was 40% in the first quarter of 2015, down from 42% in the first quarter of 2014.

Total AUM increased to US$441.4 billion as at March 31, 2015, compared to US$431.0 billion as at December 31, 2014. The increase of US$10.4 billion was primarily driven by gross sales of US$22.8 billion and asset appreciation of US$10.6 billion, partially offset by redemptions of US$23.0 billion. 83%, 95%, and 97% of retail fund assets ranked in the top half of their Lipper categories based on three-, five-, and ten-year performance, respectively, as at March 31, 2015.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		11

SLF Asia

SLF Asia operates through subsidiaries in the Philippines, Hong Kong, and Indonesia, as well as through joint ventures with local partners in the Philippines, Indonesia, Vietnam, Malaysia, China, and India. We offer individual life insurance products in all seven markets, and group benefits and/or pension and retirement products in the Philippines, China, Hong Kong, India, Malaysia, and Vietnam. We have also established asset management companies either directly or through joint ventures in the Philippines, China, and India. We distribute these protection and wealth products to middle- and upper-income individuals, groups, and affinity clients through multiple distribution channels.


	Quarterly results
($ millions)	Q1’15			Q4’14			Q3’14		Q2’14			Q1’14
Underlying net income (loss)⁽¹⁾		62			50			48		39			37
Market related impacts		10			(8	)		3		(1	)		(6	)
Assumption changes and management actions		(4	)		20			–		(1	)		1
Operating net income (loss)⁽¹⁾		68			62			51		37			32
Reported net income (loss)		68			62			51		37			32
Underlying ROE (%)⁽¹⁾		7.7			6.8			7.1		6.1			6.0
Operating ROE (%)⁽¹⁾		8.6			8.4			7.5		5.8			5.1

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

Q1 2015 vs. Q1 2014

SLF Asia’s reported net income and operating net income were $68 million in the first quarter of 2015, compared to reported net income and operating net income of $32 million in the first quarter of 2014. There were no operating net income adjustments in SLF Asia in 2015 or 2014. The weakening of the Canadian dollar in the first quarter of 2015 relative to average exchange rates in the first quarter of 2014 increased operating net income by $7 million.

Underlying net income was $62 million, compared to $37 million in the first quarter of 2014. Underlying net income excludes from operating net income market related impacts and assumption changes and management actions, which are set out in the table above. The favourable effect of market related impacts in the first quarter of 2015 was primarily driven by equity markets partially offset by interest rates, compared to the unfavourable effect in the first quarter of 2014 primarily driven by interest rates partially offset by equity markets.

Net income in the first quarter of 2015 when compared with the first quarter of 2014 also reflected business growth and net gains on AFS securities in 2015; net income in the first quarter of 2014 reflected net losses on AFS securities.

Total individual insurance sales in the first quarter of 2015 were up 28% from the first quarter of 2014, with growth in all markets except in China and India and the positive impact of currency. Sales increased in the Philippines, Indonesia, and Hong Kong by 43%, 15%, and 22%, respectively, measured in local currency.

Corporate

Corporate includes the results of SLF U.K. and Corporate Support. Corporate Support includes our Run-off reinsurance business as well as investment income, expenses, capital, and other items that have not been allocated to our other business segments. SLF U.K. has a run-off block of business which has been closed to new business and focuses on supporting existing customers.


	Quarterly results
($ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Underlying net income (loss)⁽¹⁾		4			(40	)		16			9			(48	)
Market related impacts		28			23			(18	)		(4	)		5
Assumption changes and management actions		8			19			15			4			3
Operating net income (loss)⁽¹⁾		40			2			13			9			(40	)
Restructuring and other related costs		–			(4	)		(3	)		(11	)		(8	)
Reported net income (loss)		40			(2	)		10			(2	)		(48	)
Operating net income (loss) by business unit⁽¹⁾
SLF U.K.⁽¹⁾		71			65			44			37			28
Corporate Support⁽¹⁾		(31	)		(63	)		(31	)		(28	)		(68	)
Total operating net income (loss)⁽¹⁾		40			2			13			9			(40	)

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.


12		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Q1 2015 vs. Q1 2014

Corporate had a reported net income of $40 million in the first quarter of 2015, compared to a reported net loss of $48 million in the first quarter of 2014. Operating net income was $40 million for the first quarter of 2015, compared to an operating net loss of $40 million in the same period last year. Operating net income (loss) excludes restructuring and other related costs, which is set out in the table above.

Underlying net income was $4 million, compared to underlying net loss of $48 million in the first quarter of 2014. Underlying net income excludes from operating net income market related impacts and assumption changes and management actions, which are set out in the table above. The favourable effect of market related impacts in the first quarter of 2015 was primarily driven by swap spreads and interest rate changes partially offset by equity markets, compared to the favourable effect in the first quarter of 2014 primarily driven by interest rates and equity markets.

SLF U.K.’s operating net income was $71 million in the first quarter of 2015, compared to $28 million in the first quarter of 2014. SLF U.K.’s net income in the first quarter of 2015 reflected positive market related impacts from swap spreads and interest rate changes partially offset by equity markets. Net income in the first quarter of 2014 reflected unfavourable investing activity in annuities and lapse experience, partially offset by positive credit experience.

Corporate Support had an operating net loss of $31 million in the first quarter of 2015, compared to an operating net loss of $68 million in the first quarter of 2014. The decrease in loss was attributable to favourable results in the Run-off reinsurance business, lower interest expense resulting from a reduction in subordinated debt, lower preferred share dividends from a reduction in preferred shares, and tax benefits, and the impact of higher expenses in the first quarter of 2014.

Additional Financial Disclosure

Revenue


	Quarterly results
($ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Premiums
Gross		3,723			4,023			4,080			3,758			3,638
Ceded		(1,516	)		(1,322	)		(1,385	)		(1,386	)		(1,410	)
Net premium revenue		2,207			2,701			2,695			2,372			2,228
Net investment income
Interest and other investment income		1,279			1,258			1,265			1,230			1,188
Fair value and foreign currency changes on assets and liabilities		2,495			2,196			495			1,560			1,921
Net gains (losses) on available-for-sale assets		96			49			48			48			57
Fee income		1,255			1,171			1,111			1,105			1,066
Total revenue		7,332			7,375			5,614			6,315			6,460
Adjusted revenue⁽¹⁾		5,715			6,261			6,280			5,900			5,700

⁽¹⁾	Represents a non-IFRS financial measure that excludes from revenue the impact of Constant Currency Adjustment, FV Adjustment, and Reinsurance in SLF Canada’s GB Operations Adjustment as described in Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

Revenue in the first quarter of 2015 was $7.3 billion, compared to $6.5 billion in the first quarter of 2014. The increase is mainly attributable to net gains from changes in fair value of fair value through profit or loss (“FVTPL”) assets and liabilities, currency impact from the weakening Canadian dollar, higher fee income in MFS, and increased net investment income. Net gains on available-for-sale assets increased by $39 million, which was offset within Net investment income by the impact of associated hedges. The weakening of the Canadian dollar relative to average exchange rates in the first quarter of 2014 increased revenue by $377 million. Adjusted revenue was $5.7 billion in the first quarter of 2015, largely flat compared to the first quarter of 2014.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		13

Premiums and Deposits


	Quarterly results
($ millions)	Q1’15		Q4’14		Q3’14		Q2’14		Q1’14
Net premium revenue		2,207		2,701		2,695		2,372		2,228
Segregated fund deposits		2,411		2,155		1,907		2,611		2,576
Mutual fund sales⁽¹⁾		22,124		17,071		14,714		16,267		18,567
Managed fund sales⁽¹⁾		8,243		7,988		8,170		6,131		7,579
ASO premium and deposit equivalents⁽¹⁾		1,769		1,855		1,638		1,495		1,760
Total premiums and deposits⁽¹⁾		36,754		31,770		29,124		28,876		32,710
Total adjusted premiums and deposits⁽¹⁾⁽²⁾		34,426		32,141		30,554		30,232		33,871

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

⁽²⁾	Represents a non-IFRS financial measure that excludes from premiums and deposits the impact of Constant Currency Adjustment and Reinsurance in SLF Canada’s GB Operations Adjustment as described in Use of Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures.

Premiums and deposits were $36.8 billion in the first quarter of 2015, compared to $32.7 billion in the first quarter of 2014, primarily due to favourable currency impact. The weakening of the Canadian dollar relative to average exchange rates in the first quarter of 2014 increased total premiums and deposits by approximately $3.5 billion. Adjusted premiums and deposits of $34.4 billion in the first quarter of 2015 increased $0.6 billion from the first quarter of 2014. The increase was mainly the result of higher mutual fund sales in MFS, India, and SLF Canada, partially offset by lower managed fund sales in MFS, decreased net premium revenue in International in SLF U.S., and segregated fund deposits in SLF Canada.

Net premium revenue, which reflects gross premiums less amounts ceded to reinsurers, was $2.2 billion in the first quarter of 2015, down slightly from the first quarter of 2014. The decrease was mainly attributable to decreases in International in SLF U.S., partially offset by favourable currency impact and higher net premium revenue from SLF Asia.

Segregated fund deposits were $2.4 billion in the first quarter of 2015, compared to $2.6 billion in the first quarter of 2014. The decrease was largely attributable to decreases in GRS in SLF Canada, partially offset by increases in the Philippines in SLF Asia.

Sales of mutual funds increased $3.6 billion compared to the first quarter of 2014 driven by favourable currency impact and higher sales in MFS and India. Sales of managed funds increased by $0.7 billion in the first quarter of 2015 compared to the first quarter of 2014, primarily driven by favourable currency impact.

ASO premium and deposit equivalents of $1.8 billion in the first quarter of 2015 were largely unchanged from the first quarter of 2014.

Sales

In SLF Canada, life and health sales consist of sales of individual insurance and group benefits products; wealth sales consist of sales of individual wealth products and sales in GRS. In SLF U.S., life and health sales consist of sales by Group Benefits and individual life sales by International; wealth sales consist of investment product sales in International. In SLF Asia, life and health sales consist of the individual and group life and health sales from wholly-owned subsidiaries and joint ventures based on our proportionate equity interest in the Philippines, Hong Kong, Indonesia, India, China, Malaysia, and Vietnam; and wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales from the India and China insurance companies, and Birla Sun Life Asset Management Company’s equity and fixed income mutual fund sales based on our proportionate equity interest.


($ millions)	Q1’15		Q1’14
Life and health sales⁽¹⁾
SLF Canada		234		237
SLF U.S.		85		96
SLF Asia		129		102
Total life and health sales		448		435
Wealth sales⁽¹⁾
SLF Canada		2,796		4,213
SLF U.S.		164		211
SLF Asia		2,188		1,350
Total wealth sales excluding MFS		5,148		5,774
MFS sales		28,236		24,641
Total wealth sales		33,384		30,415

Large case longevity insurance sale⁽¹⁾⁽²⁾– SLF Canada		5,260		–

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures.

⁽²⁾	Represents the transfer of longevity risk of BCE Inc.’s Bell Canada pension plan.


14		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Total Company life and health sales were $448 million in the first quarter of 2015, compared to $435 million in the same period last year.

•

SLF Canada life and health sales were $234 million in the first quarter of 2015, slightly lower compared to the first quarter of 2014

•

SLF U.S. life and health sales were $85 million in the first quarter of 2015, compared to $96 million in the first quarter of 2014, primarily driven by lower sales in individual insurance in International, partially offset by favourable currency impact

•

SLF Asia life and health sales were $129 million in the first quarter of 2015, compared to $102 million in the first quarter of 2014, driven by growth in every region except India and a favourable currency impact of $13 million

Total Company wealth sales were $33.4 billion in the first quarter of 2015, compared to $30.4 billion in the first quarter of 2014.

•

SLF Canada wealth sales were $2.8 billion in the first quarter of 2015, compared to $4.2 billion in the first quarter of 2014, mainly attributable to lower sales in GRS

•

SLF U.S. wealth sales were $164 million in the first quarter of 2015, compared to $211 million in the first quarter of 2014, due to lower investment product sales in International, partially offset by favourable currency impact

•

SLF Asia wealth sales were $2.2 billion in the first quarter of 2015, compared to $1.4 billion in the first quarter of 2014, primarily driven by higher fund sales in India and China and favourable currency impact

•

MFS gross sales were $28.2 billion in the first quarter of 2015, compared to $24.6 billion in the first quarter of 2014, largely reflecting higher mutual fund sales and favourable currency impact

Assets Under Management

AUM consist of general funds, segregated funds, and other AUM. Other AUM includes mutual funds and managed funds, which include institutional and other third-party assets managed by the Company.

AUM were $812.6 billion as at March 31, 2015, compared to AUM of $734.4 billion as at December 31, 2014. The increase in AUM of $78.2 billion between December 31, 2014 and March 31, 2015 resulted primarily from:

(i)

an increase of $53.4 billion from the weakening of the Canadian dollar against foreign currencies compared to the prior period exchange rates;

(ii)

favourable market movements on the value of mutual funds, managed funds, and segregated funds of $18.5 billion;

(iii)

an increase of $2.5 billion from the change in value of FVTPL assets and liabilities;

(iv)

other business growth of $2.8 billion; and

(v)

net sales of mutual, managed, and segregated funds of $1.0 billion.

Changes in the Statements of Financial Position and in Shareholders’ Equity

Total general fund assets were $148.7 billion as at March 31, 2015, compared to $139.4 billion as at December 31, 2014. The increase in general fund assets from December 31, 2014 was primarily a result of positive currency movements of $5.0 billion, a $2.5 billion increase from the change in value of FVTPL assets and liabilities, and business growth of $1.8 billion.

Insurance contract liabilities (excluding other policy liabilities and assets) of $101.8 billion as at March 31, 2015 increased by $6.6 billion compared to December 31, 2014, mainly due to changes in balances on in-force policies (which includes fair value changes on FVTPL assets supporting insurance contract liabilities), currency movements, and balances arising from new policies.

Shareholders’ equity, including preferred share capital, was $19.8 billion as at March 31, 2015, compared to $18.7 billion as at December 31, 2014. The increase in shareholders’ equity was primarily due to:

(i)

shareholders’ net income of $467 million in the first quarter of 2015, before preferred share dividends of $26 million;

(ii)

an increase of $767 million from the weakening of the Canadian dollar relative to foreign currencies;

(iii)

net unrealized gains on AFS assets in OCI of $170 million; and

(iv)

proceeds of $21 million from the issuance of common shares through the Canadian dividend reinvestment and share purchase plan, and $20 million from stock options exercised; partially offset by

(v)

common share dividend payments of $221 million;

(vi)

common share repurchases of $120 million; and

(vii)

changes in liabilities for defined benefit plans of $46 million.

As at April 24, 2015, Sun Life Financial Inc. had 612.1 million common shares and 92.2 million preferred shares outstanding.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		15

Cash Flows


	Quarterly results
($ millions)	Q1’15			Q1’14
Net cash and cash equivalents, beginning of period		3,364			3,324
Cash flows provided by (used in):
Operating activities		890			167
Investing activities		(36	)		(4	)
Financing activities		(346	)		(906	)
Changes due to fluctuations in exchange rates		209			91
Increase (decrease) in cash and cash equivalents		717			(652	)
Net cash and cash equivalents, end of period		4,081			2,672
Short-term securities, end of period		2,486			3,261
Net cash, cash equivalents and short-term securities, end of period		6,567			5,933

Net cash, cash equivalents and short-term securities were $6.6 billion at the end of the first quarter of 2015, compared to $5.9 billion at the end of the first quarter of 2014.

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

The higher cash flow used in financing activities in the first quarter of 2014 compared to the first quarter of 2015 was largely due to the redemption of subordinated debt.

Income Taxes

In the first quarter of 2015, our effective tax rates on reported net income and operating net income were 17.1% and 17.6%, respectively. Normally, our effective tax rate is reduced below the statutory rate of 26.5% by a sustainable stream of tax benefits, mainly tax exempt investment income, that is generally expected to decrease the effective tax rate to a range of 18% to 22%.

The effective tax rate calculated on an operating basis excludes amounts attributable to participating policyholders and non-operating items.

Quarterly Financial Results

The following table provides a summary of our results for the eight most recently completed quarters. A more complete discussion of our historical quarterly results can be found in our interim and annual MD&As for the relevant periods.


	Quarterly results
($ millions, unless otherwise noted)	Q1’15		Q4’14		Q3’14			Q2’14		Q1’14			Q4’13			Q3’13			Q2’13
Net income (loss)
Operating⁽¹⁾		446		511		467			488		454			642			422			431
Reported		441		502		435			425		400			571			324			391
Underlying⁽¹⁾		516		360		517			499		440			375			448			373
Diluted EPS ($)
Operating⁽¹⁾		0.73		0.83		0.76			0.80		0.74			1.05			0.69			0.71
Reported		0.72		0.81		0.71			0.69		0.65			0.93			0.53			0.64
Underlying⁽¹⁾		0.84		0.59		0.84			0.81		0.72			0.61			0.74			0.62
Basic Reported EPS ($)
Reported		0.72		0.82		0.71			0.70		0.66			0.94			0.53			0.65
Operating net income (loss) by segment⁽¹⁾
SLF Canada⁽¹⁾		135		123		239			197		238			137			215			210
SLF U.S.⁽¹⁾		35		168		(4	)		100		77			341			105			126
MFS⁽¹⁾		168		156		168			145		147			156			120			104
SLF Asia⁽¹⁾		68		62		51			37		32			42			18			46
Corporate⁽¹⁾		40		2		13			9		(40	)		(34	)		(36	)		(55	)
Total operating net income (loss)⁽¹⁾		446		511		467			488		454			642			422			431

⁽¹⁾	Represents a non-IFRS financial measure. See Use of Non-IFRS Financial Measures.


16		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Fourth Quarter 2014

Operating net income of $511 million in the fourth quarter of 2014 reflected favourable impact from assumption changes and management actions and gains from investing activity on insurance contract liabilities. These items were partially offset by unfavourable impacts from interest rate changes, mortality and morbidity, lapse and other policyholder behaviour, and expense experience, which mainly consists of compensation-related and other seasonal costs.

Third Quarter 2014

Operating net income of $467 million in the third quarter of 2014 reflected favourable impact from gains from investing activity on insurance contract liabilities, positive credit experience, tax benefits and business growth. These items were partially offset by unfavourable impacts from interest rate changes, mortality and morbidity and expense experience.

Second Quarter 2014

Operating net income of $488 million in the second quarter of 2014 reflected favourable impact from equity markets, gains from investment activity on insurance contract liabilities, positive credit experience and business growth, offset by unfavourable impacts from net interest rates, morbidity experience, and expense experience.

First Quarter 2014

Operating net income of $454 million in the first quarter of 2014 reflected favourable impact from equity markets, gains from investment activity on insurance contract liabilities and positive credit experience, offset by unfavourable impacts from net interest rates, mortality and morbidity experience, lapse and other policyholder behaviour and expense experience.

Fourth Quarter 2013

Operating net income of $642 million in the fourth quarter of 2013 reflected $290 million of income from a management action related to the restructuring of an internal reinsurance arrangement. Net income also reflected favourable impacts from equity markets, interest rates and swap spread movements, and positive fair value movements of real estate. These were partially offset by unfavourable basis risk and credit spread movements. Investment activity on insurance contract liabilities and credit experience were more than offset by unfavourable experience from expenses, comprised mostly of seasonal costs, lapse and other policyholder behaviour, and mortality and morbidity.

Third Quarter 2013

Operating net income was $422 million in the third quarter of 2013. Net income in the third quarter of 2013 reflected favourable impacts from improved equity markets and interest rates and gains from assumption changes driven by capital market movements. These were partially offset by negative impacts from basis risk and credit and swap spread movements. Non-capital market related assumption changes and management actions in the quarter resulted in a $111 million charge to income.

Second Quarter 2013

Operating net income was $431 million in the second quarter of 2013. Net income in the second quarter of 2013 reflected favourable impacts from interest rates and credit spread movements. These gains were partially offset by unfavourable impact of declines in assumed fixed income reinvestment rates in our insurance contract liabilities, and negative impacts of equity markets and swap spread movements. Positive impacts from credit, mortality, and morbidity experience were partially offset by lapse and other policyholder behaviour and other experience factors.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		17

Investments

We had total general fund invested assets of $133.1 billion as at March 31, 2015, compared to $125.2 billion as at December 31, 2014. The increase in general fund invested assets of $7.9 billion was primarily a result of favourable changes in fair value and foreign currency movement. The majority of our general fund is invested in medium- to long-term fixed income instruments, such as debt securities and mortgages and loans, with 85.1% of the general fund invested assets invested in cash and fixed income investments. Equity securities and investment properties represented 4.2% and 4.7% of the portfolio, respectively. The remaining 6.0% of the portfolio consisted of policy loans, derivative assets, and other invested assets.

The following table sets out the composition of our invested assets.⁽¹⁾

March 31, 2015

December 31, 2014

($ millions)

Carrying
value

% of total
carrying value

Carrying
value

% of total
carrying value

Cash, cash equivalents and short-term securities

6,744

5.1%

6,818

5.4%

Debt securities – FVTPL

57,176

43.0%

53,127

42.4%

Debt securities – AFS

13,537

10.2%

13,087

10.5%

Equity securities – FVTPL

4,621

3.5%

4,357

3.5%

Equity securities – AFS

930

0.7%

866

0.7%

Mortgages and loans

35,727

26.8%

33,679

26.9%

Derivative assets

2,378

1.8%

1,839

1.5%

Other invested assets

2,686

2.0%

2,375

1.9%

Policy loans

3,000

2.2%

2,895

2.3%

Investment properties

6,260

4.7%

6,108

4.9%

Total invested assets

133,059

100%

125,151

100%

⁽¹⁾

The invested asset values and ratios presented are based on the carrying value of the respective asset categories. Carrying values for FVTPL and AFS invested assets are generally equal to fair value. For invested assets supporting insurance contracts, in the event of default, if the amounts recovered are insufficient to satisfy the related insurance contract liability cash flows that the assets are intended to support, credit exposure may be greater than the carrying value of the asset.

Energy Sector Exposure

Our general fund invested assets are well diversified across investment types, geographies, and sectors.

As at March 31, 2015, our exposure to the energy sector for debt securities and corporate loans was $6.2 billion, of which 96.4% is rated investment grade and above. Approximately 43% of our energy sector exposure is invested in pipeline, storage, and transportation entities and 15% is invested in integrated oil and gas entities. The remaining exposure is largely related to companies involved in exploration and production, refining, and drilling and servicing, and includes approximately 7% invested in drilling and oil field services. The revenue of pipeline, storage, and transportation entities generally has limited exposure to direct commodity price volatility as the revenue is usually fee-based. Integrated oil and gas entities are generally large, internationally diversified organizations.

Our mortgage and real estate portfolio includes office, industrial, retail, and multi-family buildings occupied by tenants representing a diversified group of industries. Our most significant property exposure to the oil and gas segment is located in Alberta, which is less than 20% of our mortgage portfolio and less than 30% of our real estate portfolio. In light of recent developments, we are actively monitoring our energy sector tenants to assess indications of stress.

Debt Securities

Our debt securities portfolio is actively managed through a regular program of purchases and sales aimed at optimizing yield, quality, and liquidity, while ensuring that the asset portfolio remains diversified and well-matched to insurance contract liabilities by duration. As at March 31, 2015, we held $70.7 billion of debt securities, which represented 53.2% of our overall investment portfolio. Debt securities with an investment grade of “A” or higher represented 67.3% of the total debt securities as at March 31, 2015, compared to 67.9% as at December 31, 2014. Debt securities rated “BBB” or higher represented 97.1% of total debt securities as at March 31, 2015, compared to 97.3% as at December 31, 2014.

Corporate debt securities that are not issued or guaranteed by sovereign, regional, and municipal governments represented 67.7% of our total debt securities as at March 31, 2015, compared to 66.7% as at December 31, 2014. Total government issued or guaranteed debt securities as at March 31, 2015 were $22.8 billion, compared to $22.1 billion as at December 31, 2014. Our exposure to debt securities to any single country does not exceed 1% of total invested assets on our Consolidated Statements of Financial Position as at March 31, 2015 with the exception of certain countries where we have business operations, including Canada, the United States, the United Kingdom, and the Philippines. As outlined in the table below, we have an immaterial amount of direct exposure to Eurozone sovereign credits.


18		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Debt Securities of Governments and Financial Institutions by Geography

March 31, 2015

December 31, 2014

($ millions)

Government issued
or guaranteed

Financials

Government issued
or guaranteed

Financials

Canada

15,015

2,094

14,650

2,391

United States

1,553

6,560

1,590

5,992

United Kingdom

2,609

2,029

2,484

1,992

Philippines

2,804

2,575

Eurozone⁽¹⁾

168

828

171

762

Other

668

1,528

611

1,390

Total

22,817

13,079

22,081

12,544

⁽¹⁾	Our investments in Eurozone countries primarily include Germany, Netherlands, Spain, France, and Belgium.

Our gross unrealized losses as at March 31, 2015 for FVTPL and AFS debt securities were $0.18 billion and $0.03 billion, respectively, compared with $0.22 billion and $0.04 billion, respectively, as at December 31, 2014.

Our debt securities as at March 31, 2015 included $13.1 billion invested in the financial sector, representing approximately 18.5% of our total debt securities, or 9.8% of our total invested assets. This compares to $12.5 billion, or 18.9%, of the debt security portfolio as at December 31, 2014.

Our debt securities as at March 31, 2015 included $5.0 billion of asset-backed securities reported at fair value, representing approximately 7.1% of our debt securities, or 3.8% of our total invested assets. This compares to $4.4 billion of asset-backed securities as at December 31, 2014.

Mortgages and Loans

Mortgages and loans disclosures in this section are presented at their carrying value on our Consolidated Statements of Financial Position. As at March 31, 2015, we had a total of $35.7 billion in mortgages and loans compared to $33.7 billion as at December 31, 2014. Our mortgage portfolio, which consists almost entirely of first mortgages, was $14.0 billion. Our loan portfolio, which consists of private placement assets, was $21.7 billion. The carrying value of mortgages and loans by geographic location is set out in the following table. The geographic location for mortgages is based on location of the property, while for loans it is based on the country of the creditor’s parent.

Mortgages and Loans by Geography

March 31, 2015

December 31, 2014

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Canada

7,996

12,544

20,540

7,847

12,308

20,155

United States

5,998

5,946

11,944

5,563

5,196

10,759

United Kingdom

–

804

776

777

Other

–

2,439

–

1,988

Total

13,994

21,733

35,727

13,411

20,268

33,679

As at March 31, 2015, our mortgage portfolio of $14.0 billion consisted mainly of commercial mortgages, spread across approximately 2,300 loans. Commercial mortgages include retail, office, multi-family, industrial, and land properties. Our commercial portfolio has a weighted average loan-to-value ratio of approximately 54%. The estimated weighted average debt service coverage is 1.69 times, consistent with December 31, 2014. The Canada Mortgage and Housing Corporation insures 25.1% of the Canadian commercial mortgage portfolio.

As at March 31, 2015, we held $21.7 billion of corporate loans, compared to $20.3 billion as at December 31, 2014. In the current low interest rate environment, our strategy is to continue to focus our efforts on the origination of new private placement assets. Private placement assets provide diversification by type of loan, industry segment, and borrower credit quality. The loan portfolio consists of senior secured and unsecured loans to large and mid-market sized corporate borrowers, securitized lease/loan obligations secured by a variety of assets, and project finance loans in sectors such as power and infrastructure.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		19

Mortgages and Loans Past Due or Impaired

March 31, 2015

Gross carrying value

Allowance for losses

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Not past due

13,879

21,710

35,589

–

Past due:

Past due less than 90 days

–

Past due 90 to 179 days

–

Past due 180 days or more

–

Impaired

116

156

⁽¹⁾

Total

14,030

21,750

35,780

December 31, 2014

Gross carrying value

Allowance for losses

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Not past due

13,316

20,248

33,564

–

Past due:

Past due less than 90 days

–

Past due 90 to 179 days

–

Past due 180 days or more

–

Impaired

118

154

⁽¹⁾

Total

13,448

20,284

33,732

⁽¹⁾	Includes $19 million of sectoral provisions as at March 31, 2015 and $18 million of sectoral provisions as at December 31, 2014.

Impaired mortgages and loans, net of allowance for losses, amounted to $103 million as at March 31, 2015, compared to $101 million as at December 31, 2014. The net carrying value of impaired mortgages amounted to $80 million as at March 31, 2015, compared to $81 million as at December 31, 2014.

Asset Default Provision

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

Our asset default provision reflects the provision relating to future credit events for fixed income assets currently held by the Company that support our insurance contract liabilities. Our asset default provision as at March 31, 2015 was $2,131 million compared to $1,916 million as at December 31, 2014. The increase of $215 million was primarily due to increases in the provision for assets purchased net of dispositions, the depreciation of the Canadian dollar, and the increase in the fair value of assets supporting our insurance contract liabilities, partially offset by the release of provisions on fixed income assets supporting our insurance contract liabilities.

Derivative Financial Instruments

The values of our derivative instruments are set out in the following table. The use of derivatives is measured in terms of notional amounts, which serve as the basis for calculating payments and are generally not actual amounts that are exchanged.

Derivative Instruments


($ millions)	March 31, 2015			December 31, 2014
Net fair value		(293	)		236
Total notional amount		50,516			48,211
Credit equivalent amount		726			738
Risk-weighted credit equivalent amount		7			7

The total notional amount of derivatives in our portfolio increased to $50.5 billion as at March 31, 2015, from $48.2 billion as at December 31, 2014. This increase was primarily attributable to increases in interest rate contracts and currency contracts. The net fair value of derivatives decreased to a net liability of $293 million as at March 31, 2015, from a net asset value of $236 million as at


20		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

December 31, 2014. This decrease was primarily due to a decrease in the fair value of our foreign exchange portfolio as a result of the depreciation of the Canadian dollar against the U.S. dollar. The decrease was partially offset by an increase in fair value on our interest rate portfolio due to a decline in yield curves.

Capital Management

Our total capital consists of subordinated debt and other capital, participating policyholders’ equity, and total shareholders’ equity which includes common shareholders’ equity and preferred shareholders’ equity. As at March 31, 2015, our total capital was $22.8 billion, up from $21.7 billion as at December 31, 2014. The increase in total capital was primarily the result of common shareholders’ net income of $441 million and other comprehensive income of $894 million, partially offset by the $120 million of common share purchases under our normal course issuer bid and $200 million of common shareholders’ dividends (net of the Canadian dividend reinvestment and share purchase plan).

The legal entity, SLF Inc. (the ultimate parent company), and its wholly owned holding companies had $1,718 million in cash and other liquid assets as at March 31, 2015 ($1,827 million as at December 31, 2014). The decrease in liquid assets held in SLF Inc. in the first quarter of 2015 was primarily attributable to common share repurchases during the quarter. Liquid assets as noted above include cash and cash equivalents, short-term investments, and publicly traded securities, and exclude cash from short-term loans.

Sun Life Assurance’s MCCSR ratio was 216% as at March 31, 2015, compared to 217% as at December 31, 2014. The slight decrease to the MCCSR ratio over the period primarily resulted from market movements. The changes in the 2015 MCCSR Guideline, effective in the first quarter of 2015, did not have a significant impact on Sun Life Assurance.

Normal Course Issuer Bid

Risk Management

The shaded text and tables in the following section of this document represent our disclosure on market risks in accordance with IFRS 7 Financial Instruments: Disclosures and is an integral part of our unaudited Interim Consolidated Financial Statements for the quarter ended March 31, 2015. The shading in this section does not imply that these disclosures are of any greater importance than non-shaded tables and text, and the Risk Management disclosure should be read in its entirety.

We use an enterprise Risk Management Framework to assist in categorizing, monitoring, and managing the risks to which we are exposed. The major categories of risk are credit risk, market risk, insurance risk, operational risk, liquidity risk, and business risk. Operational risk is a broad category that includes legal and regulatory risks, people risks, and systems and processing risks.

Through our ongoing enterprise risk management procedures, we review the various risk factors identified in the Framework and report to senior management and to the Risk Review Committee of the Board at least quarterly. Our enterprise risk management procedures and risk factors are described in our annual MD&A and AIF.

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

Market Risk Sensitivities

Our earnings are affected by the determination of policyholder obligations under our annuity and insurance contracts. These amounts are determined using internal valuation models and are recorded in our Consolidated Financial Statements, primarily as Insurance contract liabilities. The determination of these obligations requires management to make assumptions about the future level of equity market performance, interest rates, credit and swap spreads, and other factors over the life of our products. Differences between our actual experience and our best estimate assumptions are reflected in our Consolidated Financial Statements.

The market value of our investments in fixed income and equity securities fluctuates based on movements in interest rates and equity markets. The market value of fixed income assets designated as AFS that are held primarily in our surplus segment increases (decreases) with declining (rising) interest rates. The market value of equities designated as AFS and held primarily in our surplus segment increases (decreases) with rising (declining) equity markets. Changes in the market value of AFS assets flow through OCI and are only recognized in net income when realized upon sale, or when considered impaired. The amount of realized gains (losses) recorded in net income in any period is equal to the initial unrealized gains (losses) or OCI position at the start of the period plus the change in market value during the current period up to the point of sale for those securities that were sold during the period. The sale or impairment of AFS assets held in surplus can therefore have the effect of modifying our net income sensitivity.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		21

We realized $96 million (pre-tax) in net gains on the sale of AFS assets during the first quarter of 2015 ($57 million pre-tax in the first quarter of 2014). The net unrealized gains or OCI position on AFS fixed income and equity assets were $464 million and $254 million, respectively, after-tax as at March 31, 2015 ($340 million and $208 million, respectively, after-tax as at December 31, 2014).

The following table sets out the estimated immediate impact on or sensitivity of our net income, our OCI, and Sun Life Assurance’s MCCSR ratio to certain instantaneous changes in interest rates and equity market prices as at March 31, 2015 and December 31, 2014.


Interest Rate and Equity Market Sensitivities As at March 31, 2015⁽¹⁾ ($ millions, unless otherwise noted)
Interest rate sensitivity⁽²⁾⁽⁶⁾	100 basis point decrease			50 basis point decrease			50 basis point increase			100 basis point increase
Potential impact on net income⁽³⁾⁽⁶⁾	$	(300)		$	(100)		$	50		$	50
Potential impact on OCI	$	500		$	250		$	(250)		$	(500)
Potential impact on MCCSR⁽⁴⁾		12% points decrease			5% points decrease			5% points increase			9% points increase
Equity markets sensitivity⁽⁵⁾		25% decrease			10% decrease			10% increase			25% increase
Potential impact on net income⁽³⁾	$	(300	)	$	(100	)	$	100		$	200
Potential impact on OCI	$	(150	)	$	(50	)	$	50		$	150
Potential impact on MCCSR⁽⁴⁾		5% points decrease			1% points decrease			1% points increase			2% points increase

As at December 31, 2014⁽¹⁾ ($ millions, unless otherwise noted)
Interest rate sensitivity⁽²⁾⁽⁶⁾	100 basis point decrease			50 basis point decrease			50 basis point increase			100 basis point increase
Potential impact on net income⁽³⁾⁽⁶⁾	$	(400	)	$	(100	)	$	50		$	100
Potential impact on OCI	$	500		$	250		$	(250	)	$	(500	)
Potential impact on MCCSR⁽⁴⁾	12% points decrease			5% points decrease			4% points increase			8% points increase
Equity markets sensitivity⁽⁵⁾		25% decrease			10% decrease			10% increase			25% increase
Potential impact on net income⁽³⁾	$	(250	)	$	(50	)	$	50		$	150
Potential impact on OCI	$	(150	)	$	(50	)	$	50		$	150
Potential impact on MCCSR⁽⁴⁾	5% points decrease			1% points decrease			1% points increase			1% points increase

⁽¹⁾	Net income and OCI sensitivities have been rounded to the nearest $50 million.

⁽²⁾

Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at March 31, 2015 and December 31, 2014. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for segregated funds at 10 basis point intervals (for 50 basis point changes in interest rates) and at 20 basis point intervals (for 100 basis point changes in interest rates).

⁽³⁾	The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at March 31, 2015 and December 31, 2014, and include new business added and product changes implemented prior to such dates.

⁽⁴⁾

The MCCSR sensitivities illustrate the impact on Sun Life Assurance as at March 31, 2015 and December 31, 2014. This excludes the impact on assets and liabilities that are in SLF Inc. but not included in Sun Life Assurance. MCCSR sensitivities as at December 31, 2014 reflect the impact of IAS 19 Employee Benefits and its phase-in impact on available capital.

⁽⁵⁾

Represents the respective change across all equity markets as at March 31, 2015 and December 31, 2014. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for segregated funds at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).

⁽⁶⁾	The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products.

Our net income sensitivity to interest rate declines has decreased since December 31, 2014. This is the result of an improvement in the measurement of the sensitivity, partially offset by an increase in sensitivity due to the decline in the level of interest rates over the first quarter.


22		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Credit Spread and Swap Spread Sensitivities

We have estimated the immediate impact or sensitivity of our reported net income attributable to certain instantaneous changes in credit and swap spreads. The credit spread sensitivities reflect the impact of changes in credit spreads on our asset and liability valuations (including non-sovereign fixed income assets, provincial governments, corporate bonds, and other fixed income assets). The swap spread sensitivities reflect the impact of changes in swap spreads on swap-based derivative positions and liability valuations.

Credit Spread Sensitivities ($ millions, after-tax)


Net income sensitivity⁽¹⁾⁽²⁾	50 basis point decrease			50 basis point increase
March 31, 2015	$	(125	)	$	125
December 31, 2014	$	(100	)	$	125

⁽¹⁾	Sensitivities have been rounded to the nearest $25 million.

⁽²⁾	In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period.

Swap Spread Sensitivities ($ millions, after-tax)


Net income sensitivity⁽¹⁾	20 basis point decrease		20 basis point increase
March 31, 2015	$	75	$	(75	)
December 31, 2014	$	75	$	(75	)

⁽¹⁾	Sensitivities have been rounded to the nearest $25 million.

The credit and swap spread sensitivities assume a parallel shift in the indicated spreads (i.e., equal shift across the entire spread term structure). Variations in realized spread changes based on different terms to maturity, geographies, asset class/derivative types, underlying interest rate movements, and ratings may result in realized sensitivities being significantly different from those provided above. The credit spread sensitivity estimates exclude any credit spread impact that may arise in connection with asset positions held in segregated funds. Spread sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Refer to the section Additional Cautionary Language and Key Assumptions Related to Sensitivities for important additional information regarding these estimates.

General Account Insurance and Annuity Products

Most of our expected sensitivity to interest rate risk is derived from our general account insurance and annuity products. We have implemented market risk management strategies to mitigate a portion of the market risk related to our general account insurance and annuity products.

Individual insurance products include universal life and other long-term life and health insurance products. Major sources of market risk exposure for individual insurance products include the reinvestment risk related to future premiums on regular premium policies, asset reinvestment risk on both regular premium and single premium policies, and the guaranteed cost of insurance. Interest rate risk for individual insurance products is typically managed on a duration basis, within tolerance ranges set out in the applicable investment policy or guidelines. Targets and limits are established so that the level of residual exposure is commensurate with our risk appetite. Exposures are monitored frequently, and assets are re-balanced as necessary to maintain compliance within policy limits using a combination of assets and derivative instruments. A portion of the longer-term cash flows are backed with equities and real estate.

For participating insurance products and other insurance products with adjustability features, the investment strategy objective is to provide a total rate of return given a constant risk profile over the long term.

Fixed annuity products generally provide the policyholder with a guaranteed investment return or crediting rate. Interest rate risk for these products is typically managed on a duration basis, within tolerance ranges set out in the applicable investment guidelines. Targets and limits are established such that the level of residual exposure is commensurate with our risk appetite. Exposures are monitored frequently, and are re-balanced as necessary to maintain compliance within prescribed tolerances using a combination of fixed income assets and derivative instruments.

Certain insurance and annuity products contain minimum interest rate guarantees. Market risk management strategies are implemented to limit potential financial loss due to reductions in asset earned rates relative to contract guarantees. These typically involve the use of hedging strategies utilizing interest rate derivatives such as interest rate floors, swaps, and swaptions.

Certain insurance and annuity products contain features which allow the policyholders to surrender their policy at book value. Market risk management strategies are implemented to limit the potential financial loss due to changes in interest rate levels and policyholder behaviour. These typically involve the use of hedging strategies such as dynamic option replication and the purchase of interest rate swaptions.

Certain products have guaranteed minimum annuitization rates. Market risk management strategies are implemented to limit the potential financial loss and typically involve the use of fixed income asset, interest rate swaps, and swaptions.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		23

Segregated Fund Guarantees

Approximately one half of our expected sensitivity to equity market risk and a small amount of interest rate risk sensitivity is derived from segregated fund products. These products provide benefit guarantees, which are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal, or annuitization. The cost of providing for the guarantees in respect of our segregated fund contracts is uncertain and will depend upon a number of factors including general capital market conditions, our hedging strategies, policyholder behaviour, and mortality experience, each of which may result in negative impacts on net income and capital.

The following table provides information with respect to the guarantees provided in our segregated fund businesses.

As at March 31, 2015

($ millions)

Fund value

Amount at Risk⁽¹⁾

Value of
guarantees⁽²⁾

Insurance contract
liabilities⁽³⁾

SLF Canada

13,382

142

11,140

364

SLF U.S.

5,622

270

5,646

114

Run-off reinsurance⁽⁴⁾

3,058

540

2,153

578

Total

22,062

952

18,939

1,056

As at December 31, 2014

($ millions)

Fund value

Amount at Risk⁽¹⁾

Value of
guarantees⁽²⁾

Insurance contract
liabilities⁽³⁾

SLF Canada

13,039

217

11,202

273

SLF U.S.

5,194

259

5,236

Run-off reinsurance⁽⁴⁾

2,800

501

1,999

526

Total

21,033

977

18,437

895

⁽¹⁾

The Amount at Risk represents the excess of the value of the guarantees over fund values on all policies where the value of the guarantees exceeds the fund value. The Amount at Risk is not currently payable as the guarantees are only payable upon death, maturity, withdrawal, or annuitization if fund values remain below guaranteed values.

⁽²⁾

For guaranteed lifetime withdrawal benefits, the value of guarantees is calculated as the present value of the maximum future withdrawals assuming market conditions remain unchanged from current levels. For all other benefits, the value of guarantees is determined assuming 100% of the claims are made at the valuation date.

⁽³⁾	The insurance contract liabilities represent management’s provision for future costs associated with these guarantees and include a provision for adverse deviation in accordance with Canadian actuarial standards of practice.

⁽⁴⁾	The Run-off reinsurance business includes risks assumed through reinsurance of variable annuity products issued by various North American insurance companies between 1997 and 2001. This line of business is part of a closed block of reinsurance, which is included in the Corporate segment.

The movement of the items in the table above from December 31, 2014 to March 31, 2015 was primarily as a result of the following factors:

(i)

fund values increased due to favourable equity market movements and the weakening of the Canadian dollar against the U.S. dollar, partially offset by the natural run-off of the block;

(ii)

the Amount at Risk decreased due to favourable equity market movements, partially offset by the weakening of the Canadian dollar;

(iii)

the total value of guarantees increased mainly due to the weakening of the Canadian dollar, partially offset by the natural run-off of the block; and

(iv)

insurance contract liabilities increased due to unfavourable interest rate movement and the weakening of the Canadian dollar, partially offset by favourable equity market movements.

Segregated Fund Hedging

We have implemented hedging programs, involving the use of derivative instruments, to mitigate a portion of the cost of interest rate and equity market-related volatility in providing for segregated fund guarantees. As at March 31, 2015, over 90% of our segregated fund contracts, as measured by associated fund values, were included in a hedging program. While a large percentage of contracts are included in the hedging program, not all of our equity and interest rate exposure related to these contracts is hedged. For those segregated fund contracts included in the hedging program, we generally hedge the value of expected future net claims costs and a portion of the policy fees as we are primarily focused on hedging the expected economic costs associated with providing these guarantees and we do not hedge the value of other fee streams that do not relate to costs of hedging of guarantees.

The following table illustrates the impact of our hedging program related to our sensitivity to a 50 basis point and 100 basis point decrease in interest rates and 10% and 25% decrease in equity markets for segregated fund contracts as at March 31, 2015 and December 31, 2014.


24		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Impact of Segregated Fund Hedging

March 31, 2015

($ millions)

Changes in interest rates⁽³⁾

Changes in equity markets⁽⁴⁾

Net income sensitivity⁽¹⁾⁽²⁾

50 basis point
decrease

100 basis point
decrease

10% decrease

25% decrease

Before hedging

(200

)

(450

)

(200

)

(550

)

Hedging impact

200

450

150

450

Net of hedging

–

(50

)

(100

)

December 31, 2014

($ millions)

Changes in interest rates⁽³⁾

Changes in equity markets⁽⁴⁾

Net income sensitivity⁽¹⁾⁽²⁾

50 basis point
decrease

100 basis point
decrease

10% decrease

25% decrease

Before hedging

(200

)

(400

)

(150

)

(500

)

Hedging impact

200

400

150

400

Net of hedging

–

(100

)

⁽¹⁾	Net income sensitivities have been rounded to the nearest $50 million.

⁽²⁾

Since the fair value of benefits being hedged will generally differ from the financial statement value (due to different valuation methods and the inclusion of valuation margins in respect of financial statement values), this will result in residual volatility to interest rate and equity market shocks in reported income and capital. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors, including volatile and declining equity and interest rate market conditions.

⁽³⁾

Represents a parallel shift in assumed interest rates across the entire yield curve as at March 31, 2015 and December 31, 2014. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for segregated funds at 10 basis point intervals (for 50 basis point changes in interest rates) and at 20 basis point intervals (for 100 basis point changes in interest rates).

⁽⁴⁾

Represents the change across all equity markets as at March 31, 2015 and December 31, 2014. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for segregated funds at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).

Real Estate Risk

We are exposed to real estate risk arising from fluctuations in the value of, or future cash flows on, real estate classified as investment properties. We may experience financial losses resulting from the direct ownership of real estate investments or indirectly through fixed income investments secured by real estate property, leasehold interests, ground rents, and purchase and leaseback transactions. Real estate price risk may arise from external market conditions, inadequate property analysis, inadequate insurance coverage, inappropriate real estate appraisals, or from environmental risk exposures. We hold direct real estate investments that support general account liabilities and surplus, and fluctuations in value will impact our profitability and financial position. An instantaneous 10% decrease in the value of our direct real estate investments as at March 31, 2015 would decrease net income by approximately $150 million ($150 million decrease as at December 31, 2014). Conversely, an instantaneous 10% increase in the value of our direct real estate investments as at March 31, 2015 would increase net income by approximately $150 million ($150 million increase as at December 31, 2014).

Additional Cautionary Language and Key Assumptions Related to Sensitivities

Our market risk sensitivities are measures of our estimated change in net income and OCI for changes in interest rates and equity market price levels described above, based on interest rates, equity market prices, and business mix in place as at the respective calculation dates. These sensitivities are calculated independently for each risk factor, generally assuming that all other risk variables stay constant. The sensitivities do not take into account indirect effects such as potential impacts on goodwill impairment or valuation allowances on deferred tax assets. The sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Actual results can differ materially from these estimates for a variety of reasons, including differences in the pattern or distribution of the market shocks, the interaction between these risk factors, model error, or changes in other assumptions such as business mix, effective tax rates, policyholder behaviour, currency exchange rates, and other market variables relative to those underlying the calculation of these sensitivities. The potential extent to which actual results may differ from the indicative ranges will generally increase with larger capital market movements. Our sensitivities as at December 31, 2014 have been included for comparative purposes only.

We have also provided measures of our net income sensitivity to instantaneous changes in credit spreads, swap spreads, real estate price levels, and capital sensitivities to changes in interest rates and equity price levels. The real estate sensitivities are non-IFRS financial measures. For additional information, see Use of Non-IFRS Financial Measures. The cautionary language which appears in this section is also applicable to the credit spread, swap spread, real estate, and MCCSR ratio sensitivities. In particular, these sensitivities are based on interest rates, credit and swap spreads, equity market, and real estate price levels as at the respective calculation dates and assume that all other risk variables remain constant. Changes in interest rates, credit and swap spreads, equity market, and real estate prices in excess of the ranges illustrated may result in other-than-proportionate impacts.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		25

As these market risk sensitivities reflect an instantaneous impact on net income, OCI, and Sun Life Assurance’s MCCSR ratio, they do not include impacts over time such as the effect on fee income in our asset management businesses.

The sensitivities reflect the composition of our assets and liabilities as at March 31, 2015 and December 31, 2014. Changes in these positions due to new sales or maturities, asset purchases/sales, or other management actions could result in material changes to these reported sensitivities. In particular, these sensitivities reflect the expected impact of hedging activities based on the hedge programs in place as at the March 31 and December 31 calculation dates. The actual impact of these hedging activities can differ materially from that assumed in the determination of these indicative sensitivities due to ongoing hedge re-balancing activities, changes in the scale or scope of hedging activities, changes in the cost or general availability of hedging instruments, basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), model risk, and other operational risks in the ongoing management of the hedge programs or the potential failure of hedge counterparties to perform in accordance with expectations.

The sensitivities are based on methods and assumptions in effect as at March 31, 2015 and December 31, 2014, as applicable. Changes in the regulatory environment, accounting or actuarial valuation methods, models, or assumptions after this date could result in material changes to these reported sensitivities. Changes in interest rates and equity market prices in excess of the ranges illustrated may result in other than proportionate impacts.

Our hedging programs may themselves expose us to other risks, including basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), derivative counterparty credit risk, and increased levels of liquidity risk, model risk, and other operational risks. These factors may adversely impact the net effectiveness, costs, and financial viability of maintaining these hedging programs and therefore adversely impact our profitability and financial position. While our hedging programs include various elements aimed at mitigating these effects (e.g., hedge counterparty credit risk is managed by maintaining broad diversification, dealing primarily with highly rated counterparties, and transacting through International Swaps and Derivatives Association agreements that generally include applicable credit support annexes), residual risk and potential reported earnings and capital volatility remain.

For the reasons outlined above, these sensitivities should only be viewed as directional estimates of the underlying sensitivities of each factor under these specialized assumptions, and should not be viewed as predictors of our future net income, OCI, and capital sensitivities. Given the nature of these calculations, we cannot provide assurance that actual impact will be consistent with the estimates provided.

Information related to market risk sensitivities and guarantees related to segregated fund products should be read in conjunction with the information contained in the Outlook, Critical Accounting Policies and Estimates, and Risk Management sections in our annual MD&A and in the Risk Factors and Regulatory Matters sections in our AIF.

Legal and Regulatory Matters

Information concerning legal and regulatory matters is provided in our Annual Consolidated Financial Statements, annual MD&A, and AIF, for the year ended December 31, 2014.

Changes in Accounting Policies

We have not adopted any new and amended IFRS in the current period ended March 31, 2015.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of its financial statements in accordance with IFRS.

There were no changes in the Company’s internal control over financial reporting during the period which began on January 1, 2015 and ended on March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


26		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Reconciliation of Non-IFRS Financial Measures

Additional information on the use of non-IFRS measures, including the definition of operating net income (loss) and underlying net income (loss), is available in this document under the heading Use of Non-IFRS Financial Measures.

The following table sets out the amounts that were excluded from our operating net income (loss), underlying net income (loss), operating EPS, and underlying EPS, and provides a reconciliation to our reported net income (loss) and EPS based on IFRS.

Reconciliations of Select Net Income Measures


	Quarterly results
($ millions, unless otherwise noted)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Reported Net income		441			502			435			425			400
Impact of certain hedges in SLF Canada that do not qualify for hedge accounting		15			(6	)		2			(8	)		5
Fair value adjustments on share-based payment awards at MFS		(20	)		1			(31	)		(44	)		(51	)
Restructuring and other related costs		–			(4	)		(3	)		(11	)		(8	)
Operating net income (loss)		446			511			467			488			454

Market related impacts		(22	)		(21	)		(54	)		(22	)		(26	)
Assumption changes and management actions		(48	)		172			4			11			40
Underlying net income (loss)		516			360			517			499			440

Reported EPS (diluted) ($)		0.72			0.81			0.71			0.69			0.65
Impact of certain hedges in SLF Canada that do not qualify for hedge accounting ($)		0.02			(0.01	)		–			(0.01	)		0.01
Fair value adjustments on share-based payment awards at MFS ($)		(0.03	)		–			(0.05	)		(0.07	)		(0.08	)
Restructuring and other related costs ($)		–			(0.01	)		–			(0.02	)		(0.01	)
Impact of convertible securities on diluted EPS ($)		–			–			–			(0.01	)		(0.01	)
Operating EPS (diluted) ($)		0.73			0.83			0.76			0.80			0.74

Market related impacts ($)		(0.03	)		(0.04	)		(0.09	)		(0.03	)		(0.04	)
Assumption changes and management actions ($)		(0.08	)		0.28			0.01			0.02			0.06
Underlying EPS (diluted) ($)		0.84			0.59			0.84			0.81			0.72

Management also uses the following non-IFRS financial measures:

Return on equity. IFRS does not prescribe the calculation of ROE and therefore a comparable measure under IFRS is not available. To determine operating ROE and underlying ROE, operating net income (loss) and underlying net income (loss) are divided by the total weighted average common shareholders’ equity for the period, respectively.

Adjusted revenue. This measure excludes from revenue the impact of: (i) exchange rate fluctuations, from the translation of functional currencies to the Canadian dollar, for comparisons (“Constant Currency Adjustment”); (ii) Fair value and foreign currency changes on assets and liabilities (“FV Adjustment”); and (iii) reinsurance for the insured business in SLF Canada’s GB operations (“Reinsurance in SLF Canada’s GB Operations Adjustment”). Adjusted revenue is an alternative measure of revenue that provides greater comparability across reporting periods.


	Quarterly results
($ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Revenues		7,332			7,375			5,614			6,315			6,460
Constant Currency Adjustment		307			72			(31	)		(25	)		–
FV Adjustment		2,495			2,196			495			1,560			1,921
Reinsurance in SLF Canada’s GB Operations Adjustment		(1,185	)		(1,154	)		(1,130	)		(1,120	)		(1,161	)
Adjusted revenue		5,715			6,261			6,280			5,900			5,700


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		27

Adjusted premiums and deposits. This measure adjusts premiums and deposits for the impact of: (i) the Constant Currency Adjustment and (ii) the Reinsurance in SLF Canada’s GB Operations Adjustment. Adjusted premiums and deposits is an alternative measure of premiums and deposits that provides greater comparability across reporting periods.


	Quarterly results
($ millions)	Q1’15			Q4’14			Q3’14			Q2’14			Q1’14
Premiums and deposits		36,754			31,770			29,124			28,876			32,710
Constant Currency Adjustment		3,513			783			(300	)		(236	)		–
Reinsurance in SLF Canada’s GB Operations Adjustment		(1,185	)		(1,154	)		(1,130	)		(1,120	)		(1,161	)
Adjusted premiums and deposits		34,426			32,141			30,554			30,232			33,871

Pre-tax operating profit margin ratio for MFS. This ratio is a measure of the underlying profitability of MFS, which excludes certain investment income and commission expenses that are offsetting. These amounts are excluded in order to neutralize the impact these items have on the pre-tax operating profit margin ratio, as they are offsetting in nature and have no impact on the underlying profitability of MFS.

Impact of foreign exchange. Several IFRS financial measures are presented on a constant currency adjusted basis to exclude the impact of foreign exchange rate fluctuations. These measures are calculated using the average or period end foreign exchange rates, as appropriate, in effect at the date of the comparative period.

Real estate market sensitivities. Real estate market sensitivities are non-IFRS financial measures for which there are no directly comparable measures under IFRS so it is not possible to provide a reconciliation of these amounts to the most directly comparable IFRS measures.

Other. Management also uses the following non-IFRS financial measures for which there are no comparable financial measures in IFRS: (i) ASO premium and deposit equivalents, mutual fund sales, managed fund sales, life and health sales, and total premiums and deposits; (ii) AUM, mutual fund assets, managed fund assets, other AUM, and assets under administration; (iii) the value of new business, which is used to measure the estimated lifetime profitability of new sales and is based on actuarial calculations; and (iv) assumption changes and management actions, which is a component of our sources of earnings disclosure. Sources of earnings is an alternative presentation of our Consolidated Statements of Operations that identifies and quantifies various sources of income. The Company is required to disclose its sources of earnings by its principal regulator, the Office of the Superintendent of Financial Institutions.


28		Sun Life Financial Inc.		First Quarter 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward-looking Statements

From time to time, the Company makes written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements contained in this document include (i) statements relating to our strategies, (ii) statements that are predictive in nature or that depend upon or refer to future events or conditions, and (iii) statements that include words such as “aim”, “anticipate”, “assumption”, “believe”, “could”, “estimate”, “expect”, “goal”, “initiatives”, “intend”, “may”, “objective”, “outlook”, “plan”, “project”, “seek”, “should”, “strategy”, “strive”, “target”, “will”, and similar expressions. Forward-looking statements include the information concerning our possible or assumed future results of operations. These statements represent our current expectations, estimates, and projections regarding future events and are not historical facts. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Future results and shareholder value may differ materially from those expressed in these forward-looking statements due to, among other factors, the matters set out in this document under the headings Capital Management and Risk Management and in SLF Inc.’s 2014 AIF under the headings Risk Factors and the factors detailed in SLF Inc.’s other filings with Canadian and U.S. securities regulators, which are available for review at www.sedar.com and www.sec.gov, respectively.

Factors that could cause actual results to differ materially from expectations include, but are not limited to: business risks –economic and geo-political risks; risks in implementing business strategies; changes in legislation and regulations, including capital requirements and tax laws; the inability to maintain strong distribution channels and risks relating to market conduct by intermediaries and agents; risks relating to operations in Asia, including the Company’s joint ventures; the impact of competition; the performance of the Company’s investments and investment portfolios managed for clients such as segregated and mutual funds; market conditions that affect the Company’s capital position or its ability to raise capital; downgrades in financial strength or credit ratings; risks relating to estimates and judgments used in calculating taxes; the impact of mergers, acquisitions and divestitures; the ineffectiveness of risk management policies and procedures; risks relating to the closed block of business; market, credit, and liquidity risks – the performance of equity markets; credit risks related to issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, derivative counterparties, other financial institutions, and other entities; changes or volatility in interest rates or credit spreads or swap spreads; fluctuations in foreign currency exchange rates; risks relating to real estate investments; risks relating to market liquidity; insurance risks – risks relating to the rate of mortality improvement; risks relating to policyholder behaviour; risks relating to product design and pricing; risks relating to mortality and morbidity, including the occurrence of natural or man-made disasters, pandemic diseases, and acts of terrorism; the impact of higher-than-expected future expenses; the availability, cost, and effectiveness of reinsurance; operational risks – breaches or failure of information system security and privacy, including cyber terrorism; risks relating to our information technology infrastructure; failure of information systems and Internet-enabled technology; the ability to attract and retain employees; legal and regulatory proceedings, including inquiries and investigations; risks relating to financial modelling errors; business continuity risks; dependence on third-party relationships, including outsourcing arrangements; and risks relating to the environment, environmental laws and regulations, and third-party policies.

The Company does not undertake any obligation to update or revise its forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.


MANAGEMENT’S DISCUSSION AND ANALYSIS		Sun Life Financial Inc.		First Quarter 2015		29

CONSOLIDATED STATEMENTS OF OPERATIONS


		For the three months ended
(unaudited, in millions of Canadian dollars except for per share amounts)		March 31, 2015			March 31, 2014
Revenue
Premiums
Gross		$	3,723		$	3,638
Less: Ceded			1,516			1,410
Net premiums			2,207			2,228
Net investment income (loss):
Interest and other investment income			1,279			1,188
Fair value and foreign currency changes on assets and liabilities (Note 3)			2,495			1,921
Net gains (losses) on available-for-sale assets			96			57
Net investment income (loss)			3,870			3,166
Fee income			1,255			1,066
Total revenue			7,332			6,460

Benefits and expenses
Gross claims and benefits paid (Note 5)			3,430			3,203
Increase (decrease) in insurance contract liabilities (Note 5)			3,148			2,229
Decrease (increase) in reinsurance assets (Note 5)			(193	)		54
Increase (decrease) in investment contract liabilities (Note 5)			12			31
Reinsurance expenses (recoveries) (Note 6)			(1,453	)		(1,325	)
Commissions			492			440
Net transfer to (from) segregated funds (Note 9)			17			7
Operating expenses			1,180			1,123
Premium taxes			70			61
Interest expense			72			87
Total benefits and expenses			6,775			5,910

Income (loss) before income taxes			557			550
Less: Income tax expense (benefit) (Note 7)			95			117

Total net income (loss)			462			433
Less: Net income (loss) attributable to participating policyholders			(5	)		4

Shareholders’ net income (loss)			467			429
Less: Preferred shareholders’ dividends			26			29
Common shareholders’ net income (loss)		$	441		$	400

Average exchange rates during the reporting periods:
	U.S. dollars		1.24			1.10
	U.K. pounds		1.88			1.82
Earnings (loss) per share (Note 11)
Basic		$	0.72		$	0.66
Diluted		$	0.72		$	0.65

Dividends per common share		$	0.36		$	0.36

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


30		Sun Life Financial Inc.		First Quarter 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	For the three months ended
(unaudited, in millions of Canadian dollars)	March 31, 2015			March 31, 2014
Total net income (loss)	$	462			$ 433
Other comprehensive income (loss), net of taxes:
Items that may be reclassified subsequently to income:
Change in unrealized foreign currency translation gains (losses):
Unrealized gains (losses) before net investment hedges		787			339
Unrealized gains (losses) on net investment hedges		(14	)		(6	)
Change in unrealized gains (losses) on available-for-sale assets:
Unrealized gains (losses)		228			130
Reclassifications to net income (loss)		(58	)		(39	)
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses)		(7	)		2
Reclassifications to net income (loss)		4			(5	)
Total items that may be reclassified subsequently to income		940			421
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans		(46	)		(47	)
Total items that will not be reclassified subsequently to income		(46	)		(47	)
Total other comprehensive income (loss)		894			374
Total comprehensive income (loss)		1,356			807
Less: Participating policyholders’ comprehensive income (loss)		1			6
Shareholders’ comprehensive income (loss)	$	1,355			$ 801

INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS)


	For the three months ended
(unaudited, in millions of Canadian dollars)	March 31, 2015			March 31, 2014
Income tax benefit (expense):
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains / losses, including net investment hedges	$	2		$	1
Unrealized gains / losses on available-for-sale assets		(66	)		(38	)
Reclassifications to net income for available-for-sale assets		25			12
Unrealized gains / losses on cash flow hedges		2			(1	)
Reclassifications to net income for cash flow hedges		(1	)		2
Total items that may be reclassified subsequently to income		(38	)		(24	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans		18			20
Total items that will not be reclassified subsequently to income		18			20
Total income tax benefit (expense) included in other comprehensive income (loss)	$	(20)		$	(4	)

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


INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		31

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at

(unaudited, in millions of Canadian dollars)

March 31,
2015

December 31,
2014

Assets

Cash, cash equivalents and short-term securities (Note 3)

6,744

6,818

Debt securities (Note 3)

70,713

66,214

Equity securities (Note 3)

5,551

5,223

Mortgages and loans

35,727

33,679

Derivative assets

2,378

1,839

Other invested assets (Note 3)

2,686

2,375

Policy loans

3,000

2,895

Investment properties

6,260

6,108

Invested assets

133,059

125,151

Other assets

4,052

3,429

Reinsurance assets (Note 5)

4,583

4,042

Deferred tax assets

1,280

1,230

Property and equipment

577

555

Intangible assets

932

895

Goodwill

4,242

4,117

Total general fund assets

148,725

139,419

Investments for account of segregated fund holders (Note 9)

89,667

83,938

Total assets

238,392

223,357

Liabilities and equity

Liabilities

Insurance contract liabilities (Note 5)

107,966

101,228

Investment contract liabilities (Note 5)

2,864

2,819

Derivative liabilities

2,671

1,603

Deferred tax liabilities

217

155

Other liabilities

10,071

9,725

Senior debentures

2,849

2,849

Subordinated debt

2,184

2,168

Total general fund liabilities

128,822

120,547

Insurance contracts for account of segregated fund holders (Note 9)

81,821

76,736

Investment contracts for account of segregated fund holders (Note 9)

7,846

7,202

Total liabilities

218,489

204,485

Equity

Issued share capital and contributed surplus

10,804

10,805

Retained earnings and accumulated other comprehensive income

9,099

8,067

Total equity

19,903

18,872

Total liabilities and equity

238,392

223,357

Exchange rates at the end of the reporting periods:

U.S. dollars

1.27

1.16

U.K. pounds

1.88

1.81

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

Approved on behalf of the Board of Directors on May 5, 2015.



Dean A. Connor		William D. Anderson
President and Chief Executive Officer		Director


32		Sun Life Financial Inc.		First Quarter 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


	For the three months ended
(unaudited, in millions of Canadian dollars)	March 31, 2015			March 31, 2014
Shareholders:
Preferred shares
Balance, beginning and end of period	$	2,257		$	2,503
Common shares (Note 8)
Balance, beginning of period		8,465			8,304
Stock options exercised		24			19
Common shares purchased for cancellation		(43	)		–
Issued under dividend reinvestment and share purchase plan		21			22
Balance, end of period		8,467			8,345
Contributed surplus
Balance, beginning of period		83			95
Share-based payments		1			2
Stock options exercised		(4	)		(4	)
Balance, end of period		80			93
Retained earnings
Balance, beginning of period		6,762			5,899
Net income (loss)		467			429
Dividends on common shares		(221	)		(220	)
Dividends on preferred shares		(26	)		(29	)
Common shares purchased for cancellation (Note 8)		(77	)		–
Balance, end of period		6,905			6,079
Accumulated other comprehensive income (loss), net of taxes
Unrealized gains (losses) on available-for-sale assets		548			329
Unrealized cumulative translation differences, net of hedging activities		773			110
Unrealized gains (losses) on transfers to investment properties		6			6
Unrealized gains (losses) on derivatives designated as cash flow hedges		6			13
Cumulative changes in liabilities for defined benefit plans		(169	)		(32	)
Balance, beginning of period		1,164			426
Total other comprehensive income (loss) for the period		888			372
Balance, end of period		2,052			798
Total shareholders’ equity, end of period	$	19,761		$	17,818
Participating policyholders:
Retained earnings
Balance, beginning of period	$	135		$	126
Net income (loss)		(5	)		4
Balance, end of period		130			130
Accumulated other comprehensive income (loss), net of taxes
Unrealized cumulative translation differences, net of hedging activities		6			1
Balance, beginning of period		6			1
Total other comprehensive income (loss) for the period		6			2
Balance, end of period		12			3
Total participating policyholders’ equity, end of period	$	142		$	133
Total equity	$	19,903		$	17,951

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


INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		33

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the three months ended
(unaudited, in millions of Canadian dollars)	March 31, 2015			March 31, 2014
Cash flows provided by (used in) operating activities
Total income (loss) before income taxes	$	557		$	550
Add: Interest expense related to financing activities		74			85
Operating items not affecting cash:
Increase (decrease) in contract liabilities		3,044			2,407
(Increase) decrease in reinsurance assets		(194	)		16
Unrealized (gains) losses on invested assets		(1,649	)		(1,318	)
Other non-cash items		(1,514	)		(797	)
Operating cash items:
Deferred acquisition costs		(16	)		(12	)
Realized (gains) losses on assets		(270	)		(318	)
Sales, maturities and repayments of invested assets		13,176			20,490
Purchases of invested assets		(12,192	)		(20,927	)
Change in policy loans		(8	)		35
Income taxes received (paid)		(190	)		(78	)
Mortgage securitization (Note 3)		20			93
Other cash items		52			(59	)
Net cash provided by (used in) operating activities		890			167
Cash flows provided by (used in) investing activities
Net (purchase) sale of property and equipment		(18	)		(9	)
Investment in and transactions with joint ventures and associates		(3	)		(56	)
Cash received on sale of discontinued operation		–			72
Other investing activities		(15	)		(11	)
Net cash provided by (used in) investing activities		(36	)		(4	)
Cash flows provided by (used in) financing activities
Increase in (repayment of) borrowed funds		29			(124	)
Redemption of subordinated debt		–			(500	)
Issuance of common shares on exercise of stock options		20			15
Common shares purchased for cancellation (Note 8)		(120	)		–
Dividends paid on common and preferred shares		(222	)		(223	)
Interest expense paid		(53	)		(74	)
Net cash provided by (used in) financing activities		(346	)		(906	)
Changes due to fluctuations in exchange rates		209			91
Increase (decrease) in cash and cash equivalents		717			(652	)
Net cash and cash equivalents, beginning of period		3,364			3,324
Net cash and cash equivalents, end of period		4,081			2,672
Short-term securities, end of period		2,486			3,261
Net cash and cash equivalents and short-term securities, end of period (Note 3)	$	6,567		$	5,933

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


34		Sun Life Financial Inc.		First Quarter 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Notes to the Interim Consolidated Financial Statements

(Unaudited, in millions of Canadian dollars except for per share amounts and where otherwise stated)

1. Significant Accounting Policies

Description of Business

Sun Life Financial Inc. (“SLF Inc.”) is a publicly traded company domiciled in Canada and is the holding company of Sun Life Assurance Company of Canada (“Sun Life Assurance”). SLF Inc. and its subsidiaries are collectively referred to as “us”, “our”, “ours”, “we”, or “the Company”.

Our Interim Consolidated Financial Statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 Interim Financial Reporting as issued and adopted by the International Accounting Standards Board. We have used accounting policies which are consistent with our accounting policies in our 2014 Annual Consolidated Financial Statements. Our Interim Consolidated Financial Statements should be read in conjunction with our 2014 Annual Consolidated Financial Statements, as interim financial statements do not include all the information incorporated in annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”).

2. Segmented Information

We have five reportable segments: Sun Life Financial Canada (“SLF Canada”), Sun Life Financial United States (“SLF U.S.”), MFS Investment Management (“MFS”), Sun Life Financial Asia (“SLF Asia”), and Corporate. These reportable segments operate in the financial services industry and reflect our management structure and internal financial reporting. Corporate includes the results of our United Kingdom (“U.K.”) business unit and our Corporate Support operations, which include run-off reinsurance operations as well as investment income, expenses, capital, and other items not allocated to our other business groups.

Revenues from our reportable segments are derived principally from life and health insurance, investment management and annuities, and mutual funds. Revenues not attributed to the strategic business units are derived primarily from Corporate investments and earnings on capital. Transactions between segments are executed and priced on an arm’s-length basis in a manner similar to transactions with third parties.

The expenses in each business segment may include costs or services directly incurred or provided on their behalf at the enterprise level. For other costs not directly attributable to one of our business segments, we use a management reporting framework that uses assumptions, judgments and methodologies for allocating overhead costs, and indirect expenses to our business segments.

Intersegment transactions consist primarily of internal financing agreements which are measured at fair values prevailing when the arrangements are negotiated. Intersegment investment income consists primarily of interest paid by SLF U.S. to Corporate. Intersegment fee income is primarily asset management fees paid by SLF Canada and Corporate to MFS, and by MFS to SLF U.S. Intersegment transactions are presented in the Consolidation adjustments column in the following tables.

Management considers its external clients to be individuals and corporations. We are not reliant on any individual client as none are individually significant to our operations.


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		35

Results by segment for the three months ended March 31 are as follows:


	SLF Canada			SLF U.S.		MFS			SLF Asia		Corporate			Consolidation adjustments			Total
2015
Gross premiums:
Annuities	$	350		$	43	$	–		$	–	$	5		$	–		$	398
Life insurance		906			535		–			257		26			–			1,724
Health insurance		1,030			561		–			4		6			–			1,601
Total gross premiums		2,286			1,139		–			261		37			–			3,723
Less: ceded premiums		1,355			146		–			9		6			–			1,516
Net investment income (loss)		2,426			801		(1	)		252		407			(15	)		3,870
Fee income		241			51		869			73		40			(19	)		1,255
Total revenue		3,598			1,845		868			577		478			(34	)		7,332
Less:
Total benefits and expenses		3,463			1,790		622			498		436			(34	)		6,775
Income tax expense (benefit)		(10	)		20		98			11		(24	)		–			95
Total net income (loss)	$	145		$	35	$	148		$	68	$	66		$	–		$	462
2014
Gross premiums:
Annuities	$	373		$	66	$	–		$	–	$	9		$	–		$	448
Life insurance		867			628		–			186		27			–			1,708
Health insurance		994			482		–			3		3			–			1,482
Total gross premiums		2,234			1,176		–			189		39			–			3,638
Less: ceded premiums		1,274			121		–			8		7			–			1,410
Net investment income (loss)		1,776			961		(2	)		181		264			(14	)		3,166
Fee income		216			43		728			51		42			(14	)		1,066
Total revenue		2,952			2,059		726			413		338			(28	)		6,460
Less:
Total benefits and expenses		2,679			1,949		552			370		388			(28	)		5,910
Income tax expense (benefit)		28			31		78			11		(31	)		–			117
Total net income (loss)	$	245		$	79	$	96		$	32	$	(19	)	$	–		$	433

3. Total Invested Assets and Related Net Investment Income

3.A Asset Classification

The carrying values of our debt securities, equity securities, and other invested assets presented in our Interim Consolidated Statements of Financial Position consist of the following:


As at	Fair value through profit or loss		Available- for-sale		Other⁽¹⁾		Total
March 31, 2015
Debt securities	$	57,176	$	13,537	$	–	$	70,713
Equity securities	$	4,621	$	930	$	–	$	5,551
Other invested assets	$	1,557	$	156	$	973	$	2,686

December 31, 2014
Debt securities	$	53,127	$	13,087	$	–	$	66,214
Equity securities	$	4,357	$	866	$	–	$	5,223
Other invested assets	$	1,347	$	136	$	892	$	2,375

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


36		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Fair value and foreign currency changes on assets and liabilities recorded to net income consist of the following:


For the three months ended March 31,	2015			2014
Fair value change:
Cash, cash equivalents and short-term securities	$	18		$	6
Debt securities		2,254			1,459
Equity securities		148			156
Derivative investments		(683	)		(93	)
Other invested assets		46			31
Total change in fair value through profit or loss assets and liabilities	$	1,783		$	1,559
Fair value changes on investment properties		56			61
Foreign exchange gains (losses)^{(1) (2)}		656			301
Fair value and foreign currency changes on assets and liabilities	$	2,495		$	1,921

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

⁽²⁾	Foreign exchange gains (losses) for 2014 have been reclassified from Interest and other investment income to be consistent with current year presentation.

3.C Impairment of Available-For-Sale Assets

We recognized impairment losses on available-for-sale assets of $1 and $14 during the three months ended March 31, 2015 and 2014, respectively.

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

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


As at	March 31, 2015		December 31, 2014		March 31, 2014
Cash	$	1,338	$	1,283	$	1,227
Cash equivalents		2,920		2,085		1,587
Short-term securities		2,486		3,450		3,261
Cash, cash equivalents and short-term securities		6,744		6,818		6,075
Less: Bank overdraft, recorded in Other liabilities		177		4		142
Net cash, cash equivalents and short-term securities	$	6,567	$	6,814	$	5,933

3.E Mortgage Securitization

We securitize certain insured fixed rate commercial mortgages through the creation of mortgage-backed securities under the National Housing Act Mortgage-Backed Securities (“NHA MBS”) Program sponsored by the Canada Mortgage and Housing Corporation (“CMHC”). The NHA MBS are then sold to Canada Housing Trust, a government-sponsored security trust that issues securities to third-party investors under the Canadian Mortgage Bond (“CMB”) program. The securitization of these assets does not qualify for derecognition as we have not transferred substantially all of the risks and rewards of ownership. Specifically, we continue to be exposed to prepayment and interest rate risk associated with these assets. There are no expected credit losses on the securitized mortgages as the mortgages were already insured by the CMHC prior to securitization. These assets continue to be recognized as Mortgages and loans in our Interim Consolidated Statements of Financial Position. Proceeds from securitization transactions are recognized as secured borrowings and included in Other liabilities in our Interim Consolidated Statements of Financial Position.

Receipts of principal on the securitized mortgages are deposited into a principal reinvestment account (“PRA”) to meet our repayment obligation upon maturity under the CMB program. The assets in the PRA are typically comprised of cash and cash equivalents and certain asset-backed securities. We are exposed to reinvestment risk due to the amortizing nature of the securitized mortgages relative to our repayment obligation for the full principal amount due at maturity. We mitigate the reinvestment risk using interest rate swaps.


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		37

The carrying value and fair value of the securitized mortgages as at March 31, 2015 are $317 and $336, respectively ($299 and $311 as at December 31, 2014). The carrying value and fair value of the associated liabilities as at March 31, 2015 are $323 and $343, respectively ($303 and $313 as at December 31, 2014). The carrying value of asset-backed securities in the PRA as at March 31, 2015 and December 31, 2014 are $8 and $6, respectively. There are no cash and cash equivalents in the PRA as at March 31, 2015 and December 31, 2014.

The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions for asset-backed securities described in Note 5 of our 2014 Annual Consolidated Financial Statements. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at March 31, 2015 and December 31, 2014.

3.F Fair Value Measurement

The fair value methodologies and assumptions for assets and liabilities carried at fair value as well as disclosures on unobservable inputs, sensitivities, and valuation processes for Level 3 assets can be found in Note 5 of our 2014 Annual Consolidated Financial Statements.

3.F.i Fair Value Hierarchy

We categorize our assets and liabilities carried at fair value, based on the priority of the inputs to the valuation techniques used to measure fair value, into a three-level fair value hierarchy as follows:

Level 1: Fair value is based on the unadjusted quoted prices for identical assets or liabilities in an active market. The types of assets and liabilities classified as Level 1 generally include cash and cash equivalents, certain U.S. government and agency securities, exchange-traded equity securities, and certain segregated and mutual fund units held for account of segregated fund holders.

Level 2: Fair value is based on quoted prices for similar assets or liabilities traded in active markets, or prices from valuation techniques that use significant observable inputs, or inputs that are derived principally from or corroborated with observable market data through correlation or other means. The types of assets and liabilities classified as Level 2 generally include Canadian federal, provincial and municipal government, other foreign government and corporate debt securities, certain asset-backed securities, over-the-counter derivatives, and certain segregated and mutual fund units held for account of segregated fund holders.

Level 3: Fair value is based on valuation techniques that require one or more significant inputs that are not based on observable market inputs. These unobservable inputs reflect our expectations about the assumptions market participants would use in pricing the asset or liability. The types of assets and liabilities classified as Level 3 generally include certain corporate bonds, certain other invested assets, and investment properties.

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

As at March 31, 2015

Level 1

Level 2

Level 3

Total

Assets

Cash, cash equivalents and short-term securities

5,712

1,032

–

6,744

Debt securities – fair value through profit or loss

1,150

54,981

1,045

57,176

Debt securities – available-for-sale

333

12,767

437

13,537

Equity securities – fair value through profit or loss

2,746

1,714

161

4,621

Equity securities – available-for-sale

763

167

–

930

Derivative assets

2,355

–

2,378

Other invested assets

754

881

1,713

Investment properties

–

6,260

Total invested assets measured at fair value

11,481

73,094

8,784

93,359

Investments for account of segregated fund holders

29,127

59,929

611

89,667

Total assets measured at fair value

40,608

133,023

9,395

183,026

Liabilities

Investment contract liabilities

–

Derivative liabilities

2,664

–

2,671

Total liabilities measured at fair value

2,676

2,688


38		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As at March 31, 2015

Level 1

Level 2

Level 3

Total

Canadian federal government

–

1,373

1,391

Canadian provincial and municipal government

–

11,147

11,169

U.S. government and agency

1,150

1,218

Other foreign government

–

5,606

5,680

Corporate

–

33,939

711

34,650

Asset-backed securities:

Commercial mortgage-backed securities

–

1,462

1,524

Residential mortgage-backed securities

–

911

918

Collateralized debt obligations

–

116

Other

–

453

510

Total debt securities – fair value through profit or loss

1,150

54,981

1,045

57,176

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

As at March 31, 2015

Level 1

Level 2

Level 3

Total

Canadian federal government

–

1,631

–

1,631

Canadian provincial and municipal government

–

787

824

U.S. government and agency

333

–

335

Other foreign government

–

568

569

Corporate

–

8,110

146

8,256

Asset-backed securities:

Commercial mortgage-backed securities

–

1,095

1,121

Residential mortgage-backed securities

–

237

–

237

Collateralized debt obligations

–

174

Other

–

337

390

Total debt securities – available-for-sale

333

12,767

437

13,537

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


As at December 31, 2014	Level 1		Level 2		Level 3		Total
Assets
Cash, cash equivalents and short-term securities	$	5,596	$	1,222	$	–	$	6,818
Debt securities – fair value through profit or loss		1,125		51,111		891		53,127
Debt securities – available-for-sale		345		12,462		280		13,087
Equity securities – fair value through profit or loss		2,626		1,606		125		4,357
Equity securities – available-for-sale		722		144		–		866
Derivative assets		21		1,818		–		1,839
Other invested assets		625		70		788		1,483
Investment properties		–		–		6,108		6,108
Total invested assets measured at fair value	$	11,060	$	68,433	$	8,192	$	87,685
Investments for account of segregated fund holders	$	27,510	$	55,898	$	530	$	83,938
Total assets measured at fair value	$	38,570	$	124,331	$	8,722	$	171,623
Liabilities
Investment contract liabilities	$	–	$	11	$	5	$	16
Derivative liabilities		13		1,590		–		1,603
Total liabilities measured at fair value	$	13	$	1,601	$	5	$	1,619


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		39

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


As at December 31, 2014	Level 1		Level 2		Level 3		Total
Canadian federal government	$	–	$	1,814	$	17	$	1,831
Canadian provincial and municipal government		–		10,314		21		10,335
U.S. government and agency		1,125		50		8		1,183
Other foreign government		–		5,234		71		5,305
Corporate		–		31,050		611		31,661
Asset-backed securities:
Commercial mortgage-backed securities		–		1,388		28		1,416
Residential mortgage-backed securities		–		742		31		773
Collateralized debt obligations		–		28		71		99
Other		–		491		33		524
Total debt securities – fair value through profit or loss	$	1,125	$	51,111	$	891	$	53,127

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


As at December 31, 2014	Level 1		Level 2		Level 3		Total
Canadian federal government	$	–	$	1,717	$	–	$	1,717
Canadian provincial and municipal government		–		768		–		768
U.S. government and agency		345		61		–		406
Other foreign government		–		535		1		536
Corporate		–		7,929		99		8,028
Asset-backed securities:
Commercial mortgage-backed securities		–		939		3		942
Residential mortgage-backed securities		–		215		–		215
Collateralized debt obligations		–		–		136		136
Other		–		298		41		339
Total debt securities – available-for-sale	$	345	$	12,462	$	280	$	13,087

There were no significant transfers between Level 1 and Level 2 for the three months ended March 31, 2015 and March 31, 2014.


40		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table provides a reconciliation of the beginning and ending balances for assets and liabilities that are categorized in Level 3 for the three months ended March 31, 2015:


	Beginning balance		Included in net income⁽¹⁾⁽³⁾		Included in OCI⁽³⁾		Purchases		Sales			Settlements			Transfers into Level 3⁽²⁾		Transfers (out) of Level 3⁽²⁾			Foreign currency translation⁽⁴⁾		Ending balance		Gains (losses) included in earnings relating to instruments still held at the reporting date⁽¹⁾
Assets
Debt securities – fair value through profit or loss	$	891	$	21	$	–	$	125	$	(2	)	$	(11	)	$	18	$	(52	)	$	55	$	1,045	$	18
Debt securities – available-for-sale		280		5		3		126		–			(4	)		8		–			19		437		3
Equity securities – fair value through profit or loss		125		6		–		23		–			–			–		–			7		161		5
Other invested assets		788		32		–		67		(11	)		–			–		–			5		881		33
Investment properties		6,108		44		–		51		(91	)		–			–		–			148		6,260		84
Total invested assets measured at fair value	$	8,192	$	108	$	3	$	392	$	(104	)	$	(15	)	$	26	$	(52	)	$	234	$	8,784	$	143
Investments for account of segregated fund holders	$	530	$	28	$	–	$	27	$	(7	)	$	(1	)	$	10	$	–		$	24	$	611	$	26
Total assets measured at fair value	$	8,722	$	136	$	3	$	419	$	(111	)	$	(16	)	$	36	$	(52	)	$	258	$	9,395	$	169
Liabilities⁽⁵⁾
Investment contract liabilities	$	5	$	–	$	–	$	–	$	–		$	–		$	–	$	–		$	–	$	5	$	–
Total liabilities measured at fair value	$	5	$	–	$	–	$	–	$	–		$	–		$	–	$	–		$	–	$	5	$	–

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

⁽²⁾

Transfers into Level 3 occur when the inputs used to price the assets and liabilities lack observable market data, and as a result, no longer meet the Level 1 or 2 definitions at the reporting date. Transfers out of Level 3 occur when the pricing inputs become more transparent and satisfy the Level 1 or 2 criteria and are primarily the result of observable market data being available at the reporting date, thus removing the requirement to rely on inputs that lack observability.

⁽³⁾

Total gains and losses in net income (loss) and Other Comprehensive Income (“OCI”) are calculated assuming transfers into or out of Level 3 occur at the beginning of the period. For an asset or liability that transfers into Level 3 during the reporting period, the entire change in fair value for the period is included in the table above. For transfers out of Level 3 during the reporting period, the change in fair value for the period is excluded from the table above.

⁽⁴⁾	Foreign currency translation relates to the foreign exchange impact of translating from functional currencies of Level 3 assets and liabilities in foreign subsidiaries to Canadian dollars.

⁽⁵⁾	For liabilities, gains are indicated by negative numbers.


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		41

The following table provides a reconciliation of the beginning and ending balances for assets and liabilities that are categorized in Level 3 for the three months ended March 31, 2014:


	Beginning balance		Included in net income⁽¹⁾⁽³⁾		Included in OCI⁽³⁾		Purchases		Sales			Settlements			Transfers into Level 3⁽²⁾		Transfers (out) of Level 3⁽²⁾			Foreign currency translation⁽⁴⁾		Ending balance		Gains (losses) included in earnings relating to instruments still held at the reporting date⁽¹⁾
Assets
Debt securities – fair value through profit or loss	$	1,017	$	14	$	–	$	197	$	(16	)	$	(7	)	$	7	$	(42	)	$	19	$	1,189	$	15
Debt securities – available-for-sale		307		–		3		120		(91	)		(3	)		–		(32	)		5		309		3
Equity securities – fair value through profit or loss		115		2		–		–		–			–			–		–			2		119		1
Other invested assets		618		30		2		44		(19	)		–			–		–			4		679		31
Investment properties		6,092		40		–		40		(134	)		–			–		–			66		6,104		61
Total invested assets measured at fair value	$	8,149	$	86	$	5	$	401	$	(260	)	$	(10	)	$	7	$	(74	)	$	96	$	8,400	$	111
Investments for account of segregated fund holders	$	482	$	8	$	–	$	21	$	(7	)	$	–		$	–	$	(2	)	$	18	$	520	$	8
Total assets measured at fair value	$	8,631	$	94	$	5	$	422	$	(267	)	$	(10	)	$	7	$	(76	)	$	114	$	8,920	$	119
Liabilities⁽⁵⁾
Investment contract liabilities	$	7	$	–	$	–	$	–	$	–		$	–		$	–	$	–		$	–	$	7	$	–
Total liabilities measured at fair value	$	7	$	–	$	–	$	–	$	–		$	–		$	–	$	–		$	–	$	7	$	–

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

⁽²⁾

⁽³⁾

Total gains and losses in net income (loss) and OCI are calculated assuming transfers into or out of Level 3 occur at the beginning of the period. For an asset or liability that transfers into Level 3 during the reporting period, the entire change in fair value for the period is included in the table above. For transfers out of Level 3 during the reporting period, the change in fair value for the period is excluded from the table above.

⁽⁴⁾	Foreign currency translation relates to the foreign exchange impact of translating from functional currencies of Level 3 assets and liabilities in foreign subsidiaries to Canadian dollars.

⁽⁵⁾	For liabilities, gains are indicated by negative numbers.

4. Financial Instrument and Insurance Risk Management

Our risk management policies and procedures for managing risks related to financial instruments and insurance contracts can be found in Notes 6 and 7, respectively, of our 2014 Annual Consolidated Financial Statements.

Our financial instrument market risk sensitivities are included in our Management’s Discussion and Analysis (“MD&A”) for the three months ended March 31, 2015. The shaded text and tables in the Risk Management section of the MD&A represent our disclosures on market risk sensitivities in accordance with IFRS 7 Financial Instruments: Disclosures and include discussions on how we measure our risk and our objectives, policies, and methodologies for managing this risk. Therefore, the shaded text and tables in the MD&A represent an integral part of these Interim Consolidated Financial Statements.


42		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. Insurance Contract Liabilities and Investment Contract Liabilities

5.A Insurance Contract Liabilities

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

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


For the three months ended March 31, 2015	Insurance contract liabilities			Reinsurance assets			Net
Balances before Other policy liabilities and assets, beginning of period	$	95,243		$	3,671		$	91,572
Change in balances on in-force policies		2,310			(51	)		2,361
Balances arising from new policies		710			186			524
Method and assumption changes		128			58			70
Increase (decrease) in Insurance contract liabilities and Reinsurance assets		3,148			193			2,955
Foreign exchange rate movements		3,417			297			3,120
Balances before Other policy liabilities and assets, end of period		101,808			4,161			97,647
Other policy liabilities and assets		6,158			422			5,736
Balances, end of period	$	107,966		$	4,583		$	103,383

For the three months ended March 31, 2014	Insurance contract liabilities			Reinsurance assets			Net
Balances before Other policy liabilities and assets, beginning of period	$	83,426		$	3,414		$	80,012
Change in balances on in-force policies		1,684			(77	)		1,761
Balances arising from new policies		591			23			568
Method and assumption changes		(46	)		–			(46	)
Increase (decrease) in Insurance contract liabilities and Reinsurance assets		2,229			(54	)		2,283
Foreign exchange rate movements		1,424			110			1,314
Balances before Other policy liabilities and assets, end of period		87,079			3,470			83,609
Other policy liabilities and assets		5,645			286			5,359
Balances, end of period	$	92,724		$	3,756		$	88,968

5.B Investment Contract Liabilities

5.B.i Changes in Investment Contract Liabilities

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

For the three months ended March 31, 2015

Measured at
fair value

Measured at
amortized cost

Balance, beginning of period

2,142

Deposits

–

Interest

–

Withdrawals

–

(130

)

Fees

–

Other

–

Foreign exchange rate movements

Balance, end of period

2,129


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		43


For the three months ended March 31, 2014	Measured at fair value		Measured at amortized cost
Balance, beginning of period	$	18	$	2,000
Deposits		–		176
Interest		–		10
Withdrawals		–		(104	)
Fees		–		(1	)
Other		–		6
Foreign exchange rate movements		–		2
Balance, end of period	$	18	$	2,089

Changes in investment contract liabilities with DPF are as follows:


For the three months ended March 31,	2015		2014
Balance, beginning of period	$	661	$	584
Change in liabilities on in-force policies		1		3
Liabilities arising from new policies		–		18
Increase (decrease) in liabilities		1		21
Foreign exchange rate movements		56		23
Balance, end of period	$	718	$	628

5.C Gross Claims and Benefits Paid

Gross claims and benefits paid consist of the following:


For the three months ended March 31,	2015		2014
Maturities and surrenders	$	710	$	789
Annuity payments		432		312
Death and disability benefits		899		801
Health benefits		1,141		1,019
Policyholder dividends and interest on claims and deposits		248		282
Total gross claims and benefits paid	$	3,430	$	3,203

6. Reinsurance (Expenses) Recoveries

Reinsurance (expenses) recoveries consist of the following:


For the three months ended March 31,	2015		2014
Recovered claims and benefits	$	1,237	$	1,151
Commissions		14		12
Reserve adjustments		69		36
Operating expenses and other		133		126
Reinsurance (expenses) recoveries	$	1,453	$	1,325


44		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. Income Taxes

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


For the three months ended March 31,	2015						2014
				%						%
Total net income (loss)	$	462					$	433
Add: Income tax expense (benefit)		95						117
Total net income (loss) before income taxes	$	557					$	550
Taxes at the combined Canadian federal and provincial statutory income tax rate	$	148			26.5		$	146			26.5

Increase (decrease) in rate resulting from:
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions		8			1.4			25			4.5
Tax (benefit) cost of unrecognized tax losses and tax credits		1			0.2			1			0.2
Tax exempt investment income		(52	)		(9.3	)		(45	)		(8.1	)
Adjustments in respect of prior periods, including resolution of tax disputes		(7	)		(1.2	)		(10	)		(1.8	)
Other		(3	)		(0.5	)		–			–
Total tax expense (benefit) and effective income tax rate	$	95			17.1		$	117			21.3

Our statutory income tax rate in Canada is 26.5% (26.5% in 2014). Statutory income tax rates in other jurisdictions in which we conduct business range from 0% to 35%, which creates a tax rate differential and corresponding tax provision difference compared to the Canadian federal and provincial statutory rate when applied to foreign income not subject to tax in Canada. Generally, higher earnings in jurisdictions with higher statutory tax rates, such as the U.S., result in an increase of our tax expense, while earnings arising in tax jurisdictions with statutory rates lower than 26.5% reduce our tax expense. These differences are reported in Higher (lower) effective rates on income subject to taxation in foreign jurisdictions.

Tax (benefit) cost of unrecognized tax losses and tax credits for the three months ended March 31, 2015 and 2014 reflects the impact of unrecognized tax losses in the U.K.

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

Adjustments in respect of prior periods, including the resolution of tax disputes for the three months ended March 31, 2015 and 2014 relates mostly to the resolution of tax audits.

8. Capital Management

8.A Capital

Our capital base is structured to exceed minimum regulatory and internal capital targets, and maintain strong credit and financial strength ratings while maintaining a capital efficient structure. We strive to achieve an optimal capital structure by balancing the use of debt and equity financing. Capital is managed both on a consolidated basis under principles that consider all the risks associated with the business as well as at the business group level under the principles appropriate to the jurisdiction in which each operates. We manage the capital for all of our international subsidiaries on a local statutory basis in a manner commensurate with their individual risk profiles. Further details on our capital, and how it is managed, are included in Note 22 of our 2014 Annual Consolidated Financial Statements.

Sun Life Assurance is subject to the Minimum Continuing Capital and Surplus Requirements (“MCCSR”) of the Office of the Superintendent of Financial Institutions, Canada (“OSFI”). Sun Life Assurance’s MCCSR ratio as at March 31, 2015 was above the minimum levels that would require any regulatory or corrective action. In the U.S., Sun Life Assurance operates through a branch which is subject to U.S. regulatory supervision and it exceeded the levels under which regulatory action would be required as at March 31, 2015. In addition, other subsidiaries of SLF Inc. that must comply with local capital or solvency requirements in the jurisdiction in which they operate maintained capital levels above minimum local requirements as at March 31, 2015.

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


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		45

8.B Significant Capital Transactions

8.B.i Common Shares

Changes in common shares issued and outstanding are as follows:


For the three months ended March 31,	2015						2014
Common shares (in millions of shares)	Number of shares			Amount			Number of shares		Amount
Balance, beginning of period		613.1		$	8,465			609.4	$	8,304
Stock options exercised		0.6			24			0.6		19
Common shares purchased for cancellation⁽¹⁾		(3.0	)		(43	)		–		–
Shares issued under the dividend reinvestment and share purchase plan⁽²⁾		0.5			21			0.6		22
Balance, end of period		611.2		$	8,467			610.6	$	8,345

⁽¹⁾

On November 10, 2014, SLF Inc. launched a normal course issuer bid under which it is authorized to purchase up to 9 million common shares between November 10, 2014 and November 9, 2015. The purchases are made through the facilities of the Toronto Stock Exchange, as well as on alternative Canadian trading platforms, at prevailing market rates and any common shares purchased by SLF Inc. are cancelled. The common shares purchased and cancelled under this program during the first quarter of 2015 were purchased at an average price per share of $39.32 for a total price of $120. The total amount paid to purchase the shares is allocated to Common shares and Retained earnings in our Interim Consolidated Statements of Changes in Equity. The amount allocated to Common shares is based on the average cost per common share and amounts paid above the average cost are allocated to Retained earnings.

⁽²⁾

Common shares issued under the Dividend Reinvestment and Share Purchase Plan for dividend reinvestments in the first quarters of 2015 and 2014 were issued from treasury at no discount. SLF Inc. also issued an insignificant number of common shares from treasury at no discount for optional cash purchases.

9. Segregated Funds

9.A Investments for Account of Segregated Fund Holders

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


As at	March 31, 2015		December 31, 2014
Segregated and mutual fund units	$	74,060	$	69,402
Equity securities		11,280		10,600
Debt securities		3,458		3,050
Cash, cash equivalents and short-term securities		661		686
Investment properties		429		391
Mortgages		34		30
Other assets		171		99
Total assets	$	90,093	$	84,258
Less: Liabilities arising from investing activities	$	426	$	320
Total investments for account of segregated fund holders	$	89,667	$	83,938


46		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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


	Insurance contracts						Investment contracts
For the three months ended	March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014
Balances, beginning of period	$	76,736		$	69,088		$	7,202		$	7,053
Additions to segregated funds:
Deposits		2,378			2,541			33			35
Net transfer (to) from general funds		17			7			–			–
Net realized and unrealized gains (losses)		4,095			2,658			379			(111	)
Other investment income		381			189			44			51
Total additions	$	6,871		$	5,395		$	456		$	(25	)
Deductions from segregated funds:
Payments to policyholders and their beneficiaries		2,138			1,825			107			123
Management fees		198			182			20			22
Taxes and other expenses		48			27			6			2
Foreign exchange rate movements		(598	)		(398	)		(321	)		(326	)
Total deductions	$	1,786		$	1,636		$	(188	)	$	(179	)
Net additions (deductions)	$	5,085		$	3,759		$	644		$	154
Balances, end of period	$	81,821		$	72,847		$	7,846		$	7,207

10. Commitments, Guarantees and Contingencies

Guarantees of Sun Life Assurance Preferred Shares and Subordinated Debentures

SLF Inc. has provided a guarantee on the $150 of 6.30% subordinated debentures due 2028 issued by Sun Life Assurance. Claims under this guarantee will rank equally with all other subordinated indebtedness of SLF Inc. SLF Inc. has also provided a subordinated guarantee of the preferred shares issued by Sun Life Assurance from time to time, other than such preferred shares which are held by SLF Inc. and its affiliates. Sun Life Assurance has no outstanding preferred shares subject to the guarantee. As a result of these guarantees, Sun Life Assurance is entitled to rely on exemptive relief from most continuous disclosure and the certification requirements of Canadian securities laws.

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


Results for the three months ended	SLF Inc. (unconsolidated)			Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)		Consolidation adjustment			SLF Inc. (consolidated)
March 31, 2015
Revenue	$	88		$	6,407	$	1,278	$	(441	)	$	7,332
Shareholders’ net income (loss)	$	467		$	363	$	68	$	(431	)	$	467

March 31, 2014
Revenue	$	(6	)	$	5,673	$	1,283	$	(490	)	$	6,460
Shareholders’ net income (loss)	$	429		$	370	$	144	$	(514	)	$	429


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		Sun Life Financial Inc.		First Quarter 2015		47


Assets and liabilities as at	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)		Consolidation adjustment			SLF Inc. (consolidated)
March 31, 2015
Invested assets	$	20,354	$	126,339	$	5,814	$	(19,448	)	$	133,059
Total other general fund assets	$	9,407	$	19,196	$	20,281	$	(33,218	)	$	15,666
Investments for account of segregated fund holders	$	–	$	89,615	$	52	$	–		$	89,667
Insurance contract liabilities	$	–	$	108,206	$	6,606	$	(6,846	)	$	107,966
Investment contract liabilities	$	–	$	2,864	$	–	$	–		$	2,864
Total other general fund liabilities	$	10,000	$	19,351	$	18,352	$	(29,711	)	$	17,992

December 31, 2014
Invested assets	$	19,211	$	118,450	$	5,412	$	(17,922	)	$	125,151
Total other general fund assets	$	9,354	$	17,074	$	19,124	$	(31,284	)	$	14,268
Investments for account of segregated fund holders	$	–	$	83,891	$	47	$	–		$	83,938
Insurance contract liabilities	$	–	$	101,440	$	5,700	$	(5,912	)	$	101,228
Investment contract liabilities	$	–	$	2,819	$	–	$	–		$	2,819
Total other general fund liabilities	$	9,834	$	17,112	$	17,925	$	(28,371	)	$	16,500

11. Earnings (Loss) Per Share

Details of the calculation of the net income (loss) and the weighted average number of shares used in the earnings per share computations are as follows:


For the three months ended March 31,	2015		2014
Common shareholders’ net income (loss) for basic earnings per share	$	441	$	400
Add: increase in income due to convertible instruments⁽¹⁾		3		3
Common shareholders’ net income (loss) on a diluted basis	$	444	$	403
Weighted average number of common shares outstanding for basic earnings per share (in millions)		613		610
Add: dilutive impact of stock options⁽²⁾(in millions)		1		1
Add: dilutive impact of convertible securities⁽¹⁾ (in millions)		5		6
Weighted average number of common shares outstanding on a diluted basis (in millions)		619		617
Basic earnings (loss) per share	$	0.72	$	0.66
Diluted earnings (loss) per share	$	0.72	$	0.65

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

⁽²⁾	Excludes the impact of 2 million stock options for the three months ended March 31, 2015 (3 million for the three months ended March 31, 2014) because these stock options were antidilutive for the period.


48		Sun Life Financial Inc.		First Quarter 2015		CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Major Offices

The following is contact information for Sun Life Financial’s major offices and affiliates around the world. For inquiries and customer service, please contact the appropriate office in your area.

Sun Life Financial Inc.

Corporate Headquarters

150 King Street West

Toronto, Ontario

Canada M5H 1J9

Tel: 416-979-9966

Website: sunlife.com

Sun Life Financial Canada

Canadian Headquarters

227 King Street South

Waterloo, Ontario

Canada N2J 4C5

Tel: 519-888-2290

Call centre: 1-877-SUN-LIFE /

1-877-786-5433

Website: sunlife.ca

Montreal Office

1155 Metcalfe Street

Montreal, Quebec

Canada H3B 2V9

Tel: 514-866-6411

Website: sunlife.ca

Sun Life Financial U.S.

One Sun Life Executive Park

Wellesley Hills, Massachusetts

USA 02481

Call Centre: 1-800-SUN-LIFE /

1-800-786-5433

Website: sunlife.com/us

Sun Life Financial International

Victoria Hall

11 Victoria Street

P.O. Box HM 3070

Hamilton HM NX, Bermuda

Tel: 1-800-368-9428 / 441-294-6050

Website: sunlife.com/international

Sun Life Financial U.K.

Matrix House

Basing View, Basingstoke

Hampshire

United Kingdom RG21 4DZ

Call Centre: 0845-072-0223

Website: sloc.co.uk

Sun Life Financial Asia

Sun Life Financial Asia Regional Office

Level 14, Citiplaza 3

14 Taikoo Wan Road

Taikoo Shing, Hong Kong

Tel: (852) 2918-3888

Fax: (852) 2918-3800

China

Sun Life Everbright Life Insurance Company Limited

37/F Tianjin International Building

75 Nanjing Road

Tianjin, China 300050

Tel: (8622) 2339-1188

Fax: (8622) 2339-9929

Website: sunlife-everbright.com

Sun Life Assurance Company of Canada

Beijing Representative Office

Suite A01, 10^th Floor, AB Tower,

Office Park, No. 10 Jintong West Road

Chaoyang District

Beijing, China 100020

Tel: (8610) 8590-6500

Fax: (8610) 8590-6501

Hong Kong

Sun Life Hong Kong Limited

10/F, Sun Life Tower

The Gateway

15 Canton Road

Kowloon, Hong Kong

Tel: (852) 2103-8888

Call Centre: (852) 2103-8928

Website: sunlife.com.hk

India

Birla Sun Life Insurance

Company Limited

One India Bulls Centre, Tower 1, 16^th Floor

Jupiter Mill Compound

841, Senapati Bapat Marg, Elphinstone Road

Mumbai, India 400 013

Tel: 1-800-270-7000 /

91-22-6723-9100

Website: birlasunlife.com

Sun Life Assurance Company of Canada

India Representative Office

One India Bulls Centre, Tower 1, 14^th Floor,

Jupiter Mill Compound

841, Senapati Bapat Marg,

Elphinstone Road

Mumbai, India 400 013

Tel: 91-22-4356-9121

Website: sunlife.com

Indonesia

PT Sun Life Financial Indonesia

Merara Prima Tower 2

Jl. Dr. Ide Anak Agung Gde Agung Blok 6.2

Kawasan Mega Kuningan

Jakarta, Selatan 12950

Indonesia

Tel: (6221) 5289-0000

Customer Service Centre (Indonesia only): (6221) 1500-786

Fax: (6221) 5289-0019

Website: sunlife.co.id

PT CIMB Sun Life

World Trade Centre 5, 3^rd Floor

JIn. Jenderal Sudirman Kav. 29

Jakarta, Indonesia 12920

Tel: (6221) 2994-2888

Customer Service Centre (Indonesia only):

(6221) 500-089

Fax: (6221) 2994-2800

Website: cimbsunlife.co.id

Malaysia

Sun Life Malaysia Assurance Berhad

Level 11, 338 Jalan Tuanku Abdul Rahman,

50100 Kuala Lumpur,

Malaysia

Tel: (603) 2612-3600

Fax: (603) 2612-3738

Website: sunlifemalaysia.com

Sun Life Malaysia Takaful Berhad

Level 11, 338 Jalan Tuanku Abdul Rahman,

50100 Kuala Lumpur,

Malaysia

Tel: (603) 2612-3600

Fax: (603) 2612-3738

Website: sunlifemalaysia.com

Philippines

Sun Life Financial Philippines

Sun Life Centre

5^th Avenue cor. Rizal Drive

Bonifacio Global City

Taguig, Metro Manila

Philippines

Call Centre: (632) 555-8888

Website: sunlife.com.ph

Sun Life Grepa Financial, Inc.

6/F Grepalife Building

#221 Sen. Gil J. Puyat Avenue

Makati City - 1200

Philippines

Tel: (632) 844-1174

Website: sunlifegrepa.com

Vietnam

PVI Sun Life Insurance Co. Ltd.

20-22 Pham Ngoc Thach Street

Ward 6, District 3

Ho Chi Minh City, Vietnam

Tel: (848) 6298-5888

Website: pvisunlife.com.vn

MFS Investment Management

Head Office

111 Huntington Avenue

Boston, Massachusetts

USA 02199

Tel: 617-954-5000

Toll-Free: (Canada and U.S. only)

1-800-343-2829

Website: mfs.com

Sun Life Global Investments (Canada) Inc.

Corporate Office

225 King Street West

Toronto, Ontario

Canada M5V 3C5

Tel: 1-877-344-1434

Website: sunlifeglobalinvestments.com

Sun Life Investment Management

150 King Street West

Toronto, Ontario

Canada M5H 1J9

Tel: 416-204-3831/1-855-807-7546

Website: sunlifeinvestmentmanagement.com

Sun Life Asset Management Company Inc.

Head Office

8/F Sun Life Centre

5^th Avenue cor. Rizal Drive

Bonifacio Global City

Taguig, Metro Manila

Philippines

Call Centre: (632) 555-8888

Website: sunlife.com.ph

Birla Sun Life Asset Management Company Limited

Head Office

One India Bulls Centre, Tower 1, 17^th Floor

Jupiter Mill Compound

841, Senapati Bapat Marg, Elphinstone Road

Mumbai, India 400 013

Tel: 91-22-4356-8000

Website: birlasunlife.com


MAJOR OFFICES		Sun Life Financial Inc.		First Quarter 2015		49

Corporate and Shareholder Information

For information about the Sun Life Financial group of companies, corporate news and financial results, please visit sunlife.com.

Corporate Office

Sun Life Financial Inc.

150 King Street West

Toronto, Ontario

Canada M5H 1J9

Tel: 416-979-9966

Website: www.sunlife.com

Investor Relations

For financial analysts, portfolio managers and institutional investors requiring information, please contact:

Investor Relations

Fax: 416-979-4080

E-mail: investor.relations@sunlife.com Please note that financial information can also be obtained from www.sunlife.com.

Transfer Agent

For information about your shareholdings, dividends, change in share registration or address, estate transfers, lost certificates, or to advise of duplicate mailings, please contact the Transfer Agent in the country where you reside. If you do not live in any of the countries listed, please contact the Canadian Transfer Agent.

Canada

CST Trust Company

P.O. Box 700

Station B

Montreal, Quebec

Canada H3B 3K3

Within North America:

Tel: 1-877-224-1760

Outside of North America:

Tel: 416-682-3865

Fax: 1-888-249-6189

E-mail: inquiries@canstockta.com

Website: www.canstockta.com

Shareholders can view their account

details using CST Trust Company’s

Internet service, Answerline.^®

United States

American Stock Transfer & Trust Company, LLC

6201 15th Ave.

Brooklyn, NY 11219

Tel: 1-877-224-1760

E-mail: inquiries@canstockta.com

United Kingdom

Capita Registrars

The Registry

34 Beckenham Road

Beckenham, Kent

United Kingdom BR3 4TU

Tel: +44 (0) 345-602-1587

E-mail: shareholderenquiries@capita.co.uk

Philippines

The Hongkong and Shanghai Banking Corporation Limited

HSBC Stock Transfer

7/F, HSBC Centre

3058 Fifth Avenue West

Bonifacio Global City

Taguig City, 1634, Philippines

From Metro Manila:

Tel: PLDT 632-581-8111

GLOBE 632-976-8111

From the Provinces: 1-800-1-888-2422

E-mail: stkmnl@hsbc.com.ph

Hong Kong

Computershare Hong Kong Investor

Services Limited

17M Floor, Hopewell Centre

183 Queen’s Road East

Wanchai, Hong Kong

Tel: 852-2862-8555

E-mail: hkinfo@computershare.com.hk

Shareholder Services

For shareholder account inquiries, please contact the Transfer Agent in the country where you reside, or Shareholder Services:

Fax: 416-598-3121

English E-mail:

shareholderservices@sunlife.com

French E-mail:

servicesauxactionnaires@sunlife.com

Dividends

2015 Dividend dates

Common shares


Record Dates	Payment Dates
February 25, 2015		March 31, 2015
May 27, 2015		June 30, 2015
August 26, 2015*		September 30, 2015
November 25, 2015*		December 31, 2015

*Subject to approval by the Board of Directors

Direct deposit of dividends

Common shareholders residing in Canada or the U.S. may have their dividend payments deposited directly into their bank account.

The Request for Electronic Payment of Dividends Form is available for downloading from the CST Trust Company website, www.canstockta.com, or you can contact CST Trust Company to have a form sent to you.

Canadian Dividend Reinvestment

and Share Purchase Plan

Canadian-resident common shareholders can enroll in the Dividend Reinvestment and Share Purchase Plan. For details visit our website at sunlife.com or contact the Plan Agent, CST Trust Company at inquiries@canstockta.com.

Stock Exchange Listings

Sun Life Financial Inc. Class A Preferred Shares are listed on the Toronto Stock Exchange (TSX).


Ticker Symbols:		Series 1 – SLF.PR.A
		Series 2 – SLF.PR.B
		Series 3 – SLF.PR.C
		Series 4 – SLF.PR.D
		Series 5 – SLF.PR.E
		Series 8R – SLF.PR.G
		Series 10R – SLF.PR.H
		Series 12R – SLF.PR.I

Sun Life Financial Inc. common shares are listed on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges. Ticker Symbol: SLF

Normal Course Issuer Bid

A copy of the Notice of Intention to commence the normal course issuer bid is available without charge by contacting the Corporate Secretary’s Department at shareholderservices@sunlife.com.


50		Sun Life Financial Inc.		First Quarter 2015		CORPORATE AND SHAREHOLDER INFORMATION

Life’s brighter under the sun

SUN LIFE FINANCIAL INC.

150 King Street West

Toronto, Ontario

Canada M5H 1J9

sunlife.com

Exhibit 99.2

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Dean A. Connor, President and Chief Executive Officer, Sun Life Financial Inc., certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sun Life Financial Inc. (the “issuer”) for the interim period ended March 31, 2015.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in the National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1.	*Control framework:* The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2.	*ICFR – material weakness relating to design:* N/A

5.3.	*Limitation on scope of design:* N/A

6.	*Reporting changes in ICFR:* The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2015 and ended on March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 6, 2015.

/s/ “Dean A. Connor”

Dean A. Connor

President and Chief Executive Officer

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Colm J. Freyne, Executive Vice-President and Chief Financial Officer, Sun Life Financial Inc., certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sun Life Financial Inc. (the “issuer”) for the interim period ended March 31, 2015.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

5.1.	*Control framework:* The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2.	*ICFR – material weakness relating to design:* N/A

5.3.	*Limitation on scope of design:* N/A

6.	*Reporting changes in ICFR:* The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2015 and ended on March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 6, 2015.

/s/ “Colm J. Freyne”

Colm J. Freyne

Executive Vice-President and Chief Financial Officer

Exhibit 99.3

Sun Life Financial Inc.

Earnings Coverage Ratio

For the 12 months ended March 31, 2015

This updated calculation of the earnings coverage ratio of Sun Life Financial Inc. (the “Company”) is filed pursuant to Section 8.4 of National Instrument No. 44-102 as an exhibit to the Company’s interim consolidated financial statements for the period ended March 31, 2015, in connection with the medium-term note program established by the Company under its prospectus supplement dated April 8, 2015 to a short form base shelf prospectus dated April 8, 2015.

Based on the result of the Company’s operations for the 12 month ended March 31, 2015, the pro forma interest requirement on the Company’s outstanding indebtedness was $306,800,000 and the Company’s income before interest and income tax was $2,686,000,000, which is, 8.75 times the Company’s pro-forma interest requirements for that year.

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