MANAGEMENT’S DISCUSSION & ANALYSIS

For the period ended June 30, 2007

Dated July 31,2007

Earnings and profitability

FINANCIAL SUMMARY
Unaudited
	Quarterly results										Year to date
	Q2’07		Q1’07		Q4’06		Q3’O6		Q2’06		2007		2006
Common Shareholders’ Net Income ($ millions)		590		497		545		541		512		1,087		1,003
Operating Earnings(1) ($ millions)		593		558		545		541		512		1,151		1,005
Basic Earnings Per Common Share (EPS) ($)		1.03		0.87		0.95		0.94		0.88		1.90		1.73
Basic Operating EPS(1) ($)		1.04		0.98		0.95		0.94		0.88		2.02		1.73
Fully Diluted EPS ($)		1.02		0.86		0.94		0.93		0.88		1.88		1.71
Fully Diluted Operating EPS(1) ($)		1.03		0.96		0.94		0.93		0.88		1.99		1.71
Return on Common Equity (ROE) (%)		14.5		12.0		14.0		14.4		13.6		13.2		13.4
Operating ROE(1) (%)		14.6		13.5		14.0		14.4		13.6		14.0		13.4
Average Common Shares Outstanding (millions)		570.1		572.0		572.6		574.2		578.8		571.1		580.3
Closing Common Shares Outstanding (millions)		568.1		571.4		571.8		573.0		575.3		568.1		575.3
S&P 500 Index (daily average)		1,497		1,425		1,389		1,287		1,282		1,461		1,283
S&P 500 Index (close)		1,503		1,421		1,418		1,336		1,270		1,503		1,270

Sun Life Financial Inc.⁽²⁾ reported common shareholders’ net income of $590 million for the quarter ended June 30, 2007, up $78 million from $512 million in the second quarter of 2006. The increase in common shareholders’ net income was primarily due to business growth, broad-based favourable mortality and morbidity experience, lower new business strain on U.S. universal life sales, the benefit of an internal reinsurance transaction in Sun Life Financial Canada, and the positive impact of higher interest rates and equity market performance on several of the Company’s North American businesses. These gains were partially offset by credit related allowances in Canada and lower earnings in Asia, the United Kingdom and Corporate Support.

ROE for the second quarter of 2007 was 14.5% compared with 13.6% for the second quarter of 2006. The 90 basis point increase was primarily the result of improved earnings in a number of the Company’s businesses, the repurchase of common shares and the change in value of the foreign currency translation account in the second quarter of 2007. Fully diluted EPS were $1.02,16% higher than the $0.88 reported in the prior year.

Fully diluted operating EPS, which exclude after-tax charges of $2 million for re-branding expenses in Canada and $1 million for the integration costs of Genworth Financial’s U.S. Employee Benefits Group, were $1.03 for the quarter, up 17% over fully diluted operating EPS of $0.88 in the second quarter of 2006. Operating ROE of 14.6% for the quarter was up from operating ROE of 13.6% in the second quarter of 2006.

Common shareholders’ net income of $1,087 million for the first six months of 2007 was $84 million higher than in the first half of 2006 and fully diluted EPS of $1.88 for the first half of 2007 was 10% higher than the fully diluted EPS of $1.71 in the first half of 2006.

Performance by business group

The Company manages its operations and reports its results in five business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF Asia), and Corporate. Additional details concerning the segments and the purpose and use of the segmented information are outlined in Note 6 to Sun Life Financial Inc.’s second quarter 2007 Interim Consolidated Financial Statements, which are prepared in accordance with Canadian generally accepted accounting principles (GAAP). Where appropriate, information on a business segment has been presented both in Canadian dollars and the segment’s local currency to facilitate the analysis of underlying business trends. ROE for the business segments is a “Non-GAAP” financial measure as outlined under “Use of Non-GAAP Financial Measures”.

(1)

Operating Earnings, Basic Operating EPS, Fully Diluted Operating EPS and Operating ROE exclude after-tax charges to earnings of $2 million for re-branding expenses in Canada and $1 million for the integration costs of Genworth Financial’s U.S. Employee Benefits Group taken in the second quarter of 2007, $43 million related to the intangible asset write-down for the retirement of the Clarica brand and $18 million for the premium payable to redeem US$600 million of 8.526% Cumulative Capital Securities issued by Sun Life of Canada (U.S.) Capital Trust taken in the first quarter of 2007, and a $2 million after-tax charge for the integration of CMG Asia Limited and CommServe Financial Limited taken in the first quarter of 2006. See “Use of Non-GAAP Financial Measures”.

(2)

Or together with its subsidiaries and joint ventures “the Company” or “Sun Life Financial”.

Sun Life Financial Inc. | sunlife.com     3

Management’s discussion and analysis

SLF CANADA

	Quarterly results										Year to date
	Q2’07		Q1’07		Q4’06		Q3’O6		Q2’06		2007		2006
Common Shareholders’ Net Income ($ millions)
Individual Insurance & Investments		177		146		156		123		156		323		306
Group Benefits		69		51		60		85		65		120		102
Group Wealth(1)		34		53		41		32		43		87		90
Total		280		250		257		240		264		530		498
ROE (%)		16.1		14.3		14.3		13.3		15.0		15.2		14.4

⁽¹⁾  Group Wealth comprises Group Retirement Services and Institutional Investments.

SLF Canada’s earnings increased by $16 million, or 6%, compared to the second quarter of 2006. This increase is attributable to a $42 million gain on an internal reinsurance transaction and the impact of strong equity performance in Individual Insurance & Investments, partially offset by $18 million of credit related allowances and the non-recurrence of $19 million of increased earnings in the second quarter of 2006 related to Cl from tax rate changes in 2006.

• Individual Insurance & Investments earnings for the second quarter of 2007 increased by 13% compared to the second quarter of 2006 including the $42 million positive impact of an internal reinsurance transaction on actuarial reserves and strong equity performance, partially offset by the credit related allowances and the non-recurrence of $19 million of increased earnings in the second quarter of 2006 related to Cl from tax rate changes in 2006.

• Group Benefits earnings for the second quarter of 2007 increased by 6% over the second quarter of 2006 due to favourable mortality and morbidity experience, partially offset by the credit related allowances.

• Group Wealth earnings for the second quarter of 2007 decreased by 21% from the second quarter of 2006 as a result of the non-recurrence of unusually favourable mortality experience in the second quarter of 2006 and the credit related allowances.

Six-month earnings increased by $32 million, or 6%, over the same period in 2006 due to higher Individual Insurance & Investments earnings resulting from the reinsurance transaction and higher Group Benefits earnings from changes to actuarial reserves to better reflect asset liability matching, offset by a slight decline in Group Wealth earnings.

SLF U.S.

	Quarterly results												Year to date
	Q2’07		Q1’07			Q4’06		Q3’O6		Q2’06			2007		2006
Common Shareholders’ Net Income (us$ millions)
Annuities		80		80			61		88		64			160		149
Individual Life		37		5			9		22		(4	)		42		19
Employee Benefits Group(1)		25		(1	)		16		11		20			24		20
Total (US$ millions)		142		84			86		121		80			226		188
Total (C$ millions)		156		98			97		136		90			254		215
ROE (%)		14.0		9.4			9.7		13.9		9.4			11.8		11.0

⁽¹⁾ Employee Benefits Group formerly called Group Life & Health.

Earnings for SLF U.S. increased C$66 million or 73% compared to the second quarter of 2006. In U.S. dollars, earnings were US$142 million, US$62 million or 78% higher than in the second quarter of 2006. Earnings increased this quarter as a result of lower new business strain on U.S. universal life sales and the positive impact of higher interest rates in Individual Life, improved interest rate spreads in Annuities and improved claims experience in the Employee Benefits Group.

• Annuities earnings increased by US$16 million compared to the second quarter of 2006 from improved interest rate spreads, the positive impact of equity market movements and earnings from US$1.8 billion of funding agreement backed medium-term notes issued in 2006.

• Individual Life earnings increased by US$41 million compared to the second quarter of 2006 primarily due to lower new business strain on U.S. universal life sales and favourable experience, including the positive impact of higher interest rates.

• Employee Benefits Group earnings increased by US$5 million compared to the second quarter of 2006 as the result of improved claims experience and the favourable impact of the acquisition of Genworth’s Employee Benefits Group (Genworth EBG Business), which closed on May 31, 2007.

Six-month earnings increased by US$38 million, or 20%, over the same period in 2006 due to in-force earnings growth and the favourable impact of increased earnings from lower tax jurisdictions in Individual Life, improved interest rate spreads and the positive impact of equity market movements in Annuities and improved claims experience and the favourable impact of the acquisition of the Genworth EBG Business in the Employee Benefits Group.

4     Sun Life Financial Inc. | Second Quarter 2007

Management’s discussion and analysis

The results of the Genworth EBG Business from June 1, 2007 are included in the income reported for the three and six months ended June 30, 2007. The results and assets of the Genworth EBG Business, including goodwill, are included in the SLF U.S. reportable segment in Sun Life Financial’s second quarter 2007 Interim Consolidated Financial Statements.

MFS

	Quarterly results															Year to date
	Q2’07			Q1’07			Q4’06			Q3’O6			Q2’06			2007			2006
Common Shareholders’ Net Income (us$ millions)		62			61			62			52			47			123			92
Common Shareholders’ Net Income (c$ millions)		68			72			71			58			53			140			105
Pre-tax Operating Profit Margin Ratio(3)		34	%		34	%		34	%		30	%		27	%		34	%		27	%
Average Net Assets (us$ billions)		200			189			182			170			168			195			168
Assets Under Management (us$ billions)		202			192			187			175			168			202			168
Net Sales/(Redemptions) (us$ billions)		(0.1	)		0.2			1.0			(0.1	)		(0.4	)		0.1			(0.7	)
Market Movement (us$ billions)		9.5			4.4			11.0			6.9			(1.0	)		13.9			6.5
S&P 500 Index (daily average)		1,497			1,425			1,389			1,287			1,282			1,461			1,283

Earnings for MFS increased C$15 million, or 28%, compared to the second quarter of 2006. In U.S. dollars, second quarter earnings were US$62 million, US$15 million, or 32%, higher than in the second quarter of 2006 primarily due to asset growth and higher margins ⁽³⁾. Average net assets of US$200 billion increased 19% compared to the second quarter of 2006.

Six-month earnings increased by US$31 million, or 34%, over the same period in 2006 primarily due to asset growth and higher margins.

Total assets under management at June 30, 2007 were US$202 billion, an increase of US$10 billion compared to March 31, 2007, driven by market appreciation of US$9.5 billion, the acquisition on June 29, 2007 of six closed-end funds with total assets of US$1.0 billion and net managed fund sales of US$0.8 billion partially offset by net retail mutual fund redemptions of US$0.9 billion during the period.

SLF ASIA

	Quarterly results										Year to date
	Q2’07		Q1’07		Q4’06		Q3’O6		Q2’06		2007		2006
Common Shareholders’ Net Income ($ millions)		17		38		33		13		31		55		55
ROE (%)		6.0		13.5		12.6		5.2		12.6		9.7		11.2

Second quarter 2007 earnings of $17 million decreased by $14 million, or 45%, from the second quarter of 2006 primarily due to the non-recurrence of unusually favourable investment results in the Philippines in the second quarter of 2006, and increased expansion expenses.

Six-month earnings were unchanged from last year, with this year’s improved asset/liability matching in Hong Kong offset by lower investment income in the Philippines.

SLF Asia sales momentum continued in the second quarter of 2007, with Canadian dollar sales up 36% over the same period in 2006. In local currency, strong demand for wealth accumulation products in the Philippines and Hong Kong drove sales up by 40% and 36%, respectively, over the second quarter 2006 sales. In China, sales grew 93% over last year’s sales. Sun Life Everbright Life Insurance Company continued its expansion with the opening of two sales offices in the Jiangsu province, bringing the operation to 14 cities. Sun Life Everbright also received preparatory approval for a branch in Shanghai. In India, agency sales increased by 62% over the same period last year as the direct sales force grew to over 60,000 advisors during the second quarter.

CORPORATE

Corporate includes the results of Sun Life Financial U.K. (SLF U.K.), Sun Life Financial Reinsurance (SLF Reinsurance) and Corporate Support, which includes run-off reinsurance as well as investment income, expenses, capital and other items not allocated to Sun Life Financial’s other business groups.

	Quarterly results												Year to date
	Q2’07			Q1’07			Q4’06		Q3’O6		Q2’06		2007			2006
Common Shareholders’ Net Income/(loss) ($millions)
SLF U.K.		42			100			28		57		48		142			86
SLF Reinsurance		33			18			35		25		24		51			33
Corporate Support		(6	)		(79	)		24		12		2		(85	)		11
Total		69			39			87		94		74		108			130

⁽³⁾ The Pre-Tax Operating Profit Margin Ratio is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures”.

Sun Life Financial Inc. | sunlife.com     5

Management’s Discussion and Analysis

Second quarter 2007 earnings decreased by $5 million compared to the second quarter of 2006 as higher earnings at SLF Reinsurance from higher premium revenue were more than offset by increased expenses in Corporate Support and lower SLF U.K. earnings compared to the second quarter of 2006 due to the non-recurrence of favourable tax adjustments on pension losses in the second quarter of 2006.

Six-month earnings decreased by $22 million, or 17%, over the same period in 2006 due to the after-tax charges to earnings related to the intangible asset write-down for the retirement of the Clarica brand and the premium paid to redeem US$600 million of 8.526% Cumulative Capital Securities taken in the first quarter of 2007, partially offset by higher earnings in SLF U.K. and SLF Reinsurance.

Additional financial disclosure

REVENUE

Under Canadian GAAP, revenues include premium revenue, net investment income and fee income.

Changes to Canadian investment accounting rules that became effective on January 1, 2007 have resulted in increased net investment income volatility arising from quarterly fluctuation in the value of held-for-trading assets. Changes in the value of held-for-trading assets are largely offset by corresponding changes in the value of actuarial liabilities.

Premium revenue includes annuity premiums, certain of which are excluded as revenue under U.S. GAAP and also for similar products sold by other financial institutions.

	Quarterly results										Year to date
	Q2’07		Q1’07		Q4’06		Q3’O6		Q2’06		2007		2006
Revenues ($ millions)
SLF Canada		1,801		2,374		2,520		2,335		2,223		4,175		4,478
SLF U.S.		1,944		2,197		2,392		3,143		2,929		4,141		4,930
MFS		433		447		444		395		407		880		823
SLF Asia		182		215		297		240		259		397		485
Corporate		140		351		484		491		413		491		830
Total		4,500		5,584		6,137		6,604		6,231		10,084		11,546

Revenues of $4.5 billion earned in the second quarter of 2007 decreased by $1.7 billion from the same period in 2006 due to lower investment income of $1.1 billion as rising interest rates during the second quarter of 2007 resulted in a decrease in the fair value of held-for-trading assets, with a corresponding decrease in actuarial liabilities, as required under changes in Canadian investment accounting rules that became effective on January 1, 2007. Premiums were also lower by $727 million, mainly from the non-recurrence of US$900 million in medium-term notes issued in the second quarter of 2006.

Premium revenues of $3.2 billion in the second quarter of 2007 were $727 million less than the same quarter last year due to lower annuity premiums. Health insurance premiums rose by $108 million as SLF Canada Group Benefits and SLF U.S. Employee Benefits Group contributed an additional $29 million and $71 million, respectively, over the second quarter of 2006.

Second quarter 2007 annuity premiums of $874 million were lower by $822 million than during the same period in the prior year. Annuity premiums in SLF U.S. decreased by $871 million as the issuance of US$900 million in medium-term notes in the second quarter of 2006 was not repeated in 2007. This decline was partly moderated by SLF U.S.’s growth in fixed annuity premiums of $136 million over the second quarter of 2006.

Net investment income of $472 million in the second quarter of 2007 fell by $1,069 million from the second quarter of 2006 as rising interest rates during the second quarter of 2007 resulted in a decrease in the value of held-for-trading assets, with a corresponding decrease in actuarial liabilities, as required under changes in Canadian investment accounting rules that became effective on January 1, 2007. These declines were slightly moderated by the favourable effect of fluctuations in equity markets.

Fee income of $824 million in the second quarter of 2007 was up $65 million from the same period in the previous year due to asset management fees earned on higher average net asset levels.

Actuarial liabilities decreased $1.9 billion in the second quarter of 2007 compared to an increase of $985 million in the second quarter of 2006. The change of $2.9 billion included a reduction related to the decrease in value of held-for-trading assets. There was a further reduction of $516 million associated with the maturing of European medium-term notes. The 2006 amount also included $1 billion related to the issue of medium-term notes which did not recur in 2007.

6     Sun Life Financial Inc. | Second Quarter 2007

Management’s Discussion and Analysis

Total revenues of $10.1 billion for the six months ended June 30, 2007 decreased by $1.5 billion as compared to the same period in 2006 primarily due to lower annuity premiums and lower net investment income. Annuity premiums of $1.9 billion for the six months ended June 30, 2007 declined by $614 million from the same period a year ago as SLF U.S. issued US$900 million in medium-term notes in the second quarter of 2006, which were not repeated in 2007. This decrease was partly compensated by higher annuity premiums of $119 million in SLF Canada and growth in SLF U.S. annuities of $218 million. Net investment income for the six months ended June 30, 2007 dropped by $1.2 billion from the comparable period a year ago for the same reasons previously mentioned for the quarter. Higher life and health insurance premiums as well as higher fee income on increased average net assets somewhat diminished these decreases.

ASSETS UNDER MANAGEMENT (AUM)

AUM were $434.5 billion as at June 30, 2007 compared to $445.8 billion as at March 31, 2007, and $387.2 billion as at June 30, 2006. The decrease of $11.3 billion between March 31, 2007 and June 30, 2007 resulted primarily from:

(i)	a decrease of $24.0 billion from the stronger Canadian dollar relative to the prior period currency exchange rates, partially offset by
(ii)	positive market movements of $12.8 billion;
(iii)	an increase of $1.1 billion in mutual funds during June 2007 related to the acquisition of closed-end funds in MFS;and
(iv)	net sales of mutual, managed and segregated funds of $0.2 billion.

AUM increased $47.3 billion between June 30, 2006 and June 30, 2007. The increase related primarily to:

(i)	robust market performance generating $50.3 billion in additional value;
(ii)	an increase of $4.2 billion in general fund assets on January 1, 2007 related to the changes to Canadian investment accounting rules;
(iii)	net sales of mutual, managed and segregated funds of $2.1 billion; and
(iv)	an increase of $1.1 billion in mutual funds during June 2007 related to the acquisition of closed-end funds in MFS; partly reduced by
(v)	a decrease of $13.7 billion from currency fluctuations.

CHANGES IN THE BALANCE SHEET AND SHAREHOLDERS’ EQUITY

Total general fund assets were $116.1 billion as at June 30, 2007, compared to $110.6 billion a year earlier. An increase of $4.2 billion in general fund assets on January 1, 2007 arose from the changes to Canadian investment accounting rules. Continued business growth, primarily in SLF Canada and SLF U.S., including the acquisition of Genworth Financial Inc’s U.S. employee benefits group business at the end of May 2007, was partly reduced by the $1.9 billion unfavourable currency effect from the strengthened Canadian dollar against foreign currencies.

Total general fund assets decreased by $1.7 billion from the December 31, 2006 level of $117.8 billion. The $4.2 billion increase in general fund assets on January 1, 2007 related to the changes to Canadian investment accounting rules was more than offset by the unfavourable currency impact of $5.3 billion from a stronger Canadian dollar at the end of the second quarter of 2007.

Actuarial and other policy liabilities of $83.1 billion as at June 30, 2007 rose by $6.1 billion compared to June 30, 2006 with a $7.3 billion increase on January 1, 2007 related to the change in value of held-for-trading assets, the reversal of deferred net realized gains and other fair value adjustments resulting from changes to Canadian investment accounting rules, partially diminished by the $1.3 billion unfavourable impact of currency fluctuations.

Actuarial and other policy liabilities of $83.1 billion at June 30, 2007 were up by $2.0 billion compared to December 31, 2006. This increase was primarily due to the impact of changes to Canadian investment accounting rules noted above, partially offset by the unfavourable currency effect of $3.9 billion resulting from the strengthened Canadian dollar at the end of the second quarter of 2007.

Shareholders’ equity, including Sun Life Financial Inc’s preferred share capital and accumulated other comprehensive income, was $17.3 billion as at June 30, 2007, $199 million higher than at December 31, 2006. Shareholders’ net income, before preferred share dividends of $34 million, generated $1,121 million and the issuance of Class A Non-cumulative Preferred Shares, Series 5 added $245 million, net of expenses. The adjustments to shareholders’equity related to the implementation of changes to Canadian investment accounting rules on January 1, 2007 contributed $564 million and was partially offset by $290 million in other comprehensive income due to losses on available-for-sale assets. Dividend payments on common shares of $366 million and $214 million for the cost of common shares repurchased and cancelled, net of stock-based compensation costs (including stock options exercised) also diminished the increases. Currency fluctuations further reduced shareholders’ equity by $827 million.

Shareholders’ equity as at June 30, 2007, including Sun Life Financial Inc’s preferred share capital and accumulated other comprehensive income, was $708 million lower than the March 31, 2007 position of $18.0 billion. Shareholders’ net income, before preferred share dividends of $18 million, generated $608 million. The impact of changes to Canadian investment accounting rules from January 1, 2007 reduced shareholders’ equity during the second quarter by $250 million due to losses on available-for-sale assets in other comprehensive income. Dividend payments on common shares of $183 million and $142 million for the cost of common shares repurchased and cancelled, net of stock-based compensation costs (including stock options exercised) also diminished shareholders’ equity. Currency fluctuations further decreased shareholders’ equity by $724 million.

As at June 30, 2007, Sun Life Financial Inc. had 568,105,192 common shares and 61,000,000 preferred shares outstanding.

Sun Life Financial Inc. | sunlife.com     7

Management’s Discussion and Analysis

CASH FLOWS

	Quarterly results						Year to date
($ millions)	Q2’07			Q2’06			2007			2006
Cash and cash equivalents, beginning of period		5,414			3,902			4,881			2,740
Cash flows provided by (used in):
Operating activities		(236	)		1,232			(197	)		1,390
Financing activities		(618	)		(441	)		(400	)		258
Investing activities		(1,228	)		(1,013	)		(974	)		(707	)
Discontinued operations
Changes due to fluctuations in exchange rates		(19	)		(99	)		3			(100	)
Increase (decrease) in cash and cash equivalents		(2,101	)		(321	)		(1,568	)		841
Cash and cash equivalents, end of period		3,313			3,581			3,313			3,581
Short-term securities, end of period		1,265			942			1,265			942
Total cash, cash equivalents and short-term securities		4,578			4,523			4,578			4,523

Net cash, cash equivalents and short-term securities of $4.6 billion as at the end of the second quarter of 2007 increased by $55 million over the second quarter of 2006. Cash and cash equivalents decreased by $2.1 billion during the second quarter of 2007 compared to a $321 million decrease in the second quarter of 2006. Operating cash flows in the second quarter of 2006 included the issuance of US$900 million in medium-term notes. Cash used in financing activities increased by $177 million from the same period in 2006 with the US$600 million redemption of Cumulative Capital Securities partly offset by the issuance of $400 million in subordinated unsecured debentures during the second quarter of 2007. Cash used in investing activities was $215 million higher in the second quarter of 2007 than in the second quarter of 2006 primarily due to the acquisition of the Genworth EBG Business, which closed on May 31, 2007, partially offset by higher levels of net purchases of invested assets in the second quarter of 2006.

There was a decrease in cash and cash equivalents of $1.6 billion in the first six months of 2007 as compared to an $841 million increase in cash and cash equivalents in the same period of 2006. The decrease in cash from operating activities was $1.6 billion lower in the first half of 2007 than in the comparable period a year ago primarily related to the issuance of medium-term notes mentioned above. Cash used in financing activities in the first six months of 2007 increased by $658 million from the first six months of 2006 as the US$600 million Cumulative Capital Securities were redeemed during 2007. Financing activities also reflected the issuance of $650 million in senior unsecured debentures and preferred shares of $250 million in the first half of 2007 as compared to the $700 million in senior unsecured debentures and preferred shares of $250 million issued in the first half of 2006. Cash used in investing activities was higher by $267 million during the first half of 2007 than during the first half of 2006 mainly due to the acquisition of the Genworth EBG business, which closed in the second quarter of 2007, partially offset by higher levels of net purchases of invested assets in the second quarter of 2006.

ENTERPRISE RISK MANAGEMENT

Sun Life Financial uses an enterprise risk management framework to assist in categorizing, monitoring and managing the risks to which it is exposed. The major categories of risk are credit risk, market risk, insurance risk and operational risk. Operational risk is a broad category that includes legal and regulatory risks, people risks and systems and processing risks.

Through its ongoing enterprise risk management procedures, Sun Life Financial reviews the various risk factors identified in the framework and reports to senior management and to the Risk Review Committee of the Board at least quarterly. Sun Life Financial’s enterprise risk management procedures and risk factors are described in Sun Life Financial Inc.’s Management’s Discussion and Analysis (MD&A) and Annual Information Form (AIF) for the year ended December 31, 2006. Interest rate and equity market sensitivities are disclosed in the annual MD&A, but change as market levels change, new business is added, or as management actions are taken.

OUTLOOK

The Company generally benefits from steady or slowly increasing interest rates from recent levels, particularly in its fixed annuity and universal life businesses; however, this benefit is partially offset by a flat or inverted yield curve. Declining stock market indices may adversely affect earnings from market-based products and flows in the Company’s asset management businesses. The Company’s earnings will be impacted by changes in the value of the Canadian dollar versus foreign currencies, most notably the U.S. dollar.

REGULATORY AND LEGAL MATTERS

Sun Life Financial Inc. and certain of its U.S. subsidiaries are cooperating with insurance and securities regulators and other government and self-regulatory agencies in the United States in their ongoing investigations and examinations with respect to various issues. Certain of these investigations and examinations may lead to settled administrative actions or enforcement proceedings and civil actions. As previously disclosed, Sun Life Financial Inc. and MFS have been named as defendants in multiple lawsuits in U.S. courts relating to the matters that led to

8     Sun Life Financial Inc. | Second Quarter 2007

Management’s discussion and analysis

the settlements between MFS and U.S. regulators in 2004; and MFS continues to defend these actions. In addition, Sun Life Financial Inc. and its subsidiaries are involved in other legal actions, both as a defendant and as a plaintiff. While it is not possible to predict the resolution of these various matters, management believes, based on the information currently available to it, that the ultimate resolution will not be material to Sun Life Financial’s consolidated financial position or results of operations.

Additional information concerning these and related matters is provided in Sun Life Financial Inc.’s annual Consolidated Financial Statements and AIF for the year ended December 31, 2006, copies of which are available on the Company’s website at www.sunlife.com and at www.sedar.com and www.sec.gov.

USE OF NON-GAAP FINANCIAL MEASURES

Management evaluates the Company’s performance on the basis of financial measures prepared in accordance with GAAP, including earnings, Diluted EPS and ROE. Management also measures the Company’s performance based on certain non-GAAP measures, including operating earnings, and other financial measures based on operating earnings, including fully diluted operating EPS and operating ROE, that exclude certain significant items that are not operational or ongoing in nature. Management also uses financial performance measures that are prepared on a constant currency basis, which excludes the impact of currency fluctuations. Management measures the performance of its business segments using ROE that is based on an allocation of common equity or risk capital to the business segments, using assumptions, judgments and methodologies that are regularly reviewed and revised by management. Management also monitors MFS’s pre-tax operating profit margin ratio, which excludes certain offsetting fee income and commission expenses, as a means of measuring the underlying profitability of MFS. Embedded Value and Value of New Business are used to measure overall profitability. Embedded Value and Value of New Business are based on actuarial amounts for which there are not comparable amounts under GAAP. Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company’s performance and facilitate the comparison of the quarterly and full year results of the Company’s ongoing operations. These non-GAAP financial measures do not have any standardized meaning and may not be comparable with similar measures used by other companies. They should not be viewed as an alternative to measures of financial performance determined in accordance with GAAP. Additional information concerning these non-GAAP financial measures and reconciliations to GAAP measures are included in Sun Life Financial Inc.’s annual MD&A and the Supplementary Financial Information packages that are available in the Investor Relations – Financial Publications section of Sun Life Financial’s website, www.sunlife.com.

Operating earnings, fully diluted operating EPS and operating ROE exclude an after-tax charge to earnings of $2 million for re-branding expenses in Canada and $1 million for the integration costs of Genworth Financial’s U.S. Employee Benefits Group taken in the second quarter of 2007, a $43 million and a $18 million after-tax charge to earnings related to the intangible asset write-down for the retirement of the Clarica brand and the premium paid to redeem the outstanding US$600 million principal amount of 8.526% Cumulative Capital Securities issued by Sun Life of Canada (U.S.) Capital Trust, respectively, taken in the first quarter of 2007, and a $2 million after-tax charge for the integration of CMG Asia Limited and CommServe Financial Limited taken in the first quarter of 2006.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document, including those relating to the Company’s strategies and other statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” or similar expressions, are forward-looking statements within the meaning of securities laws. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company. These statements represent the Company’s expectations, estimates and projections regarding future events and are not historical facts. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Future results and stockholder value may differ materially from those expressed in these forward-looking statements due to, among other factors, the matters set out under “Risk Factors” in the Company’s AIF and the factors detailed in its other filings with Canadian and U.S. securities regulators, including its annual MD&A, and annual and interim financial statements which are available for review at www.sedar.com and www.sec.gov.

Factors that could cause actual results to differ materially from expectations include, but are not limited to, the performance of equity markets; interest rate fluctuations; changes in legislation and regulations including tax laws; regulatory investigations and proceedings and private legal proceedings and class actions relating to practices in the mutual fund, insurance, annuity and financial product distribution industries; risks relating to product design and pricing; investment losses and defaults; the occurrence of natural or man-made disasters, pandemic diseases and acts of terrorism; risks relating to operations in Asia, including risks relating to joint ventures; failure of computer systems and internet enabled technology; breaches of computer security and privacy; the availability, cost and effectiveness of reinsurance; the inability to maintain strong distribution channels and risks relating to market conduct by intermediaries and agents; dependence on third party relationships including outsourcing arrangements; currency exchange rate fluctuations; the impact of competition; downgrades in financial strength or credit ratings; the ability to successfully complete and integrate acquisitions; the ability to attract and retain employees; and the performance of the Company’s investments and investment portfolios managed for clients such as segregated and mutual funds. The Company does not undertake any obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.

Sun Life Financial Inc. | sunlife.com     9