EX-99.2 3 d432902dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Consolidated Statements of Operations

 

            For the three months ended     For the nine months ended  
(unaudited, in millions of Canadian dollars except for
per share amounts)		     September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  

Revenue

          

Premiums

          

Gross

     $   3,269      $   3,568      $   9,857      $ 10,737   

Less: Ceded

             1,280        1,233        3,864        3,728   

Net

             1,989        2,335        5,993        7,009   

Net investment income (loss):

          

Interest and other investment income

       1,194        1,498        3,745        3,873   

Change in fair value through profit or loss assets and liabilities (Note 4)

       1,125        2,827        1,918        3,400   

Net gains (losses) on available-for-sale assets

             24        39        126        114   

Net investment income (loss)

             2,343        4,364        5,789        7,387   

Fee income

             904        807        2,644        2,470   

Total revenue

             5,236        7,506        14,426        16,866   

Benefits and expenses

          

Gross claims and benefits paid (Note 6)

       3,206        3,016        9,744        9,589   

Increase (decrease) in insurance contract liabilities (Note 6)

       1,213        4,289        2,655        5,126   

Decrease (increase) in reinsurance assets (Note 6)

       100        631        (65 )      578   

Increase (decrease) in investment contract liabilities (Note 6)

       28        (16 )      44        (18 ) 

Reinsurance expenses (recoveries) (Note 12)

       (1,240 )      (1,123 )      (3,672 )      (3,402 ) 

Commissions

       371        355        1,081        1,154   

Net transfer to (from) segregated funds (Note 9)

       36        140        185        502   

Operating expenses

       897        815        2,601        2,575   

Premium taxes

       59        59        180        176   

Interest expense

             94        104        278        322   

Total benefits and expenses

             4,764        8,270        13,031        16,602   

Income (loss) before income taxes

       472        (764 )      1,395        264   

Less: Income tax expense (benefit) (Note 7)

             50        (169 )      174        (48 ) 

Total net income (loss)

       422        (595 )      1,221        312   

Less: Net income (loss) attributable to participating policyholders

       10        (1 )      11        6   

Less: Net income (loss) attributable to non-controlling interests

             –        2        –        8   

Shareholders’ net income (loss)

       412        (596 )      1,210        298   

Less: Preferred shareholders’ dividends

             29        25        90        73   

Common shareholders’ net income (loss)

           $ 383      $ (621 )    $ 1,120      $ 225   

Average exchange rates during the reporting periods:

     U.S. dollars        1.00        0.98        1.00        0.98   
    U.K. pounds        1.57        1.57        1.58        1.58   

Earnings (loss) per share (Note 11)

          

Basic

     $ 0.64      $ (1.07 )    $ 1.90      $ 0.39   

Diluted

     $ 0.64      $ (1.07 )    $ 1.87      $ 0.39   

Weighted average shares outstanding in millions (Note 11)

  

      

Basic

       594        580        591        578   

Diluted

       604        580        602        579   

Dividends per common share

     $ 0.36      $ 0.36      $ 1.08      $ 1.08   

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

 

30   Sun Life Financial Inc.    Third Quarter 2012   INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statements of Comprehensive Income (Loss)

 

     For the three months ended     For the nine months ended  
(unaudited, in millions of Canadian dollars)   September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  

Total net income (loss)

   $ 422      $ (595 )    $ 1,221      $ 312   

Other comprehensive income (loss), net of taxes:

        

Change in unrealized foreign currency translation gains (losses):

        

Unrealized gains (losses) before net investment hedges

     (321 )      950        (315 )      602   

Unrealized gains (losses) on net investment hedges

     50        (148 )      44        (94 ) 

Reclassifications to net income (loss)

     –        (22 )      –        (8 ) 

Change in unrealized gains (losses) on available-for-sale assets:

        

Unrealized gains (losses)

     212        (42 )      403        41   

Reclassifications to net income (loss)

     (20 )      (40 )      (119 )      (119 ) 

Change in unrealized gains (losses) on cash flow hedges:

        

Unrealized gains (losses)

     –        (10 )      7        (21 ) 

Reclassifications to net income (loss)

     (1 )      5        (5 )      2   

Total other comprehensive income (loss)

     (80 )           693        15        403   

Total comprehensive income (loss)

     342        98        1,236        715   

Less:  Participating policyholders’ comprehensive income (loss)

     8        3        9        8   

Less:  Non-controlling interests in comprehensive income (loss)

     –        2        –        8   

Shareholders’ comprehensive income (loss)

   $      334      $ 93      $     1,227      $      699   

Income Taxes included in Other Comprehensive Income (Loss)

 

     For the three months ended     For the nine months ended  
(unaudited, in millions of Canadian dollars)   September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  

Income tax benefit (expense):

        

Unrealized foreign currency translation gains / losses, including net investment hedges

   $ (3 )    $ 10      $ 2      $ 2   

Reclassifications to net income of foreign currency translation gains / losses

     –        (5 )      –        (8 ) 

Unrealized gains / losses on available-for-sale assets

     (54 )      36        (87 )             19   

Reclassifications to net income for available-for-sale assets

              5        13                 29        29   

Unrealized gains / losses on cash flow hedges

     (4 )      4        (11 )      (5 ) 

Reclassifications to net income for cash flow hedges

     –        (2 )      2        (1 ) 

Total income tax benefit (expense) included in other comprehensive income (loss)

   $ (56 )    $        56      $ (65 )    $ 36   

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

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   31

Consolidated Statements of Financial Position

 

            As at  
(unaudited, in millions of Canadian dollars)          September 30,
2012		     December 31,
2011		     September 30,
2011		  

Assets

        

Cash, cash equivalents and short-term securities (Note 4)

     $ 6,870      $ 8,837      $ 8,848   

Debt securities (Note 4)

       64,708        62,930        64,032   

Equity securities (Note 4)

       4,973        4,570        4,458   

Mortgages and loans

       29,035        27,755        27,287   

Derivative assets (Note 4)

       2,790        2,632        2,460   

Other invested assets (Note 4)

       1,353        1,348        1,281   

Policy loans

       3,222        3,276        3,306   

Investment properties

             5,813        5,313        5,016   

Invested assets

       118,764        116,661        116,688   

Other assets

       3,260        2,885        3,439   

Reinsurance assets (Note 6)

       3,323        3,277        3,384   

Deferred tax assets

       1,398        1,648        1,186   

Property and equipment

       617        546        535   

Intangible assets

       871        885        911   

Goodwill

             3,899        3,942        4,270   

Total general fund assets

       132,132        129,844        130,413   

Investments for account of segregated fund holders (Note 9)

             91,429        88,183        85,281   

Total assets

           $     223,561      $     218,027      $     215,694   

Liabilities and equity

        

Liabilities

        

Insurance contract liabilities (Note 6)

     $ 97,871      $ 96,374      $ 95,325   

Investment contract liabilities (Note 6)

       3,176        3,073        3,092   

Derivative liabilities (Note 4)

       806        1,059        1,389   

Deferred tax liabilities

       7        7        4   

Other liabilities

       8,235        8,011        7,548   

Senior debentures

       2,149        2,149        2,149   

Innovative capital instruments

       695        695        1,645   

Subordinated debt

             2,738        2,746        2,751   

Total general fund liabilities

       115,677        114,114        113,903   

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

       85,332        82,650        79,761   

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

             6,097        5,533        5,520   

Total liabilities

           $ 207,106      $ 202,297      $ 199,184   

Equity

        

Issued share capital and contributed surplus

     $ 10,549      $ 10,340      $ 9,948   

Retained earnings and accumulated other comprehensive income

       5,906        5,390        6,543   

Non-controlling interests

             –        –        19   

Total equity

           $ 16,455      $ 15,730      $ 16,510   

Total liabilities and equity

           $ 223,561      $ 218,027      $ 215,694   

Exchange rates at the end of the reporting periods:

     U.S. dollars        0.98        1.02        1.05   
    U.K. pounds        1.59        1.58        1.64   

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

Approved on behalf of the Board of Directors on November 7, 2012

 

LOGO   

LOGO

Dean A. Connor

   

William D. Anderson

President and Chief Executive Officer

   

Director

 

32   Sun Life Financial Inc.    Third Quarter 2012   INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statements of Changes in Equity

 

     For the nine months ended  
(unaudited, in millions of Canadian dollars)   September 30,
2012		     September 30,
2011		  

Shareholders:

    

Preferred shares

    

Balance, beginning of period

   $ 2,503      $ 2,015   

Issued

     –        200   

Issuance cost, net of taxes

     –        (5 ) 

Balance, end of period

     2,503        2,210   

Common shares

    

Balance, beginning of period

     7,735        7,407   

Stock options exercised

     7        47   

Issued under dividend reinvestment and share purchase plan (Note 8)

     196        184   

Balance, end of period

     7,938        7,638   

Contributed surplus

    

Balance, beginning of period

     102        95   

Share-based payments

     8        11   

Stock options exercised

     (2 )      (6 ) 

Balance, end of period

     108        100   

Retained earnings

    

Balance, beginning of period

     5,219        6,489   

Net Income (loss)

     1,210        298   

Dividends on common shares

     (630 )      (618 ) 

Dividends on preferred shares

     (90 )      (73 ) 

Change due to transactions with non-controlling interests

     –        (3 ) 

Balance, end of period

     5,709        6,093   

Accumulated other comprehensive income (loss), net of taxes

    

Unrealized gains (losses) on available-for-sale assets

     320        387   

Unrealized cumulative translation differences, net of hedging activities

     (287 )      (505 ) 

Unrealized gains (losses) on transfers to investment properties

     6        6   

Unrealized gains (losses) on derivatives designated as cash flow hedges

     9        38   

Balance, beginning of period

     48        (74 ) 

Total other comprehensive income (loss) for the period

     17        401   

Balance, end of period

     65        327   

Total shareholders’ equity, end of period

   $ 16,323      $ 16,368   

Participating policyholders:

    

Retained earnings

    

Balance, beginning of period

   $ 124      $ 117   

Net Income (loss)

     11        6   

Balance, end of period

     135        123   

Accumulated other comprehensive income (loss), net of taxes

    

Unrealized cumulative translation differences, net of hedging activities

     (1 )      (2 ) 

Balance, beginning of period

     (1 )      (2 ) 

Total other comprehensive income (loss) for the period

     (2 )      2   

Balance, end of period

     (3 )      –   

Total participating policyholders’ equity, end of period

   $ 132      $ 123   

Non-controlling interests:

    

Balance, beginning of period

   $ –      $ 24   

Net income (loss)

     –        8   

Other changes in non-controlling interests

     –        (13 ) 

Total non-controlling interests, end of period

     –        19   

Total equity

   $     16,455      $     16,510   

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

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   33

Consolidated Statements of Cash Flows

 

     For the three months ended     For the nine months ended  
(unaudited, in millions of Canadian dollars)   September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  

Cash flows provided by (used in) operating activities

        

Income (loss) before income taxes

   $ 472      $ (764 )    $ 1,395      $ 264   

Add: interest expense related to financing activities

     94        104        278        322   

Operating items not affecting cash:

        

Increase (decrease) in contract liabilities

     1,366        3,039        2,939        3,915   

(Increase) decrease in reinsurance assets

     74        604        (129 )      552   

Unrealized (gains) losses on investments

     (1,137 )      (2,018 )      (1,784 )      (2,662 ) 

Other non-cash items

     20        (210 )      (286 )      (543 ) 

Operating cash items:

        

Deferred acquisition costs

     (12 )      (9 )      (37 )      (32 ) 

Realized (gains) losses on investments

     (12 )      (848 )      (260 )      (852 ) 

Sales, maturities and repayments of investments

     18,122        23,193        66,781        65,879   

Purchases of investments

     (19,082 )      (24,902 )      (67,987 )      (66,101 ) 

Change in policy loans

     15        (24 )      9        50   

Income taxes received (paid)

     42        (46 )      (13 )      (150 ) 

Other cash items

     (436 )      1,453        (468 )      1,543   

Net cash provided by (used in) operating activities

     (474 )      (428 )      438        2,185   

Cash flows provided by (used in) investing activities

        

(Purchase) sale of property and equipment

     (53 )      (80 )      (130 )      (92 ) 

Transactions with associates and joint ventures

     (2 )      (8 )      30        (4 ) 

Dividends received from associates and joint ventures

     5        –        5        –   

Other investing activities

     (6 )      (16 )      (33 )      (49 ) 

Net cash provided by (used in) investing activities

     (56 )      (104 )      (128 )      (145 ) 

Cash flows provided by (used in) financing activities

        

Borrowed funds

     (10 )      –        4        (20 ) 

Issuance of senior financing, senior debentures and subordinated debentures (Note 8)

     –        297        796        297   

Collateral on senior financing, senior debentures and subordinated debentures

     (2 )      (13 )      (7 )      (10 ) 

Redemption of senior financing, senior debentures and subordinated debt (Note 8)

     –        (300 )      (800 )      (300 ) 

Issuance of preferred shares

     –        194        –        194   

Issuance of common shares on exercise of stock options

     –        1        5        41   

Dividends paid on common and preferred shares

     (178 )      (176 )      (524 )      (504 ) 

Interest expense paid

     (71 )      (53 )      (281 )      (253 ) 

Net cash provided by (used in) financing activities

     (261 )      (50 )      (807 )      (555 ) 

Changes due to fluctuations in exchange rates

     (32 )      193        (23 )      101   

Increase (decrease) in cash and cash equivalents

     (823 )      (389 )      (520 )      1,586   

Net cash and cash equivalents, beginning of period

     4,656        5,376        4,353        3,401   

Net cash and cash equivalents, end of period

     3,833        4,987        3,833        4,987   

Short-term securities, end of period

     2,745        3,803        2,745        3,803   

Net cash and cash equivalents and short-term securities, end of period (Note 4)

   $         6,578      $         8,790      $         6,578      $         8,790   

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

 

34   Sun Life Financial Inc.    Third Quarter 2012   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.    Accounting Policies

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 IAS 34 Interim Financial Reporting as issued and adopted by the International Accounting Standards Board (“IASB”). We have used accounting policies which are consistent with our accounting policies in our 2011 Annual Consolidated Financial Statements. Our Interim Consolidated Financial Statements should be read in conjunction with our 2011 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.    Changes in Accounting Policies

Amendments to International Financial Reporting Standards Adopted in 2012

In October 2010, the IASB issued amendments to IFRS 7 Financial Instruments: Disclosures to revise the disclosures related to transfers of financial assets. The revised disclosures will help users of financial statements evaluate the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position and provide transparency in the reporting of these transactions, particularly those that involve securitization of financial assets. These amendments are effective for annual periods beginning on or after July 1, 2011 and are not expected to have a material impact upon adoption.

In December 2010, the IASB issued amendments to IAS 12 Income Taxes, named Deferred Tax and the Recovery of Underlying Assets. The amendments provide an approach for measuring deferred tax liabilities and deferred tax assets when investment properties are measured at fair value. These amendments were adopted on January 1, 2012 and did not impact our Interim Consolidated Financial Statements as the amendments are consistent with our accounting policy.

Amendments to International Financial Reporting Standards Issued in 2012

In May 2012, the IASB issued Annual Improvements 2009-2011 Cycle, which includes amendments to five IFRSs. The annual improvements process is used to make necessary but non-urgent changes to IFRS that are not included as part of any other project. The amendments clarify guidance and wording or make relatively minor amendments to the standards that address unintended consequences, conflicts or oversights. The amendments issued as part of this cycle must be applied retrospectively and are effective for annual periods beginning on or after January 1, 2013. We are currently assessing the impact the adoption of these amendments may have on our Consolidated Financial Statements.

In June 2012 the IASB issued Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). The amendments clarify the transition guidance in IFRS 10 Consolidated Financial Statements (“IFRS 10”) and provide transitional relief for IFRS 10, IFRS 11 Joint Arrangements (“IFRS 11”) and IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) by limiting the comparative information requirements to only the preceding comparative period and by removing certain disclosure requirements for the comparative periods from IFRS 12. The effective date of these amendments is January 1, 2013, consistent with IFRS 10, 11 and 12 and we will consider the implications of these amendments when we adopt those standards.

3.    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 U.K. business unit and our Corporate Support operations, which include our run-off reinsurance operations as well as investment income, expenses, capital and other items not allocated to our other business groups. In the fourth quarter of 2011, we transferred McLean Budden Limited to our subsidiary MFS Investment Management. Consequently, the results of McLean Budden Limited are reported as part of MFS instead of SLF Canada and the related goodwill and intangible assets previously reported as part of SLF Canada are now reported as part of Corporate. Prior period information has been restated to reflect this change in organization.

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.

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   35

Transactions between segments are executed and priced on an arm’s-length basis in a manner similar to transactions with third parties. These transactions consist primarily of internal financing agreements. They are measured at fair values prevailing when the arrangements are negotiated. Inter-segment revenue in the consolidation adjustments columns in the tables below consists of interest income and fee income.

Results by segment for the three months ended September 30 are as follows:

 

      SLF
Canada		      SLF
U.S.		      MFS      SLF
Asia		      Corporate      Consolidation
adjustments		      Total  

2012

                     

Gross Premiums:

                     

Annuities

    $ 318       $ 89       $ –       $ –       $ 56       $ –       $ 463   

Life insurance

      822         526         –         166         26         –         1,540   

Health insurance

      885         374         –         4         3         –         1,266   

Total gross premiums

      2,025         989         –         170         85         –         3,269   

Less: ceded premiums

      1,169         99         –         6         6                –         1,280   

Net investment income (loss)

      1,218         568         8         293         274         (18 )       2,343   

Fee income

      179         199         474         35         38         (21 )       904   

Total revenue

        2,253           1,657            482            492            391         (39 )          5,236   

Less:

                     

Total benefits and expenses

      1,993         1,638         389         449         334         (39 )       4,764   

Income tax expense (benefit)

      15         (1 )       47         8         (19 )       –         50   

Total net income (loss)

    $ 245       $ 20       $ 46       $ 35       $ 76       $ –       $ 422   

2011

                     

Gross Premiums:

                     

Annuities

    $ 649       $ 235       $ –       $ –       $ 52       $ –       $ 936   

Life insurance

      791         433         –         171         32         –         1,427   

Health insurance

      833         368         –         2         2         –         1,205   

Total gross premiums

      2,273         1,036         –         173         86         –         3,568   

Less: ceded premiums

      1,116         93         –         18         6         –         1,233   

Net investment income (loss)

      1,712         1,987         (3 )       202         493         (27 )       4,364   

Fee income

      170         190         400         29         37         (19 )       807   

Total revenue

      3,039         3,120         397         386         610         (46 )       7,506   

Less:

                     

Total benefits and expenses

      3,123         3,840         288         351         714         (46 )       8,270   

Income tax expense (benefit)

      (34 )       (152 )       38         9         (30 )       –         (169 ) 

Total net income (loss)

    $ (50 )     $ (568 )     $ 71       $ 26       $ (74 )     $ –       $ (595 ) 

 

36   Sun Life Financial Inc.    Third Quarter 2012   CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Results by segment for the nine months ended September 30 are as follows:

 

     SLF
Canada		     SLF
U.S.		     MFS     SLF
Asia		     Corporate     Consolidation
adjustments		     Total  

2012

              

Gross Premiums:

              

Annuities

   $ 1,061      $ 310      $ –      $ –      $ 171      $          –      $ 1,542   

Life insurance

     2,451        1,519        –        470        78        –        4,518   

Health insurance

     2,654        1,126        –        9        8        –        3,797   

Total gross premiums

        6,166           2,955        –        479        257        –        9,857   

Less: ceded premiums

     3,528        294        –        24        18        –        3,864   

Net investment income (loss)

     2,865        1,793        8        598        599        (74 )      5,789   

Fee income

     547        601        1,345        100        115        (64 )      2,644   

Total revenue

   $ 6,050      $ 5,055      $ 1,353      $ 1,153      $ 953      $ (138 )    $    14,426   

Less:

              

Total benefits and expenses

   $ 5,344      $ 4,758      $    1,061      $    1,049      $ 957      $ (138 )    $ 13,031   

Income tax expense (benefit)

   $ 53      $ 40      $ 130      $ 25      $ (74 )    $ –      $ 174   

Total net income (loss)

   $ 653      $ 257      $ 162      $ 79      $ 70      $ –      $ 1,221   

2011

              

Gross Premiums:

              

Annuities

   $ 1,351      $ 997      $ –      $ –      $ 161      $ –      $ 2,509   

Life insurance

     2,392        1,596        –        485        96        –        4,569   

Health insurance

     2,526        1,118        –        8        7        –        3,659   

Total gross premiums

     6,269        3,711        –        493        264        –        10,737   

Less: ceded premiums

     3,396        272        –        42        18        –        3,728   

Net investment income (loss)

     3,290        3,018        –        449        712        (82 )      7,387   

Fee income

     537        560        1,228        88        115        (58 )      2,470   

Total revenue

   $ 6,700      $ 7,017      $ 1,228      $ 988      $   1,073      $ (140 )    $ 16,866   

Less:

              

Total benefits and expenses

   $ 6,272      $ 7,373      $ 951      $ 864      $ 1,282      $ (140 )    $ 16,602   

Income tax expense (benefit)

   $ 10      $ (80 )    $ 114      $ 24      $ (116 )    $ –      $ (48 ) 

Total net income (loss)

   $ 418      $ (276 )    $ 163      $ 100      $ (93 )    $ –      $ 312   

Assets and liabilities by segment are as follows:

 

     SLF
Canada		    

SLF

U.S.

     MFS     SLF
Asia		     Corporate     Consolidation
adjustments		     Total  

As at September 30, 2012

              

Total general fund assets

   $ 66,824      $ 43,979      $ 1,199      $ 8,581      $ 11,692      $ (143 )    $ 132,132   

Investments for account of segregated fund holders

   $ 50,482      $ 29,334      $ –      $ 1,407      $ 10,206      $ –      $ 91,429   

Total general fund liabilities

   $ 59,526      $ 38,543      $ 1,004      $ 6,710      $ 10,037      $ (143 )    $ 115,677   

As at December 31, 2011

              

Total general fund assets

   $   64,192      $   44,490      $   1,180      $   8,122      $   12,165      $ (305 )    $ 129,844   

Investments for account of segregated fund holders

   $ 47,245      $ 29,804      $ –      $ 1,198      $ 9,936      $ –      $ 88,183   

Total general fund liabilities

   $ 57,615      $ 38,196      $ 973      $ 6,336      $ 11,299      $ (305 )    $ 114,114   

As at September 30, 2011

              

Total general fund assets

   $ 62,887      $ 46,043      $ 1,200      $ 7,927      $ 12,639      $ (283 )    $ 130,413   

Investments for account of segregated fund holders

   $ 44,786      $ 29,507      $ –      $ 1,153      $ 9,835      $         –      $ 85,281   

Total general fund liabilities

   $ 56,313      $ 40,896      $ 906      $ 6,194      $ 9,877      $ (283 )    $   113,903   

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   37

4.    Financial Investments and Related Net Investment Income

4.A Cash, Cash Equivalents and Short-Term Securities

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

 

As at    September 30,
2012		      December 31,
2011		      September 30,
2011		  

Cash

    $     1,544       $     1,506       $ 912   

Cash equivalents

      2,581         2,953         4,133   

Short-term securities

      2,745         4,378         3,803   

Cash, cash equivalents and short-term securities

      6,870         8,837         8,848   

Less: Bank overdraft, recorded in other liabilities

      292         106         58   

Net cash, cash equivalents and short-term securities

    $ 6,578       $ 8,731       $     8,790   

4.B Asset Classifications

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

 

As at    Fair value
through profit
or loss		     

Available-for-

sale

      Other(1)      Total  

September 30, 2012

            

Debt securities

    $     52,071       $     12,637       $ –       $     64,708   

Equity securities

    $ 4,106       $ 867       $ –       $ 4,973   

Other invested assets

    $ 863       $ 127       $     363       $ 1,353   

December 31, 2011

            

Debt securities

    $ 51,627       $ 11,303       $ –       $ 62,930   

Equity securities

    $ 3,731       $ 839       $ –       $ 4,570   

Other invested assets

    $ 809       $ 155       $ 384       $ 1,348   

September 30, 2011

            

Debt securities

    $ 51,683       $ 12,349       $ –       $ 64,032   

Equity securities

    $ 3,644       $ 814       $ –       $ 4,458   

Other invested assets

    $ 817       $ 173       $ 291       $ 1,281   

 

(1) 

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

4.C Change in Fair Value Through Profit or Loss Assets and Liabilities

Change in fair value through profit or loss assets and liabilities recorded in our Interim Consolidated Statements of Operations consists of the following:

 

      For the three months ended      For the nine months ended  
      September 30,
2012		      September 30,
2011		      September 30,
2012		      September 30,
2011		  

Cash, cash equivalents and short-term securities

    $ (4 )     $ 4       $ 3       $ 6   

Debt securities

      939         2,040         1,590         2,285   

Equity securities

      169         (424 )       167         (409 ) 

Derivative instruments

      (60 )       1,181         (135 )       1,244   

Other invested assets

      9         (20 )       36         (9 ) 

Investment properties

      72         46         257         283   

Total change in fair value through profit or loss assets and liabilities

    $     1,125       $      2,827       $     1,918       $     3,400   

 

38   Sun Life Financial Inc.    Third Quarter 2012   CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.D Impairment of Available-For-Sale Assets

We wrote down $3 and $17 of available-for-sale assets recorded at fair value during the three months and nine months ended September 30, 2012 ($10 and $11 during the three months and nine months ended September 30, 2011).

4.E Derivative Financial Instruments and Hedging Activities

The following tables present the notional amounts and fair values of derivative assets and liabilities categorized by derivatives designated as hedges for accounting purposes and those that are not designated as hedges:

 

     Total notional
amount		      Fair value  
As at September 30, 2012       Assets      Liabilities  

Derivative investments(1)

    $ 54,191 (2)     $     2,611       $ (559 ) 

Fair value hedges

      982         –         (227 ) 

Cash flow hedges

      103         3         (15 ) 

Net investment hedges

      1,850         176         (5 ) 

Total derivatives

    $     57,126       $ 2,790       $     (806 ) 

 

(1) 

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

(2)

The increase in notional amount is primarily due to interest rate options purchased and interest rate swap contracts.

 

     Total notional
amount		      Fair value  
As at December 31, 2011       Assets      Liabilities  

Derivative investments(1)

    $ 47,890       $ 2,494       $ (798 ) 

Fair value hedges

      1,011         –         (228 ) 

Cash flow hedges

      108         2         (25 ) 

Net investment hedges

      1,850         136         (8 ) 

Total derivatives

    $     50,859       $     2,632       $     (1,059 ) 

 

(1) 

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

5.    Financial Instrument and Insurance Risk Management

Our risk management policies and procedures for managing risks related to financial instruments and insurance can be found in Notes 6 and 7, respectively, of our 2011 Annual Consolidated Financial Statements.

Our financial instrument market risk sensitivities are included in our Management Discussion and Analysis (“MD&A”) for the period ended September 30, 2012. 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 represent an integral part of these Interim Consolidated Financial Statements.

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   39

6.    Insurance Contract Liabilities and Investment Contract Liabilities

6.A Insurance Contract Liabilities

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

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

 

     For the three months ended
September 30, 2012		     For the nine months ended
September 30, 2012		  
     Insurance
contract
liabilities		     Reinsurance
assets		     Net     Insurance
contract
liabilities		     Reinsurance
assets		     Net  

Balances, beginning of period

   $     92,567      $     3,254      $     89,313      $     91,112      $     3,094      $     88,018   

Change in balances on in-force policies

     444        (346 )      790        792        (215 )      1,007   

Balances arising from new policies

     477        22        455        1,515        77        1,438   

Changes in assumptions or methodology

     292        224        68        348        203        145   

Increase (decrease) in Insurance contract liabilities and Reinsurance assets

     1,213        (100 )      1,313        2,655        65        2,590   

Balances before the following:

     93,780        3,154        90,626        93,767        3,159        90,608   

Foreign exchange rate movements

     (1,243 )      (70 )      (1,173 )      (1,230 )      (75 )      (1,155 ) 

Balances before Other policy liabilities and assets

     92,537        3,084        89,453        92,537        3,084        89,453   

Other policy liabilities and assets

     5,334        239        5,095        5,334        239        5,095   

Total Insurance contract liabilities and Reinsurance assets

   $ 97,871      $ 3,323      $ 94,548      $ 97,871      $ 3,323      $ 94,548   
     For the three months ended
September 30, 2011		     For the nine months ended
September 30, 2011		  
     Insurance
contract
liabilities		     Reinsurance
assets		     Net     Insurance
contract
liabilities		     Reinsurance
assets		     Net  

Balances, beginning of period

   $ 82,344      $ 3,631      $ 78,713      $ 82,729      $ 3,652      $ 79,077   

Change in balances on in-force policies

     3,941        231        3,710        3,527        179        3,348   

Balances arising from new policies

     728        34        694        1,975        102        1,873   

Changes in assumptions or methodology

     (380 )      (896 )      516        (376 )      (859 )      483   

Increase (decrease) in Insurance contract liabilities and Reinsurance assets

     4,289        (631 )      4,920        5,126        (578 )      5,704   

Balances before the following:

     86,633        3,000        83,633        87,855        3,074        84,781   

Other(1)

     –        –        –        (117 )      –        (117 ) 

Foreign exchange rate movements

     3,333        166        3,167        2,228        92        2,136   

Balances before Other policy liabilities and assets

     89,966        3,166        86,800        89,966        3,166        86,800   

Other policy liabilities and assets

     5,359        218        5,141        5,359        218        5,141   

Total Insurance contract liabilities and Reinsurance assets

   $ 95,325      $ 3,384      $ 91,941      $ 95,325      $ 3,384      $ 91,941   

 

(1) 

Reduction in liabilities due to Policy loan adjustment.

 

40   Sun Life Financial Inc.    Third Quarter 2012   CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.A.ii Impact of Changes in Assumptions or Methodology

Impact of Changes in assumptions or methodology net of Reinsurance assets before income taxes are:

 

Assumption or methodology    For the three
months ended
September 30,
2012		      For the nine
months ended
September 30,
2012		      Description

Mortality / morbidity(1)

    $ 34       $ 114       Driven primarily by updates to reflect recent experience in SLF U.S. and SLF Canada.

Lapse and other policyholder behaviour

      71         67       Largely due to a reduction in SLF U.S. variable annuity lapse assumptions reflecting recent company and industry experience.

Expense

      (9 )       4       Reflects lower fund management fees partially offset by the negative impact of updates to expenses.

Investment returns

      67         67       Resulting primarily from updates to our economic scenario generator, partially offset by an increase in average long-term credit spreads.

Model enhancements(2)

      (95 )       (107 )     Reflects the impact of modelling enhancements and assumptions relating to our ability to recapture certain reinsurance treaties in the U.S.

Total

    $ 68       $ 145        

 

(1)

Includes revised mortality improvement projections in the U.S. individual non-participating life line of business which increased Insurance contract liabilities by $290, Reinsurance assets by $222 and Net by $68 for the nine months ended September 30, 2012.

(2) 

Includes revised assumptions about the future recapture of reinsurance in the Canadian individual participating life line of business reducing Insurance contract liabilities and Reinsurance assets by $247 for the nine months ended September 30, 2012, with no impact on Net.

 

Assumption or methodology    For the three
months ended
September 30,
2011		      For the nine
months ended
September 30,
2011		      Description

Mortality / morbidity

    $ 140       $ 144       Primarily due to updates to reflect new industry guidance relating to mortality improvement from the Canadian Institute of Actuaries.

Lapse and other policyholder behaviour

      404         404       Reflects higher lapse rates on term insurance renewals in SLF Canada, as well as updates for premium persistency in Individual Insurance in SLF U.S.

Expense

      17         18       Impact of reflecting recent experience studies across the Company (i.e. higher unit costs).

Investment returns

      131         129       Largely due to updates to a number of investment assumptions including updates to real estate assumptions and the impact of a lower interest rate environment, partially offset by changes to asset default assumptions.

Model enhancements

      (176 )       (212 )     Modelling enhancements to improve the projection of future cash flows across a number of our businesses.

Total

    $ 516       $ 483        

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   41

6.A.iii Gross Claims and Benefits Paid

Gross claims and benefits paid consist of the following:

 

     For the three months ended     For the nine months ended  
     September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  

Maturities and surrenders

   $ 927      $ 966      $ 2,835      $ 3,082   

Annuity payments

     329        311        974        956   

Death and disability

     829        735        2,496        2,322   

Health

     887        879        2,738        2,608   

Policyholder dividends and interest on claims and deposits

     234        125        701        621   

Total Gross claims and benefits paid

   $     3,206      $     3,016      $     9,744      $     9,589   

6.B Investment Contract Liabilities

6.B.i Changes in Investment Contract Liabilities

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

 

      For the three months ended
September 30, 2012		      For the nine months ended
September 30, 2012		  
      Measured at
fair value		      Measured at
amortized cost		      Measured at
fair value		      Measured at
amortized cost		  

Balance, beginning of period

    $ 946       $ 1,715       $ 966       $ 1,620   

Deposits

      –         109         –         304   

Interest

      2         9         6         27   

Withdrawals

      (2 )       (65 )       (23 )       (188 ) 

Fees

      –         (2 )       –         (2 ) 

Change in fair value

      6         –         6         –   

Other

      –         9         –         15   

Foreign exchange rate movements

      (29 )       (1 )       (32 )       (2 ) 

Balance, end of period

    $ 923       $ 1,774       $ 923       $ 1,774   
      For the three months ended
September 30, 2011		      For the nine months ended
September 30, 2011		  
      Measured at
fair value		      Measured at
amortized cost		      Measured at
fair value		      Measured at
amortized cost		  

Balance, beginning of period

    $ 2,146       $ 1,500       $ 2,207       $ 1,396   

Deposits

      –         83         –         274   

Interest

      2         10         17         30   

Withdrawals

      (1,175 )       (53 )       (1,189 )       (164 ) 

Fees

      –         –         –         (1 ) 

Change in fair value

      (27 )       –         (22 )       –   

Other

      4         4         4         12   

Foreign exchange rate movements

      67         8         –         5   

Balance, end of period

    $     1,017       $     1,552       $     1,017       $     1,552   

Changes in Investment contract liabilities with DPF are as follows:

 

      For the three months ended      For the nine months ended  
      September 30,
2012		      September 30,
2011		      September 30,
2012		      September 30,
2011		  

Balance, beginning of period

    $     480       $     483       $     487       $     540   

Change in liabilities on in-force policies

      3         (3 )       (12 )       (50 ) 

Liabilities arising from new policies

      8         2         17         7   

Increase (decrease) in liabilities

      11         (1 )       5         (43 ) 

Liabilities before the following:

      491         482         492         497   

Foreign exchange rate movements

      (12 )       41         (13 )       26   

Balance, end of period

    $ 479       $ 523       $ 479       $ 523   

 

42   Sun Life Financial Inc.    Third Quarter 2012   CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7.    Income Tax Expense (Benefit)

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

 

     For the three months ended     For the nine months ended  
     September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  
              %                %                %                %   

Total net income (loss)

   $     422        $ (595 )      $     1,221        $      312     

Add: Income tax expense (benefit)

     50                (169 )              174                (48 )         

Total income (loss) before income taxes

   $ 472              $ (764 )            $ 1,395              $ 264           

Taxes at the combined Canadian federal and provincial statutory income tax rate

   $ 125        26.5      $ (214 )      28.0      $ 370        26.5      $ 74        28.0   

Increase (decrease) in rate resulting from:

                

Higher (lower) effective rates on income subject to taxation in foreign jurisdictions

     (17 )      (3.6 )      64        (8.4 )      (27 )      (1.9 )      33        12.5   

Tax (benefit) cost of unrecognized losses

     (9 )      (1.9 )      (3 )      0.4        (12 )      (0.9 )      (4 )      (1.5 ) 

Tax exempt investment income

     (56 )      (11.9 )      (22 )      2.9        (161 )      (11.5 )      (128 )      (48.5 ) 

Tax rate and other legislative changes

     7        1.5                 –        –        9        0.6        –        –   

Adjustments in respect of prior years, including resolution of tax disputes

     (2 )      (0.4 )      9        (1.2 )      (10 )      (0.7 )      (19 )      (7.2 ) 

Other

     2        0.4        (3 )      0.4        5        0.4        (4 )      (1.5 ) 

Total income tax expense (benefit) and effective income tax rate

   $ 50        10.6      $ (169 )      22.1      $ 174        12.5      $ (48 )      (18.2 ) 

Statutory tax rates in the jurisdictions in which we conduct business range from 0% to 35% which creates a tax rate differential and corresponding tax expense (benefit) difference compared to the Canadian federal and provincial statutory rate when applied to foreign income (loss) not subject to tax in Canada. These differences are reported in the line Higher (lower) effective rates on income subject to taxation in foreign jurisdictions.

8.    Capital Management

8.A Capital and Capital Transactions

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 on both a consolidated basis under principles that consider all the risks associated with the business and 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 23 of our 2011 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 September 30, 2012 was above the minimum levels that would require any regulatory or corrective action. The risk-based capital of Sun Life Assurance Company of Canada (U.S.), our principal operating subsidiary in the United States, was above the minimum level as at September 30, 2012. In addition, other foreign subsidiaries of SLF Inc. that must comply with local capital or solvency requirements in the jurisdiction in which they operate maintained capital levels above minimum local requirements as at September 30, 2012.

Under OSFI’s IFRS transition guidance, companies could elect to phase in the impact of the conversion to IFRS on adjusted Tier 1 available capital over eight quarters ending in the fourth quarter of 2012. Sun Life Assurance made this election last year and will continue to phase in a reduction of approximately $300 to its adjusted Tier 1 capital over this period, largely related to the recognition of deferred actuarial losses on defined benefit pension plans.

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

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   43

8.B Significant Capital Transactions

8.B.i Subordinated Debt

On June 30, 2012, Sun Life Assurance redeemed all of the outstanding $800 principal amount of 6.15% Subordinated Debentures due June 30, 2022, at a redemption price equal to the principal amount of the Debentures together with accrued and unpaid interest.

On March 2, 2012, SLF Inc. issued $800 principal amount of Series 2012-1 Subordinated Unsecured 4.38% Fixed/Floating debentures due 2022. The proceeds net of issuance costs from the offering were used for general corporate purposes. These debentures bear interest at a fixed rate of 4.38% per annum payable semi-annually to, but excluding March 2, 2017, and from March 2, 2017 until maturity on March 2, 2022, at a variable rate equal to the annual rate of interest applicable to Canadian dollar bankers’ acceptances plus 2.70% payable quarterly. Subject to prior approval of OSFI, SLF Inc. may redeem the debentures in whole or in part, on or after March 2, 2017 at a redemption price equal to par, together with accrued and unpaid interest to, but excluding, the date fixed for redemption. The debentures are direct unsecured subordinated obligations of SLF Inc. and rank equally and rateably with all other subordinated unsecured indebtedness of SLF Inc. This subordinated debt qualifies as capital for Canadian regulatory purposes.

8.B.ii Dividend Reinvestment and Share Purchase Plan

In the first three quarters of 2012, under the dividend reinvestment and share purchase plan (“DRIP”), SLF Inc. issued 8.7 million common shares (6.8 million common shares in 2011) from treasury at discounts of 2% to the average market price, as determined in accordance with the DRIP, for dividend reinvestments and issued an insignificant number of common shares from treasury at no discount for optional cash purchases.

9.    Segregated Fund Disclosure

9.A Investments for Account of Segregated Fund Holders

The carrying value of Investments for account of segregated fund holders consists of the following:

 

As at    September 30,
2012		      December 31,
2011		      September 30,
2011		  

Segregated and mutual fund units

    $ 75,056       $ 72,840       $ 69,980   

Equity securities

      6,756         5,830         5,814   

Debt securities

      9,132         8,473         8,533   

Cash, cash equivalents and short-term securities

      1,441         1,425         3,027   

Investment properties

      276         318         327   

Mortgages

      18         27         28   

Other assets

      6,602         2,492         3,076   

Total assets

      99,281         91,405         90,785   

Less: Liabilities arising from investing activities

      7,852         3,222         5,504   

Total Investments for account of segregated fund holders

    $     91,429       $     88,183       $     85,281   

 

44   Sun Life Financial Inc.    Third Quarter 2012   CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

 

      Insurance contracts      Investment contracts  
For the three months ended    September 30,
2012		      September 30,
2011		      September 30,
2012		      September 30,
2011		  

Balance, beginning of the period

    $ 84,490       $ 83,243       $ 5,670       $ 5,873   

Additions:

            

Deposits

      1,568         2,255         41         43   

Net transfers (to) from general funds

      36         140         –         –   

Net realized and unrealized gains (losses)

      2,048         (7,091 )       520         (661 ) 

Other investment income

      667         581         43         9   

Total additions

      4,319         (4,115 )       604         (609 ) 

Deductions:

            

Payments to policyholders and their beneficiaries

      2,126         1,877         121         86   

Management fees

      278         287         16         (7 ) 

Taxes and other expenses

      50         29         5         3   

Foreign exchange rate movements

      1,023         (2,826 )       35         (338 ) 

Total deductions

      3,477         (633 )       177         (256 ) 

Net additions (deductions)

      842         (3,482 )       427         (353 ) 

Balance, end of period

    $ 85,332       $ 79,761       $ 6,097       $ 5,520   
      Insurance contracts      Investment contracts  
For the nine months ended    September 30,
2012		      September 30,
2011		      September 30,
2012		      September 30,
2011		  

Balance, beginning of the period

    $ 82,650       $ 81,931       $ 5,533       $ 6,015   

Additions:

            

Deposits

      5,411         7,092         130         178   

Net transfers (to) from general funds

      185         502         –         –   

Net realized and unrealized gains (losses)

      4,405         (5,606 )       688         (657 ) 

Other investment income

      1,117         1,145         146         29   

Total additions

      11,118         3,133         964         (450 ) 

Deductions:

            

Payments to policyholders and their beneficiaries

      6,396         6,125         350         348   

Management fees

      840         876         47         (19 ) 

Taxes and other expenses

      142         113         10         5   

Foreign exchange rate movements

      1,058         (1,811 )       (7 )       (289 ) 

Total deductions

      8,436         5,303         400         45   

Net additions (deductions)

      2,682         (2,170 )       564         (495 ) 

Balance, end of period

    $     85,332       $     79,761       $     6,097       $     5,520   

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   45

10.    Commitments, Guarantees and Contingencies

Guarantees of Sun Life Assurance Preferred Shares and Subordinated Debt

SLF Inc. has provided a subordinated guarantee of certain preferred shares and a guarantee of certain subordinated debt issued by Sun Life Assurance. As a result of these guarantees, Sun Life Assurance is entitled to rely on exemptive relief from most continuous disclosures 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
adjustments		     SLF Inc.
(consolidated)		  

September 30, 2012

          

Total revenue

   $ 114      $ 4,425      $ 1,039      $ (342 )    $ 5,236   

Shareholders’ net income (loss)

   $ 413      $ 486      $ (109 )    $ (378 )    $ 412   

September 30, 2011

          

Total revenue

   $ 129      $ 5,912      $ 2,091      $ (626 )    $ 7,506   

Shareholders’ net income (loss)

   $ (598 )    $ (80 )    $ (584 )    $                 666      $ (596 ) 
Results for the nine months ended   SLF Inc.
(unconsolidated)		     Sun Life
Assurance
(consolidated)		     Other
subsidiaries
of SLF Inc.
(combined)		     Consolidation
adjustments		     SLF Inc.
(consolidated)		  

September 30, 2012

          

Total revenue

   $ 373      $ 11,796      $ 3,305      $ (1,048 )    $ 14,426   

Shareholders’ net income (loss)

   $ 1,208      $ 1,046      $ 28      $ (1,072 )    $ 1,210   

September 30, 2011

          

Total revenue

   $ 393      $ 13,043      $ 4,701      $ (1,271 )    $ 16,866   

Shareholders’ net income (loss)

   $ 296      $ 589      $ (482 )    $ (105 )    $ 298   
Assets and liabilities as at   SLF Inc.
(unconsolidated)		     Sun Life
Assurance
(consolidated)		     Other
subsidiaries
of SLF Inc.
(combined)		     Consolidation
adjustments		     SLF Inc.
(consolidated)		  

September 30, 2012

          

Invested assets

   $         18,675      $ 97,993      $         20,154      $ (18,058 )    $         118,764   

Total other general fund assets

   $ 8,176      $         13,539      $ 20,955      $ (29,302 )    $ 13,368   

Investments for account of segregated fund holders

  $ –      $ 63,806      $ 27,623      $ –      $ 91,429   

Insurance contract liabilities

   $ –      $ 88,091      $ 13,920      $ (4,140 )    $ 97,871   

Investment contract liabilities

   $ –      $ 2,230      $ 946      $ –      $ 3,176   

Total other general fund liabilities

   $ 10,542      $ 9,541      $ 22,536      $ (27,989 )    $ 14,630   

December 31, 2011

          

Invested assets

   $ 16,435      $ 94,540      $ 21,243      $ (15,557 )    $ 116,661   

Total other general fund assets

   $ 8,634      $ 13,412      $ 19,527      $ (28,390 )    $ 13,183   

Investments for account of segregated fund holders

   $ –      $ 60,169      $ 28,014      $ –      $ 88,183   

Insurance contract liabilities

   $ –      $ 85,548      $ 14,942      $ (4,116 )    $ 96,374   

Investment contract liabilities

   $ –      $ 2,083      $ 990      $ –      $ 3,073   

Total other general fund liabilities

   $ 9,474      $ 9,529      $ 22,723      $ (27,059 )    $ 14,667   

September 30, 2011

          

Invested assets

   $ 17,335      $ 93,022      $ 22,584      $ (16,253 )    $ 116,688   

Total other general fund assets

   $ 8,968      $ 14,445      $ 19,742      $ (29,430 )    $ 13,725   

Investments for account of segregated fund holders

   $ –      $ 57,629      $ 27,652      $ –      $ 85,281   

Insurance contract liabilities

   $ –      $ 84,437      $ 14,964      $ (4,076 )    $ 95,325   

Investment contract liabilities

   $ –      $ 2,073      $ 1,025      $ (6 )    $ 3,092   

Total other general fund liabilities

   $ 9,949      $ 10,403      $ 23,453      $ (28,319 )    $ 15,486   

 

46   Sun Life Financial Inc.    Third Quarter 2012   CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11.    Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated by dividing the common shareholders’ net income by the weighted average number of common shares issued and outstanding. Diluted EPS is calculated by adjusting common shareholders’ net income and the weighted average number of shares for the effects of all dilutive potential common shares, under the assumption that convertible instruments are converted and that outstanding options are exercised.

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

 

     For the three months ended     For the nine months ended  
     September 30,
2012		     September 30,
2011		     September 30,
2012		     September 30,
2011		  

Common shareholders’ net income (loss) for basic earnings per share

   $ 383      $ (621 )    $     1,120      $ 225   

Add: Increase in income due to convertible instruments(1)

     3        –        8        –   

Common shareholders’ net income (loss) on a diluted basis

  $ 386      $ (621 )    $     1,128      $ 225   

Weighted average number of shares outstanding for basic earnings per share (in millions)

     594        580        591        578   

Add: Dilutive impact of stock options(2) (in millions)

     –        –        –        1   

Add: Dilutive impact of convertible securities(1) (in millions)

     10        –        11        –   

Weighted average number of shares outstanding on a diluted basis (in millions)

     604              580        602        579   

Basic earnings (loss) per share

   $ 0.64      $ (1.07 )    $ 1.90      $ 0.39   

Diluted earnings (loss) per share

   $     0.64      $ (1.07 )    $     1.87      $     0.39   

 

(1) 

Innovative capital instruments, Sun Life ExchangEable Capital Securities (“SLEECS”), have been issued through Sun Life Capital Trust. Holders of the $950 SLEECS A, which were redeemed on December 31, 2011, and holders of the $200 SLEECS B may exchange, at any time, all or part of their holdings of SLEECS A or SLEECS B at a price for each one thousand dollars principal amount of SLEECS to 40 non-cumulative perpetual preferred shares of Sun Life Assurance. Any non-cumulative perpetual preferred shares issued in respect of an exchange by the holders of SLEECS A or SLEECS B will become convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after September 30, 2012 in respect of the SLEECS A and on distribution dates on or after December 31, 2032 in respect of the SLEECS B. For the purposes of diluted EPS, it is assumed that the conversion to SLF Inc. common shares has occurred at the beginning of the periods presented. Common shareholders’ net income is increased by the after-tax interest on the SLEECS A and B, while the weighted average common shares are increased by the number of SLF Inc. common shares that would be issued at conversion. Since the SLEECS A were redeemed on December 31, 2011 they are not included in the diluted EPS calculations for 2012. For the three and nine months ended September 30, 2011, the impact of the conversion of innovative capital instruments was excluded from the calculation of diluted earnings per share since the effect of conversion is anti-dilutive.

(2) 

Diluted EPS assumes the exercise of all dilutive stock options of SLF Inc. It is assumed that the proceeds from the exercise of the options were received from the issuance of common shares of SLF Inc. at the average market price of common shares during the period. The difference between the number of shares issued for the exercise of the dilutive options and the number of shares that would have been issued at the average market price of the common shares during the period is adjusted to the weighted average number of shares for purposes of calculating diluted EPS. The number of stock options that have not been included in the weighted average number of common shares used in the calculation of diluted EPS because these stock options were anti-dilutive for the periods presented, amounted to 11 million for the three months and nine months ended September 30, 2012 (10 million for the three months and 9 million for the nine months ended September 30, 2011). For the three months ended September 30, 2011, an adjustment of 1 million common shares related to the dilutive impact of stock options was excluded from the calculation of diluted earnings per share since their effect is anti-dilutive when a loss is reported.

12.    Reinsurance (Expenses) Recoveries

Reinsurance (expenses) recoveries consist of the following:

 

      For the three months ended      For the nine months ended  
      September 30,
2012		      September 30,
2011		      September 30,
2012		      September 30,
2011		  

Recovered claims and benefits

    $ 1,050       $ 871       $ 3,141       $ 2,810   

Commissions

      13         14         40         42   

Reserve adjustments

      60         128         144         223   

Operating expenses and other

      117         110         347         327   

Reinsurance (expenses) recoveries

    $     1,240       $     1,123       $     3,672       $     3,402   

 

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Sun Life Financial Inc.   Third Quarter 2012   47