Exhibit 99.1

Q3
	2018

SHAREHOLDERS’ REPORT

SUN LIFE FINANCIAL INC.

For the period ended

September 30, 2018

sunlife.com

CANADIAN RESIDENTS PARTICIPATING IN THE SHARE ACCOUNT

Shareholders holding shares in the Canadian Share Account can sell their shares for $15 plus 3 cents per share.

Complete Form A on the front of your Share Ownership Statement, tear it off and return it by mail to AST Trust Company (Canada).

For more information call AST Trust Company (Canada) at 1 877 224-1760.

Sun Life Financial Reports Third Quarter 2018 Results

The information in this document is based on the unaudited interim financial results of Sun Life Financial Inc. (“SLF Inc.”) for the period ended September 30, 2018. Sun Life Financial Inc., its subsidiaries and, where applicable, its joint ventures and associates are collectively referred to as “the Company”, “Sun Life Financial”, “we”, “our”, and “us”. Unless otherwise noted, all amounts are in Canadian dollars.

TORONTO, ON – (November 7, 2018) – Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF) today announced its results for the third quarter ended September 30, 2018. Third quarter reported net income was $567 million and underlying net income was $730 million.

		Quarterly results		Year-to-date
		Q3’18	Q3’17	2018	2017
	Reported net income ($ millions)	567	817	1,942	1,942
	Underlying net income(1) ($ millions)	730	643	2,229	1,905
	Reported EPS(2) ($)	0.93	1.32	3.18	3.16
	Underlying EPS(1)(2) ($)	1.20	1.05	3.66	3.10
	Reported ROE(1)	10.8%	16.2%	12.5%	12.8%
	Underlying ROE(1)	14.0%	12.7%	14.3%	12.6%
	Insurance sales(1) ($ millions)	577	599	1,875	1,936
	Wealth sales(1) ($ billions)	29.8	35.8	100.5	110.0
	Value of new business(1) ($ millions)	244	224	844	703
	Assets under management(1) ($ billions)	983.5	933.6	983.5	933.6
	LICAT ratios(3)
	Sun Life Financial Inc.	145%	n/a	145%	n/a
	Sun Life Assurance(4)	130%	n/a	130%	n/a
	Financial leverage ratio(1)	21.9%	22.5%	21.9%	22.5%

“In the third quarter, underlying net income was strong at $730 million, and return on equity was 14%, at the high end of our target range,” said Dean Connor, President and CEO, Sun Life Financial. “We are pleased to announce an increase in our common share dividend of 5% to $0.50, reflecting confidence in our strong capital position and growth prospects.”

“We also continue to deliver on our Purpose by helping our Clients around the globe live healthier lives,” said Connor. “One of the many examples is Lumino Health in Canada; this first of its kind digital network offers consumer ratings, cost and other information to help all Canadians make more informed healthcare decisions.”

Financial and Operational Highlights

($ millions, unless otherwise noted)
	Reported net income (loss)							Underlying net income (loss)(1)								Insurance sales(1)						Wealth sales(1)
	Q3’18			Q3’17		change		Q3’18			Q3’17			change		Q3’18		Q3’17		change		Q3’18		Q3’17		change
SLF Canada		335			340		(1)%		251			222			13%		203		217		(6)%		3,539		3,609		(2)%
SLF U.S.(2)		(267	)		72		nm(3)		139			121			15%		172		193		(11)%		–		–
SLF Asset Management		241			185		30%		251			204			23%		–		–				24,365		28,610		(15)%
SLF Asia(2)		164			216		(24)%		110			130			(15)%		202		189		7%		1,928		3,607		(47)%
Corporate		94			4		nm(3)		(21	)		(34	)		nm(3)		–		–				–		–
Total		567			817		(31)%		730			643			14%		577		599		(4)%		29,832		35,826		(17)%

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

⁽²⁾  Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia, and comparative figures in 2017 have been changed to conform with the current year presentation.

⁽³⁾  Not meaningful.

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

⁽²⁾  All EPS measures refer to fully diluted EPS, unless otherwise stated.

⁽³⁾  For further information on the Life Insurance Capital Adequacy Test (“LICAT”) effective January 1, 2018, see section E – Financial Strength in this document. LICAT ratios are not applicable before January 1, 2018.

⁽⁴⁾  Sun Life Assurance Company of Canada (“Sun Life Assurance”) is SLF Inc.’s principal operating life insurance subsidiary.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 1

Our reported net income of $567 million in the third quarter of 2018 compared to the 2017 result of $817 million included the unfavourable impact of $166 million of assumption changes and management actions (“ACMA”)⁽¹⁾ in 2018, compared to the favourable impact of $103 million in 2017. As well, the change in market impacts between the two periods was unfavourable by $88 million. Underlying net income in the third quarter of 2018 increased $87 million to $730 million compared to 2017, primarily driven by business growth, the lower income tax rate in the U.S., and favourable investment experience, partially offset by new business strain in SLF Asia and in SLF Canada as well as less favourable mortality experience.

In the third quarter of 2018, our reported ROE was 10.8%, and underlying ROE increased to 14.0% reflecting higher earnings. SLF Inc. and its wholly-owned holding companies ended the quarter with $2.7 billion in cash and other liquid assets.

Our strategy is focused on four key pillars of growth, where we aim to be a leader in the markets in which we operate. We detail our continued progress in the four pillars below.

A Leader in Insurance and Wealth Solutions in our Canadian Home Market

SLF Canada’s reported net income was $335 million in the quarter, down $5 million compared to the same period in 2017, primarily reflecting less favourable market related impacts. Underlying net income of $251 million was up $29 million from the same period in 2017, driven by favourable investment experience and business growth, partially offset by a decrease in new business gains.

SLF Canada insurance sales were down 6%, primarily as a result of large case sales in Group Benefits in 2017. SLF Canada wealth sales for the third quarter of 2018 were down slightly compared to the same period last year. Individual wealth sales increased by 15% due to continued growth of our wealth manufactured⁽²⁾ products, largely offset by Group Retirement Services sales due to large case sales in 2017.

In October, we announced our investment in, and strategic relationship with, Rise People Inc., Canada’s first all-in-one human resources, payroll, and benefits administration solution. This collaboration will develop new digital connections and services that simplify administration and engage employees. In the quarter, we also introduced Integrated Health Insights Reporting, which uses data and analytics to provide customized insights and specific recommendations to help Group Benefits Clients manage their organizational health from both a cost and an employee wellness perspective.

A Leader in U.S. Group Benefits

SLF U.S.’s reported net loss was $267 million, compared to the $72 million net income earned in Q3 2017, due to ACMA⁽¹⁾ primarily related to changes in assumptions for policyholder behaviour in In-force Management. Underlying net income of $139 million was up $18 million from the same period in the prior year, benefiting from the lower income tax rate in the U.S. and favourable investment experience, partially offset by less favourable mortality experience. The after-tax profit margin for Group Benefits⁽³⁾ was 6.4% as of the third quarter of 2018, compared to 4.5% as of the third quarter of 2017.

SLF U.S. Group Benefits sales decreased 14% compared to the third quarter of 2017 as a result of a decrease in medical stop-loss sales, partially offset by growth in employee benefits sales.

The U.S. business released its annual stop-loss research report, providing brokers and employers with deep understanding into high-cost medical conditions and healthcare trends and providing them with data based, actionable insights. We also marked an integration milestone from our 2016 employee benefits acquisition, by transitioning the final product to the SLF U.S. group benefits portfolio.

A Leader in Global Asset Management

SLF Asset Management’s reported net income of $241 million was up 30% from the third quarter of 2017, and underlying net income of $251 million was up 23% from the third quarter of 2017. Both increases were largely driven by the lower income tax rate in the U.S., expense management, and higher average net assets. The pre-tax net operating profit margin ratio⁽¹⁾ for MFS Investment Management (“MFS”) was 40% in the third quarter of 2018.

SLF Asset Management ended the third quarter with $687.2 billion in assets under management, consisting of $625.9 billion (US$485.0 billion) in MFS and $61.3 billion in Sun Life Investment Management (“SLIM”). MFS experienced net outflows of US$7.3 billion in the quarter, and SLIM generated $521 million of net inflows.

At the end of the third quarter of 2018, 66%, 82% and 88% of MFS’s U.S. retail fund assets ranked in the top half of their Lipper categories based on three-, five-, and ten-year performance, respectively.

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

⁽²⁾  Represents individual wealth products developed by Sun Life Financial, which include Sun Life Global Investments mutual funds, Sun Life Guaranteed Investment Funds segregated funds, Guaranteed Investment Certificates, and Accumulation and Payout Annuities.

⁽³⁾  Based on underlying net income, on a trailing four quarters basis, and is described in section M – Non-IFRS Financial Measures in this document.

2 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

A Leader in Asia through Distribution Excellence in Higher Growth Markets

SLF Asia’s reported net income of $164 million was lower than the third quarter of 2017 due to unfavourable market related impacts. Underlying net income of $110 million was down $20 million from the third quarter of 2017, reflecting higher new business strain and lower realized gains from available for sale assets, partially offset by business growth.

SLF Asia insurance sales were $202 million in the third quarter of 2018, up 7% compared to the third quarter of 2017, led by growth in India, primarily from a new bancassurance relationship, and the Philippines, driven by agency productivity. SLF Asia wealth sales of $1.9 billion were down by 47% in the third quarter of 2018 compared to the third quarter of 2017, primarily as a result of market volatility in India and the Philippines. This was partially offset by higher sales in our Hong Kong Mandatory Provident Fund (“MPF”) business, where we maintained our 4th place ranking in the industry based on assets under management.

Our Hong Kong MPF business earned the top ranking from Mercer’s inaugural MPF Provider Satisfaction Rankings Report for the twelve months ended June 30, 2018⁽¹⁾. This ranking reflects our strong fund performance as well as Client value-added services, including financial wellness education and e-alerts for our Clients, enabling them to better understand their MPF and enjoy an improved service experience. We continue to have strong brand recognition in the Philippines, where we are the only life insurance company to achieve recognition in Campaign Asia-Pacific’s Top 100 Brands⁽²⁾.

⁽¹⁾  Based on a 12-month average of the Mercer’s MPF Satisfaction Index (MPF SI), a monthly survey conducted by Nielsen, interviewing more than 2,000 respondents in Hong Kong’s working population per year.

⁽²⁾  The Philippines’ Top 100 Brands is part of an annual region-wide study, titled “Asia’s Top 1000 Brands”, presented by Campaign Asia-Pacific and based on an exclusive survey conducted by Nielsen in the Philippines for 2018.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 3

Sun Life Financial Inc.

Management’s Discussion and Analysis

For the period ended: September 30^th, 2018

Dated November 7^th, 2018

Table of Contents

A.		How We Report Our Results	5
B.		Financial Summary	6
C.		Profitability	7
D.		Growth	10
E.		Financial Strength	12
F.		Performance by Business Group	13
	1.	SLF Canada	13
	2.	SLF U.S.	15
	3.	SLF Asset Management	16
	4.	SLF Asia	18
	5.	Corporate	19
G.		Investments	20
H.		Risk Management	23
I.		Additional Financial Disclosure	29
J.		Legal and Regulatory Matters	31
K.		Changes in Accounting Policies	31
L.		Internal Control Over Financial Reporting	32
M.		Non-IFRS Financial Measures	32
N.		Forward-looking Statements	35

4 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

About Sun Life Financial

Sun Life Financial Inc. (“SLF Inc.”) is a leading international financial services organization providing insurance, wealth and asset management solutions to individual and corporate Clients. Sun Life Financial has operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of September 30, 2018, Sun Life Financial had total assets under management (“AUM”) of $984 billion. For more information please visit www.sunlife.com.

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

A. How We Report Our Results

Sun Life Financial Inc. (“SLF Inc.”), its subsidiaries and, where applicable, its joint ventures and associates are collectively referred to as “the Company”, “Sun Life Financial”, “we”, “our”, and “us”. We manage our operations and report our financial results in five business segments: Sun Life Financial Canada (“SLF Canada”), Sun Life Financial United States (“SLF U.S.”), Sun Life Financial Asset Management (“SLF Asset Management”), Sun Life Financial Asia (“SLF Asia”), and Corporate. Information concerning these segments is included in our annual and interim consolidated financial statements and accompanying notes (“Annual Consolidated Financial Statements” and “Interim Consolidated Financial Statements”, respectively, and “Consolidated Financial Statements” collectively) and annual management’s discussion and analysis (“MD&A”). Effective the first quarter of 2018, we transferred our International business unit from SLF U.S. to SLF Asia. We prepare our unaudited Interim Consolidated Financial Statements using International Financial Reporting Standards (“IFRS”), and in accordance with the International Accounting Standard (“IAS”) 34 Interim Financial Reporting. Reported net income (loss) refers to Common shareholders’ net income (loss) determined in accordance with IFRS.

The information in this document is in Canadian dollars unless otherwise noted.

1. Use of Non-IFRS Financial Measures

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

2. Forward-looking Statements

Certain statements in this document are forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Additional information concerning forward-looking statements and important risk factors that could cause our assumptions, estimates, expectations and projections to be inaccurate and our actual results or events to differ materially from those expressed in or implied by such forward-looking statements can be found in section N – Forward-looking Statements in this document.

3. Additional Information

Additional information about SLF Inc. can be found in the Consolidated Financial Statements, the annual and interim MD&A and SLF Inc.’s Annual Information Form (“AIF”) for the year ended December 31, 2017. These documents are filed with securities regulators in Canada and are available at www.sedar.com. SLF Inc.’s Annual Consolidated Financial Statements, annual MD&A and AIF are filed with the United States Securities and Exchange Commission (“SEC”) in SLF Inc.’s annual report on Form 40-F and SLF Inc.’s interim MD&As and Interim Consolidated Financial Statements are furnished to the SEC on Form 6-Ks and are available at www.sec.gov.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 5

B. Financial Summary

		Quarterly results						Year-to-date
($ millions, unless otherwise noted)		Q3’18		Q2’18		Q3’17		2018		2017
	Net income (loss)
	Reported net income (loss)		567		706		817		1,942		1,942
	Underlying net income (loss)(1)		730		729		643		2,229		1,905
	Diluted Earnings per share (“EPS”) ($)
	Reported EPS (diluted)		0.93		1.16		1.32		3.18		3.16
	Underlying EPS (diluted)(1)		1.20		1.20		1.05		3.66		3.10
	Reported basic EPS ($)		0.94		1.16		1.33		3.19		3.17
	Return on equity (“ROE”) (%)
	Reported ROE(1)		10.8%		13.5%		16.2%		12.5%		12.8%
	Underlying ROE(1)		14.0%		14.0%		12.7%		14.3%		12.6%
	Sales
	Insurance sales(1)		577		633		599		1,875		1,936
	Wealth sales(1)		29,832		30,804		35,826		100,461		110,014
	Value of new business(1)		244		266		224		844		703
	Premiums and deposits
	Net premium revenue		4,369		4,315		3,716		13,329		11,203
	Segregated fund deposits		2,692		2,703		2,235		8,790		8,178
	Mutual fund sales(1)		18,746		19,265		20,721		62,067		66,186
	Managed fund sales(1)		7,962		8,967		11,674		29,274		32,923
	ASO(2) premium and deposit equivalents(1)		1,693		1,767		1,805		5,135		5,224
	Total premiums and deposits(1)		35,462		37,017		40,151		118,595		123,714
	Assets under management (“AUM”)
	General fund assets		162,439		164,709		158,757		162,439		158,757
	Segregated funds		108,298		108,692		102,237		108,298		102,237
	Mutual funds, managed funds and other AUM(1)		712,782		712,719		672,601		712,782		672,601
	Total AUM(1)		983,519		986,120		933,595		983,519		933,595
	LICAT ratios(3)(4)
	Sun Life Financial Inc.		145%		149%		n/a		145%		n/a
	Sun Life Assurance(5)		130%		134%		n/a		130%		n/a
	Financial leverage ratio(1)		21.9%		21.8%		22.5%		21.9%		22.5%
	Dividend
	Dividend payout ratio(1)		40%		40%		41%		39%		42%
	Dividends per common share ($)		0.475		0.475		0.435		1.405		1.290
	Capital
	Subordinated debt and innovative capital instruments(6)		3,738		3,737		3,736		3,738		3,736
	Participating policyholders’ equity and non-controlling interests		802		517		633		802		633
	Total shareholders’ equity		22,834		23,216		22,298		22,834		22,298
	Total capital		27,374		27,470		26,667		27,374		26,667
	Average common shares outstanding (millions)		606		607		613		608		613
	Closing common shares outstanding (millions)		603.3		607.0		611.9		603.3		611.9

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

⁽²⁾  Administrative Services Only (“ASO”).

⁽³⁾  Life Insurance Capital Adequacy Test (“LICAT”) ratio.

⁽⁴⁾  LICAT ratios are not applicable before January 1, 2018; we previously used the Minimum Continuing Capital and Surplus Requirements (“MCCSR”) guideline, the former capital regulatory guideline.

⁽⁵⁾  Sun Life Assurance Company of Canada (“Sun Life Assurance”) is SLF Inc.’s principal operating life insurance subsidiary.

⁽⁶⁾  Innovative capital instruments consist of Sun Life ExchangEable Capital Securities, and qualify as regulatory capital. However, under IFRS they are reported as Senior debentures in the SLF Inc. Consolidated Financial Statements. For additional information, see section I – Capital and Liquidity Management – 1 – Capital in our 2017 annual MD&A.

6 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

C. Profitability

The following table reconciles our reported net income and underlying net income. The table also sets out the impact that other notable items had on our reported net income and underlying net income. All factors discussed in this document that impact our underlying net income are also applicable to reported net income.

	Quarterly results									Year-to-date
($ millions, after-tax)	Q3’18			Q2’18			Q3’17			2018			2017
Reported net income		567			706			817			1,942			1,942
Market related impacts(1)		25			8			113			(35	)		50
Assumption changes and management actions(2)		(166	)		1			103			(168	)		115
Other adjustments(1)		(22	)		(32	)		(42	)		(84	)		(128	)
Underlying net income(2)		730			729			643			2,229			1,905
Reported ROE(2)		10.8%			13.5%			16.2%			12.5%			12.8%
Underlying ROE(2)		14.0%			14.0%			12.7%			14.3%			12.6%
Impact of other notable items on reported and underlying net income
Experience related items(3)
Impact of investment activity on insurance contract liabilities		29			30			12			107			71
Mortality		15			6			30			5			59
Morbidity		8			43			3			63			15
Credit		22			6			22			49			51
Lapse and other policyholder behaviour		(7	)		(9	)		(12	)		(45	)		(37	)
Expenses(4)		(6	)		(26	)		(10	)		(36	)		(4	)
Other(4)		(11	)		(5	)		(12	)		46			(52	)

⁽¹⁾  See section M – Non-IFRS Financial Measures in this document for a breakdown of components within this adjustment.

⁽²⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures.

⁽³⁾  Experience related items reflect the difference between actual experience during the reporting period and best estimate assumptions used in the determination of our insurance contract liabilities.

⁽⁴⁾  Expense experience has been revised to exclude certain project spending, which is now presented in Other. Prior periods have been conformed to this presentation.

Q3 2018 vs. Q3 2017

Our reported net income of $567 million in the third quarter of 2018 decreased $250 million compared to the same quarter in 2017, largely due to unfavourable assumption changes and management actions (“ACMA”) of $269 million and less favourable market related impacts of $88 million. Underlying net income in the third quarter of 2018 increased $87 million to $730 million, compared to the third quarter in 2017, primarily driven by business growth, the lower income tax rate in the U.S., higher investment income on surplus assets, and experience related items as described below, partially offset by unfavourable new business strain in SLF Asia and in SLF Canada.

1. Market related impacts

Market related impacts in the third quarter of 2018 were less favourable compared to the same period last year, primarily driven by less favourable changes in interest rates, the fair value of investment properties, and net equity markets.

2. Assumption changes and management actions

Due to the long-term nature of our business, we make certain judgments involving assumptions and estimates to value our obligations to policyholders. The valuation of these obligations is recorded in our financial statements as insurance contract liabilities and investment contract liabilities and requires us to make assumptions about equity market performance, interest rates, asset default, mortality and morbidity experience rates, lapse and other policyholder behaviour experience, expenses and inflation and other factors over the life of our products.

We review assumptions each year, generally in the third quarter, as we did this year, and revise these assumptions if appropriate. We consider our actual experience in current and past periods relative to our assumptions as part of our annual review.

During the third quarter of 2018, the net impact of ACMA resulted in a decrease of $166 million to reported net income, compared to an increase of $103 million in the third quarter of 2017.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 7

Assumption changes and management actions by type

The following table sets out the impact of ACMA on our net income in the third quarter of 2018.

Q3’18		Quarterly
($ millions, after-tax)	Impact on net income(1)	Comments
Mortality/morbidity	296	Updates to reflect mortality/morbidity experience in all jurisdictions. The largest items were favourable mortality in SLF Asia International, SLF Canada Group Retirement Services and SLF U.K.
Lapse and other policyholder behaviour	(454)	Updates to lapse and policyholder behaviour in all jurisdictions. The largest items, which all had unfavourable impacts, were updated policyholder assumptions in SLF U.S. and SLF Asia International.
Expenses	(21)	Updates to reflect expense experience in all jurisdictions.
Investment returns	(18)	Updates to various investment related assumptions across the Company.
Model enhancements and other	31	Various enhancements and methodology changes across all jurisdictions. The largest items were a favourable change to the provisions in the SLF Canada and SLF U.S. participating accounts partially offset by a strengthening of reinsurance provisions in SLF U.S.
Total impact on net income(2)	(166)

⁽¹⁾   Assumption changes and management actions is included in reported net income and is presented as an adjustment to arrive at underlying net income.

⁽²⁾ In this table, assumption changes and management actions represent the shareholders’ net income impact (after-tax) including management actions. In Note 6.A of our Interim Consolidated Financial Statements, the impact of method and assumptions changes represents the change in shareholder and participating policyholder insurance contract liabilities net of reinsurance assets (pre-tax) and does not include management actions. Further information can also be found in section M – Non-IFRS Financial Measures in this document.

3. Other adjustments

Other adjustments decreased reported net income by $22 million in the third quarter of 2018, compared to a decrease of $42 million in the third quarter of 2017, reflecting fair value adjustments on MFS’s share-based payment awards, lower acquisition, integration and restructuring costs, and certain hedges in SLF Canada that do not qualify for hedge accounting.

4. Experience related items

Compared to the prior year, experience related items reflected more favourable impacts of investment activity on insurance contract liabilities and the less favourable impact of mortality experience in SLF U.S.

5. Income taxes

Our statutory tax rate is normally reduced by various tax benefits, such as lower taxes on income subject to tax in foreign jurisdictions, a range of tax-exempt investment income, and other sustainable tax benefits that are expected to decrease our effective tax rate to a range of 15% to 20%.

In the third quarter of 2018, our effective income tax rates on reported net income and underlying net income⁽¹⁾ were 17.3% and 19.1% compared to 19.7% and 23.5% in the third quarter of 2017, respectively.

6. Impact of foreign exchange rates

During the third quarter of 2018, our reported net income and underlying net income increased by $6 million and $18 million, respectively, as a result of the impact of the movement of the Canadian dollar in the third quarter of 2018 relative to the average exchange rates in the third quarter of 2017.

⁽¹⁾  Our effective income tax rate on underlying net income is calculated using underlying net income and income tax expense associated with underlying net income, which excludes amounts attributable to participating policyholders.

8 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

Q3 2018 vs. Q3 2017 (year-to-date)

Our reported net income was $1,942 million for the first nine months of 2018 and for the first nine months of 2017. Underlying net income was $2,229 million for the first nine months of 2018 compared to $1,905 million in the first nine months of 2017. Reported and underlying net income reflected business growth, the lower income tax rate in the U.S, higher investment income on surplus assets, lower interest on subordinated debt, and experience related items as described below.

1. Market related impacts

Market related impacts in aggregate in the first nine months of 2018 were unfavourable, compared to the first nine months of 2017, predominantly as a result of net equity market impacts.

2. Assumption changes and management actions

ACMA decreased net income by $168 million in the first nine months of 2018, compared to an increase to net income of $115 million in the first nine months of 2017. ACMA was primarily driven by the impact of ACMA in the third quarter of 2018, discussed in the previous section Q3 2018 vs. Q3 2017. See Section M – Non-IFRS measures in this document for more details including references to notable impacts in 2017.

3. Other adjustments

Other adjustments in the first nine months of 2018 reduced reported net income by $84 million compared to a reduction of $128 million in the same period last year, primarily driven by favourable changes related to certain hedges in SLF Canada that do not qualify for hedge accounting and fair value adjustments on MFS’s share-based payment awards.

4. Experience related items

In the first quarter of 2018, the seed capital that was transferred to the participating account at demutualization was transferred back to the shareholder account, along with accrued investment income. The results include the investment income of $110 million – $75 million in SLF Canada and $35 million in SLF U.S. (“interest on par seed capital”) – which is presented in experience related items – other. Additional information can be found in Note 10 of the third quarter 2018 Interim Consolidated Financial Statements.

Experience related items in the first nine months of 2018 compared to the first nine months of 2017 also reflected less favourable mortality experience and unfavourable expenses driven by investment in growing our businesses, partially offset by more favourable morbidity experience, predominantly in SLF U.S., and favourable impacts of investment activity on insurance contract liabilities.

5. Income Taxes

Our statutory tax rate is normally reduced by various tax benefits, such as lower taxes on income subject to tax in foreign jurisdictions, a range of tax-exempt investment income, and other sustainable tax benefits that are expected to decrease our effective tax rate to a range of 15% to 20%.

For the first nine months of 2018, our effective tax rates on reported and underlying net income⁽¹⁾ were 17.7% and 17.3%, respectively, compared to 14.1% and 20.1%, respectively, for the first nine months of 2017.

6. Impact of Foreign Exchange Rates

During the first nine months of 2018, our reported net income and underlying net income decreased by $15 million and $25 million, respectively, as a result of the impact of the movement of the Canadian dollar in the first nine months of 2018 relative to the average exchange rates in the first nine months of 2017.

⁽¹⁾  Our effective income tax rate on underlying net income is calculated using underlying net income and income tax expense associated with underlying net income, which excludes amounts attributable to participating policyholders.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 9

D. Growth

1. Sales and Value of New Business

	Quarterly results						Year-to-date
($ millions)	Q3’18		Q2’18		Q3’17		2018		2017
Insurance sales(1)
SLF Canada		203		266		217		765		898
SLF U.S.(2)		172		155		193		463		479
SLF Asia(2)		202		212		189		647		559
Total insurance sales(1)		577		633		599		1,875		1,936
Wealth sales(1)
SLF Canada		3,539		3,039		3,609		10,403		11,793
SLF Asia		1,928		2,502		3,607		8,166		9,453
Total wealth sales excluding SLF Asset Management(1)		5,467		5,541		7,216		18,569		21,246
SLF Asset Management sales(1)		24,365		25,263		28,610		81,892		88,768
Total wealth sales(1)		29,832		30,804		35,826		100,461		110,014
Value of New Business(1)(“VNB”)		244		266		224		844		703

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

⁽²⁾  Effective January 1, 2018 we transferred our International business unit from SLF U.S. to SLF Asia, and balances in 2017 have been changed to conform with the current year presentation. For further information, see section F – Performance by Business Group in this document.

Total Company insurance sales were $577 million in the third quarter of 2018, down 4% (5% on a constant currency basis) compared to the same period in 2017.

• SLF Canada insurance sales decreased, mainly driven by fewer large case sales in Group Benefits (“GB”) while individual insurance sales were slightly higher

• SLF U.S. insurance sales decreased, due to a reduction in medical stop-loss sales

• SLF Asia insurance sales were up 7% on a constant currency basis, led by growth in India, primarily from a new bancassurance relationship, and the Philippines, driven by agency productivity.

Total Company wealth sales were $29.8 billion in the third quarter of 2018, down 17% (19% on a constant currency basis) compared to the third quarter of 2017.

• SLF Canada wealth sales were down slightly, due to large case sales in Group Retirement Services (“GRS”) in 2017, largely offset by an increase in individual wealth sales

• SLF Asia wealth sales were down, largely as a result of lower sales from market volatility in India and the Philippines

• SLF Asset Management gross sales were lower, largely attributable to lower managed fund sales in MFS and Sun Life Investment Management (“SLIM”) partially offset by the currency impact from the change in the Canadian dollar

The Company’s VNB was $244 million in the third quarter of 2018, up 9% compared to the third quarter of 2017, driven by new business contracts and improved mix in SLF U.S., partially offset by lower sales volume in SLF Asia in International.

2. Premiums and Deposits

	Quarterly results						Year-to-date
($ millions)	Q3’18		Q2’18		Q3’17		2018		2017
Net premium revenue		4,369		4,315		3,716		13,329		11,203
Segregated fund deposits		2,692		2,703		2,235		8,790		8,178
Mutual fund sales(1)		18,746		19,265		20,721		62,067		66,186
Managed fund sales(1)		7,962		8,967		11,674		29,274		32,923
ASO premium and deposit equivalents(1)		1,693		1,767		1,805		5,135		5,224
Total premiums and deposits(1)		35,462		37,017		40,151		118,595		123,714
Total adjusted premiums and deposits(1)(2)		34,594		36,400		40,919		120,806		125,979

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

⁽²⁾  Adjusted premiums and deposits is a non-IFRS financial measure that excludes from premiums and deposits the impact of Constant Currency Adjustment and Reinsurance in SLF Canada’s GB Operations Adjustment as described in section M – Non-IFRS Financial Measures in this document.

10 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

Net premium revenue was $4.4 billion, up $0.7 billion from the third quarter of 2017, primarily driven by the impact of the partial recapture of a reinsurance agreement in GB in SLF Canada, and the currency impact from the change in the Canadian dollar. Net premium revenue was $13.3 billion in the first nine months of 2018, compared to $11.2 billion in the same period of 2017. The increase was primarily driven by the impact of the partial recapture of a reinsurance agreement in GB and increases in Individual Insurance & Wealth, both in SLF Canada, partially offset by the currency impact from the change in the Canadian dollar.

Segregated fund deposits were $2.7 billion in the third quarter of 2018, up $0.5 billion from the third quarter of 2017, primarily driven by increases in GRS in SLF Canada, and Hong Kong and the Philippines in SLF Asia. Segregated fund deposits were $8.8 billion in the first nine months of 2018, compared to $8.2 billion in the same period last year, primarily driven by increases in both Individual Insurance & Wealth and GRS in Canada as well as Hong Kong and the Philippines in SLF Asia.

Sales of mutual funds were $18.7 billion in the third quarter of 2018, down $2.0 billion from the third quarter of 2017, largely reflecting lower sales in India and the Philippines in SLF Asia, as well as lower sales from MFS, partially offset by the currency impact from the change in the Canadian dollar. Sales of mutual funds were $62.1 billion for the first nine months of 2018, compared to $66.2 billion in the same period in 2017. The lower mutual fund sales were primarily attributable to lower sales in MFS and SLF Asia, as well as the currency impact from the change in the Canadian dollar, partially offset by higher sales in SLF Canada.

Managed fund sales of $8.0 billion in the third quarter of 2018 decreased by $3.7 billion from the third quarter of 2017, primarily due to lower sales in MFS and SLIM, partially offset by the currency impact from the change in the Canadian dollar and higher sales in Hong Kong in SLF Asia. Sales of managed funds were $29.3 billion for the first nine months of 2018, down from $32.9 billion in the same period in 2017, primarily driven by decreases in MFS and SLIM sales, as well as the currency impact from the change in the Canadian dollar, partially offset by increased sales in Hong Kong in SLF Asia.

ASO premium and deposit equivalents in the third quarter of 2018 and for the first nine months of 2018 decreased compared to the same periods in 2017, reflecting lower premium and deposit equivalents in SLF Canada.

The currency impact for total premium and deposits for the third quarter of 2018 from the change in the Canadian dollar relative to average exchange rates in the third quarter of 2017 increased total premiums and deposits by approximately $1.0 billion. The currency impact for total premium and deposits for the first nine months of 2018 from the change in the Canadian dollar relative to average exchange rates in the first nine months of 2017 decreased total premiums and deposits by approximately $1.8 billion.

3. Assets Under Management

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

	Quarterly results
($ millions)	Q3’18		Q2’18		Q1’18		Q4’17		Q3’17
Assets under management(1)
General fund assets		162,439		164,709		163,499		162,720		158,757
Segregated funds		108,298		108,692		106,221		106,392		102,237
Mutual funds, managed funds and other AUM(1)		712,782		712,719		709,206		705,673		672,601
Total AUM(1)		983,519		986,120		978,926		974,785		933,595

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

AUM were $983.5 billion as at September 30, 2018, compared to AUM of $974.8 billion as at December 31, 2017. The increase in AUM of $8.7 billion between December 31, 2017 and September 30, 2018 resulted primarily from:

(i) an increase of $21.8 billion from favourable market movements;

(ii) an increase of $14.5 billion from the weakening of the Canadian dollar relative to exchange rates at the end of the fourth quarter of 2017; and

(iii) an increase of $2.0 billion of other business activities; partially offset by

(iv) net outflows of mutual, managed, and segregated funds of $26.9 billion.

For the third quarter of 2018, net outflows of mutual, managed and segregated funds were $8.9 billion, predominantly driven by net outflows from MFS of $9.5 billion, partially offset by net inflows of $0.3 billion from SLF Canada and $0.5 billion from SLIM.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 11

E. Financial Strength

	Quarterly results
	Q3’18		Q2’18		Q1’18		Q4’17		Q3’17
LICAT ratio(1)
Sun Life Financial Inc.		145%		149%		149%		n/a		n/a
Sun Life Assurance		130%		134%		139%		n/a		n/a
Financial leverage ratio(2)		21.9%		21.8%		22.2%		23.6%		22.5%
Dividend
Dividend payout ratio(2)		40%		40%		36%		43%		41%
Dividends per common share ($)		0.475		0.475		0.455		0.455		0.435
Capital
Subordinated debt and innovative capital instruments(3)		3,738		3,737		3,736		4,136		3,736
Participating policyholders’ equity and non-controlling interests		802		517		475		650		633
Preferred shareholders’ equity		2,257		2,257		2,257		2,257		2,257
Common shareholders’ equity		20,577		20,959		20,547		20,064		20,041
Total capital		27,374		27,470		27,015		27,107		26,667

⁽¹⁾  LICAT ratios are not applicable before January 1, 2018.

⁽²⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures in this document.

⁽³⁾  Innovative capital instruments consist of Sun Life ExchangEable Capital Securities, and qualify as regulatory capital. However, under IFRS they are reported as Senior debentures in our Consolidated Financial Statements. For additional information see, section I – Capital and Liquidity Management – 1 – Capital in our 2017 annual MD&A.

Effective January 1, 2018, The Office of the Superintendent of Financial Institutions (“OSFI”) has replaced the MCCSR capital adequacy guideline with the LICAT. As indicated by OSFI, the LICAT is an evolution of OSFI’s regulatory capital expectations, as it represents a more advanced and risk-sensitive approach to capital.

SLF Inc. is a non-operating insurance company and is subject to the LICAT guideline. As at September 30, 2018, SLF Inc.’s LICAT ratio was 145%, which is well above OSFI’s regulatory minimum ratio of 90%.

Sun Life Assurance, SLF Inc.’s principal operating life insurance subsidiary, is also subject to the LICAT guideline. As at September 30, 2018, Sun Life Assurance’s LICAT ratio was 130%, well above OSFI’s supervisory ratio of 100% and regulatory minimum ratio of 90%. In the third quarter of 2018, the Sun Life Assurance ratio decreased by 4% primarily due to ACMA, partially offset by capital generated from the businesses of Sun Life Assurance net of dividends to SLF Inc.

SLF Inc.’s total capital consists of subordinated debt and other capital instruments, participating policyholders’ equity, and total shareholders’ equity, which includes common shareholders’ equity and preferred shareholders’ equity. As at September 30, 2018, total capital was $27.4 billion, compared to $27.1 billion as at December 31, 2017. The increase in total capital was primarily the result of total net income of $1,942 million, change in participating policyholder’s equity of $152 million, and foreign currency translation gain of $136 million included in other comprehensive income (loss), partially offset by the repayment of $400 million of subordinated debentures detailed below, payment of $853 million of dividends on common shares of SLF Inc. (“common shares”), unrealized losses on available-for-sale (“AFS”) assets of $371 million, and $406 million from the repurchase and cancellation of common shares.

SLF Inc. and its wholly-owned holding companies had $2.7 billion in cash and other liquid assets⁽¹⁾ as at September 30, 2018 ($2.0 billion as at December 31, 2017). The increase in cash and other liquid assets in these holding companies in the first nine months of 2018 was primarily attributable to the dividends from the operating companies including Sun Life Assurance, which were partially offset by $406 million from the repurchase and cancellation of common shares and the repayment of $400 million of subordinated debentures.

On January 30, 2018, SLF Inc. redeemed all of the outstanding $400 million principal amount of Series 2008-1 Subordinated Unsecured 5.59% Fixed/Floating Debentures at a redemption price equal to the principal amount together with accrued and unpaid interest to that date.

Normal Course Issuer Bid

On August 14, 2018, SLF Inc. renewed its normal course issuer bid. This normal course issuer bid remains in effect until the earlier of August 13, 2019 and the date on which SLF Inc. has purchased an aggregate of 14.0 million common shares under the bid. During the third quarter of 2018, SLF Inc. purchased and canceled approximately 3.8 million common shares at a total cost of $200 million, including approximately 0.2 million common shares at a cost of $10 million that were purchased and canceled under SLF Inc.’s previous normal course issuer bid, which terminated on August 13, 2018. During the first nine months of 2018, SLF Inc. purchased and canceled approximately 7.7 million common shares at a total cost of $406 million.

⁽¹⁾  Other liquid assets include cash equivalents, short-term investments, and publicly traded securities.

12 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

F. Performance by Business Group

	Quarterly results									Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17			2018			2017
Reported net income (loss)
SLF Canada		335			262			340			846			791
SLF U.S.(1)		(267	)		105			72			(66	)		(81	)
SLF Asset Management		241			214			185			665			539
SLF Asia(1)		164			133			216			430			657
Corporate		94			(8	)		4			67			36
Total reported net income (loss)		567			706			817			1,942			1,942
Underlying net income (loss)(2)
SLF Canada		251			245			222			791			717
SLF U.S.(1)		139			125			121			393			281
SLF Asset Management		251			216			204			698			586
SLF Asia(1)		110			145			130			383			350
Corporate		(21	)		(2	)		(34	)		(36	)		(29	)
Total underlying net income (loss)(2)		730			729			643			2,229			1,905

⁽¹⁾  Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia as described below, and comparative figures in 2017 have been changed to conform with the current year presentation.

⁽²⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures in this document.

Information describing the business groups and their respective business units is included in our 2017 annual MD&A. All factors discussed in this document that impact our underlying net income are also applicable to reported net income.

Effective in the first quarter of 2018, we transferred our International business unit from SLF U.S. to SLF Asia. By combining our SLF Asia and International capabilities, we expect to accelerate the development of our high net worth insurance business in Asia. The U.S. will focus on growing our U.S. group benefits business and managing the in-force block of U.S. individual insurance.

1. SLF Canada

	Quarterly results									Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17			2018		2017
Individual Insurance & Wealth		143			105			211			355		373
Group Benefits		51			103			74			223		254
Group Retirement Services		141			54			55			268		164
Reported net income (loss)		335			262			340			846		791
Market related impacts		46			15			90			17		46
Assumption changes and management actions		39			5			34			37		46
Other adjustments(1)		(1	)		(3	)		(6	)		1		(18	)
Underlying net income (loss)(2)		251			245			222			791		717
Reported ROE (%)(2)(3)		19.4			15.5			17.7			16.7		13.7
Underlying ROE (%)(2)(3)		14.5			14.5			11.6			15.6		12.4
Insurance sales(2)		203			266			217			765		898
Wealth sales(2)		3,539			3,039			3,609			10,403		11,793

⁽¹⁾  Mainly comprised of Certain hedges in SLF Canada that do not qualify for hedge accounting. For further information, see section M – Non-IFRS Financial Measures in this document.

⁽²⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures in this document.

⁽³⁾  The adoption of LICAT impacted the capital allocation for SLF Canada. As a result, reported and underlying ROEs increased approximately 1.6% and 1.8%, respectively, in both the third quarter and year-to-date of 2018.

Profitability

Q3 2018 vs. Q3 2017

SLF Canada’s reported net income was $335 million in the third quarter of 2018, compared to $340 million in the third quarter of 2017. Underlying net income in the third quarter of 2018 was $251 million, compared to $222 million in the third quarter of 2017.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 13

Reported net income in the third quarter of 2018 compared to the third quarter of 2017 resulted from less favourable market related impacts, which included less favourable impacts from interest rates and changes in the fair value of investment properties. Underlying net income in the third quarter of 2018 compared to the same period in 2017 increased, driven by investment experience and business growth primarily in GRS, partially offset by a decrease in new business gains.

Q3 2018 vs. Q3 2017 (year-to-date)

Reported net income was $846 million for the first nine months of 2018, compared to $791 million for the nine months ended September 30, 2017. Underlying net income was $791 million in the nine months ended September 30, 2018, compared to $717 million in the same period last year.

Reported net income in the first nine months of 2018 increased $55 million compared to the first nine months of 2017, reflecting less favourable market related impacts, primarily unfavourable equity impacts, partially offset by less unfavourable net interest rate impacts. Underlying net income in the first nine months of 2018 increased $74 million compared to the first nine months of 2017 largely due to interest on par seed capital, business growth, and favourable investment experience, partially offset by a decrease in new business gains and less favourable mortality.

Growth

Q3 2018 vs. Q3 2017

SLF Canada individual insurance sales in the third quarter of 2018 of $90 million were slightly higher than $87 million in the same period last year. Sales in GB of $113 million decreased by 13% compared to the third quarter of 2017 as a result of large case sales in 2017.

SLF Canada wealth sales for the third quarter of 2018 were down slightly compared to the same period last year. Individual wealth sales increased by 15% due to continued growth of our wealth manufactured⁽¹⁾ products, more than offset by an 11% decrease in GRS due to large case sales in 2017.

Q3 2018 vs. Q3 2017 (year-to-date)

SLF Canada individual insurance sales were $288 million in the first nine months of 2018, compared to $331 million in the same period last year, following strong sales in the first quarter of 2017 as a result of tax legislation and product design changes. Sales in GB of $477 million decreased 16% compared to the first nine months of 2017, driven by several large case sales in 2017.

SLF Canada wealth sales were $10.4 billion in the first nine months of 2018, compared to $11.8 billion in the same period last year. Individual wealth sales of $4.8 billion were up 8% in the first nine months of 2018 compared to the same period last year, driven by continued growth in our wealth manufactured⁽¹⁾ products. GRS sales of $5.6 billion were down 24% over the first nine months in 2017 due to lower market activity.

⁽¹⁾  Represents individual wealth products developed by Sun Life Financial, which include Sun Life Global Investments mutual funds, Sun Life Guaranteed Investment Funds segregated funds, Guaranteed Investment Certificates, and Accumulation and Payout Annuities.

14 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

2. SLF U.S.

	Quarterly results(1)									Year-to-date(1)
(US$ millions)	Q3’18			Q2’18			Q3’17			2018			2017
Group Benefits		68			57			86			158			110
In-force Management		(273	)		24			(29	)		(206	)		(168	)
Reported net income (loss)		(205	)		81			57			(48	)		(58	)
Market related impacts(2)		(4	)		(1	)		2			(25	)		(19	)
Assumption changes and management actions(1)(3)		(301	)		(3	)		(30	)		(302	)		(210	)
Acquisition, integration and restructuring(3)		(6	)		(12	)		(12	)		(26	)		(44	)
Underlying net income (loss)(3)		106			97			97			305			215
Reported ROE (%)(3)		(30.6	)		11.7			8.8			(2.3	)		(3.0	)
Underlying ROE (%)(3)		15.7			14.0			14.9			14.9			11.2
After-tax profit margin for Group Benefits (%)(3)		6.4			6.5			4.5			6.4			4.5
Insurance sales(3)		132			120			154			360			369
(C$ millions)
Reported net income (loss)		(267	)		105			72			(66	)		(81	)
Underlying net income (loss)(3)		139			125			121			393			281

⁽¹⁾  Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia, and comparative figures in 2017 have been changed to conform with the current year presentation. For further information, see earlier in this section.

⁽²⁾  See section M – Non-IFRS Financial Measures in this document for a breakdown of the components.

⁽³⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures in this document.

Profitability

Q3 2018 vs. Q3 2017

SLF U.S.’s reported net loss was US$205 million ($267 million) in the third quarter of 2018, compared to reported net income of US$57 million ($72 million) in the third quarter of 2017. Underlying net income was US$106 million ($139 million), compared to US$97 million ($121 million) in the third quarter of 2017. The impact from the movement of the Canadian dollar in the third quarter of 2018 relative to average exchange rates in the third quarter of 2017 increased reported net loss by $11 million and increased underlying net income by $6 million.

Reported net income in the third quarter of 2018 reflected unfavourable ACMA of US$301 million, primarily related to changes in assumptions for policyholder behaviour in In-force Management, compared to unfavourable ACMA of US$30 million in the third quarter of 2017. Underlying net income improved compared to the third quarter of 2017, benefiting from the lower income tax rate in the U.S. and favourable investment experience, partially offset by less favourable mortality experience in Group Benefits.

The after-tax profit margin for Group Benefits⁽¹⁾ was 6.4% as of the third quarter of 2018, compared to 4.5% as of the third quarter of 2017.

Q3 2018 vs. Q3 2017 (year-to-date)

SLF U.S.’s reported net loss was US$48 million ($66 million) for the first nine months of 2018, compared to reported net loss of US$58 million ($81 million) for the same period last year. Underlying net income was US$305 million ($393 million) in the first nine months of 2018, compared to US$215 million ($281 million) in the same period of 2017. The impact from the movement in the Canadian dollar in the first nine months of 2018 relative to average exchange rates in the first nine months of 2017 decreased reported net loss by $1 million and decreased underlying net income by $6 million.

Reported net income in the first nine months of 2018 compared to the first nine months of 2017 reflected unfavourable ACMA impacts of US$92 million. ACMA increased the net loss in the first nine months of 2018 and 2017 by US$302 million and by US$210 million, respectively.

ACMA in 2018 was primarily driven by the impact of ACMA in the third quarter of 2018, discussed in the previous section Q3 2018 vs. Q3 2017. See Section M – Non-IFRS measures in this document for more details including references to notable impacts in 2017. Underlying net income in the first nine months of 2018 compared to the first nine months of 2017 reflected favourable morbidity experience in Group Benefits, the lower income tax rate in the U.S., business growth, interest on par seed capital within In-force Management, and favourable new business gains. These items were partially offset by unfavourable mortality experience in Group Benefits.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 15

Growth

Q3 2018 vs. Q3 2017

SLF U.S. Group Benefits sales of US$132 million in the third quarter of 2018 decreased 14% compared to the same quarter of 2017, as a result of a decrease in medical stop-loss sales, partially offset by growth in employee benefits sales.

Q3 2018 vs. Q3 2017 (year-to-date)

SLF U.S. Group Benefits sales of US$360 million in the first nine months of 2018 were comparable with the same period in 2017.

3. SLF Asset Management

	Quarterly results									Year-to-date
SLF Asset Management (C$ millions)	Q3’18			Q2’18			Q3’17			2018			2017
Reported net income		241			214			185			665			539
Fair value adjustments on MFS’s share-based payment awards(1)		(10	)		(2	)		(19	)		(33	)		(47	)
Underlying net income(1)		251			216			204			698			586
Assets under management (C$ billions)(1)		687.2			684.0			647.7			687.2			647.7
Gross sales (C$ billions)(1)		24.4			25.3			28.6			82.0			88.7
Net sales (C$ billions)(1)		(9.0	)		(14.7	)		(1.9	)		(28.8	)		(19.0	)
MFS (C$ millions)
Reported net income		232			211			180			644			521
Fair value adjustments on MFS’s share-based payment awards(1)		(10	)		(2	)		(19	)		(33	)		(47	)
Underlying net income(1)		242			213			199			677			568
Assets under management (C$ billions)(1)		625.9			622.5			591.2			625.9			591.2
Gross sales (C$ billions)(1)		22.8			24.1			26.3			76.4			80.9
Net sales (C$ billions)(1)		(9.5	)		(14.9	)		(3.3	)		(29.8	)		(23.4	)
MFS (US$ millions)
Reported net income		178			163			143			500			399
Fair value adjustments on MFS’s share-based payment awards(1)		(8	)		(1	)		(16	)		(26	)		(37	)
Underlying net income(1)		186			164			159			526			436
Pre-tax net operating profit margin ratio(1)		40%			36%			41%			38%			38%
Average net assets (US$ billions)(1)		482.9			480.9			468.2			486.2			453.1
Assets under management (US$ billions)(1)(2)		485.0			474.1			474.2			485.0			474.2
Gross sales (US$ billions)(1)		17.4			18.6			21.0			59.5			61.9
Net sales (US$ billions)(1)		(7.3	)		(11.5	)		(2.7	)		(23.1	)		(17.8	)
Asset appreciation (depreciation) (US$ billions)		18.2			3.4			14.7			16.5			66.4
S&P 500 Index (daily average)		2,849			2,704			2,465			2,762			2,396
MSCI EAFE Index (daily average)		1,964			2,018			1,934			2,018			1,846
SLIM (C$ millions)
Reported net income		9			3			5			21			18
Underlying net income(1)		9			3			5			21			18
Assets under management (C$ billions)(1)		61.3			61.5			56.5			61.3			56.5
Gross sales (C$ billions)(1)		1.6			1.2			2.3			5.5			7.8
Net sales (C$ billions)(1)		0.5			0.2			1.5			1			4.5

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

⁽²⁾  Monthly information on AUM is provided by MFS in its Corporate Fact Sheet, which can be found at www.mfs.com/CorpFact. The Corporate Fact Sheet also provides MFS’s U.S. GAAP assets and liabilities as at September 30, 2018.

16 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

Profitability

Q3 2018 vs. Q3 2017

SLF Asset Management’s reported net income was $241 million in the third quarter of 2018 compared to $185 million in the third quarter of 2017. SLF Asset Management had underlying net income of $251 million in the third quarter of 2018, compared to $204 million in the third quarter of 2017. The impact from the movement of the Canadian dollar in the third quarter of 2018 relative to average exchange rates in the third quarter of 2017 increased reported net income and underlying net income by $9 million and $10 million, respectively.

In U.S. dollars, MFS’s reported net income was US$178 million in the third quarter of 2018, compared to US$143 million in the third quarter of 2017. MFS’s underlying net income was US$186 million in the third quarter of 2018, compared to US$159 million in the third quarter of 2017. MFS’s reported net income reflected favourable impacts from fair value adjustments on MFS’s share-based payment awards. Underlying net income compared to the third quarter of 2017 was driven by the lower income tax rate in the U.S., expense management, and higher average net assets. MFS’s pre-tax net operating profit margin ratio⁽¹⁾ was 40% in the third quarter of 2018.

SLIM’s reported net income for the three months ended September 30, 2018 was $9 million compared to $5 million for the same period last year.

Q3 2018 vs. Q3 2017 (year-to-date)

SLF Asset Management’s reported net income for the nine months ended September 30, 2018 was $665 million, compared to $539 million for the same period last year. Underlying net income was $698 million for the first nine months of 2018, compared to $586 million for the nine months ended September 30, 2017. The impact from the movement of the Canadian dollar in the first nine months of 2018, relative to average exchange rates in the first nine months of 2017, decreased reported net income and underlying net income by $10 million and $11 million, respectively.

MFS’s reported net income for the nine months ended September 30, 2018 was US$500 million, compared to US$399 million for the same period last year. MFS’s underlying net income was US$526 million for the first nine months of 2018, compared to US$436 million for the nine months ended September 30, 2017. MFS’s increased underlying net income in U.S. dollars for the first nine months of 2018 was driven primarily by the lower income tax rate in the U.S. and higher average net assets.

SLIM’s reported net income for the nine months ended September 30, 2018 was $21 million compared to $18 million for the same period last year.

Growth

SLF Asset Management’s AUM was $687.2 billion as at September 30, 2018, compared to $677.6 billion as at December 31, 2017. The increase in AUM was primarily due to market movements, partially offset by net outflows and currency movement. MFS’s AUM was US$485.0 billion ($625.9 billion) as at September 30, 2018, compared to US$491.6 billion ($618.3 billion) as at December 31, 2017. The decrease of US$6.6 billion was primarily driven by redemptions of US$82.6 billion, partially offset by gross sales of US$59.5 billion and asset appreciation of US$16.5 billion.

In the third quarter of 2018, 66%, 82% and 88% of MFS’s retail fund assets ranked in the top half of their Lipper categories based on three-, five-, and ten-year performance, respectively.

SLIM’s AUM was $61.3 billion as at September 30, 2018, compared to $59.3 billion as at December 31, 2017.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 17

4. SLF Asia

	Quarterly results								Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17		2018			2017
Insurance and Wealth		89			86			93		280			243
International(1)		75			47			123		150			414
Reported net income (loss)		164			133			216		430			657
Market related impacts(2)		(12	)		–			12		(8	)		23
Assumption changes and management actions(1)(3)		66			–			74		67			284
Acquisition, integration and restructuring(3)(4)		–			(12	)		–		(12	)		–
Underlying net income (loss)(3)		110			145			130		383			350
Reported ROE (%)(3)(5)		13.3			10.9			15.8		11.8			16.1
Underlying ROE (%)(3)(5)		8.9			11.8			9.5		10.5			8.6
Insurance sales(3)		202			212			189		647			559
Wealth sales(3)		1,928			2,502			3,607		8,166			9,453

⁽¹⁾  Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia, and comparative figures in 2017 have been changed to conform with the current year presentation. For further information, see earlier in this section.

⁽²⁾  See section M – Non-IFRS Financial Measures in this document for a breakdown of the components.

⁽³⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures in this document.

⁽⁴⁾  Pertains to a distribution arrangement in India for asset management.

⁽⁵⁾  As a result of a revision of the capital allocation model for SLF Asia, reported and underlying ROEs for the third quarter of 2018 increased by 1.6% and 1.2%, respectively, in both the third quarter and year-to-date of 2018.

Profitability

Q3 2018 vs. Q3 2017

SLF Asia’s reported net income was $164 million in the third quarter of 2018, compared to reported net income of $216 million in the third quarter of 2017. Underlying net income was $110 million, compared to $130 million in the third quarter of 2017. The impact of the movement of the Canadian dollar in the third quarter of 2018 relative to average exchange rates in the third quarter of 2017 increased both reported net income and underlying net income by $1 million.

Reported net income in the third quarter of 2018 compared to the third quarter of 2017 predominantly reflected unfavourable market related impacts and less favourable ACMA impacts. Underlying net income in the third quarter of 2018, compared to the third quarter of 2017, reflected higher new business strain, unfavourable variance in realized gains from AFS assets, and unfavourable expenses driven by investment in growing our businesses, partially offset by business growth.

Q3 2018 vs. Q3 2017 (year-to-date)

Reported net income was $430 million for the first nine months of 2018, compared to $657 million for the same period last year. Underlying net income for the first nine months of 2018 was $383 million, compared to $350 million in the same period last year. The unfavourable impact of the change in the Canadian dollar in the first nine months of 2018 relative to average exchange rates in the same period last year decreased both reported net income and underlying net income by $13 million.

Reported net income in the first nine months of 2018 compared to the first nine months of 2017 predominantly reflected the large favourable impact from ACMA in International in the comparable period in 2017, as well as unfavourable market related impacts. See Section M – Non-IFRS measures in this document for more details including references to notable impacts in 2017. Underlying net income for the first nine months of 2018 compared to the first nine months of 2017 was driven by business growth, partially offset by unfavourable expenses driven by investment in growing our businesses, and impacts of investment activity on insurance contract liabilities.

Growth

Q3 2018 vs. Q3 2017

SLF Asia insurance sales were $202 million in the third quarter of 2018, compared to $189 million in the third quarter of 2017. Total individual insurance sales increased by 7%, driven by growth in India, primarily from a new bancassurance relationship, and the Philippines, driven by agency productivity.

SLF Asia wealth sales were $1.9 billion in the third quarter of 2018, compared to $3.6 billion in the third quarter of 2017, largely as a result of market volatility in India and the Philippines, partially offset by Hong Kong MPF sales, which were up 37% on a constant currency basis.

18 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

Q3 2018 vs. Q3 2017 (year-to-date)

SLF Asia insurance sales increased 16% to $647 million in the first nine months of 2018, compared to $559 million in the first nine months of 2017. On a constant currency basis, individual insurance sales increased 19% with growth led by our Philippines, India, and China businesses.

SLF Asia wealth sales were $8.2 billion in the first nine months of 2018, compared to $9.5 billion in the first nine months of 2017. Momentum in our Hong Kong MPF business partially offset lower sales in other regions during the comparable period.

5. Corporate

	Quarterly results									Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17			2018			2017
SLF U.K.		134			37			72			219			175
Corporate Support		(40	)		(45	)		(68	)		(152	)		(139	)
Reported net income (loss)		94			(8	)		4			67			36
Market related impacts(1)		(4	)		(6	)		7			(13	)		5
Assumption changes and management actions(2)		122			–			33			122			65
Acquisition, integration and restructuring(2)		(3	)		–			(2	)		(6	)		(5	)
Underlying net income (loss)(2)		(21	)		(2	)		(34	)		(36	)		(29	)

⁽¹⁾  See section M – Non-IFRS Financial Measures in this document for a breakdown of the components.

⁽²⁾  Represents a non-IFRS financial measure. See section M – Non-IFRS Financial Measures in this document.

Profitability

Q3 2018 vs. Q3 2017

Reported net income in Corporate was $94 million in the third quarter of 2018, compared to reported net income of $4 million in the third quarter of 2017. Underlying net loss was $21 million, compared to $34 million in the third quarter of 2017. The impact from the movement of the Canadian dollar in the third quarter of 2018 relative to average exchange rates in the third quarter of 2017 increased reported net income and underlying net income by $9 million and $1 million, respectively.

Corporate reported net income in the third quarter of 2018 increased compared to the third quarter of 2017 due to favourable ACMA in SLF U.K. Underlying net loss in the third quarter of 2018 compared to the third quarter of 2017 reflected lower expenses including incentive compensation in Corporate Support and higher investment income on surplus assets, lower interest on subordinated debt, partially offset by unfavourable mortality experience and lower benefits from tax related items.

Q3 2018 vs. Q3 2017 (year-to-date)

The reported net income was $67 million in the Corporate segment for the nine months ended September 30, 2018, compared to $36 million for the same period last year. Underlying net loss was $36 million in the nine months ended September 30, 2018, compared to $29 million in the nine months ended September 30, 2017. The impact from the movement of the Canadian dollar in the first nine months of 2018, relative to average exchange rates in the first nine months of 2017, increased reported net income by $7 million and decreased underlying net loss by $5 million, respectively.

The reported net income in Corporate in the first nine months of 2018 compared to the same period of 2017 reflected a favourable ACMA impact in 2018 in SLF U.K., and unfavourable market related impacts in 2018. Underlying net loss for the nine months ended September 2018, compared to 2017, reflected lower benefits from tax related items, partially offset by higher investment income on surplus assets and lower expenses, as well as lower interest on subordinated debt.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 19

G. Investments

We had total general fund invested assets of $145.6 billion as at September 30, 2018, compared to $146.1 billion as at December 31, 2017. The decrease in general fund invested assets was primarily due to a decline in net fair value, primarily as a result of rising interest rates. This decline was partially offset by an increase in operating activity, as well as changes in the currency impact from the weakening of the Canadian dollar relative to exchange rates at the end of the fourth quarter of 2017. Our general fund invested assets are well diversified across investment types, geographies and sectors with the majority of our portfolio invested in fixed income high quality assets.

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

	September 30, 2018				December 31, 2017
($ millions)	Carrying value		% of total carrying value		Carrying value		% of total carrying value
Cash, cash equivalents and short-term securities		8,196		6%		8,890		6%
Debt securities		71,076		49%		72,619		50%
Equity securities		4,961		3%		6,020		4%
Mortgages and loans		45,207		31%		42,805		29%
Derivative assets		1,185		1%		1,478		1%
Other invested assets		4,546		3%		4,154		3%
Policy loans		3,141		2%		3,106		2%
Investment properties		7,270		5%		7,067		5%
Total invested assets		145,582		100%		146,139		100%

⁽¹⁾   The values and ratios presented are based on the carrying value of the respective asset categories. Generally, the carrying values for Fair value through profit or loss (“FVTPL”) and AFS invested assets are equal to their fair values; however our mortgages and loans are generally carried at amortized cost. For invested assets supporting insurance contracts, in the event of default, if the amounts recovered are insufficient to satisfy the related insurance contract liability cash flows that the assets are intended to support, credit exposure may be greater than the carrying value of the assets.

1. Debt Securities

Our debt securities portfolio is actively managed through a regular program of purchases and sales aimed at optimizing yield, quality and liquidity, while ensuring that it remains well diversified and duration-matched to insurance contract liabilities. With the exception of certain countries where we have business operations, including Canada, the United States, the United Kingdom and the Philippines, our exposure to debt securities from any single country did not exceed 1% of total invested assets on our Consolidated Statements of Financial Position as at September 30, 2018.

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

	September 30, 2018								December 31, 2017
($ millions)	FVTPL debt securities		AFS debt securities		Total		% of Total		FVTPL debt securities		AFS debt securities		Total		% of Total
Debt securities
Canada		24,272		4,456		28,728		40%		24,132		4,114		28,246		39%
United States		19,572		5,590		25,162		35%		20,758		5,719		26,477		36%
Europe		8,670		1,294		9,964		14%		8,923		1,402		10,325		14%
Asia		3,410		449		3,859		6%		3,694		571		4,265		6%
Other		2,285		1,078		3,363		5%		2,460		846		3,306		5%
Total debt securities		58,209		12,867		71,076		100%		59,967		12,652		72,619		100%

Our debt securities with a credit rating of “A” or higher represented 72.4% of the total debt securities as at September 30, 2018, compared to 70.6% as at December 31, 2017. Debt securities with a credit rating of “BBB” or higher represented 98.8% of total debt securities as at September 30, 2018, compared to 98.3% as at December 31, 2017.

Our gross unrealized losses as at September 30, 2018 for FVTPL and AFS debt securities were $1.2 billion and $0.3 billion, respectively, compared with $0.3 billion and $0.1 billion, respectively, as at December 31, 2017. The increase in gross unrealized losses was largely due to the impact from rising interest rates and credit spreads.

20 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

2. Mortgages and Loans

Mortgages and loans in this section are presented at their carrying value on our Consolidated Statements of Financial Position. Our mortgage portfolio consisted almost entirely of first mortgages and our loan portfolio consisted of private placement loans.

The carrying value of mortgages and loans by geographic location is presented in the following table.⁽¹⁾

Mortgages and Loans by Geography

	September 30, 2018						December 31, 2017
($ millions)	Mortgages		Loans		Total		Mortgages		Loans		Total
Canada		8,561		13,290		21,851		8,390		13,265		21,655
United States		7,445		10,597		18,042		7,103		9,542		16,645
Europe		–		3,280		3,280		–		2,706		2,706
Asia		–		347		347		–		265		265
Other		–		1,687		1,687		–		1,534		1,534
Total		16,006		29,201		45,207		15,493		27,312		42,805
% of Total Invested Assets		11%		20%		31%		11%		19%		29%

⁽¹⁾   The geographic location for mortgages is based on the location of the property and for loans it is based on the country of the creditor’s parent.

As at September 30, 2018, we held $16.0 billion of mortgages, compared to $15.5 billion as at December 31, 2017. Our mortgage portfolio consists entirely of commercial mortgages, including retail, office, multi-family, industrial and land properties. As at September 30, 2018, 32% of our commercial mortgage portfolio consisted of multi-family residential mortgages; there are no single family residential mortgages. Our uninsured commercial portfolio had a weighted average loan-to-value ratio of approximately 55% as at September 30, 2018, consistent with December 31, 2017. While we generally limit the maximum loan-to-value ratio to 75% at issuance, we may invest in mortgages with a higher loan-to-value ratio in Canada if the mortgage is insured by the Canada Mortgage and Housing Corporation (“CMHC”). The estimated weighted average debt service coverage for our uninsured commercial portfolio is 1.76 times. Of the $3.3 billion of multi-family residential mortgages in the Canadian commercial mortgage portfolio, 91% were insured by the CMHC.

As at September 30, 2018, we held $29.2 billion of loans, compared to $27.3 billion as at December 31, 2017. Private placement loans provide diversification by type of loan, industry segment and borrower credit quality. The private placement loan portfolio consists of senior secured and unsecured loans to large- and mid-market sized corporate borrowers, securitized lease/loan obligations secured by a variety of assets, and project finance loans in sectors such as power and infrastructure.

Mortgages and Loans Past Due or Impaired

The gross carrying value and allowance for mortgages and loans past due or impaired are presented in the following table.

September 30, 2018

Gross carrying value

Allowance for losses

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Not past due

16,000

29,081

45,081

–

–

–

Past due:

Past due less than 90 days

–

9

9

–

–

–

Past due 90 days or more

–

–

–

–

–

–

Impaired

30

153

183

24

(1)

42

66

Total

16,030

29,243

45,273

24

42

66

December 31, 2017

Gross carrying value

Allowance for losses

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Not past due

15,482

27,180

42,662

–

–

–

Past due:

Past due less than 90 days

–

71

71

–

–

–

Past due 90 days or more

–

–

–

–

–

–

Impaired

33

89

122

22

(1)

28

50

Total

15,515

27,340

42,855

22

28

50

⁽¹⁾   Includes $20 million of sectoral provisions as at September 30, 2018, consistent with December 31, 2017.

Our impaired mortgages and loans net of allowances for losses were $117 million as at September 30, 2018, compared to $72 million as at December 31, 2017.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 21

3. Derivative Financial Instruments

The values associated with our derivative instruments are presented in the following table. Notional amounts serve as the basis for payments calculated under derivatives contracts and are generally not exchanged.

($ millions)	September 30, 2018			December 31, 2017
Net fair value asset (liability)		(491	)		(278	)
Total notional amount		54,787			54,121
Credit equivalent amount(2)		628			561
Risk-weighted credit equivalent amount(1)(2)		15.0			n/a

⁽¹⁾  The September 30, 2018 risk-weighted credit equivalent amount is calculated under the new LICAT guidelines which were effective January 1, 2018. LICAT ratios are not applicable before January 1, 2018.

⁽²⁾  Amounts presented are net of collateral received.

The total notional amount of our derivatives increased to $54.8 billion as at September 30, 2018 from $54.1 billion as at December 31, 2017.

The net fair value of derivatives was a liability of $491 million as at September 30, 2018, compared to a liability of $278 million as at December 31, 2017. The increase in the liability was primarily due to the impact from changes in foreign exchange rates and swap curves.

4. Asset Default Provision

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

Our asset default provision reflects the provision relating to future credit events for fixed income assets currently held by the Company that support our insurance contract liabilities. Our asset default provision as at September 30, 2018 was $2,238 million compared to $2,288 million as at December 31, 2017. The decrease of $50 million was primarily due to the release of provisions on fixed income assets supporting our insurance contract liabilities, partially offset by an increase in the provision for assets purchased, net of dispositions, and change due to yield curve movement, and the weakening of the Canadian dollar.

22 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

H. Risk Management

The shaded text and tables in this section H represent our disclosure on market risks in accordance with IFRS 7 Financial Instruments – Disclosures and is an integral part of our unaudited Interim Consolidated Financial Statements for the quarter ended September 30, 2018. The shading in this section does not imply that these disclosures are of any greater importance than non-shaded tables and text, and the Risk Management disclosure should be read in its entirety.

The Company has established a Risk Management Framework to assist in identifying, measuring, managing, monitoring and reporting risks. The Risk Management Framework covers all risks and these have been grouped into six major categories: credit, market, insurance, business and strategic, operational and liquidity risks.

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

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

1. Market Risk Sensitivities

Our net income⁽¹⁾ is affected by the determination of policyholder obligations under our annuity and insurance contracts. These amounts are determined using internal valuation models and are recorded in our Annual Consolidated Financial Statements, primarily as Insurance contract liabilities. The determination of these obligations requires management to make assumptions about the future level of equity market performance, interest rates, credit and swap spreads and other factors over the life of our products. Differences between our actual experience and our best estimate assumptions are reflected in our Annual Consolidated Financial Statements. Refer to Additional Cautionary Language and Key Assumptions Related to Sensitivities in this section for important additional information regarding these estimates.

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

We realized $19 million (pre-tax) in net gains on the sale of AFS assets during the third quarter of 2018 ($41 million pre-tax in the third quarter of 2017). The net unrealized gains (losses) or OCI position on AFS fixed income and equity assets were $(114) million and $89 million, respectively, after-tax as at September 30, 2018 ($171 million and $175 million, respectively, after-tax as at December 31, 2017).

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

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 23

Equity Market Sensitivities

The following table sets out the estimated immediate impact on, or sensitivity of, our net income and OCI and Sun Life Assurance’s LICAT ratio to certain instantaneous changes in equity market prices as at September 30, 2018 and December 31, 2017.

As at September 30, 2018 ($ millions, unless otherwise noted)
Change in Equity Markets(1)	25% decrease		10% decrease		10% increase		25% increase
Potential impact on net income(2)(3)		$    (300)		$    (100)		$    100		$    250
Potential impact on OCI(3)		$    (150)		$      (50)		$      50		$    150
Potential impact on LICAT(2)(4)		2.0% point decrease		0.5% point decrease		0.5% point increase		1.0% point increase
As at December 31, 2017 ($ millions, unless otherwise noted)
Change in Equity Markets(1)	25% decrease		10% decrease		10% increase		25% increase
Potential impact on net income(2)(3)		$    (300)		$    (100)		$    100		$    300
Potential impact on OCI(3)		$    (200)		$      (50)		$      50		$    200
Potential impact on LICAT(2)(4)		n/a		n/a		n/a		n/a

⁽¹⁾   Represents the respective change across all equity markets as at September 30, 2018 and December 31, 2017. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).

⁽²⁾  The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at September 30, 2018 and December 31, 2017, and include new business added and product changes implemented prior to such dates.

⁽³⁾  Net income and OCI sensitivities have been rounded to the nearest $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.

⁽⁴⁾  The LICAT sensitivities illustrate the impact on Sun Life Assurance as at September 30, 2018. LICAT ratios are not applicable before January 1, 2018. LICAT ratios are rounded to the nearest 0.5%.

Interest Rate Sensitivities

The following table sets out the estimated immediate impact on, or sensitivity of, our net income and OCI and Sun Life Assurance’s LICAT ratio to certain instantaneous changes in interest rates as at September 30, 2018 and December 31, 2017.

Sun Life Assurance’s LICAT ratio decreases with rising interest rates and increases with declining interest rates, which is opposite to our net income sensitivity. Increases to interest rates will reduce the value of our assets and margins in our actuarial liabilities, resulting in a lower LICAT ratio. LICAT includes the change in OCI associated with assets designated as AFS. On adoption of LICAT, given the change in the sensitivity profile, the ranges of sensitivities were reviewed and updated accordingly. The sensitivity of our LICAT ratio to changes in interest rates has decreased in the third quarter of 2018 as a result of ACMA and investment-related management actions.

($ millions, unless otherwise noted)	As at September 30, 2018						As at December 31, 2017
Change in Interest Rates(1)	50 basis point decrease			50 basis point increase			50 basis point decrease			50 basis point increase
Potential impact on net income(2)(3)(4)		$    (100	)		$     100		$	(100	)	$	50
Potential impact on OCI(3)		$     250			$    (250	)	$	250		$	(250	)
Potential impact on LICAT(2)(5)		2.0% point increase			1.5% point decrease			n/a			n/a

⁽¹⁾  Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at September 30, 2018 and December 31, 2017 with no change to the Actuarial Standards Board (“ASB”) promulgated Ultimate Reinvestment Rate (“URR”). Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates).

⁽²⁾  The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at September 30, 2018 and December 31, 2017, and include new business added and product changes implemented prior to such dates.

⁽³⁾  Net income and OCI sensitivities have been rounded to the nearest $50 million. The sensitivities exclude the market impacts on the income from our joint ventures and associates, which we account for on an equity basis.

⁽⁴⁾  The majority of interest rate sensitivity, after hedging, is attributed to individual insurance products. We also have interest rate sensitivity, after hedging, from our fixed annuity and segregated funds products.

⁽⁵⁾  The LICAT sensitivities illustrate the impact on Sun Life Assurance as at September 30, 2018. LICAT ratios are not applicable before January 1, 2018. LICAT ratios are rounded to the nearest 0.5%.

24 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

2. Credit Spread and Swap Spread Sensitivities

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

($ millions, unless otherwise noted)	Credit Spread Sensitivities(1)					Swap Spread Sensitivities
Net income sensitivity(2)	50 basis point decrease			50 basis point increase		20 basis point decrease		20 basis point increase
September 30, 2018	$	(100	)	$	100	$	25	$	(25	)
December 31, 2017	$	(100	)	$	100	$	25	$	(25	)

⁽¹⁾  In most instances, credit spreads are assumed to revert to long-term insurance contract liability assumptions generally over a five-year period.

⁽²⁾  Sensitivities have been rounded to the nearest $25 million.

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

3. General Account Insurance and Annuity Products

Most of our expected sensitivity to changes in interest rates and about two-thirds of our expected sensitivity to changes in equity markets are derived from our general account insurance and annuity products. We have implemented market risk management strategies to mitigate a portion of the market risk related to our general account insurance and annuity products.

Individual insurance products include universal life and other long-term life and health insurance products. Major sources of market risk exposure for individual insurance products include the reinvestment risk related to future premiums on regular premium policies, asset reinvestment risk on both regular premium and single premium policies and the guaranteed cost of insurance. Interest rate risk for individual insurance products is typically managed on a duration basis, within tolerance ranges set out in the applicable investment policy or guidelines. Targets and limits are established so that the level of residual exposure is commensurate with our risk appetite.

Exposures are monitored frequently, and assets are re-balanced as necessary to maintain compliance within policy limits using a combination of assets and derivative instruments. A portion of the longer-term cash flows are backed with equities and real estate.

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

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

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

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

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

4. Segregated Fund Guarantees

Approximately one-third of our equity market sensitivity and a small amount of interest rate risk sensitivity as at September 30, 2018 are derived from segregated fund products. These products provide benefit guarantees, which are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing these guarantees is uncertain and depends upon a number of factors including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impacts on net income and capital.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 25

The following table provides information with respect to the guarantees provided for our segregated fund products.

As at September 30, 2018
($ millions)	Fund value		Amount at  Risk(1)		Value of guarantees(2)		Insurance  contract liabilities(3)
SLF Canada		12,154		301		10,695		288
SLF Asia(4)		3,076		276		3,193		92
Run-off reinsurance(5)		2,558		359		1,497		331
Total		17,788		936		15,385		711
As at December 31, 2017
($ millions)	Fund value		Amount at Risk(1)		Value of guarantees(2)		Insurance contract liabilities(3)
SLF Canada		12,448		315		10,875		399
SLF Asia(4)		3,727		250		3,755		107
Run-off reinsurance(5)		2,534		375		1,546		385
Total		18,709		940		16,176		891

⁽¹⁾   The Amount at Risk represents the excess of the value of the guarantees over fund values on all policies where the value of the guarantees exceeds the fund value. The Amount at Risk is not currently payable as the guarantees are only payable upon death, maturity, withdrawal, or annuitization if fund values remain below guaranteed values.

⁽²⁾  For guaranteed lifetime withdrawal benefits, the value of guarantees is calculated as the present value of the maximum future withdrawals assuming market conditions remain unchanged from current levels. For all other benefits, the value of guarantees is determined assuming 100% of the claims are made at the valuation date.

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

⁽⁴⁾  Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia, and balances in 2017 have been changed to conform with the current year presentation. For further information, see section F – Performance by Business Group in this document.

⁽⁵⁾  The Run-off reinsurance business includes risks assumed through reinsurance of variable annuity products issued by various North American insurance companies between 1997 and 2001. This line of business is part of a closed block of reinsurance, which is included in the Corporate segment.

The movement of the items in the table above from December 31, 2017 to September 30, 2018 primarily resulted from the following factors:

(i) the total fund values decreased due to net redemptions from products closed to new business, which was partially offset by the weakening of the Canadian dollar against the U.S. dollar;

(ii) the amount at risk decreased due to net redemptions from products closed to new business, which was partially offset by the weakening of the Canadian dollar against the U.S. dollar;

(iii) the total value of guarantees decreased due to net redemptions from products closed to new business, which was partially offset by the weakening of the Canadian dollar against the U.S. dollar; and

(iv) the total insurance contract liabilities decreased due to higher interest rates and net redemptions from products closed to new business, which was partially offset by the weakening of the Canadian dollar against the U.S. dollar.

5. Segregated Fund Hedging

Our hedging programs use derivative instruments to mitigate the interest and equity related exposure of our segregated fund contracts. As at September 30, 2018, over 90% of our segregated fund contracts, as measured by associated fund values, were included in a hedging program. While a large percentage of contracts are included in the hedging program, not all of our market risk exposure related to these contracts is hedged. For those segregated fund contracts included in the hedging program, we generally hedge the value of expected future net claims costs and associated margins.

26 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table illustrates the impact of our hedging program related to our sensitivity to a 50 basis point decrease in interest rates and a 10% and 25% decrease in equity markets for segregated fund contracts as at September 30, 2018 and December 31, 2017.

Impact of Segregated Fund Hedging

September 30, 2018
($ millions)	Changes in interest  rates(1)			Changes in equity  markets(2)
Net income sensitivity(3)(4)		50 basis point decrease			10% decrease		25% decrease
Before hedging		(150	)		(150	)	(400	)
Hedging impact		150			100		300
Net of hedging		–			(50	)	(100	)
December 31, 2017
($ millions)	Changes in interest rates(1)			Changes in equity markets(2)
Net income sensitivity(3)(4)		50 basis point decrease			10% decrease		25% decrease
Before hedging		(200	)		(150	)	(450	)
Hedging impact		200			100		350
Net of hedging		–			(50	)	(100	)

⁽¹⁾  Represents a parallel shift in assumed interest rates across the entire yield curve as at September 30, 2018 and December 31, 2017, with no change to the ASB promulgated URR. Variations in realized yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for dynamic hedging programs at 10 basis point intervals (for 50 basis point changes in interest rates).

⁽²⁾  Represents the change across all equity markets as at September 30, 2018 and December 31, 2017. Assumes that actual equity exposures consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of active management, basis risk, and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing equity hedges for dynamic hedging programs at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).

⁽³⁾  Net income sensitivities have been rounded to the nearest $50 million.

⁽⁴⁾  Since the fair value of benefits being hedged will generally differ from the financial statement value (due to different valuation methods and the inclusion of valuation margins in respect of financial statement values), this will result in residual volatility to interest rate and equity market shocks in net income and capital. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors, including volatile and declining equity and interest rate market conditions.

6. Real Estate Risk

Real estate risk is the potential for financial loss arising from fluctuations in the value of, or future cash flows from, our investments in real estate. We are exposed to real estate risk and may experience financial losses resulting from the direct ownership of real estate investments or indirectly through fixed income investments secured by real estate property, leasehold interests, ground rents, and purchase and leaseback transactions. Real estate price risk may arise from external market conditions, inadequate property analysis, inadequate insurance coverage, inappropriate real estate appraisals, or from environmental risk exposures. We hold direct real estate investments that support general account liabilities and surplus, and fluctuations in value will impact our profitability and financial position. A material and sustained increase in interest rates may lead to deterioration in real estate values. An instantaneous 10% decrease in the value of our direct real estate investments as at September 30, 2018 would decrease net income⁽¹⁾ by approximately $275 million ($250 million decrease as at December 31, 2017). Conversely, an instantaneous 10% increase in the value of our direct real estate investments as at September 30, 2018 would increase net income by approximately $275 million ($250 million increase as at December 31, 2017).

⁽¹⁾  Net income sensitivities have been rounded to the nearest $25 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 27

7. Additional Cautionary Language and Key Assumptions Related to Sensitivities

Our market risk sensitivities are measures of our estimated change in net income and OCI for changes in interest rates and equity market price levels described above, based on interest rates, equity market prices and business mix in place as at the respective calculation dates. These sensitivities are calculated independently for each risk factor, generally assuming that all other risk variables stay constant. The sensitivities do not take into account indirect effects such as potential impacts on goodwill impairment or valuation allowances on deferred tax assets. The sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Actual results can differ materially from these estimates for a variety of reasons, including differences in the pattern or distribution of the market shocks, the interaction between these risk factors, model error, or changes in other assumptions such as business mix, effective tax rates, policyholder behaviour, currency exchange rates and other market variables relative to those underlying the calculation of these sensitivities. The extent to which actual results may differ from the indicative ranges will generally increase with larger capital market movements. Our sensitivities as at December 31, 2017 have been included for comparative purposes only.

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

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

The sensitivities reflect the composition of our assets and liabilities as at September 30, 2018 and December 31, 2017, respectively. Changes in these positions due to new sales or maturities, asset purchases/sales, or other management actions could result in material changes to these reported sensitivities. In particular, these sensitivities reflect the expected impact of hedging activities based on the hedge programs in place as at the September 30 and December 31 calculation dates. The actual impact of hedging activity can differ materially from that assumed in the determination of these indicative sensitivities due to ongoing hedge re-balancing activities, changes in the scale or scope of hedging activities, changes in the cost or general availability of hedging instruments, basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), model risk, and other operational risks in the ongoing management of the hedge programs or the potential failure of hedge counterparties to perform in accordance with expectations.

The sensitivities are based on methods and assumptions in effect as at September 30, 2018 and December 31, 2017, as applicable. Changes in the regulatory environment, accounting or actuarial valuation methods, models, or assumptions (including changes to the ASB promulgated URR) after those dates could result in material changes to these reported sensitivities. Changes in interest rates and equity market prices in excess of the ranges illustrated may result in other than proportionate impacts.

Our hedging programs may themselves expose us to other risks, including basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), volatility risk, derivative counterparty credit risk, and increased levels of liquidity risk, model risk and other operational risks. These factors may adversely impact the net effectiveness, costs, and financial viability of maintaining these hedging programs and therefore adversely impact our profitability and financial position. While our hedging programs are intended to mitigate these effects (e.g., hedge counterparty credit risk is managed by maintaining broad diversification, dealing primarily with highly rated counterparties, and transacting through over-the-counter contracts, cleared through central clearing houses, exchange-traded contracts or bilateral over-the-counter contracts negotiated directly between counterparties that include credit support annexes), residual risk, potential reported earnings and capital volatility remain.

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

Information related to market risk sensitivities and guarantees related to segregated fund products should be read in conjunction with the information contained in section M – Accounting and Control Matters – 1 – Critical Accounting Policies and Estimates in our 2017 annual MD&A. Additional information on market risk can be found in Note 6 of our 2017 Annual Consolidated Financial Statements and the Risk Factors section in our AIF.

28 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

I. Additional Financial Disclosure

1. Revenue

	Quarterly results									Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17			2018			2017
Premiums
Gross		4,928			4,901			4,741			15,046			14,530
Ceded		(559	)		(586	)		(1,025	)		(1,717	)		(3,327	)
Net premiums		4,369			4,315			3,716			13,329			11,203
Net investment income
Interest and other investment income		1,414			1,398			1,328			4,166			4,014
Fair value(1) and foreign currency changes on assets and liabilities		(1,304	)		(405	)		(974	)		(3,257	)		993
Net gains (losses) on available-for-sale assets		19			41			41			96			154
Fee income		1,500			1,477			1,444			4,483			4,322
Total revenue		5,998			6,826			5,555			18,817			20,686
Adjusted revenue(2)		7,321			7,286			7,297			22,717			21,954

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

⁽²⁾  Adjusted revenue is a non-IFRS financial measure that excludes from revenue the impact of Constant Currency Adjustment, FV Adjustment and Reinsurance in SLF Canada’s GB Operations Adjustment as described in section M – Non-IFRS Financial Measures in this document.

Revenue in the third quarter of 2018 was $6.0 billion, up $0.4 billion compared to the third quarter of 2017. This increase is mainly due to net premium growth, partially offset by decreases in FVTPL assets. Revenue was $18.8 billion for the nine months ended September 30, 2018, down $1.9 billion from the comparable period last year. The decrease was mainly attributable to decreases in the fair value of FVTPL assets largely due to the higher increases in interest rates in 2018 compared to the same period in 2017. The currency impact from the change in the Canadian dollar relative to average exchange rates in the third quarter of 2017 and the first nine months of 2017 increased revenue by $108 million and decreased revenue by $139 million, respectively.

Adjusted revenue was $7.3 billion in the third quarter of 2018, in line with the third quarter of 2017. Adjusted revenue of $22.7 billion for the nine months ended September 30, 2018 was $0.8 billion higher compared to the same period last year. The increase was primarily driven by higher net premium revenue in SLF Canada.

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

Total general fund assets were $162.4 billion as at September 30, 2018, compared to $162.7 billion as at December 31, 2017, primarily a result of a decrease of $3.3 billion from the change in value of FVTPL assets, partially offset by a $1.8 billion increase in business activity, and an increase of $1.2 billion from the movement of the Canadian dollar relative to exchange rates at the end of the fourth quarter of 2017.

Insurance contract liabilities (excluding other policy liabilities and assets) of $110.6 billion as at September 30, 2018 decreased by $0.5 billion compared to December 31, 2017, mainly due to the change in balances on in-force policies (which include fair value changes on FVTPL assets supporting insurance contract liabilities), partially offset by balances arising from new policies and the impact of the Canadian dollar relative to exchange rates at the end of the fourth quarter of 2017.

Shareholders’ equity, including preferred share capital, was $22.8 billion as at September 30, 2018, compared to $22.3 billion as at December 31, 2017. The increase in shareholders’ equity was primarily due to:

(i) shareholders’ net income of $2.0 billion in 2018, before preferred share dividends of $71 million;

(ii) an increase of $136 million from the change of the Canadian dollar relative to exchange rates at the end of the fourth quarter of 2017;

(iii) impact of $89 million from the transfer of seed capital from the participating account to the shareholder account;

(iv) changes in the remeasurement of defined benefit plans of $100 million;

(v) $13 million from stock options exercised and $3 million from stock-based compensation; partially offset by

(vi) common share dividend payments of $853 million;

(vii) net unrealized losses on AFS assets in OCI of $371 million;

(viii) a decrease of $406 million from the repurchase and cancellation of common shares; and

(ix) a decrease of $96 million from OCI of joint ventures and associates.

As at October 26, 2018, SLF Inc. had 603,267,767 common shares, 3,118,504 options to acquire SLF Inc. common shares, and 92,200,000 Class A Shares outstanding.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 29

3. Cash Flows

	Quarterly results						Year-to-date
($ millions)	Q3’18			Q3’17			2018			2017
Net cash and cash equivalents, beginning of period		5,459			5,424			5,956			6,509
Cash flows provided by (used in):
Operating activities		1,118			630			1,951			1,334
Investing activities		(57	)		(66	)		(147	)		(198	)
Financing activities		(587	)		(453	)		(1,941	)		(1,999	)
Changes due to fluctuations in exchange rates		(66	)		(104	)		48			(215	)
Increase (decrease) in cash and cash equivalents		408			7			(89	)		(1,078	)
Net cash and cash equivalents, end of period		5,867			5,431			5,867			5,431
Short-term securities, end of period		2,126			2,462			2,126			2,462
Net cash, cash equivalents and short-term securities, end of period		7,993			7,893			7,993			7,893

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

The cash flows used in financing activities in the third quarter of 2018 compared to the same period last year increased primarily due to the repurchase and cancellation of common shares in the third quarter of 2018.

4. Quarterly Financial Results

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

	Quarterly results
($ millions, unless otherwise noted)	Q3’18			Q2’18			Q1’18			Q4’17			Q3’17			Q2’17			Q1’17		Q4’16
Total revenue		5,998			6,826			5,993			8,648			5,555			8,122			7,009		2,366
Common shareholders’ net income (loss)
Reported		567			706			669			207			817			574			551		728
Underlying(1)		730			729			770			641			643			689			573		560
Diluted EPS ($)
Reported		0.93			1.16			1.09			0.34			1.32			0.93			0.89		1.18
Underlying(1)		1.20			1.20			1.26			1.05			1.05			1.12			0.93		0.91
Basic reported EPS ($)
Reported		0.94			1.16			1.10			0.34			1.33			0.93			0.90		1.19
Reported net income (loss) by segment
SLF Canada		335			262			249			172			340			185			266		398
SLF U.S.(2)		(267	)		105			96			(63	)		72			(178	)		25		81
SLF Asset Management		241			214			210			114			185			183			171		198
SLF Asia(2)		164			133			133			121			216			356			85		83
Corporate		94			(8	)		(19	)		(137	)		4			28			4		(32	)
Total reported net income (loss)		567			706			669			207			817			574			551		728
Underlying net income (loss) by segment(1)
SLF Canada		251			245			295			232			222			266			229		243
SLF U.S.(2)		139			125			129			95			121			101			59		55
SLF Asset Management		251			216			231			226			204			199			183		188
SLF Asia(2)		110			145			128			111			130			123			97		94
Corporate		(21	)		(2	)		(13	)		(23	)		(34	)		–			5		(20	)
Total underlying net income (loss)(1)		730			729			770			641			643			689			573		560

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

⁽²⁾  Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia, and comparative figures in 2017 and 2016 have been changed to conform with the current year presentation. For further information, see section F – Performance by Business Group in this document.

30 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

Second Quarter 2018

Reported net income was $706 million in the second quarter of 2018, reflecting $82 million favourable change in market related impacts compared to the same quarter in 2017. Underlying net income was $729 million, primarily driven by strong business growth and favourable morbidity experience, partially offset by expenses, credit experience, and the impact of investment activity on insurance contract liabilities.

First Quarter 2018

Reported net income was $669 million in the first quarter of 2018, reflecting $79 million unfavourable change in market related impacts compared to the same quarter in 2017. Underlying net income was $770 million, primarily driven by interest on par seed capital of $110 million, strong business growth, the lower income tax rate in the U.S., as well as the impact of investment activity on insurance contract liabilities, partially offset by weaker mortality and lapse experience.

Fourth Quarter 2017

Reported net income was $207 million in the fourth quarter of 2017, reflecting unfavourable impact of the U.S. tax reform, a restructuring charge, and the impact from interest rates compared to the fourth quarter of 2016. Underlying net income was $641 million, reflecting the growth in our wealth businesses and favourable morbidity and mortality experience.

Third Quarter 2017

Reported net income was $817 million in the third quarter of 2017, reflecting favourable market related activity primarily driven by interest rates and changes in the fair values of real estate, and favourable impact of ACMA, partially offset by the unfavourable impact of the movement of the Canadian dollar and other adjustments compared to the third quarter of 2016. Underlying net income was $643 million, reflecting favourable mortality experience, growth in fee income on our wealth businesses and new business gains, partially offset by a lower level of gains from investing activity.

Second Quarter 2017

Reported net income was $574 million in the second quarter of 2017, reflecting the unfavourable effect of market related impacts driven by interest rate changes, the unfavourable impact of acquisition, integration and restructuring costs, fair value adjustments on MFS’s share-based payment awards, and certain hedges in SLF Canada that do not qualify for hedge accounting. Underlying net income was $689 million, reflecting business growth, gains from investing activity on insurance contract liabilities, positive credit experience and favourable morbidity and mortality experience, partially offset by unfavourable lapse and other policyholder experience, unfavourable expense experience, including investment in growing our businesses, and unfavourable other experience.

First Quarter 2017

Reported net income was $551 million in the first quarter of 2017, reflecting the favourable effect of market related impacts partially offset by the unfavourable impact of acquisition, integration and restructuring costs and fair value adjustments on MFS’s share-based payment awards. Underlying net income was $573 million, reflecting favourable mortality experience in SLF Canada and SLF U.K. and gains from investing activities on insurance contract liabilities, partially offset by lapse and other policyholder behaviour experience and unfavourable mortality experience in SLF U.S.

Fourth Quarter 2016

Reported net income was $728 million in the fourth quarter of 2016, reflecting favourable interest rate impacts. Reported net income also reflected factors discussed in underlying net income. Underlying net income was $560 million, reflecting positive credit experience and a lower level of gains from investing activity on insurance contract liabilities. This was partially offset by unfavourable expense experience, reflecting incentive compensation costs arising from overall strong business performance and investment in growing our businesses. We also experienced unfavourable morbidity results mainly in the U.S.

J. Legal and Regulatory Matters

Information concerning legal and regulatory matters is provided in our Annual Consolidated Financial Statements, annual MD&A, and AIF, in each case for the year ended December 31, 2017, and in our Interim Consolidated Financial Statements for the period ended September 30, 2018.

K. Changes in Accounting Policies

We have adopted several amended IFRS standards in the current year. In addition, new IFRS standards were issued in the current year. For additional information, refer to Note 2 in our Interim Consolidated Financial Statements for the period ended September 30, 2018.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 31

In May 2017, the IASB issued IFRS 17 Insurance Contracts (“IFRS 17”), which replaces IFRS 4 Insurance Contracts. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. IFRS 17 requires entities to measure insurance contract liabilities at their current fulfillment values using one of three measurement models, depending on the nature of the contract. Insurance contracts are recognized and measured as the total of: the fulfillment cash flows, which are current estimates of expected cash flows adjusted to reflect the timing and the uncertainty in those amounts; and the contractual service margin, which represents the future profit that the company expects to earn as it provides insurance coverage.

IFRS 17 is effective for annual periods beginning on or after January 1, 2021. IFRS 17 will significantly affect how we account for our insurance contracts and how we report and disclose our financial performance in our Consolidated Financial Statements. Any regulatory and tax regimes that are dependent upon IFRS accounting values may also be impacted.

The adoption of IFRS 17 will be a significant change for us and for the industry. In order to ensure effective implementation, we have established a transition program for IFRS 17 and dedicated significant resources to the implementation. We continue to assess both the potential financial statement and business implications of the standard and have regular discussions on application and interpretation of IFRS 17 with our peers in Canada through industry and professional associations. We are also monitoring and participating in international developments related to the adoption and interpretation of this standard.

L. Internal Control Over Financial Reporting

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

There were no changes in the Company’s internal control over financial reporting during the period, which began on July 1, 2018 and ended on September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

M. Non-IFRS Financial Measures

1. Underlying Net Income and Underlying EPS

Underlying net income (loss) and financial measures based on underlying net income (loss), including underlying EPS or underlying loss per share, and underlying ROE, are non-IFRS financial measures. Underlying net income (loss) removes from reported net income (loss) the impact of the following items that create volatility in our results under IFRS and when removed assist in explaining our results from period to period:

(a) market related impacts, which include: (i) impact of returns in equity markets, net of hedging, above or below our best estimate assumptions of approximately 2% per quarter in the reporting period, and which also includes the impact of the basis risk inherent in our hedging program, which is the difference between the return on underlying funds of products that provide benefit guarantees and the return on the derivative assets used to hedge those benefit guarantees; (ii) the impact of changes in interest rates that differ from our best estimate assumptions in the reporting period and on the value of derivative instruments used in our hedging programs including changes in credit and swap spreads, and any changes to the assumed fixed income reinvestment rates in determining the actuarial liabilities; and (iii) the impact of changes in the fair value of investment properties in the reporting period;

(b) assumption changes and management actions, which include: (i) the impact of revisions to the methods and assumptions used in determining our liabilities for insurance contracts and investment contracts; and (ii) the impact on insurance contracts and investment contracts of actions taken by management in the current reporting period, referred to as management actions which include, for example, changes in the prices of in-force products, new or revised reinsurance on in-force business, and material changes to investment policies for assets supporting our liabilities; and

(c) Other adjustments:

(i) certain hedges in SLF Canada that do not qualify for hedge accounting – this adjustment enhances the comparability of our net income from period to period, as it reduces volatility to the extent it will be offset over the duration of the hedges;

(ii) fair value adjustments on MFS’s share-based payment awards that are settled with MFS’s own shares and accounted for as liabilities and measured at fair value each reporting period until they are vested, exercised and repurchased – this adjustment enhances the comparability of MFS’s results with publicly traded asset managers in the United States;

(iii) acquisition, integration and restructuring costs (including impacts related to acquiring and integrating acquisitions); and

(iv) other items that are unusual or exceptional in nature.

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

All EPS measures in this document refer to fully diluted EPS, unless otherwise stated. As noted above, underlying EPS excludes the dilutive impact of convertible instruments.

32 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Reconciliations of Select Net Income Measures

	Quarterly results									Year-to-date
($ millions, unless otherwise noted)	Q3’18			Q2’18			Q3’17			2018			2017
Reported net income		567			706			817			1,942			1,942
Equity market impact
Impact from equity market changes		–			15			24			(20	)		38
Basis risk impact		5			(6	)		(6	)		(11	)		5
Equity market impact		5			9			18			(31	)		43
Interest rate impact(1)
Impact of interest rate changes		17			(38	)		58			(48	)		(4	)
Impact of credit spread movements		(3	)		6			2			20			(28	)
Impact of swap spread movements		–			(5	)		9			(22	)		(15	)
Interest rate impact		14			(37	)		69			(50	)		(47	)
Impact of changes in the fair value of investment properties		6			36			26			46			54
Market related impacts		25			8			113			(35	)		50
Assumption changes and management actions		(166	)		1			103			(168	)		115
Other adjustments:
Certain hedges in SLF Canada that do not qualify for hedge accounting		(1	)		1			(6	)		6			(18	)
Fair value adjustments on MFS’s share-based payment awards		(10	)		(2	)		(19	)		(33	)		(47	)
Acquisition, integration and restructuring		(11	)		(31	)		(17	)		(57	)		(63	)
Total of other adjustments		(22	)		(32	)		(42	)		(84	)		(128	)
Underlying net income (loss)		730			729			643			2,229			1,905
Reported EPS (diluted) ($)		0.93			1.16			1.32			3.18			3.16
Market related impacts ($)		0.04			0.01			0.18			(0.06	)		0.08
Assumption changes and management actions ($)		(0.27	)		–			0.17			(0.28	)		0.19
Certain hedges in SLF Canada that do not qualify for hedge accounting ($)		–			–			(0.01	)		0.01			(0.03	)
Fair value adjustments on MFS’s share-based payment awards ($)		(0.02	)		–			(0.03	)		(0.05	)		(0.07	)
Acquisition, integration and restructuring ($)		(0.02	)		(0.05	)		(0.03	)		(0.10	)		(0.10	)
Impact of convertible securities on diluted EPS ($)		–			–			(0.01	)		–			(0.01	)
Underlying EPS (diluted) ($)		1.20			1.20			1.05			3.66			3.10

⁽¹⁾  Our exposure to interest rates varies by product type, line of business, and geography. Given the long-term nature of our business, we have a higher degree of sensitivity in respect of interest rates at long durations.

2. Additional Non-IFRS Measures

Management also uses the following non-IFRS financial measures:

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

Financial leverage ratio. This total debt to total capital ratio is ratio of debt plus preferred shares to total capital, where debt consists of all capital qualifying debt securities. Capital qualifying debt securities consist of subordinated debt and innovative capital instruments.

Dividend payout ratio. This is the ratio of dividends paid per share to diluted underlying EPS for the period.

Sales. In SLF Canada, insurance sales consist of sales of individual insurance and group benefits products; wealth sales consist of sales of individual wealth products and sales in GRS. In SLF U.S., insurance sales consist of sales by Group Benefits. In SLF Asia, insurance sales consist of the individual and group insurance sales by our subsidiaries and joint ventures and associates, based on our proportionate equity interest, in the Philippines, Hong Kong, Indonesia, India, China, Malaysia, Vietnam and sales from our International business unit; wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales by our India and China insurance joint ventures and associates, and Aditya Birla Sun Life AMC Limited’s equity and fixed income mutual fund

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 33

sales based on our proportionate equity interest, including sales as reported by our bank distribution partners. SLF Asset Management sales consist of gross sales (inflows) for retail and institutional Clients; unfunded commitments are not included in sales. Sales are also expressed on a constant currency basis, which is a measure of sales that provides greater comparability across reporting periods by excluding the impact of exchange rate fluctuations from the translation of functional currencies to the Canadian dollar.

Value of New Business. VNB represents the present value of our best estimate of future distributable earnings, net of the cost of capital, from new business contracts written in a particular time period, except new business in our SLF Asset Management pillar. The assumptions used in the calculations are generally consistent with those used in the valuation of our insurance contract liabilities except that discount rates used approximate theoretical return expectations of an equity investor. Capital required is generally based on Sun Life Assurance’s LICAT operating target. VNB is a useful metric to evaluate the present value created from new business contracts. There is no directly comparable IFRS measure.

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

	Quarterly results									Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17			2018			2017
Revenue		5,998			6,826			5,555			18,817			20,686
Constant Currency Adjustment		123			98			–			(182	)		–
FV Adjustment		(1,304	)		(405	)		(974	)		(3,257	)		993
Reinsurance in SLF Canada’s GB Operations Adjustment		(142	)		(153	)		(768	)		(461	)		(2,261	)
Adjusted revenue		7,321			7,286			7,297			22,717			21,954

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

	Quarterly results									Year-to-date
($ millions)	Q3’18			Q2’18			Q3’17			2018			2017
Premiums and deposits		35,462			37,017			40,151			118,595			123,714
Constant Currency Adjustment		1,010			770			–			(1,750	)		–
Reinsurance in SLF Canada’s GB Operations Adjustment		(142	)		(153	)		(768	)		(461	)		(2,261	)
Adjusted premiums and deposits		34,594			36,400			40,919			120,806			125,975

Pre-tax net operating profit margin ratio for MFS. This ratio is a measure of the profitability of MFS, which excludes the impact of fair value adjustments on MFS’s share-based payment awards, investment income, and certain commission expenses that are offsetting. These commission expenses are excluded in order to neutralize the impact these items have on the pre-tax operating profit margin ratio and have no impact on the profitability of MFS. There is no directly comparable IFRS measure.

After-tax profit margin for SLF U.S. Group Benefits. This ratio assists in explaining our results from period to period and is a measure of profitability that expresses SLF U.S. Group Benefits underlying net income as a percentage of net premiums. This ratio is calculated by dividing underlying net income (loss) by net premiums for the trailing four quarters. There is no directly comparable IFRS measure.

Impact of foreign exchange. Items impacting our Consolidated Statements of Operations, such as Revenue, Benefits and expenses, and Total net income (loss), are translated into Canadian dollars using average exchange rates for the respective period. For items impacting our Consolidated Statements of Financial Position, such as Assets and Liabilities, period end rates are used for currency translation purposes.

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

Assumption changes and management actions. In this document the impact of ACMA on shareholders’ net income (after-tax) is included in reported net income and is excluded in calculating underlying net income, as described in section C – Profitability in this document.

Note 6.A of our Interim Consolidated Financial Statements shows the pre-tax impact of method and assumption changes on shareholder and participating policyholder Insurance Contract Liabilities net of reinsurance assets, excluding changes in other policy liabilities and assets.

34 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

The view in this document of assumption changes and management actions is the impact on shareholders’ net income (after tax). The Interim Consolidated Financial Statement view is a component of the change in total company liabilities. The following table provides a reconciliation of the differences between the two measures.

	Quarterly Results								Year-to-date
($ millions)	Q3’18			Q2’18		Q1’18			2018			2017
Impact of method and assumption changes on Insurance Contract Liabilities (pre-tax)(1)		281			4		(5	)		280			609
Less: Participating Policyholders(2)		525			1		–			526			146
Impact of method and assumption changes excluding participating policyholders (pre-tax)		(244	)		3		(5	)		(246	)		463
Less: Tax		(86	)		3		(2	)		(85	)		109
Impact of method and assumption changes excluding participating policyholders (after-tax)		(158	)		–		(3	)		(161	)		354
Add: Management Actions (after-tax)(3)		9			–		–			9			(243	)
Other (after-tax)(4)		(17	)		1		–			(16	)		4
Assumption changes and management actions (after-tax)(5)(6)		(166	)		1		(3	)		(168	)		115

⁽¹⁾  Note 6.A of our Interim Consolidated Financial Statements shows the pre-tax impact of method and assumption changes on shareholder and participating policyholder Insurance contract liabilities net of reinsurance assets, excluding changes in other policy liabilities and assets, whereas the amount shown in the table above is the shareholders’ and participating policyholders income impact related to the amount shown in Note 6.A of our Interim Consolidated Financial Statements.

⁽²⁾  Adjustment to remove the pre-tax impact of method and assumption changes on amounts attributed to participating policyholders.

⁽³⁾  Adjustment to include the after-tax impact of management actions on insurance contract liabilities and investment contract liabilities which include, for example, changes in the prices of in-force products, new or revised reinsurance on in-force business, and material changes to investment policies for assets supporting our liabilities.

⁽⁴⁾  Adjustments to include the after-tax impact of method and assumption changes on investment contracts and other policy liabilities.

⁽⁵⁾  Includes the tax impacts of assumption changes and management actions on insurance contract liabilities and investment contract liabilities, reflecting the tax rates in the jurisdictions in which we do business.

⁽⁶⁾  Assumption changes and management actions is included in reported net income and is excluded in calculating underlying net income, as described in Section C – Profitability in this document.

Effective January 1, 2018, we transferred our International business unit from SLF U.S. to SLF Asia as described in section F – Performance by Business Group in this document, and comparative figures in 2017 have been changed to conform with the current year presentation. On a year to date basis, the change in the ACMA resulted in a reduction in ACMA in SLF U.S. by $203 million in In-force Management, and a corresponding increase in SLF Asia in International, which was recorded predominantly in the second quarter of 2017.

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

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

N. Forward-looking Statements

From time to time, the Company makes written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements contained in this document include statements (i) relating to our strategies, (ii) relating to our growth initiatives and other business objectives, (iii) relating to our expected capital position under the new LICAT guideline, (iv) relating to our expected tax range for future years (v) that are predictive in nature or that depend upon or refer to future events or conditions, (vi) relating to the development of our high net worth insurance business in Asia, (vii) relating to the growth and development of SLF U.S., (viii) that include words such as “achieve”, “aim”, “ambition”, “anticipate”, “aspiration”, “assumption”, “believe”, “could”, “estimate”, “expect”, “goal”, “initiatives”, “intend”, “may”, “objective”, “outlook”, “plan”, “project”, “seek”, “should”, “strategy”, “strive”, “target”, “will”, and similar expressions. Forward-looking statements include the information concerning our possible or assumed future results of operations. These statements represent our current expectations, estimates, and projections regarding future events and are not historical facts. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Future results and shareholder value may differ

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Third Quarter 2018 35

materially from those expressed in these forward-looking statements due to, among other factors, the matters set out in this document under the headings, C – Profitability – 5 – Income taxes, E – Financial Strength and H – Risk Management and in SLF Inc.’s 2017 AIF under the heading Risk Factors and the factors detailed in SLF Inc.’s other filings with Canadian and U.S. securities regulators, which are available for review at www.sedar.com and www.sec.gov, respectively.

Important risk factors that could cause our assumptions and estimates, and expectations and projections to be inaccurate and our actual results or events to differ materially from those expressed in or implied by the forward-looking statements contained in this document, are set out below. The realization of our forward-looking statements, essentially depends on our business performance which, in turn, is subject to many risks. Factors that could cause actual results to differ materially from expectations include, but are not limited to: credit risks – related to issuers of securities held in our investment portfolio, debtors, structured securities, reinsurers, counterparties, other financial institutions and other entities; market risks – related to the performance of equity markets; changes or volatility in interest rates or credit spreads or swap spreads; real estate investments; and fluctuations in foreign currency exchange rates; insurance risks – related to policyholder behaviour; mortality experience, morbidity experience and longevity; product design and pricing; the impact of higher-than-expected future expenses; and the availability, cost and effectiveness of reinsurance; business and strategic risks – related to global economic and political conditions; the design and implementation of business strategies; changes in distribution channels or Client behaviour including risks relating to market conduct by intermediaries and agents; the impact of competition; the performance of our investments and investment portfolios managed for Clients such as segregated and mutual funds; changes in the legal or regulatory environment, including capital requirements and tax laws; tax matters, including estimates and judgments used in calculating taxes; our international operations, including our joint ventures; market conditions that affect our capital position or ability to raise capital; downgrades in financial strength or credit ratings; and the impact of mergers, acquisitions and divestitures; operational risks – related to breaches or failure of information system security and privacy, including cyber-attacks; our ability to attract and retain employees; legal, regulatory compliance and market conduct, including the impact of regulatory inquiries and investigations; the execution and integration of mergers, acquisitions and divestitures; our information technology infrastructure; a failure of information systems and Internet-enabled technology; dependence on third-party relationships, including outsourcing arrangements; business continuity; model errors; information management; the environment, environmental laws and regulations and third-party policies; and liquidity risks – the possibility that we will not be able to fund all cash outflow commitments as they fall due.

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

36 Sun Life Financial Inc. Third Quarter 2018 MANAGEMENT’S DISCUSSION AND ANALYSIS

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, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Revenue
Premiums
Gross		$	4,928		$	4,741		$	15,046		$	14,530
Less: Ceded			559			1,025			1,717			3,327
Net premiums			4,369			3,716			13,329			11,203
Net investment income (loss):
Interest and other investment income			1,414			1,328			4,166			4,014
Fair value and foreign currency changes on assets and liabilities (Note 4)			(1,304	)		(974	)		(3,257	)		993
Net gains (losses) on available-for-sale assets			19			41			96			154
Net investment income (loss)			129			395			1,005			5,161
Fee income (Note 8)			1,500			1,444			4,483			4,322
Total revenue			5,998			5,555			18,817			20,686
Benefits and expenses
Gross claims and benefits paid (Note 6)			3,908			3,607			11,884			11,463
Increase (decrease) in insurance contract liabilities (Note 6)			(942	)		(727	)		(1,329	)		2,189
Decrease (increase) in reinsurance assets (Note 6)			234			498			189			798
Increase (decrease) in investment contract liabilities (Note 6)			(25	)		9			(34	)		40
Reinsurance expenses (recoveries) (Note 7)			(476	)		(1,061	)		(1,523	)		(3,291	)
Commissions			574			566			1,736			1,772
Net transfer to (from) segregated funds (Note 11)			(65	)		(41	)		(156	)		(56	)
Operating expenses			1,563			1,496			4,807			4,661
Premium taxes			93			94			280			279
Interest expense			73			55			226			222
Total benefits and expenses			4,937			4,496			16,080			18,077
Income (loss) before income taxes			1,061			1,059			2,737			2,609
Less: Income tax expense (benefit) (Note 9)			184			209			485			368
Total net income (loss)			877			850			2,252			2,241
Less: Net income (loss) attributable to participating policyholders (Note 10)			286			9			239			229
Shareholders’ net income (loss)			591			841			2,013			2,012
Less: Preferred shareholders’ dividends			24			24			71			70
Common shareholders’ net income (loss)		$	567		$	817		$	1,942		$	1,942
Average exchange rates during the reporting periods:
	U.S. dollars		1.31			1.25			1.29			1.31
Earnings (loss) per share (Note 13)
Basic		$	0.94		$	1.33		$	3.19		$	3.17
Diluted		$	0.93		$	1.32		$	3.18		$	3.16
Dividends per common share		$	0.475		$	0.435		$	1.405		$	1.290

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

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 37

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	For the three months ended						For the nine months ended
(unaudited, in millions of Canadian dollars)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Total net income (loss)	$	877		$	850		$	2,252		$	2,241
Other comprehensive income (loss), net of taxes:
Items that may be reclassified subsequently to income:
Change in unrealized foreign currency translation gains (losses):
Unrealized gains (losses)		(315	)		(471	)		138			(890	)
Change in unrealized gains (losses) on available-for-sale assets:
Unrealized gains (losses)		(76	)		(49	)		(302	)		141
Reclassifications to net income (loss)		(12	)		(30	)		(69	)		(91	)
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses)		(2	)		8			2			(2	)
Reclassifications to net income (loss)		–			(5	)		(6	)		(3	)
Share of other comprehensive income (loss) in joint ventures and associates:
Unrealized gains (losses)		(72	)		(33	)		(96	)		(55	)
Total items that may be reclassified subsequently to income		(477	)		(580	)		(333	)		(900	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans		11			93			100			24
Revaluation surplus on transfer to investment properties (Note 4.F)		–			–			–			139
Total items that will not be reclassified subsequently to income		11			93			100			163
Total other comprehensive income (loss)		(466	)		(487	)		(233	)		(737	)
Total comprehensive income (loss)		411			363			2,019			1,504
Less: Participating policyholders’ comprehensive income (loss) (Note 10)		285			5			241			221
Shareholders’ comprehensive income (loss)	$	126		$	358		$	1,778		$	1,283
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, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Income tax benefit (expense):
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains / losses	$	(56	)	$	–		$	(56	)	$	–
Unrealized gains / losses on available-for-sale assets		18			15			56			(65	)
Reclassifications to net income for available-for-sale assets		6			9			26			31
Unrealized gains / losses on cash flow hedges		–			(3	)		(1	)		–
Reclassifications to net income for cash flow hedges		–			2			2			1
Total items that may be reclassified subsequently to income		(32	)		23			27			(33	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans		(5	)		(33	)		(29	)		–
Revaluation surplus on transfer to investment properties (Note 4.F)		–			–			–			(33	)
Total items that will not be reclassified subsequently to income		(5	)		(33	)		(29	)		(33	)
Total income tax benefit (expense) included in other comprehensive income (loss)	$	(37	)	$	(10	)	$	(2	)	$	(66	)

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

38 Sun Life Financial Inc. Third Quarter 2018 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		As at
(unaudited, in millions of Canadian dollars)		September 30, 2018		December 31, 2017
Assets
Cash, cash equivalents and short-term securities (Note 4)		$	8,196	$	8,890
Debt securities (Note 4)			71,076		72,619
Equity securities (Note 4)			4,961		6,020
Mortgages and loans			45,207		42,805
Derivative assets			1,185		1,478
Other invested assets (Note 4)			4,546		4,154
Policy loans			3,141		3,106
Investment properties (Note 4)			7,270		7,067
Invested assets			145,582		146,139
Other assets			4,817		4,408
Reinsurance assets (Note 6)			3,937		4,028
Deferred tax assets			1,122		1,295
Intangible assets			1,705		1,667
Goodwill			5,276		5,183
Total general fund assets			162,439		162,720
Investments for account of segregated fund holders (Note 11)			108,298		106,392
Total assets		$	270,737	$	269,112
Liabilities and equity
Liabilities
Insurance contract liabilities (Note 6)		$	117,480	$	117,785
Investment contract liabilities (Note 6)			3,137		3,082
Derivative liabilities			1,676		1,756
Deferred tax liabilities			359		403
Other liabilities			11,813		11,987
Senior debentures			1,299		1,299
Subordinated debt			3,039		3,437
Total general fund liabilities			138,803		139,749
Insurance contracts for account of segregated fund holders (Note 11)			101,500		99,121
Investment contracts for account of segregated fund holders (Note 11)			6,798		7,271
Total liabilities		$	247,101	$	246,141
Equity
Issued share capital and contributed surplus		$	10,822	$	10,911
Shareholders’ retained earnings and accumulated other comprehensive income			12,012		11,410
Total shareholders’ equity			22,834		22,321
Participating policyholders’ equity			802		650
Total equity		$	23,636	$	22,971
Total liabilities and equity		$	270,737	$	269,112
Exchange rates at the end of the reporting periods:	U.S. dollars		1.29		1.26

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

Approved on behalf of the Board of Directors on November 7, 2018.

Dean A. Connor	Sara G. Lewis
President and Chief Executive Officer	Director

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 39

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	For the nine months ended
(unaudited, in millions of Canadian dollars)	September 30, 2018			September 30, 2017
Shareholders:
Preferred shares
Balance, beginning and end of period	$	2,257		$	2,257
Common shares (Note 10)
Balance, beginning of period		8,582			8,614
Stock options exercised		16			7
Common shares purchased for cancellation		(109	)		(26	)
Common shares issued as consideration for business acquisition		4			–
Balance, end of period		8,493			8,595
Contributed surplus
Balance, beginning of period		72			72
Share-based payments		3			3
Stock options exercised		(3	)		(1	)
Balance, end of period		72			74
Retained earnings
Balance, beginning of period, as previously reported		10,305			9,360
Adjustment for change in accounting policy (Note 2)		(44	)		–
Balance, beginning of period, after change in accounting policy		10,261			9,360
Net income (loss)		2,013			2,012
Dividends on common shares		(853	)		(792	)
Dividends on preferred shares		(71	)		(70	)
Common shares purchased for cancellation (Note 10)		(297	)		(62	)
Transfer from accumulated other comprehensive income (loss)		–			(13	)
Transfer from participating policyholders’ equity (Note 10)		89			–
Balance, end of period		11,142			10,435
Accumulated other comprehensive income (loss), net of taxes (Note 14)
Balance, beginning of period		1,105			1,653
Total other comprehensive income (loss) for the period		(235	)		(729	)
Transfer to retained earnings		–			13
Balance, end of period		870			937
Total shareholders’ equity, end of period	$	22,834		$	22,298
Participating policyholders:
Balance, beginning of period	$	650		$	412
Net income (loss) (Note 10)		239			229
Total other comprehensive income (loss) for the period (Note 14)		2			(8	)
Transfer to retained earnings (Note 10)		(89	)		–
Total participating policyholders’ equity, end of period	$	802		$	633
Total equity	$	23,636		$	22,931

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

40 Sun Life Financial Inc. Third Quarter 2018 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended						For the nine months ended
(unaudited, in millions of Canadian dollars)	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Cash flows provided by (used in) operating activities
Income (loss) before income taxes	$	1,061		$	1,059		$	2,737		$	2,609
Adjustments:
Interest expense related to financing activities		62			60			185			185
Increase (decrease) in insurance and investment contract liabilities		(967	)		(718	)		(1,363	)		2,229
Decrease (increase) in reinsurance assets		234			498			189			798
Realized and unrealized (gains) losses and foreign currency changes on invested assets		1,285			933			3,161			(1,147	)
Sales, maturities and repayments of invested assets		13,643			13,501			46,751			39,556
Purchases of invested assets		(14,084	)		(14,501	)		(48,602	)		(42,382	)
Income taxes received (paid)		(41	)		(88	)		(189	)		(316	)
Mortgage securitization (Note 4)		–			21			39			214
Other operating activities		(75	)		(135	)		(957	)		(412	)
Net cash provided by (used in) operating activities		1,118			630			1,951			1,334
Cash flows provided by (used in) investing activities
Net (purchase) sale of property and equipment		(29	)		(40	)		(34	)		(134	)
Investment in and transactions with joint ventures and associates		(10	)		(5	)		(13	)		(100	)
Dividends received from joint ventures and associates		14			–			34			17
Other investing activities		(32	)		(21	)		(134	)		19
Net cash provided by (used in) investing activities		(57	)		(66	)		(147	)		(198	)
Cash flows provided by (used in) financing activities
Increase in (repayment of) borrowed funds		(8	)		(14	)		(29	)		(41	)
Redemption of senior debentures and subordinated debt (Note 10)		–			–			(400	)		(800	)
Issuance of common shares on exercise of stock options		3			3			13			6
Common shares purchased for cancellation (Note 10)		(200	)		(88	)		(406	)		(88	)
Dividends paid on common and preferred shares		(307	)		(288	)		(911	)		(858	)
Interest expense paid		(75	)		(66	)		(208	)		(218	)
Net cash provided by (used in) financing activities		(587	)		(453	)		(1,941	)		(1,999	)
Changes due to fluctuations in exchange rates		(66	)		(104	)		48			(215	)
Increase (decrease) in cash and cash equivalents		408			7			(89	)		(1,078	)
Net cash and cash equivalents, beginning of period		5,459			5,424			5,956			6,509
Net cash and cash equivalents, end of period		5,867			5,431			5,867			5,431
Short-term securities, end of period		2,126			2,462			2,126			2,462
Net cash, cash equivalents and short-term securities, end of period (Note 4)	$	7,993		$	7,893		$	7,993		$	7,893

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

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 41

Condensed Notes to the Interim Consolidated Financial Statements

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

1. Significant Accounting Policies

Description of Business

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

Our Interim Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting as issued and adopted by the International Accounting Standards Board (“IASB”). We have used accounting policies which are consistent with our accounting policies in our 2017 Annual Consolidated Financial Statements, except as disclosed in Note 2 below. Our Interim Consolidated Financial Statements should be read in conjunction with our 2017 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

New and Amended International Financial Reporting Standards Adopted in 2018

In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (“IFRS 15”), which replaces IAS 11 Construction Contracts, IAS 18 Revenue and various interpretations. Amendments to IFRS 15 were issued in September 2015 and April 2016. IFRS 15 establishes principles about the nature, amount, timing, and uncertainty of revenue arising from contracts with customers. IFRS 15 requires entities to recognize revenue to reflect the transfer of goods or services to customers measured at the amounts an entity expects to be entitled to in exchange for those goods or services. Insurance contracts and revenues arising from those contracts, primarily premium revenue, are not within the scope of this standard. Revenues from service contracts and service components of investment contracts (which are treated as service contracts) that are reported in Fee income and primarily arise from our asset management businesses are within the scope of IFRS 15. IFRS 15 also provides guidance related to the costs to obtain and to fulfill a contract. We adopted IFRS 15 on a cumulative retrospective basis and recognized differences on transition to IFRS 15 as at January 1, 2018 in retained earnings. Our accounting policies under IFRS 15 are as follows:

Fee income is generated from insurance contracts and service contracts.

Fee income from insurance contracts includes fees from segregated fund contracts, guarantee fees and other fees associated with insurance contracts and is typically recognized as revenue when services are rendered.

Fee income from service contracts represents fees associated with non-insurance contracts with customers, and includes Distribution fees, Fund management and other asset-based fees, and Administrative services and other fees. Distribution fees includes fees earned from the distribution of investment products and other intermediary activities. Fund management and other asset-based fees includes fees earned from investment management services. Administrative services and other fees includes fees earned from contract administration and other management services. Fee income from service contracts is typically recognized as revenue when services are rendered at either a point in time or over time. The majority of fee income from service contracts is comprised of variable consideration which is based on a percentage of assets under management or another variable metric and is recognized as revenue when it is highly probable that a significant reversal in the amount of the revenue recognized will not occur.

Additional disclosure on revenue from contracts with customers is included in Note 8.

As a result of the adoption of IFRS 15, we derecognized a portion of our deferred acquisition costs (previously recognized in Other assets) and the related deferred tax liability on our Consolidated Statements of Financial Position, which reduced opening retained earnings by $44 on an after-tax basis as at January 1, 2018.

In September 2016, the IASB issued Amendments to IFRS 4 to allow insurance entities whose predominant activities are to issue contracts within the scope of IFRS 4 Insurance Contracts an optional temporary exemption from applying IFRS 9 Financial Instruments until 2021 (“deferral approach”). We qualify and elected the deferral approach permitted under the amendments. Consequently, we will continue to apply IAS 39 Financial Instruments: Recognition and Measurement, the existing financial instrument standard until 2021.

The following new and amended IFRS are effective for annual periods beginning on or after January 1, 2018, and did not have a material impact on our Interim Consolidated Financial Statements:

In June 2016, the IASB issued Classification and Measurement of Share-based Payment Transactions, which amends IFRS 2 Share-based Payment. The amendments clarify how to account for certain types of share-based payment transactions, such as the

42 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments. These amendments are applicable to awards granted on or after that date and to unvested and vested but unexercised awards outstanding at that date. These amendments were applied prospectively.

In December 2016, the IASB issued Annual Improvements to IFRSs 2014-2016 Cycle, which includes minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 28 Investments in Associates and Joint Ventures.

In December 2016, the IASB issued Transfers of Investment Property (Amendments to IAS 40). The amendments to IAS 40 Investment Property clarify that an entity shall transfer property to, or from, investment property when, and only when, there is evidence of a change in use.

In December 2016, the IASB issued IFRIC 22 Foreign Currency Transactions and Advance Consideration (“IFRIC 22”), which was developed by the IFRS Interpretations Committee. IFRIC 22 clarifies that for purposes of determining the exchange rate in transactions which include the receipt or payment of advance consideration in a foreign currency, the date of the transaction is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.

Amended International Financial Reporting Standards Issued in 2018

In March 2018, the IASB issued a revised Conceptual Framework for Financial Reporting (“2018 Conceptual Framework”), which replaces the Conceptual Framework for Financial Reporting issued in 2010. The 2018 Conceptual Framework includes revised definitions of an asset and a liability, as well as new guidance on measurement, derecognition, presentation and disclosure. The 2018 Conceptual Framework is effective for annual periods beginning on or after January 1, 2020. We are currently assessing the impact the adoption of this framework will have on our Consolidated Financial Statements.

In October 2018, the IASB issued Definition of a Business, which amends IFRS 3 Business Combinations. The amendments clarify the definition of a business to assist entities in determining whether a transaction represents a business combination or an acquisition of assets. The amendments are effective for annual periods beginning on or after January 1, 2020, to be applied prospectively.

Assessment of Impact on IFRS 16 Leases (“IFRS 16”)

IFRS 16, which replaces IAS 17 Leases, and related interpretations, sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. For lessees, IFRS 16 removes the classification of leases as either operating or financing and requires that all leases be recognized on the statement of financial position, with certain exemptions allowed by this new standard. The accounting for lessors is substantially unchanged. The standard is effective for annual periods beginning on or after January 1, 2019, to be applied retrospectively, or on a modified retrospective basis. We will be adopting IFRS 16 on a modified retrospective basis. We have made significant progress in identifying lease contracts within the scope of this standard and are currently assessing the impact the adoption of this standard will have on our Consolidated Financial Statements.

3. Segmented Information

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

Effective the first quarter of 2018, a change in the organizational and reporting structure resulted in the International business unit being transferred from the SLF U.S. reportable segment to the SLF Asia reportable segment. Consequently, approximately $10,000 of insurance contract liabilities pertaining to individual non-participating life and health policies is transferred from SLF U.S. to SLF Asia, along with the associated assets. The information reported to the Chief Operating Decision Maker now includes the results of the International business unit in the SLF Asia reporting package and the segmental information presented in these Interim Consolidated Financial Statements now includes the results of the International business unit in the SLF Asia reportable segment. In accordance with IFRS 8 Operating Segments, the segmental information for prior reporting periods has been restated to conform with current period presentation.

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

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

Intersegment transactions consist primarily of internal financing agreements which are measured at fair values prevailing when the arrangements are negotiated. Intersegment investment income consists primarily of interest paid by SLF U.S. to Corporate.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 43

Intersegment fee income is primarily asset management fees paid by SLF Canada and Corporate to SLF Asset Management, and product distribution fees paid by SLF Asset Management to SLF Asia. Intersegment transactions are presented in the Consolidation adjustments column in the following tables.

Results by segment for the three months ended September 30, 2018 and September 30, 2017 are as follows:

	SLF Canada			SLF U.S.(1)			SLF Asset Management		SLF Asia(1)		Corporate			Consolidation adjustments			Total
2018
Gross premiums:
Annuities	$	608		$	–		$	–	$	–	$	5		$	–		$	613
Life insurance		1,129			404			–		458		24			–			2,015
Health insurance		1,335			955			–		6		4			–			2,300
Total gross premiums		3,072			1,359			–		464		33			–			4,928
Less: ceded premiums		350			145			–		57		7			–			559
Net investment income (loss)		(53	)		159			9		72		(50	)		(8	)		129
Fee income		305			19			1,041		130		36			(31	)		1,500
Total revenue		2,974			1,392			1,050		609		12			(39	)		5,998
Less:
Total benefits and expenses		2,183			1,733			731		426		(97	)		(39	)		4,937
Income tax expense (benefit)		176			(75	)		78		14		(9	)		–			184
Total net income (loss)	$	615		$	(266	)	$	241	$	169	$	118		$	–		$	877
Less: Net income (loss) attributable to participating policyholders		280			1			–		5		–			–			286
Shareholders’ net income (loss)	$	335		$	(267	)	$	241	$	164	$	118		$	–		$	591
2017
Gross premiums:
Annuities	$	567		$	–		$	–	$	–	$	7		$	–		$	574
Life insurance		1,067			414			–		541		24			–			2,046
Health insurance		1,251			862			–		4		4			–			2,121
Total gross premiums		2,885			1,276			–		545		35			–			4,741
Less: ceded premiums		974			(2	)		–		46		7			–			1,025
Net investment income (loss)		(375	)		367			11		354		52			(14	)		395
Fee income		271			49			987		124		30			(17	)		1,444
Total revenue		1,807			1,694			998		977		110			(31	)		5,555
Less:
Total benefits and expenses		1,388			1,602			715		741		81			(31	)		4,496
Income tax expense (benefit)		80			19			98		11		1			–			209
Total net income (loss)	$	339		$	73		$	185	$	225	$	28		$	–		$	850
Less: Net income (loss) attributable to participating policyholders		(1	)		1			–		9		–			–			9
Shareholders’ net income (loss)	$	340		$	72		$	185	$	216	$	28		$	–		$	841

⁽¹⁾   Balances in 2017 have been changed to conform with current period presentation as a result of the resegmentation described in Note 3.

44 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Results by segment for the nine months ended September 30, 2018 and September 30, 2017 are as follows:

	SLF Canada		SLF U.S.(1)			SLF Asset Management		SLF Asia(1)			Corporate			Consolidation adjustments			Total
2018
Gross premiums:
Annuities	$	1,936	$	–		$	–	$	–		$	16		$	–		$	1,952
Life insurance		3,461		1,213			–		1,550			70			–			6,294
Health insurance		3,969		2,800			–		21			10			–			6,800
Total gross premiums		9,366		4,013			–		1,571			96			–			15,046
Less: ceded premiums		1,108		429			–		163			17			–			1,717
Net investment income (loss)		1,369		(99	)		10		(246	)		(9	)		(20	)		1,005
Fee income		907		52			3,111		393			115			(95	)		4,483
Total revenue		10,534		3,537			3,121		1,555			185			(115	)		18,817
Less:
Total benefits and expenses		9,127		3,683			2,241		1,081			63			(115	)		16,080
Income tax expense (benefit)		294		(45	)		215		37			(16	)		–			485
Total net income (loss)	$	1,113	$	(101	)	$	665	$	437		$	138		$	–		$	2,252
Less: Net income (loss) attributable to participating policyholders		267		(35	)		–		7			–			–			239
Shareholders’ net income (loss)	$	846	$	(66	)	$	665	$	430		$	138		$	–		$	2,013
2017
Gross premiums:
Annuities	$	1,806	$	–		$	–	$	–		$	20		$	–		$	1,826
Life insurance		3,254		1,305			–		1,696			69			–			6,324
Health insurance		3,658		2,695			–		16			11			–			6,380
Total gross premiums		8,718		4,000			–		1,712			100			–			14,530
Less: ceded premiums		2,876		274			–		158			19			–			3,327
Net investment income (loss)		2,073		1,431			35		1,407			279			(64	)		5,161
Fee income		817		87			2,993		391			88			(54	)		4,322
Total revenue		8,732		5,244			3,028		3,352			448			(118	)		20,686
Less:
Total benefits and expenses		7,531		5,428			2,205		2,631			400			(118	)		18,077
Income tax expense (benefit)		203		(106	)		284		45			(58	)		–			368
Total net income (loss)	$	998	$	(78	)	$	539	$	676		$	106		$	–		$	2,241
Less: Net income (loss) attributable to participating policyholders		207		3			–		19			–			–			229
Shareholders’ net income (loss)	$	791	$	(81	)	$	539	$	657		$	106		$	–		$	2,012

⁽¹⁾   Balances in 2017 have been changed to conform with current period presentation as a result of the resegmentation described in Note 3.

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 45

4. Total Invested Assets and Related Net Investment Income

4.A Asset Classification

The carrying values of our Debt securities, Equity securities, and Other invested assets presented in our Interim Consolidated Statements of Financial Position consist of the following:

As at		Fair value through profit or loss		Available- for-sale		Other	(1)		Total
September 30, 2018
Debt securities	$	58,209	$	12,867	$	–		$	71,076
Equity securities	$	4,334	$	627	$	–		$	4,961
Other invested assets	$	2,610	$	599	$	1,337		$	4,546
December 31, 2017
Debt securities	$	59,967	$	12,652	$	–		$	72,619
Equity securities	$	5,078	$	942	$	–		$	6,020
Other invested assets	$	2,211	$	562	$	1,381		$	4,154

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

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

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

	For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Fair value change:
Cash, cash equivalents and short-term securities	$	(1	)	$	(1	)	$	3		$	–
Debt securities		(1,205	)		(1,160	)		(3,011	)		381
Equity securities		(26	)		134			10			256
Derivative investments		8			231			(709	)		642
Other invested assets		(2	)		(25	)		39			17
Total change in fair value through profit or loss assets and liabilities		(1,226	)		(821	)		(3,668	)		1,296
Fair value changes on investment properties		92			82			329			162
Foreign exchange gains (losses)(1)		(170	)		(235	)		54			(465	)
Realized gains (losses) on property and equipment(2)		–			–			28			–
Fair value and foreign currency changes on assets and liabilities	$	(1,304	)	$	(974	)	$	(3,257	)	$	993

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

⁽²⁾  In 2018, we sold and leased back a property in Waterloo, Ontario. The transaction qualified as a sale and operating lease and as a result, we recognized a gain of $28.

4.C Impairment of Available-For-Sale Assets

We recognized impairment losses on available-for-sale assets of $3 and $8 for the three and nine months ended September 30, 2018, respectively ($3 and $4 for the three and nine months ended September 30, 2017).

46 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

As at	September 30, 2018		December 31, 2017		September 30, 2017
Cash	$	1,776	$	1,504	$	1,440
Cash equivalents		4,294		4,592		4,161
Short-term securities		2,126		2,794		2,462
Cash, cash equivalents and short-term securities		8,196		8,890		8,063
Less: Bank overdraft, recorded in Other liabilities		203		140		170
Net cash, cash equivalents and short-term securities	$	7,993	$	8,750	$	7,893

4.E Mortgage Securitization

We securitize certain insured fixed rate commercial mortgages as described in Note 5 of our 2017 Annual Consolidated Financial Statements.

The carrying value and fair value of the securitized mortgages as at September 30, 2018 are $1,259 and $1,229, respectively ($1,283 and $1,267 respectively, as at December 31, 2017). The carrying value and fair value of the associated liabilities as at September 30, 2018 are $1,394 and $1,363, respectively ($1,355 and $1,346 respectively, as at December 31, 2017). The carrying value of asset-backed securities in the principal reinvestment account (“PRA”) as at September 30, 2018 and December 31, 2017 are $135 and $75, respectively. There are no cash and cash equivalents in the PRA as at September 30, 2018 and December 31, 2017.

The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions for asset-backed securities described in Note 5 of our 2017 Annual Consolidated Financial Statements. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at September 30, 2018 and December 31, 2017.

4.F Fair Value Measurement

The fair value methodologies and assumptions for assets and liabilities carried at fair value as well as disclosures on unobservable inputs, sensitivities, and valuation processes for Level 3 assets can be found in Note 5 of our 2017 Annual Consolidated Financial Statements.

4.F.i Fair Value Hierarchy

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

As at	September 30, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash, cash equivalents and short-term securities	$	7,330	$	866	$	–	$	8,196	$	7,683	$	1,207	$	–	$	8,890
Debt securities – fair value through profit or loss		939		56,941		329		58,209		1,103		58,447		417		59,967
Debt securities – available-for-sale		1,225		11,524		118		12,867		818		11,698		136		12,652
Equity securities – fair value through profit or loss		2,387		1,762		185		4,334		3,379		1,532		167		5,078
Equity securities – available-for-sale		421		172		34		627		710		194		38		942
Derivative assets		17		1,168		–		1,185		27		1,451		–		1,478
Other invested assets		990		129		2,090		3,209		912		140		1,721		2,773
Investment properties		–		–		7,270		7,270		–		–		7,067		7,067
Total invested assets	$	13,309	$	72,562	$	10,026	$	95,897	$	14,632	$	74,669	$	9,546	$	98,847
Investments for account of segregated fund holders		26,336		80,493		1,469		108,298		27,481		77,757		1,154		106,392
Total assets measured at fair value	$	39,645	$	153,055	$	11,495	$	204,195	$	42,113	$	152,426	$	10,700	$	205,239
Liabilities
Investment contract liabilities	$	–	$	–	$	3	$	3	$	–	$	–	$	3	$	3
Derivative liabilities		7		1,669		–		1,676		5		1,751		–		1,756
Total liabilities measured at fair value	$	7	$	1,669	$	3	$	1,679	$	5	$	1,751	$	3	$	1,759

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 47

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

As at	September 30, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Canadian federal government	$	–	$	3,445	$	15	$	3,460	$	–	$	3,351	$	15	$	3,366
Canadian provincial and municipal government		–		11,680		14		11,694		–		12,142		16		12,158
U.S. government and agency		939		113		2		1,054		1,103		125		3		1,231
Other foreign government		–		4,584		34		4,618		–		5,318		43		5,361
Corporate		–		33,291		226		33,517		–		33,864		306		34,170
Asset-backed securities:
Commercial mortgage-backed securities		–		1,347		2		1,349		–		1,459		1		1,460
Residential mortgage-backed securities		–		1,712		–		1,712		–		1,625		–		1,625
Collateralized debt obligations		–		87		13		100		–		55		–		55
Other		–		682		23		705		–		508		33		541
Total debt securities – fair value through profit or loss	$	939	$	56,941	$	329	$	58,209	$	1,103	$	58,447	$	417	$	59,967

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

As at	September 30, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Canadian federal government	$	–	$	1,915	$	–	$	1,915	$	–	$	1,832	$	–	$	1,832
Canadian provincial and municipal government		–		1,163		–		1,163		–		1,138		–		1,138
U.S. government and agency		1,225		–		–		1,225		818		–		–		818
Other foreign government		–		693		1		694		–		752		–		752
Corporate		–		5,080		40		5,120		–		5,838		56		5,894
Asset-backed securities:
Commercial mortgage-backed securities		–		769		–		769		–		744		–		744
Residential mortgage-backed securities		–		397		–		397		–		398		–		398
Collateralized debt obligations		–		667		67		734		–		345		69		414
Other		–		840		10		850		–		651		11		662
Total debt securities – available-for-sale	$	1,225	$	11,524	$	118	$	12,867	$	818	$	11,698	$	136	$	12,652

There were no significant transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2018 and September 30, 2017.

48 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following tables provide reconciliations of the beginning and ending balances for assets that are categorized in Level 3:

For the three months ended	Debt securities – fair value through profit or loss			Debt securities – available- for-sale			Equity securities – fair value through profit or loss			Equity securities – available- for-sale			Other invested assets			Investment properties			Total invested assets measured at fair value			Investments for account of segregated fund holders			Total assets measured at fair value
September 30, 2018
Beginning balance	$	388		$	130		$	186		$	33		$	1,897		$	7,337		$	9,971		$	1,360		$	11,331
Included in net income(1)(3)(5)		(5	)		2			(2	)		–			(6	)		74			63			13			76
Included in OCI(3)		–			(5	)		–			–			(2	)		–			(7	)		–			(7	)
Purchases		31			39			3			–			238			135			446			125			571
Sales		(16	)		–			–			–			(28	)		(248	)		(292	)		(9	)		(301	)
Settlements		(1	)		–			–			–			–			–			(1	)		(1	)		(2	)
Transfers into Level 3(2)		–			–			–			–			–			–			–			–			–
Transfers (out) of Level 3(2)		(65	)		(47	)		–			–			–			–			(112	)		(5	)		(117	)
Foreign currency translation(4)		(3	)		(1	)		(2	)		1			(9	)		(28	)		(42	)		(14	)		(56	)
Ending balance	$	329		$	118		$	185		$	34		$	2,090		$	7,270		$	10,026		$	1,469		$	11,495
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(5	)	$	–		$	(2	)	$	–		$	(5	)	$	46		$	34		$	12		$	46
September 30, 2017
Beginning balance	$	514		$	112		$	149		$	7		$	1,581		$	6,982		$	9,345		$	1,011		$	10,356
Included in net income(1)(3)(5)		(8	)		–			(4	)		–			(44	)		63			7			5			12
Included in OCI(3)		–			1			–			–			4			–			5			–			5
Purchases		23			57			26			–			151			92			349			38			387
Sales		(19	)		–			–			–			(67	)		(37	)		(123	)		(3	)		(126	)
Settlements		(31	)		(3	)		–			–			–			–			(34	)		–			(34	)
Transfers into Level 3(2)(6)		124			–			–			–			–			–			124			–			124
Transfers (out) of Level 3(2)		(80	)		(47	)		–			–			–			–			(127	)		–			(127	)
Foreign currency translation(4)		(8	)		(2	)		(3	)		(1	)		(10	)		(66	)		(90	)		(7	)		(97	)
Ending balance	$	515		$	118		$	168		$	6		$	1,615		$	7,034		$	9,456		$	1,044		$	10,500
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(5	)	$	–		$	(4	)	$	–		$	(42	)	$	67		$	16		$	2		$	18

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 49

For the nine months ended	Debt securities – fair value through profit or loss			Debt securities – available- for-sale			Equity securities – fair value through profit or loss			Equity securities – available- for-sale			Other invested assets			Investment properties			Total invested assets measured at fair value			Investments for account of segregated fund holders			Total assets measured at fair value
September 30, 2018
Beginning balance	$	417		$	136		$	167		$	38		$	1,721		$	7,067		$	9,546		$	1,154		$	10,700
Included in net income(1)(3)(5)		(13	)		–			8			–			32			274			301			22			323
Included in OCI(3)		–			(5	)		–			(6	)		(8	)		–			(19	)		–			(19	)
Purchases		92			141			8			1			491			467			1,200			327			1,527
Sales		(48	)		–			–			(1	)		(157	)		(585	)		(791	)		(25	)		(816	)
Settlements		(14	)		–			–			(1	)		–			–			(15	)		(1	)		(16	)
Transfers into Level 3(2)		11			13			–			1			–			–			25			4			29
Transfers (out) of Level 3(2)		(117	)		(167	)		–			–			–			–			(284	)		(5	)		(289	)
Foreign currency translation(4)		1			–			2			2			11			47			63			(7	)		56
Ending balance	$	329		$	118		$	185		$	34		$	2,090		$	7,270		$	10,026		$	1,469		$	11,495
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(6	)	$	–		$	9		$	–		$	32		$	261		$	296		$	17		$	313
September 30, 2017
Beginning balance	$	442		$	191		$	144		$	7		$	1,544		$	6,592		$	8,920		$	865		$	9,785
Included in net income(1)(3)(5)		(9	)		(1	)		8			–			(59	)		126			65			37			102
Included in OCI(3)		–			–			–			–			16			–			16			–			16
Purchases		178			133			35			–			339			283			968			185			1,153
Sales		(40	)		(1	)		(7	)		–			(255	)		(97	)		(400	)		(38	)		(438	)
Settlements		(65	)		(5	)		(7	)		–			–			–			(77	)		(1	)		(78	)
Transfers into Level 3(2)(6)		204			–			–			–			49			259			512			–			512
Transfers (out) of Level 3(2)		(176	)		(195	)		–			–			–			–			(371	)		(1	)		(372	)
Foreign currency translation(4)		(19	)		(4	)		(5	)		(1	)		(19	)		(129	)		(177	)		(3	)		(180	)
Ending balance	$	515		$	118		$	168		$	6		$	1,615		$	7,034		$	9,456		$	1,044		$	10,500
Gains (losses) included in earnings relating to instruments still held at the reporting date(1)	$	(3	)	$	–		$	9		$	–		$	(57	)	$	143		$	92		$	25		$	117

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

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

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

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

⁽⁵⁾  Investment properties included in net income is comprised of fair value changes on investment properties of $92 and $329 for the three and nine months ended September 30, 2018, respectively ($82 and $162 for the three and nine months ended September 30, 2017, respectively) net of amortization of leasing commissions and tenant inducements of $18 and $55 for the three and nine months ended September 30, 2018, respectively ($19 and $36 for the three and nine months ended September 30, 2017, respectively).

⁽⁶⁾  Transfers into Level 3 in Investment properties includes the reclassification of our former head office location previously classified as owner-occupied with a market value of $259 from Other assets to Investment properties. The reclassification recognized a revaluation surplus of $172, which was recorded as an increase of $139 of accumulated other comprehensive income, net of taxes of $33.

50 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. Financial Instrument and Insurance Risk Management

Our risk management policies and procedures for managing risks related to financial instruments and insurance contracts can be found in Notes 6 and 7, respectively, of our 2017 Annual Consolidated Financial Statements.

Our financial instrument market risk sensitivities are included in our Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2018. The shaded text and tables in the Risk Management section of the MD&A represent our disclosures on market risk sensitivities in accordance with IFRS 7 Financial Instruments: Disclosures and include discussions on how we measure our risk and our objectives, policies, and methodologies for managing this risk. Therefore, the shaded text and tables in the MD&A represent an integral part of these Interim Consolidated Financial Statements.

6. Insurance Contract Liabilities and Investment Contract Liabilities

6.A Insurance Contract Liabilities

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

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

	For the three months ended September 30, 2018									For the three months ended September 30, 2017
	Insurance contract liabilities			Reinsurance assets			Net			Insurance contract liabilities			Reinsurance assets			Net
Balances before Other policy liabilities and assets, beginning of period	$	112,539		$	3,671		$	108,868		$	109,906		$	4,124		$	105,782
Change in balances on in-force policies		(1,074	)		(120	)		(954	)		(1,107	)		(475	)		(632	)
Balances arising from new policies		551			24			527			546			48			498
Method and assumption changes		(419	)		(138	)		(281	)		(166	)		(71	)		(95	)
Increase (decrease) in Insurance contract liabilities and Reinsurance assets		(942	)		(234	)		(708	)		(727	)		(498	)		(229	)
Foreign exchange rate movements		(968	)		(54	)		(914	)		(1,717	)		(126	)		(1,591	)
Balances before Other policy liabilities and assets		110,629			3,383			107,246			107,462			3,500			103,962
Other policy liabilities and assets		6,851			554			6,297			6,535			624			5,911
Total Insurance contract liabilities and Reinsurance assets, end of period	$	117,480		$	3,937		$	113,543		$	113,997		$	4,124		$	109,873

	For the nine months ended September 30, 2018									For the nine months ended September 30, 2017
	Insurance contract liabilities			Reinsurance assets			Net			Insurance contract liabilities			Reinsurance assets			Net
Balances before Other policy liabilities and assets, beginning of period	$	111,091		$	3,503		$	107,588		$	108,411		$	4,541		$	103,870
Change in balances on in-force policies		(3,424	)		(165	)		(3,259	)		789			(728	)		1,517
Balances arising from new policies		2,490			91			2,399			2,188			109			2,079
Method and assumption changes		(395	)		(115	)		(280	)		(788	)		(179	)		(609	)
Increase (decrease) in Insurance contract liabilities and Reinsurance assets		(1,329	)		(189	)		(1,140	)		2,189			(798	)		2,987
Foreign exchange rate movements		867			69			798			(3,138	)		(243	)		(2,895	)
Balances before Other policy liabilities and assets		110,629			3,383			107,246			107,462			3,500			103,962
Other policy liabilities and assets		6,851			554			6,297			6,535			624			5,911
Total Insurance contract liabilities and Reinsurance assets, end of period	$	117,480		$	3,937		$	113,543		$	113,997		$	4,124		$	109,873

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 51

6.A.ii Impact of Method and Assumption Changes

Impacts of method and assumption changes on Insurance contract liabilities net of Reinsurance assets are as follows:

	For the three months ended September 30, 2018			For the nine months ended September 30, 2018			Description
Mortality / Morbidity	$	(319	)	$	(320	)	Updates to reflect mortality/morbidity experience in all jurisdictions. The largest items were favourable mortality in SLF Asia International, SLF Canada Group Retirement Services and SLF U.K.
Lapse and other policyholder behaviour		564			563		Updates to lapse and other policyholder behaviour in all jurisdictions. The largest items, which all had unfavourable impacts, were updated lapse assumptions in SLF U.S. and SLF Asia International.
Expense		17			12		Updates to reflect expense experience in all jurisdictions including updates to SLF Canada participating life accounts.
Investment returns		(327	)		(328	)	Updates to various investment-related assumptions across the Company including updates to SLF Canada participating life accounts.
Model enhancements and other		(216	)		(207	)	Various enhancements and methodology changes across all jurisdictions. The largest items were a favourable change to the participating provisions for adverse deviations in SLF Canada and SLF U.S., partially offset by a change in reinsurance provisions in SLF U.S.
Total impact	$	(281	)	$	(280	)
	For the three months ended September 30, 2017			For the nine months ended September 30, 2017			Description
Mortality / Morbidity	$	(275	)	$	(275	)	Updates to reflect mortality/morbidity experience in all jurisdictions. The largest items were favourable mortality in SLF U.S. In-force Management and SLF Asia International insurance and favourable mortality improvement in SLF U.K.
Lapse and other policyholder behaviour		134			134		Updates to reflect lapse and other policyholder behaviour experience in all jurisdictions. The largest items were lower lapse rates on lapse supported business in SLF U.S. and updated lapse assumptions in SLF Canada’s individual insurance business.
Expense		84			75		Updates to reflect expense experience in all jurisdictions. The largest items were a refinement to the allocation of expenses in SLF Canada and increased expenses in the closed block of business in SLF Asia International wealth.
Investment returns		(66	)		(66	)	Updates to various investment related assumptions across the Company. This included a reduction of the provision for investment risk in SLF Canada and other updated investment related assumptions, offset partially by updates to promulgated ultimate reinvestment rates.
Model enhancements and other		28			(477	)	Various enhancements and methodology changes across all jurisdictions. The nine months ended September 30, 2017, includes the Q2 2017 favourable impact on actuarial liabilities from the resolution of tax uncertainties in a U.S. subsidiary, partially offset by increases in general provisions for the risk related to changes in reinsurance market conditions, and the Q1 2017 update to the SLF Canada participating individual life business to reflect mortality experience.
Total impact	$	(95	)	$	(609	)

52 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 2018					For the three months ended September 30, 2017
	Measured at fair value		Measured at amortized cost			Measured at fair value		Measured at amortized cost
Balances, beginning of period	$	3	$	2,619		$	3	$	2,440
Deposits		–		124			–		85
Interest		–		13			–		13
Withdrawals		–		(126	)		–		(78	)
Fees		–		(1	)		–		(1	)
Other		–		5			–		5
Changes in assumptions		–		–			–		3
Foreign exchange rate movements		–		–			–		(1	)
Balances, end of period	$	3	$	2,634		$	3	$	2,466

	For the nine months ended September 30, 2018					For the nine months ended September 30, 2017
	Measured at fair value		Measured at amortized cost			Measured at fair value		Measured at amortized cost
Balances, beginning of period	$	3	$	2,517		$	3	$	2,305
Deposits		–		370			–		360
Interest		–		39			–		36
Withdrawals		–		(301	)		–		(248	)
Fees		–		(6	)		–		(4	)
Other		–		15			–		14
Changes in assumptions		–		–			–		3
Foreign exchange rate movements		–		–			–		–
Balances, end of period	$	3	$	2,634		$	3	$	2,466

Changes in investment contract liabilities with DPF are as follows:

	For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Balances, beginning of period	$	547		$	593		$	562		$	605
Change in liabilities on in-force policies		(38	)		(7	)		(73	)		–
Liabilities arising from new policies		–			–			–			1
Increase (decrease) in liabilities		(38	)		(7	)		(73	)		1
Foreign exchange rate movements		(9	)		(20	)		11			(40	)
Balances, end of period	$	500		$	566		$	500		$	566

6.C 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, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Maturities and surrenders	$	670	$	576	$	1,925	$	1,756
Annuity payments		468		463		1,402		1,378
Death and disability benefits		909		823		2,999		2,895
Health benefits		1,592		1,512		4,751		4,590
Policyholder dividends and interest on claims and deposits		269		233		807		844
Total gross claims and benefits paid	$	3,908	$	3,607	$	11,884	$	11,463

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 53

7. Reinsurance (Expenses) Recoveries

Reinsurance (expenses) recoveries consist of the following:

	For the three months ended					For the nine months ended
	September 30, 2018			September 30, 2017		September 30, 2018		September 30, 2017
Recovered claims and benefits	$	439		$	854	$	1,385	$	2,781
Commissions		18			20		54		60
Reserve adjustments		(1	)		96		24		182
Operating expenses and other		20			91		60		268
Reinsurance (expenses) recoveries	$	476		$	1,061	$	1,523	$	3,291

8. Fee Income

Fee income consists of the following:

	For the three months ended				For the nine months ended
	September 30, 2018		September 30, 2017(1)		September 30, 2018		September 30, 2017(1)
Fee income from insurance contracts	$	238	$	212	$	708	$	649
Fee income from service contracts:
Distribution fees		211		210		631		652
Fund management and other asset-based fees		871		841		2,601		2,527
Administrative service and other fees		180		181		543		494
Total fee income	$	1,500	$	1,444	$	4,483	$	4,322

⁽¹⁾   Balances in 2017 have been changed to conform with current period presentation as a result of the adoption of IFRS 15 described in Note 2.

Distribution fees and Fund management and other asset-based fees are primarily earned in the SLF Asset Management segment. Administrative service and other fees are primarily earned in the SLF Canada segment. The fee income by reportable segment is presented in Note 3.

9. Income Taxes

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

	For the three months ended												For the nine months ended
	September 30, 2018						September 30, 2017						September 30, 2018						September 30, 2017
				%						%						%						%
Total net income (loss)	$	877					$	850					$	2,252					$	2,241
Add: Income tax expense (benefit)		184						209						485						368
Total net income (loss) before income taxes	$	1,061					$	1,059					$	2,737					$	2,609
Taxes at the combined Canadian federal and provincial statutory income tax rate	$	284			26.8		$	283			26.8		$	732			26.8		$	698			26.8
Increase (decrease) in rate resulting from:
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions		(69	)		(6.5	)		(51	)		(4.8	)		(158	)		(5.8	)		(198	)		(7.6	)
Tax (benefit) cost of unrecognized tax losses and tax credits		4			0.3			–			–			4			0.1			–			–
Tax exempt investment income		(40	)		(3.8	)		(58	)		(5.5	)		(98	)		(3.6	)		(145	)		(5.6	)
Adjustments in respect of prior periods, including resolution of tax disputes		5			0.5			34			3.1			(1	)		–			(2	)		(0.1	)
Other		–			–			1			0.1			6			0.2			15			0.6
Total tax expense (benefit) and effective income tax rate	$	184			17.3		$	209			19.7		$	485			17.7		$	368			14.1

54 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Statutory income tax rates in other jurisdictions in which we conduct business range from 0% to 30%, which creates a tax rate differential and corresponding tax provision difference compared to the Canadian federal and provincial statutory rate when applied to foreign income not subject to tax in Canada. Generally, higher earnings in jurisdictions with higher statutory tax rates result in an increase of our tax expense, while earnings arising in tax jurisdictions with statutory rates lower than 26.75% (rounded to 26.8% in the table above) reduce our tax expense. These differences are reported in Higher (lower) effective rates on income subject to taxation in foreign jurisdictions.

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

Adjustments in respect of prior periods, including the resolution of tax disputes for the three months ended September 30, 2018 relate primarily to the resolution of finalization of prior years Canadian and U.S. tax filings, and for the nine months ended September 30, 2018, include the resolution of tax audits in Canada and Asia. In 2017, the adjustments related to the resolution of tax audits in Canada and the U.S., as well as the finalization of tax filings.

Tax (benefit) cost of unrecognized tax losses/tax credits reflects unrecognized losses in Asia.

Other for the three and nine months ended September 30, 2018 and September 30, 2017 primarily reflects withholding taxes on distributions from our foreign subsidiaries. In 2018, the withholding taxes have largely been offset by the benefit relating to investments in joint ventures in Asia.

10. Capital Management

10.A Capital

Our capital base is structured to exceed minimum regulatory and internal capital targets, and maintain strong credit and financial strength ratings while maintaining a capital efficient structure. We strive to achieve an optimal capital structure by balancing the use of debt and equity financing. Capital is managed both on a consolidated basis under principles that consider all the risks associated with the business as well as at the business group level under the principles appropriate to the jurisdiction in which each operates. We manage the capital for all of our international subsidiaries on a local statutory basis in a manner commensurate with their individual risk profiles. Further details on our capital, and how it is managed, are included in Note 21 of our 2017 Annual Consolidated Financial Statements.

Effective January 1, 2018, the Office of the Superintendent of Financial Institutions (“OSFI”) has replaced the Minimum Continuing Capital and Surplus Requirements capital adequacy guideline with the Life Insurance Capital Adequacy Test (“LICAT”). SLF Inc. is a non-operating insurance company and is subject to the LICAT guideline. As at September 30, 2018, SLF Inc.’s LICAT ratio exceeded OSFI’s regulatory minimum target. Sun Life Assurance, SLF Inc.’s principal operating life insurance subsidiary in Canada, is also subject to the LICAT guideline. As at September 30, 2018, Sun Life Assurance’s LICAT ratio exceeded OSFI’s minimum regulatory target; as well, it also exceeded OSFI’s supervisory target applicable to operating life insurance companies.

In the U.S., Sun Life Assurance operates through a branch which is subject to U.S. regulatory supervision and it exceeded the levels under which regulatory action would be required as at September 30, 2018. In addition, other subsidiaries of SLF Inc. that must comply with local capital or solvency requirements in the jurisdiction in which they operate maintained capital levels above minimum local requirements as at September 30, 2018.

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

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 55

10.B Significant Capital Transactions

10.B.i Common Shares

Changes in common shares issued and outstanding were as follows:

	For the nine months ended
	September 30, 2018						September 30, 2017
Common shares (in millions of shares)	Number of shares			Amount			Number of shares			Amount
Balance, beginning of period		610.5		$	8,582			613.6		$	8,614
Stock options exercised		0.4			16			0.1			7
Common shares purchased for cancellation(1)		(7.7	)(2)		(109	)		(1.8	)		(26	)
Common shares issued as consideration for business acquisition		0.1			4			–			–
Balance, end of period		603.3		$	8,493			611.9		$	8,595

⁽¹⁾   On August 14, 2018 and August 14, 2017, SLF Inc. launched normal course issuer bids to purchase and cancel up to 14 million common shares between August 14, 2018 and August 13, 2019 and 11.5 million common shares between August 14, 2017 and August 13, 2018, respectively. Common shares purchased for cancellation are purchased through the facilities of the Toronto Stock Exchange, other Canadian stock exchanges, and/or alternative Canadian trading platforms, at prevailing market rates, or by way of private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities at a discount to the prevailing market price. In the nine months ended September 30, 2018, the common shares purchased and cancelled under these programs were purchased at an average price per share of $52.91 for a total amount of $406. The total amount paid to purchase the shares is allocated to Common shares and Retained earnings in our Consolidated Statements of Changes in Equity. The amount allocated to Common shares is based on the average cost per common share and amounts paid above the average cost are allocated to Retained earnings.

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

10.B.ii Subordinated Debt

On January 30, 2018, SLF Inc. redeemed all of the outstanding $400 principal amount of Series 2008-1 Subordinated Unsecured 5.59% Fixed/Floating Debentures at a redemption price equal to the principal amount together with accrued and unpaid interest to that date.

10.C Participating Account Seed Capital

In the first quarter of 2018, with OSFI’s approval, seed capital, together with interest earned since demutualization, was transferred from the participating account to the shareholder account. The transfer of seed capital is recorded on our Consolidated Statements of Changes in Equity as a Transfer from participating policyholders’ equity totaling $89, comprised of $50 in SLF Canada and $39 (US$30) in SLF U.S. The transfer of interest on seed capital is included as a reduction in Participating policyholders’ net income (loss) and an increase in Shareholders’ net income (loss) totaling $110, on a pre- and post-tax basis, comprised of $75 in SLF Canada and $35 (US$28) in SLF U.S. At the time of demutualization, OSFI required shareholders to transfer seed capital into the participating account to support participating insurance policies sold after demutualization. It was anticipated that over time the seed capital would no longer be needed and that the seed capital and accumulated interest would be returned to the shareholders, subject to OSFI’s approval. The transfer has no impact on regulatory capital requirements, and will have no adverse impact on the policy dividends or security of benefits of participating policyholders.

11. Segregated Funds

11.A Investments for Account of Segregated Fund Holders

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

As at	September 30, 2018		December 31, 2017
Segregated and mutual fund units	$	94,353	$	91,637
Equity securities		10,066		10,799
Debt securities		3,274		3,517
Cash, cash equivalents and short-term securities		623		457
Investment properties		381		374
Mortgages		18		20
Other assets		146		147
Total assets	$	108,861	$	106,951
Less: Liabilities arising from investing activities		563		559
Total investments for account of segregated fund holders	$	108,298	$	106,392

56 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

	Insurance contracts						Investment contracts
For the three months ended	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Balances, beginning of period	$	101,496		$	94,967		$	7,196		$	7,099
Additions to segregated funds:
Deposits		2,671			2,214			21			21
Net transfer (to) from general funds		(65	)		(41	)		–			–
Net realized and unrealized gains (losses)		(56	)		381			(105	)		66
Other investment income		603			598			49			45
Total additions	$	3,153		$	3,152		$	(35	)	$	132
Deductions from segregated funds:
Payments to policyholders and their beneficiaries		2,512			2,240			138			160
Management fees		254			239			13			13
Taxes and other expenses		67			61			2			1
Foreign exchange rate movements		316			297			210			102
Total deductions	$	3,149		$	2,837		$	363		$	276
Net additions (deductions)		4			315			(398	)		(144	)
Balances, end of period	$	101,500		$	95,282		$	6,798		$	6,955

	Insurance contracts						Investment contracts
For the nine months ended	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Balances, beginning of period	$	99,121		$	90,388		$	7,271		$	6,779
Additions to segregated funds:
Deposits		8,727			8,112			63			66
Net transfers (to) from general funds		(156	)		(56	)		–			–
Net realized and unrealized gains (losses)		1,558			3,616			(119	)		527
Other investment income		1,171			1,541			146			134
Total additions	$	11,300		$	13,213		$	90		$	727
Deductions from segregated funds:
Payments to policyholders and their beneficiaries		7,803			6,977			469			474
Management fees		754			717			44			39
Taxes and other expenses		202			193			4			8
Foreign exchange rate movements		162			432			46			30
Total deductions	$	8,921		$	8,319		$	563		$	551
Net additions (deductions)		2,379			4,894			(473	)		176
Balances, end of period	$	101,500		$	95,282		$	6,798		$	6,955

12. Commitments, Guarantees and Contingencies

Guarantees of Sun Life Assurance Preferred Shares and Subordinated Debentures

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

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 57

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

Results for the three months ended	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)			Consolidation adjustment			SLF Inc. (consolidated)
September 30, 2018
Revenue	$	91	$	4,872	$	1,113		$	(78	)	$	5,998
Shareholders’ net income (loss)	$	591	$	719	$	(177	)	$	(542	)	$	591
September 30, 2017
Revenue	$	107	$	4,041	$	1,674		$	(267	)	$	5,555
Shareholders’ net income (loss)	$	841	$	643	$	135		$	(778	)	$	841

Results for the nine months ended	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)		Consolidation adjustment			SLF Inc. (consolidated)
September 30, 2018
Revenue	$	276	$	15,523	$	3,058	$	(40	)	$	18,817
Shareholders’ net income (loss)	$	2,013	$	1,701	$	159	$	(1,860	)	$	2,013
September 30, 2017
Revenue	$	335	$	16,265	$	5,232	$	(1,146	)	$	20,686
Shareholders’ net income (loss)	$	2,012	$	1,470	$	350	$	(1,820	)	$	2,012

Assets and liabilities as at	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)		Consolidation adjustment			SLF Inc. (consolidated)
September 30, 2018
Invested assets	$	21,740	$	138,679	$	6,365	$	(21,202	)	$	145,582
Total other general fund assets	$	9,282	$	21,264	$	17,103	$	(30,792	)	$	16,857
Investments for account of segregated fund holders	$	–	$	108,244	$	54	$	–		$	108,298
Insurance contract liabilities	$	–	$	117,638	$	7,964	$	(8,122	)	$	117,480
Investment contract liabilities	$	–	$	3,137	$	–	$	–		$	3,137
Total other general fund liabilities	$	8,188	$	22,218	$	12,979	$	(25,199	)	$	18,186
December 31, 2017
Invested assets	$	23,382	$	138,145	$	6,531	$	(21,919	)	$	146,139
Total other general fund assets	$	7,530	$	21,437	$	17,152	$	(29,538	)	$	16,581
Investments for account of segregated fund holders	$	–	$	106,341	$	51	$	–		$	106,392
Insurance contract liabilities	$	–	$	118,003	$	8,234	$	(8,452	)	$	117,785
Investment contract liabilities	$	–	$	3,082	$	–	$	–		$	3,082
Total other general fund liabilities	$	8,591	$	21,558	$	12,822	$	(24,089	)	$	18,882

58 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. Earnings (Loss) Per Share

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

	For the three months ended				For the nine months ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Common shareholders’ net income (loss) for basic earnings per share	$	567	$	817	$	1,942	$	1,942
Add: increase in income due to convertible instruments(1)		3		3		8		8
Common shareholders’ net income (loss) on a diluted basis	$	570	$	820	$	1,950	$	1,950
Weighted average number of common shares outstanding for basic earnings per share (in millions)		606		613		608		613
Add: dilutive impact of stock options(2) (in millions)		1		1		1		1
Add: dilutive impact of convertible instruments(1) (in millions)		4		5		4		4
Weighted average number of common shares outstanding on a diluted basis (in millions)		611		619		613		618
Basic earnings (loss) per share	$	0.94	$	1.33	$	3.19	$	3.17
Diluted earnings (loss) per share	$	0.93	$	1.32	$	3.18	$	3.16

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

⁽²⁾  Excludes the impact of 1 million stock options for the three and nine months ended September 30, 2018 because these stock options were antidilutive for the period (1 million and nil for the three and nine months ended September 30, 2017, respectively).

14. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss), net of taxes, are as follows:

	For the three months ended September 30, 2018									For the three months ended September 30, 2017
	Balance, beginning of period			Other comprehensive income (loss)			Balance, end of period			Balance, beginning of period			Other comprehensive income (loss)			Other		Balance, end of period
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains (losses), net of hedging activities	$	1,465		$	(315	)	$	1,150		$	1,330		$	(471	)	$	–	$	859
Unrealized gains (losses) on available-for-sale assets		63			(88	)		(25	)		340			(79	)		–		261
Unrealized gains (losses) on cash flow hedges		(13	)		(2	)		(15	)		(14	)		3			–		(11	)
Share of other comprehensive income (loss) in joint ventures and associates		(55	)		(72	)		(127	)		(22	)		(33	)		–		(55	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans		(258	)		11			(247	)		(347	)		93			–		(254	)
Revaluation surplus on transfers to investment properties		145			–			145			145			–			–		145
Total	$	1,347		$	(466	)	$	881		$	1,432		$	(487	)	$	–	$	945
Total attributable to:
Participating policyholders	$	12		$	(1	)	$	11		$	12		$	(4	)	$	–	$	8
Shareholders		1,335			(465	)		870			1,420			(483	)		–		937
Total	$	1,347		$	(466	)	$	881		$	1,432		$	(487	)	$	–	$	945

CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. Third Quarter 2018 59

	For the nine months ended September 30, 2018									For the nine months ended September 30, 2017
	Balance, beginning of period			Other comprehensive income (loss)			Balance, end of period			Balance, beginning of period			Other comprehensive income (loss)			Other			Balance, end of period
Items that may be reclassified subsequently to income:
Unrealized foreign currency translation gains (losses), net of hedging activities	$	1,012		$	138		$	1,150		$	1,749		$	(890	)	$	–		$	859
Unrealized gains (losses) on available-for-sale assets		346			(371	)		(25	)		211			50			–			261
Unrealized gains (losses) on cash flow hedges		(11	)		(4	)		(15	)		(6	)		(5	)		–			(11	)
Share of other comprehensive income (loss) in joint ventures and associates		(31	)		(96	)		(127	)		–			(55	)		–			(55	)
Items that will not be reclassified subsequently to income:
Remeasurement of defined benefit plans		(347	)		100			(247	)		(291	)		24			13	(1)		(254	)
Revaluation surplus on transfers to investment properties		145			–			145			6			139			–			145
Total	$	1,114		$	(233	)	$	881		$	1,669		$	(737	)	$	13			945
Total attributable to:
Participating policyholders	$	9		$	2		$	11		$	16		$	(8	)	$	–		$	8
Shareholders		1,105			(235	)		870			1,653			(729	)		13			937
Total	$	1,114		$	(233	)	$	881		$	1,669		$	(737	)	$	13		$	945

⁽¹⁾   During the nine months ended September 30, 2017, the Company transferred cumulative remeasurement losses of $13 from accumulated other comprehensive income (loss) to retained earnings as a result of the termination and complete settlement of the defined benefit pension plan of a U.S. subsidiary within the SLF Asset Management segment.

15. Legal and Regulatory Proceedings

We are regularly involved in legal actions, both as a defendant and as a plaintiff. Legal actions naming us as a defendant ordinarily involve our activities as a provider of insurance protection and wealth management products, as an investor and investment advisor, and as an employer. In addition, government and regulatory bodies in Canada, the U.S., the U.K., and Asia, including federal, provincial, and state securities and insurance regulators and government authorities, from time to time, make inquiries and require the production of information or conduct examinations or investigations concerning our compliance with insurance, securities, and other laws.

Provisions for legal proceedings related to insurance contracts, such as for disability and life insurance claims and the cost of litigation, are included in Insurance contract liabilities in our Consolidated Statements of Financial Position. Other provisions are established outside of the Insurance contract liabilities if, in the opinion of management, it is both probable that a payment will be required and a reliable estimate can be made of the amount of the obligation. Management reviews the status of all proceedings on an ongoing basis and exercises judgment in resolving them in such manner as management believes to be in our best interest.

Two class action lawsuits have been filed against Sun Life Assurance in connection with sales practices relating to, and the administration of, individual policies issued by the Metropolitan Life Insurance Company (“MLIC”). These policies were assumed by Clarica when Clarica acquired the bulk of MLIC’s Canadian operations in 1998 and subsequently assumed by Sun Life Assurance as a result of its amalgamation with Clarica. One of the lawsuits (Fehr et al v Sun Life Assurance Company of Canada) is issued in Ontario and the other (Alamwala v Sun Life Assurance Company of Canada) is in British Columbia. In the Fehr action, the motions judge dismissed the plaintiff’s motion for certification in its entirety by way of a two-part decision released on November 12, 2015 and December 7, 2016. The plaintiffs appealed and, in a decision released on September 5, 2018, the Ontario Court of Appeal overturned part of the lower court’s decision and certified three alleged breach of contract claims related to the policies. Sun Life Assurance is seeking leave to appeal this decision to the Supreme Court of Canada. The other action (Alamwala v Sun Life Assurance Company of Canada) has remained largely dormant since it was commenced in 2011 and has not been certified. We will continue to vigorously defend against the claims in these actions. In connection with the acquisition of the Canadian operations of MLIC, MLIC agreed to indemnify Clarica for certain losses, including those incurred relating to the sales of its policies. Should either of the Fehr or the Alamwala lawsuits result in a loss, Sun Life Assurance will seek recourse against MLIC under that indemnity through arbitration.

Management does not believe that the probable conclusion of any current legal or regulatory matter, either individually or in the aggregate, will have a material adverse effect on the Consolidated Statements of Financial Position or results of operations of the Company.

60 Sun Life Financial Inc. Third Quarter 2018 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Corporate and Shareholder Information

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

Corporate Office

Sun Life Financial Inc.

1 York Street

Toronto, Ontario

Canada M5J 0B6

Tel: 416-979-9966

Website: www.sunlife.com

Investor Relations

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

Investor Relations

Fax: 416-979-4080

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

Transfer Agent

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

Canada

AST Trust Company (Canada)

P.O. Box 700

Station B

Montreal, Quebec

Canada H3B 3K3

Within North America:

Tel: 1-877-224-1760

Outside of North America:

Tel: 416-682-3865

Fax: 1-888-249-6189

E-mail: sunlifeinquiries@astfinancial.com

Website: www.astfinancial.com/ca-en Shareholders can view their account details using AST Trust Company (Canada)’s Internet service, Investor Central.

Register at

https://ca.astfinancial.com/InvestorCentral

United States

American Stock Transfer & Trust Company, LLC

6201 15th Ave.

Brooklyn, NY 11219

Tel: 1-877-224-1760

E-mail: sunlifeinquiries@astfinancial.com

United Kingdom

Link Asset Services

34 Beckenham Road

Beckenham, Kent

United Kingdom BR3 4TU

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

E-mail: enquiries@linkgroup.co.uk

Philippines

Rizal Commercial Banking

Corporation (RCBC)

RCBC Stock Transfer Processing Section

Ground Floor, West Wing,

GPL (Grepalife) Building,

221 Senator Gil Puyat Avenue

Makati City, Philippines

From Metro Manila: 632-318-8567

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

E-mail: rcbcstocktransfer@rcbc.com

Hong Kong

Computershare Hong Kong Investor

Services Limited

17M Floor, Hopewell Centre

183 Queen’s Road East

Wanchai, Hong Kong

Tel: 852-2862-8555

E-mail: hkinfo@computershare.com.hk

Shareholder Services

For shareholder account inquiries, please

contact the Transfer Agent in the country

where you reside, or Shareholder Services:

Fax: 416-598-3121

English E-mail:

shareholderservices@sunlife.com

French E-mail:

servicesauxactionnaires@sunlife.com

2018 Dividend Dates

Common Shares

Record Dates	Payment Dates
March 1, 2018		March 29, 2018
May 30, 2018		June 29, 2018
August 29, 2018		September 28, 2018
November 28, 2018		December 31, 2018

Direct deposit of dividends

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

The Request for Electronic Payment of Dividends Form is available for downloading from the AST Trust Company (Canada) website, www.astfinancial.com/ca-en, or you can contact AST Trust Company (Canada) to have a form sent to you.

Canadian Dividend Reinvestment

and Share Purchase Plan

Canadian-resident common shareholders can enroll in the Dividend Reinvestment and Share Purchase Plan. For details visit our website at sunlife.com or contact the Plan Agent, AST Trust Company (Canada) at sunlifeinquiries@astfinancial.com.

Stock Exchange Listings

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

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

Ticker Symbols:	Series 1 – SLF.PR.A
	Series 2 – SLF.PR.B
	Series 3 – SLF.PR.C
	Series 4 – SLF.PR.D
	Series 5 – SLF.PR.E
	Series 8R – SLF.PR.G
	Series 9QR – SLF.PR.J
	Series 10R – SLF.PR.H
	Series 11QR – SLF.PR.K
	Series 12R – SLF.PR.I

Normal Course Issuer Bid

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

CORPORATE AND SHAREHOLDER INFORMATION Sun Life Financial Inc. Third Quarter 2018 61

Life’s brighter under the sun

SUN LIFE FINANCIAL INC.

1 York Street Toronto, Ontario Canada M5J 0B6 sunlife.com