Exhibit 99.1

	SHAREHOLDERS’ REPORT 2012
SUN LIFE FINANCIAL INC. For the period ending June 30, 2012 sunlife.com

CANADIAN RESIDENTS PARTICIPATING IN THE SHARE ACCOUNT

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

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

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

Sun Life Financial Reports Second Quarter 2012 Results

The information contained in this document concerning the second quarter of 2012 is based on our unaudited interim financial results for the period ended June 30, 2012. All amounts are in Canadian dollars unless otherwise noted.

Second Quarter 2012 Financial Highlights

• Operating net income⁽¹⁾ of $59 million, compared to $425 million in the second quarter of 2011. Reported net income of $51 million, compared to $408 million in the same period last year. Results primarily reflect the impact of lower interest rates and weak equity markets

• Operating earnings per share⁽¹⁾ (“EPS”) of $0.10, compared to $0.73 in the second quarter of 2011. Reported EPS of $0.09, compared to $0.68 in the same period last year

• Operating return on equity⁽¹⁾ (“ROE”) of 1.7%, compared to 12.0% in the same period last year. Reported ROE of 1.5%, compared to 11.5% in the second quarter of 2011

• Quarterly dividend of $0.36 per share

• MCCSR ratio for Sun Life Assurance⁽²⁾ of 210%

TORONTO (August 8, 2012) – Sun Life Financial Inc.⁽³⁾ (TSX: SLF) (NYSE: SLF) had operating net income of $59 million in the second quarter of 2012, compared to $425 million in the second quarter of 2011. Our operating EPS was $0.10 in the second quarter of 2012, compared to $0.73 in the second quarter of 2011. Reported net income was $51 million or $0.09 per share in the second quarter of 2012, compared to $408 million or $0.68 per share in the same period last year.

Our financial results this quarter were unfavourably impacted by declining interest rates and weak equity markets. Operating net income excluding the net impact of market factors⁽¹⁾ was $379 million. The following table sets out our operating net income measures for the second quarter of 2012.

($ millions, after-tax)	Q2’12
Operating net income (loss)		59
Net equity market impact		(131	)
Net interest rate impact		(196	)
Net gains from increases in the fair value of real estate		7
Operating net income (loss) excluding the net impact of market factors		379

The Board of Directors of Sun Life Financial Inc. today declared a quarterly shareholder dividend of $0.36 per common share, maintaining the current quarterly dividend.

“Although declining interest rates and weak equity markets in the second quarter adversely impacted our financial results, we continued to make progress in executing on the four pillars of our growth strategy,” said Dean Connor, President and CEO. “During the second quarter, we reported strong sales growth in our asset management businesses in both the U.S. and Canada. MFS Investment Management had an outstanding quarter, with record gross sales and continued strong performance as measured by Lipper.”

“Sun Life Global Investments reported very strong year-over-year sales growth and continues to earn an increasing share of mutual funds sold by our Career Sales Force in Canada,” Connor said. “SLF Canada also saw solid growth in sales of life and health insurance products and in individual wealth compared to the same period last year.”

“In a challenging U.S. market for employee benefits, we recorded another quarter of Employee Benefits Group and Voluntary Benefits sales growth, and are continuing to drive expansion of our Voluntary Benefits business. In particular, we expanded distribution and launched new voluntary benefits products.”

“We increased our footprint in Asia with the announcement of a joint venture in Vietnam. Initiatives to expand distribution in Asia contributed to strong increases in the sale of individual life insurance in the Philippines and China compared to the same period last year.”

⁽¹⁾  Operating net income (loss) and financial information based on operating net income (loss), such as operating earnings (loss) per share and operating ROE and operating net income (loss) excluding the net impact of market factors are non-IFRS financial measures. See Use of Non-IFRS Financial Measures. All EPS measures refer to fully diluted EPS, unless otherwise stated.

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

⁽³⁾ Together with its subsidiaries and joint ventures, collectively referred to as “the Company”, “Sun Life Financial”, “we”, “our” and “us”.

Sun Life Financial Inc. Second Quarter 2012 1

Operational Highlights

Our strategy, as announced during the fourth quarter of 2011, is focused on four key pillars of growth. We detail our continued progress against these pillars below.

Building on our leadership position in Canada in insurance, wealth management and employee benefits

SLF Canada’s Group Benefits was ranked first in market share by revenue in the 2011 Fraser Group Universe Report, released in the second quarter. The report also noted that Sun Life led the industry in absolute revenue growth in 2011.

Sun Life Global Investments (“SLGI”) continues to expand rapidly. Retail sales grew by more than five times compared to the same period last year, and SLGI achieved a 14% penetration rate of total SLF Canada Career Sales Force mutual fund sales, up from 3% in the second quarter of 2011. SLGI also became the manager and trustee of the mutual funds previously managed by McLean Budden Limited, increasing its funds available to retail investors to 32 since launching the business less than two years ago. MFS McLean Budden, which was established through the reorganization of McLean Budden Limited as a subsidiary of MFS Investment Management (“MFS”) in 2011, continues to provide portfolio management services as a sub-advisor.

Becoming a leader in group insurance and voluntary benefits in the United States

SLF U.S. continues to advance its voluntary benefits platform through recruiting, back office improvements and the introduction of new voluntary products.

The business significantly expanded its Voluntary Benefits sales team with the appointment of 17 dedicated Voluntary Benefits Practice Leaders (“VPLs”) affiliated with 34 key employee benefits group offices throughout the U.S. These VPLs are responsible for selling voluntary benefits and for supporting the Company’s employee benefits representatives, under the direction of a newly hired National Sales Manager with many years of experience in the voluntary benefits business.

SLF U.S. launched the first of several new voluntary benefits products designed to meet the diverse needs of U.S. workers, including new short-term and long-term disability products. A more extensive suite of voluntary benefits products is scheduled for launch in the fall of 2012.

Supporting continued growth in MFS Investment Management, and broadening our other asset management businesses around the world

MFS continues to grow its business, capitalizing on its strong performance track record. Gross sales of US$19.7 billion during the second quarter represented the firm’s best quarter ever. Retail fund performance remained strong with 88% and 87% of fund assets ranked in the top half of their respective Lipper categories based on 5-year and 10-year performance, respectively, and drove record setting retail net inflows of US$5.6 billion.

MFS also announced the opening of its eighth and ninth investment research offices in Hong Kong and São Paulo, respectively, to further broaden its investment capabilities. These locations are in addition to MFS’s existing footprint in Boston, London, Mexico City, Singapore, Sydney, Tokyo and Toronto.

Strengthening our competitive position in Asia

Sun Life Assurance entered into an agreement with PVI Holdings to form PVI Sun Life Insurance Company Limited (“PVI Sun Life”) in Vietnam, a joint venture life insurance company. PVI Holdings brings to the partnership a strong reputation and brand in the country, and an extensive customer base. The Vietnam life insurance market is poised for strong growth, with only 5% life insurance penetration in one of the fastest growing economies in Asia. PVI Sun Life is scheduled to begin operations in the second half of 2012.

Our subsidiary in the Philippines has become the number one life insurer in the country. According to figures released by the local regulator, the company was the top-ranked life insurer in 2011 as measured by total premium income.

In China, Sun Life Everbright Insurance Company marked its 10th anniversary during the quarter with continued strong growth in sales and distribution that serves more than 8.5 million customers in approximately 100 locations. Reported sales for individual insurance products grew more than 80% during the first half of 2012 compared to the previous year.

Sun Life Hong Kong’s Mandatory Provident Fund (“MPF”) scheme continues to innovate and to be recognized for its strong performance. Two new products were introduced during the second quarter to serve the growing China-related market segments in Hong Kong: the industry’s first Renminbi-denominated product under the MPF scheme and a new product for immigrants qualifying under Hong Kong’s Capital Investment Entrant Scheme. Our MPF scheme continued its outstanding performance, winning seven Lipper Fund Awards during the second quarter.

2 Sun Life Financial Inc. Second Quarter 2012

Other notable achievements

For the seventh time in 11 years, Sun Life Financial has been named to the 2012 Best 50 Corporate Citizens in Canada list by Corporate Knights. We were the only publicly traded insurance company and one of only two life insurers on the Corporate Knights Best 50 this year. Several factors contributed to our recognition as a top corporate citizen, including reduction in our total greenhouse gas footprint, strong health and safety performance and year-over-year reductions in waste produced.

About Sun Life Financial

Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of June 30, 2012, the Sun Life Financial group of companies had total AUM of $496 billion. For more information please visit www.sunlife.com.

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

Sun Life Financial Inc. Second Quarter 2012 3

Management’s Discussion and Analysis

For the period ended June 30, 2012

Dated August 12, 2012

How We Report Our Results

Sun Life Financial Inc.⁽¹⁾ manages its operations and report its results in five business segments: Sun Life Financial Canada (“SLF Canada”), Sun Life Financial U.S. (“SLF U.S.”), MFS Investment Management (“MFS”), Sun Life Financial Asia (“SLF Asia”) and Corporate. Information concerning these segments is included in our annual and interim consolidated financial statements and accompanying notes (“Consolidated Financial Statements”). In the fourth quarter of 2011, Sun Life Financial acquired the minority shares of McLean Budden Limited (“McLean Budden”), our Canadian investment management subsidiary, and transferred all of the shares of McLean Budden to MFS. Prior to the fourth quarter of 2011, the operations of McLean Budden were included in SLF Canada. Prior period results have been restated to reflect the results of McLean Budden within MFS. Financial information concerning SLF U.S. and MFS is presented in Canadian and U.S. dollars to facilitate the analysis of underlying business trends. We prepare our unaudited interim Consolidated Financial Statements using International Financial Reporting Standards (“IFRS”), and in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting.

We use certain non-IFRS financial measures, including operating net income (loss) as key metrics in our financial reporting to enable our stakeholders to better assess the underlying performance of our businesses. Operating net income (loss) and other financial information based on operating net income (loss), such as operating earnings per share (“EPS”) and operating return on equity (“ROE”), are non-IFRS financial measures. We believe that these non-IFRS financial measures provide information that is useful to investors in understanding our performance and facilitates the comparison of the quarterly and full year results of our ongoing operations. Operating net income (loss) excludes: (i) the impact of certain hedges that do not qualify for hedge accounting in SLF Canada; (ii) fair value adjustments on share-based payment awards at MFS; (iii) restructuring and other related costs; (iv) goodwill and intangible asset impairment charges; and (v) other items that are not operational or ongoing in nature. Operating EPS also excludes the dilutive impact of convertible securities. Unless indicated otherwise, all other factors discussed in this document that impact our results are applicable to both reported net income (loss) and operating net income (loss).

Operating net income excluding the net impact of market factors is a non-IFRS financial measure that removes certain market-related factors that create volatility in our results under IFRS in order to assist shareholders in better understanding our underlying net income. Operating net income excluding the net impact of market factors adjusts operating net income (loss) for: (i) the net impact of changes in interest rates in the reporting period, including changes in credit and swap spreads; (ii) the net impact of changes in equity markets above or below the expected level of change in the reporting period; (iii) the net impact of changes in the fair value of real estate properties in the reporting period; and (iv) the impact of changes in actuarial assumptions driven by capital market movements.

Other non-IFRS financial measures that we use include adjusted revenue, administrative services only (“ASO”) premium and deposit equivalents, mutual fund assets and sales, managed fund assets and sales, premiums and deposits, assets under management (“AUM”) and assets under administration. Additional information about non-IFRS financial measures and reconciliations to the closest IFRS measure can be found in this document and in our annual and interim management’s discussion and analysis (“MD&A”) under the heading Use of Non-IFRS Financial Measures.

The information contained in this document is in Canadian dollars unless otherwise noted and is based on our interim unaudited consolidated financial statements for the period ended June 30, 2012. All EPS measures in this document refer to fully diluted EPS, unless otherwise stated.

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

⁽¹⁾  Together with its subsidiaries and joint ventures, collectively referred to as “the Company”, “Sun Life Financial”, “we”, “our” and “us”.

4 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Summary

	Quarterly results												Year to date
($ millions, unless otherwise noted)	Q2’12		Q1’12		Q4’11			Q3’11			Q2’11		2012		2011
Net income (loss)
Operating net income (loss)		59		727		(221	)		(572	)		425		786		897
Reported net income (loss)		51		686		(525	)		(621	)		408		737		846
Operating net income (loss) excluding the net impact of market factors		379		357		n/a			n/a			n/a		746		n/a
Diluted EPS ($)
Operating		0.10		1.24		(0.38	)		(0.99	)		0.73		1.33		1.55
Reported		0.09		1.15		(0.90	)		(1.07	)		0.68		1.24		1.41
Basic EPS ($)
Operating		0.10		1.24		(0.38	)		(0.99	)		0.74		1.33		1.56
Reported		0.09		1.17		(0.90	)		(1.07	)		0.71		1.25		1.47
Return on equity (%)
Operating		1.7%		21.6%		(6.5)%			(16.0)%			12.0%		11.7%		12.7%
Reported		1.5%		20.4%		(15.3)%			(17.4)%			11.5%		11.0%		12.0%
Avg. common shares outstanding (millions)		591.0		587.9		583.8			580.5			578.2		589.4		576.5
Closing common shares outstanding (millions)		594.0		590.9		587.8			582.8			580.4		594.0		580.4
Dividends per common share ($)		0.36		0.36		0.36			0.36			0.36		0.72		0.72
MCCSR ratio for Sun Life Assurance(1)		210%		213%		211%			210%			231%		210%		231%
Premiums & deposits(2)
Net premium revenue		1,930		2,074		2,305			2,335			2,240		4,004		4,674
Segregated fund deposits		1,819		2,113		2,912			2,298			2,406		3,932		4,972
Mutual fund sales		12,060		9,820		7,334			7,120			6,570		21,880		14,487
Managed fund sales		7,999		9,849		8,414			5,446			8,188		17,848		13,891
ASO premium and deposit equivalents		1,380		1,440		1,391			1,362			1,450		2,820		2,908
Total premiums & deposits		25,188		25,296		22,356			18,561			20,854		50,484		40,932
Assets under management(3)
General fund assets		132,175		128,959		129,844			130,413			121,618		132,175		121,618
Segregated funds		90,160		91,934		88,183			85,281			89,116		90,160		89,116
Mutual funds, managed funds and other AUM		273,944		273,295		247,503			243,132			262,902		273,944		262,902
Total AUM		496,279		494,188		465,530			458,826			473,636		496,279		473,636
Capital
Subordinated debt and other capital(4)		3,438		4,235		3,441			4,396			4,382		3,438		4,382
Participating policyholders’ equity		124		124		123			123			120		124		120
Total shareholders’ equity(5)		16,159		16,151		15,607			16,368			16,248		16,159		16,248
Total capital		19,721		20,510		19,171			20,887			20,750		19,721		20,750

⁽¹⁾  MCCSR represents the Minimum Continuing Capital and Surplus Requirements (“MCCSR”) ratio of Sun Life Assurance Company of Canada (“Sun Life Assurance”).

⁽²⁾  Mutual fund sales, managed fund sales, ASO premium and deposit equivalents and total premiums and deposits are non-IFRS financial measures. ASO premium and deposit equivalents relate to fees received on group contracts where we provide administrative services. See Use of Non-IFRS Financial Measures.

⁽³⁾  AUM, mutual fund assets, managed fund assets, other AUM and total AUM are non-IFRS financial measures. See Use of Non-IFRS Financial Measures.

⁽⁴⁾  Other capital refers to Sun Life ExchangEable Capital Securities (“SLEECS”), which qualify as capital for Canadian regulatory purposes. See Capital and Liquidity Management – Capital in our annual MD&A.

⁽⁵⁾  Excludes non-controlling interests.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 5

Q2 2012 vs. Q2 2011

Our reported net income was $51 million in the second quarter of 2012, compared to $408 million in the second quarter of 2011. Reported ROE was 1.5%, compared with 11.5% for the second quarter of 2011.

Operating net income was $59 million for the quarter ended June 30, 2012, compared to $425 million for the same period last year. Operating ROE was 1.7%, compared with 12.0% in the second quarter of 2011.

Operating net income excluding the net impact of market factors was $379 million in the second quarter of 2012.

The following table reconciles our net income measures and sets out the impact that other notable items had on our net income in the second quarter of 2012. Unless indicated otherwise, all other factors discussed in this document that impact our results are applicable to both reported net income (loss) and operating net income (loss).

($ millions, after-tax)	Q2’12
Reported net income		51
Certain hedges that do not qualify for hedge accounting in SLF Canada		(5	)
Fair value adjustments on share-based payment awards at MFS		(1	)
Restructuring and other related costs		(2	)
Operating net income		59
Net equity market impact (including basis risk impact of $(31) million)		(131	)
Net interest rate impact (including credit spread impact of $39 million and swap spread impact of $24 million)		(196	)
Net gains from increases in the fair value of real estate		7
Operating net income excluding the net impact of market factors		379
Impact of other items on our net income:
Experience related items
Impact of investing activity on insurance contract liabilities		97
Mortality/morbidity		4
Credit		2
Lapse and other policyholder behaviour		(6	)
Expenses		(12	)
Model refinements and other experience due to variable annuities		(36	)
Other		(7	)
Management actions and changes in assumptions
Revision to insurance contract liabilities related to mortality projections		(45	)
Other		1
Other
Net excess realized gains on available-for-sale (“AFS”) assets		40
Excess financing costs		(9	)

The net equity market impact consists primarily of the effect of changes in equity markets during the quarter, net of hedging, that differ from our liability best estimate assumption of approximately 2% growth per quarter in equity markets. Net equity market impact also includes the income impact of the basis risk inherent in our hedging program resulting from 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. Net interest rate impact includes changes in interest rates that impact the investment returns that differ from those assumed, as well as the impact of changes in interest rates on the value of derivative instruments employed as part of our hedging programs. Our exposure to interest rates varies by product type, line of business and geography. Given the long-term nature of our business, we have a higher degree of sensitivity in respect of interest rates at long durations. Experience related items reflects the difference between actual experience during the reporting period and expected results assumed in the determination of our insurance contract liabilities. Management actions and changes in assumptions reflects changes to the underlying assumptions in the valuation of our insurance contract liabilities. Net excess realized gains on AFS assets represents the amount recognized on the sale of AFS securities above what we would consider to be its longer-term sustainable run rate. Excess financing costs represents the cost of carry in the second quarter of 2012 for the $800 million of 6.15% subordinated debentures. SLF Inc. had issued $800 million of 4.38% subordinated debentures on March 2, 2012 prior to Sun Life Assurance’s redemption of the 6.15% subordinated debentures on June 30, 2012.

6 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Our reported net income for the second quarter of 2012 included several items that we believe are not operational or ongoing in nature and are, therefore, excluded in our calculation of operating net income. The net impact of certain hedges that do not qualify for hedge accounting in SLF Canada, fair value adjustments on share-based awards at MFS and restructuring and other related costs reduced reported net income by $8 million in the second quarter of 2012, compared to a reduction of $17 million in the second quarter of 2011.

Net income for the quarter ended June 30, 2012 reflected the impact of weak macro economic conditions, in particular declining interest rates and equity markets, and a revision to insurance contract liabilities related to mortality projections. These losses were partially offset by the favourable impact of investment activity on insurance contract liabilities due to investment in higher yielding and longer dated debt securities, the positive impact from credit spread and swap spread movements and net realized gains on sales of AFS assets.

Net income in the second quarter of 2011 reflected growth in our in-force business, the favourable impact of investment activity and capital market experience on insurance contract liabilities and positive credit experience. Uneven movements across the yield curve and favourable spread movements more than offset lower yields on government securities, resulting in a net benefit from interest rates. These net gains were partially offset by investments in growth and service initiatives in our businesses and unfavourable policyholder experience.

Q2 2012 vs. Q2 2011 (year-to-date)

Reported net income for the first six months of 2012 was $737 million, compared to $846 million for the same period last year. The net impact of certain hedges that do not qualify for hedge accounting in SLF Canada, fair value adjustments on share-based awards at MFS, and restructuring and other related costs reduced reported net income by $49 million in the first six months of 2012, compared to a reduction of $51 million in the first six months of 2011. Reported ROE was 11.0% for the first six months of 2012, compared with 12.0% for the first six months of 2011. Operating net income was $786 million for the first six months of 2012, compared to $897 million for the same period in 2011.

Net income in 2012 was adversely impacted by declining interest rates, a revision to insurance contract liabilities related to mortality projections and unfavourable morbidity experience in our group businesses. These losses were partially offset by the positive impact of equity markets, favourable investment activity on insurance contract liabilities due to investment in higher yielding and longer dated debt securities, the positive impact from credit spread and swap spread movements and net realized gains on sales of AFS assets.

Net income for the six months ended June 30, 2011 was favourably impacted by growth in our in-force business, the positive impact of investment activity and capital market experience on insurance contract liabilities and gains from increases in the fair value of real estate classified as investment properties. This was partially offset by higher levels of investment in growth and service initiatives in our businesses, increased losses in the Corporate segment and the strengthening of the Canadian dollar.

Impact of the Low Interest Rate Environment

Sun Life’s overall business and financial operations are affected by the global economic and capital market environment. Our results are sensitive to interest rates, which have declined in response to more challenging conditions in the European Union and monetary policy actions in the United States.

If current rates persist, there may be an unfavourable impact on our net income in the second half of 2012 of $50 million in the third quarter and $50 million in the fourth quarter due to declines in fixed income reinvestment rates in our insurance contract liabilities. Furthermore, we would expect our net income for the 2013 to 2015 period to be reduced by approximately $500 million due to declines in fixed income reinvestment rates. This is forward-looking information and assumes the continuation of June 30, 2012 interest rate levels through the end of 2015, as applied to the block of business in force and using other assumptions in effect at June 30, 2012.

In addition to the impact on fixed income reinvestment rates in insurance contract liabilities, a prolonged period of low interest rates can pressure our earnings, regulatory capital requirements and our ability to implement our business strategy and plans in several ways, including:

(i) lower sales of certain protection and wealth products, which can in turn pressure our operating expense levels;

(ii) shifts in the expected pattern of redemptions (surrenders) on existing policies;

(iii) higher equity hedging costs;

(iv) higher new business strain reflecting lower new business profitability;

(v) reduced return on new fixed income asset purchases;

(vi) the impact of changes in actuarial assumptions driven by capital market movements;

(vii) impairment of goodwill; and

(viii) additional valuation allowances against our deferred tax assets.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 7

Impact of Foreign Exchange Rates

We have operations in many markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Indonesia, India, China, Vietnam and Bermuda, and generate revenues and incur expenses in local currencies in these jurisdictions, which are translated to Canadian dollars. The bulk of our exposure to movements in foreign exchange rates is to the U.S. dollar.

Items impacting our Consolidated Statements of Operations are translated to Canadian dollars using average exchange rates for the respective period. For items impacting our Consolidated Statements of Financial Position, period end rates are used for currency translation purposes. The following table provides the most relevant foreign exchange rates over the past several quarters.

	Quarterly rates										Year to date
Exchange rate	Q2’12		Q1’12		Q4’11		Q3’11		Q2’11		2012		2011
Average
U.S. Dollar		1.010		1.002		1.023		0.978		0.968		1.006		0.977
U.K. Pound		1.598		1.574		1.609		1.576		1.578		1.586		1.579
Period end
U.S. Dollar		1.017		0.998		1.019		1.050		0.963		1.017		0.963
U.K. Pound		1.596		1.597		1.583		1.636		1.546		1.596		1.546

In general, our net income benefits from a weakening Canadian dollar and is adversely affected by a strengthening Canadian dollar as net income from the Company’s international operations is translated back to Canadian dollars. However, in a period of losses, the weakening of the Canadian dollar has the effect of increasing the losses. The relative impact of foreign exchange in any given period is driven by the movement of currency rates as well as the proportion of earnings generated in our foreign operations. We generally express the impact of foreign exchange on net income on a year-over-year basis. During the second quarter of 2012, our operating net income decreased by $3 million as a result of movements in currency rates relative to the second quarter of last year. For the six months ended June 30, 2012, our operating net income increased by $13 million as a result of movements in currency rates relative to the first six months of last year.

8 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Performance by Business Group

SLF Canada

	Quarterly results														Year to date
($ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11		2012			2011
Operating net income (loss)(1)
Individual Insurance & Investments		59			154			73			(82	)		125		213			252
Group Benefits		94			44			65			73			64		138			130
Group Retirement Services		33			41			44			14			29		74			81
Total operating net income (loss)		186			239			182			5			218		425			463
Operating adjustments:
Hedges that do not qualify for hedge accounting		(5	)		(12	)		50			(53	)		9		(17	)		–
Goodwill and intangible asset impairment charges		–			–			(194	)		–			–		–			–
Common shareholders’ net income (loss)		181			227			38			(48	)		227		408			463
Operating ROE (%)		10.9			14.4			11.2			0.3			13.4		12.6			14.4

⁽¹⁾  Operating net income (loss) and Operating ROE are non-IFRS financial measures that exclude the impact of certain hedges that do not qualify for hedge accounting in SLF Canada and goodwill impairment charges. See Use of Non-IFRS Financial Measures.

Q2 2012 vs. Q2 2011

SLF Canada’s reported net income was $181 million in the second quarter of 2012, compared to $227 million in the same period last year. The impact of certain hedges that do not qualify for hedge accounting in SLF Canada reduced reported net income by $5 million, compared to a benefit of $9 million in the second quarter of 2011. Operating net income was $186 million, compared to $218 million in the second quarter of 2011.

Net income in the second quarter of 2012 reflected favourable morbidity experience in Group Benefits, favourable mortality experience in Individual Insurance & Investments, the favourable impact of investment activity on insurance contract liabilities, particularly in Individual Insurance & Investments, the positive impact from credit spread and swap spread movements in Individual Insurance & Investments and net realized gains on the sale of AFS assets. These items were partially offset by the unfavourable impact of declining interest rates and equity markets in Individual Insurance & Investments.

Net income in the second quarter of 2011 reflected the favourable impact of investment activity and capital market experience on insurance contract liabilities and positive credit experience. This was partially offset by higher levels of investment in growth and service initiatives.

In the second quarter of 2012, sales of individual life and health insurance products through the Sun Life Financial Career Sales Force were up 7% over the prior year, due mainly to continued strong demand for permanent life products. Insurance sales through the wholesale channel were 8% higher than the same period last year and reflected an improved product mix. Sales of individual wealth products increased 5% from the second quarter of 2011, primarily due to higher payout annuity sales, and higher segregated fund sales in advance of the suspension of the product in the wholesale channel. Sales of mutual funds were lower through third parties, which was largely offset by a strong increase at Sun Life Global Investments. The Company is making changes in the third quarter of 2012 to further de-risk its Individual Insurance & Investments products, including price increases and guarantee reductions, in response to the low interest rate environment.

Group Benefits sales were down from the second quarter of 2011 by 4%, primarily due to lower activity in the large case market. Group Retirement Services sales declined 51% from the second quarter 2011, driven by lower defined benefit solution sales and reduced activity in the market across all segments. Assets under administration for Group Retirement Services ended the quarter at $51 billion. Pension rollover sales were $262 million, an increase of 3% from the second quarter of 2011.

Q2 2012 vs. Q2 2011 (year-to-date)

Reported net income was $408 million for the first six months of 2012, compared to $463 million for the six months ended June 30, 2011. The impact of certain hedges that do not qualify for hedge accounting was a decrease of $17 million in the first six months of 2012, compared to $nil in the first six months of 2011. Operating net income was $425 million for the first six months of 2012, compared to $463 million for the same period last year.

Net income for the six months ended June 30, 2012 reflected the favourable impact of investment activity on insurance contract liabilities, primarily in Individual Insurance & Investments, the positive impact of equity markets in Individual Insurance & Investments and favourable mortality experience and impact from credit spread and swap spread movements in Individual Insurance & Investments. This was partially offset by the impact of declining interest rates in Individual Insurance & Investments and unfavourable morbidity experience in Group Benefits.

Net income for the six months ended June 30, 2011 reflected gains from increases in the value of real estate properties, the positive impact of investment activity and capital market experience on insurance contract liabilities and favourable mortality and morbidity experience, and was partially offset by higher levels of investment in growth and service initiatives.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 9

SLF U.S.

	Quarterly results														Year to date
(US$ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11		2012			2011
Operating net income (loss)(1)
Annuities		(157	)		325			(461	)		(272	)		62		168			140
Individual Insurance		(19	)		86			(46	)		(318	)		41		67			103
Employee Benefits Group		(8	)		22			9			22			11		14			55
Total operating net income (loss)		(184	)		433			(498	)		(568	)		114		249			298
Operating adjustments:
Goodwill and intangible asset impairment charges		–			–			(71	)		–			–		–			–
Restructuring and other related costs		(1	)		(9	)		(32	)		–			–		(10	)		–
Common shareholders’ net income (loss)		(185	)		424			(601	)		(568	)		114		239			298
Operating ROE (%)		(13.6	)		30.8			(36.3	)		(44.5	)		8.3		9.0			10.9
(C$ millions)
Operating net income (loss)		(187	)		434			(511	)		(569	)		110		247			290
Operating adjustments:
Goodwill and intangible asset impairment charges		–			–			(72	)		–			–		–			–
Restructuring and other related costs		(2	)		(9	)		(32	)		–			–		(11	)		–
Common shareholders’ net income (loss)		(189	)		425			(615	)		(569	)		110		236			290

⁽¹⁾  Operating net income (loss) and Operating ROE are non-IFRS financial measures that exclude the impact of restructuring and other related costs and goodwill impairment charges as a result of our decision to discontinue domestic U.S. variable annuity and individual life products to new sales. See Use of Non-IFRS Financial Measures.

Q2 2012 vs. Q2 2011

SLF U.S. had a reported loss of C$189 million in the second quarter of 2012, compared to reported net income of C$110 million in the second quarter of 2011. SLF U.S. had an operating loss of C$187 million in the second quarter of 2012, compared to operating net income of C$110 million in the same period last year. The weakening of the Canadian dollar relative to average exchange rates in the second quarter of 2012 increased the operating loss by C$8 million.

In U.S. dollars, SLF U.S. had a reported loss of US$185 million in the second quarter of 2012, compared to reported net income of US$114 million in the same period last year. The operating loss was US$184 million in the second quarter of 2012, compared to operating net income of US$114 million in the second quarter of 2011. The loss reflected the adverse impact of declining interest rates and equity markets in Annuities and Individual Insurance, a revision to insurance contract liabilities related to Individual Insurance mortality projections and unfavourable morbidity experience in the Employee Benefits Group. These items were partially offset by the favourable impact of investment activity on insurance contract liabilities in Individual Insurance, the positive impact from credit spread and swap spread movements in Annuities and Individual Insurance and net realized gains on the sale of AFS assets.

Net income in the second quarter of 2011 reflected the favourable impact of investment activity on insurance contract liabilities. This impact was partially offset by unfavourable policyholder experience, primarily mortality and morbidity experience in the Employee Benefits Group.

Employee Benefits Group sales in the second quarter of 2012 increased 14% compared to the same period last year. Within the Employee Benefits Group, Voluntary Benefits sales were more than 50% higher than the prior year from higher sales of disability insurance, while Group Life and Health sales rose 5% from higher sales of stop-loss insurance. International individual insurance sales increased from US$4 million to US$9 million, while international annuity sales decreased from US$334 million to US$166 million, reflecting product de-risking actions.

Q2 2012 vs. Q2 2011 (year-to-date)

Reported net income was US$239 million for the first six months of 2012, compared to US$298 million for the same period last year. Restructuring and other related costs were US$10 million, compared to US$nil in the first six months of 2011. Operating net income was US$249 million for the six months ended June 30, 2012, compared to US$298 million for the same period in 2011. Net income in the first six months of 2012 reflected the negative impact of declining interest rates in Annuities and Individual Insurance, a revision to insurance contract liabilities related to Individual Insurance mortality projections and unfavourable morbidity experience in Employee Benefits Group. These losses were offset by equity market gains in Annuities, the favourable impact of investment activity on insurance contract liabilities in Individual Insurance, the positive impact from credit spread and swap spread movements in Annuities and Individual Insurance and net realized gains on the sale of AFS assets.

Net income for the first six months of 2011 reflected the favourable impact of interest rates and investment activity on insurance contract liabilities, partially offset by unfavourable equity market experience.

10 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

MFS Investment Management

	Quarterly results															Year to date
(US$ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11			2012			2011
Operating net income(1)		67			70			66			66			72			137			139
Operating adjustments:
Fair value adjustments on share-based payment awards		(1	)		(21	)		(32	)		4			(26	)		(22	)		(51	)
Restructuring and other related costs		–			–			(4	)		–			–			–			–
Common shareholders’ net income (loss)		66			49			30			70			46			115			88
(C$ millions)
Operating net income(1)		68			69			68			65			70			137			137
Operating adjustments:
Fair value adjustments on share-based payment awards		(1	)		(20	)		(33	)		4			(26	)		(21	)		(51	)
Restructuring and other related costs		–			–			(4	)		–			–			–			–
Common shareholders’ net income (loss)		67			49			31			69			44			116			86
Pre-tax operating profit margin ratio(2)		32%			33%			32%			32%			34%			32%			33%
Average net assets (US$ billions)		273.2			270.1			249.5			257.4			274.0			271.7			269.1
AUM (US$ billions)(2)		278.2			284.8			253.2			236.5			274.7			278.2			274.7
Net sales (US$ billions)		4.2			5.9			1.7			(1.0	)		2.9			10.1			4.7
Asset appreciation (depreciation) (US$ billions)		(10.8	)		25.7			15.1			(37.3	)		3.7			14.9			13.5
S&P 500 Index (daily average)		1,350			1,346			1,225			1,227			1,319			1,348			1,310
MSCI EAFE Index		1,427			1,516			1,420			1,531			1,710			1,471			1,705

⁽¹⁾  Operating net income is a non-IFRS financial measure that excludes fair value adjustments on share-based payment awards at MFS and restructuring charges. See Use of Non-IFRS Financial Measures.

⁽²⁾  Pre-tax operating profit margin ratio and AUM are non-IFRS financial measures. See Use of Non-IFRS Financial Measures. Monthly information on AUM is provided by MFS on its Corporate Fact Sheet, which can be found in the “About MFS” link for U.S. individual investors from www.mfs.com.

Q2 2012 vs. Q2 2011

Reported net income in the second quarter of 2012 was C$67 million, compared to C$44 million for the same period last year. Fair value adjustments on share-based payment awards at MFS resulted in a reduction in reported net income of C$1 million in the second quarter of 2012, compared to a reduction of C$26 million in the same period last year. MFS had operating net income of C$68 million in the second quarter of 2012, compared to C$70 million in the second quarter of 2011. The weakening of the Canadian dollar relative to average exchange rates in the second quarter on 2012 increased operating net income at MFS by C$3 million.

In U.S. dollars, MFS had reported net income of US$66 million in the second quarter of 2012, compared to US$46 million in the second quarter of 2011. Fair value adjustments on share-based payment awards at MFS resulted in a reduction in reported net income of US$1 million in the second quarter of 2012, compared to a reduction of US$26 million in the same period last year. Operating net income was US$67 million in the second quarter of 2012, compared to US$72 million in the same period last year.

The decrease in operating net income from the second quarter of 2011 was primarily due to higher operating expenses, including increased occupancy costs. MFS’s pre-tax operating profit margin ratio was 32% in the second quarter of 2012, down from 34% in the same period last year.

Total AUM as at June 30, 2012 were US$278.2 billion, compared to US$253.2 billion at December 31, 2011. The increase of US$25.0 billion was driven by gross sales of US$39.1 billion and asset appreciation of US$14.9 billion, partially offset by redemptions of US$29.0 billion. Gross sales of US$19.7 billion during the second quarter represented a new high for MFS. Retail fund performance remained strong with 88% and 87% of fund assets ranked in the top half of their respective Lipper categories based on 5-year and 10-year performance, respectively.

Q2 2012 vs. Q2 2011 (year-to-date)

Reported net income for the first six months of 2012 was US$115 million, compared to US$88 million for the first six months of 2011. The impact of fair value adjustments on share-based payment awards at MFS reduced reported net income by US$22 million in the first six months of 2012, compared to a reduction of US$51 million in the first six months of 2011. Operating net income was US$137 million for the first six months of 2012, largely unchanged from the same period last year as increased revenue from higher average net assets was offset by higher operating expenses, including increased occupancy costs.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 11

SLF Asia

	Quarterly results											Year to date
($ millions)	Q2’12		Q1’12		Q4’11			Q3’11		Q2’11		2012		2011
Operating net income(1)		15		29		44			26		30		44		74
Operating adjustments:
Restructuring and other related costs		–		–		(6	)		–		–		–		–
Common shareholders’ net income		15		29		38			26		30		44		74
Operating ROE (%)		3.2		6.6		9.9			6.1		7.2		4.9		9.0

⁽¹⁾  Operating net income is a non-IFRS financial measure that excludes restructuring and other related costs recorded as a result of the acquisition of Grepalife Financial Inc. See Use of Non-IFRS Financial Measures. There have been no items that have given rise to differences between reported and operating net income in the quarterly and year-to-date results presented here.

Q2 2012 vs. Q2 2011

Net income was $15 million in the second quarter of 2012, compared to $30 million in the second quarter of 2011.

Net income in the second quarter of 2012 reflected the unfavourable impact of declining interest rates in Hong Kong and higher new business strain from increased sales levels in China. These items were partially offset by higher earnings in the Philippines and net realized gains on AFS assets. Net income in the second quarter of 2011 reflected business growth and reduced levels of new business strain in India as a result of lower sales relative to the year before and a change in product mix.

Individual life sales in the second quarter of 2012 fell marginally compared to the same period last year. Sales increases, measured in local currency, in the Philippines, China and Indonesia were offset by declines in other geographies. Sales were up 66% in the Philippines from agency expansion and the launch of Sun Life Grepa Financial in October 2011 and 26% in China, due to continued distribution growth.

During the second quarter of 2012, Sun Life Assurance entered into an agreement to form PVI Sun Life Insurance Company Limited (“PVI Sun Life” ) in Vietnam, a joint venture life insurance company with PVI Holdings. PVI Sun Life is scheduled to begin operations in the second half of 2012.

Q2 2012 vs. Q2 2011 (year-to-date)

Net income was $44 million for the first six months of 2012, compared to $74 million for the same period last year. Net income for the first six months of 2012 reflected the unfavourable impact of declining interest rates in Hong Kong and higher levels of new business strain from increased sales in China. Net income for the first six months of 2011 included business growth and investment gains in the Philippines.

Corporate

Corporate includes the results of our U.K. operations (“SLF U.K.”) and Corporate Support. Corporate Support includes our run-off reinsurance business as well as investment income, expenses, capital and other items that have not been allocated to our other business segments.

	Quarterly results															Year to date
($ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11			2012			2011
Operating net income (loss)(1)
SLF U.K.		52			26			71			(14	)		56			78			99
Corporate Support		(75	)		(70	)		(75	)		(85	)		(59	)		(145	)		(166	)
Total operating net income (loss)		(23	)		(44	)		(4	)		(99	)		(3	)		(67	)		(67	)
Operating adjustments:
Restructuring and other related costs:
SLF U.K.		–			–			(3	)		–			–			–			–
Corporate Support		–			–			(10	)		–			–			–			–
Common shareholders’ net income (loss)		(23	)		(44	)		(17	)		(99	)		(3	)		(67	)		(67	)

⁽¹⁾  Operating net income (loss) is a non-IFRS financial measure and excludes restructuring and other related costs. See Use of Non-IFRS Financial Measures. There have been no items that have given rise to differences between reported and operating net income in the quarterly and year-to-date results presented here.

12 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Q2 2012 vs. Q2 2011

The Corporate segment had a loss of $23 million in the second quarter of 2012, compared to a loss of $3 million in the second quarter of 2011.

SLF U.K. had net income of $52 million in the second quarter of 2012, compared to $56 million in the second quarter of 2011. Both periods were favourably impacted by investment activity and capital market experience on insurance contract liabilities, partially offset by investments required by regulatory initiatives such as Solvency II. Also reflected in the second quarter of 2012 were net realized gains on AFS assets, offset by credit related impacts. Net income for the second quarter of 2011 included various tax related items.

Corporate Support reported a loss of $75 million in the second quarter of 2012, compared to a loss of $59 million in the same period last year. The increased loss relative to the second quarter of 2011 reflects higher expenses and lower gains from foreign exchange.

Q2 2012 vs. Q2 2011 (year-to-date)

The loss in the Corporate segment was $67 million for the first six months of 2012, the same as for the same period last year.

Net income in SLF U.K. for the first six months of 2012 was $78 million, compared to $99 million for the first six months of 2011. Net income for the period ended June 30, 2012 reflected the unfavourable impact of credit related items, offset by reduced policy administration costs from revised outsourcing arrangements, the net favourable impact of investment activity and capital market experience on insurance contract liabilities and net realized gains on AFS assets. Net income for the first six months of 2011 included the net favourable impact of investment activity and capital market experience on insurance contract liabilities, as well as investment related gains and various tax related items, partially offset by increased investment in regulatory initiatives such as Solvency II.

In Corporate Support, the loss for the first six months of 2012 was $145 million, compared to a loss of $166 million in the first six months of 2011. The loss for the first six months of 2011 included foreign exchange losses due to the termination of a net hedging relationship.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 13

Additional Financial Disclosure

Revenue

	Quarterly results															Year to date
($ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11			2012			2011
Premiums
Gross		3,197			3,391			3,588			3,568			3,488			6,588			7,169
Ceded		(1,267	)		(1,317	)		(1,283	)		(1,233	)		(1,248	)		(2,584	)		(2,495	)
Net premium revenue		1,930			2,074			2,305			2,335			2,240			4,004			4,674
Net investment income
Interest and other investment income		1,368			1,183			1,182			1,498			1,260			2,551			2,375
Changes in fair value of Fair Value Through Profit and Loss (“FVTPL”) assets and liabilities		1,802			(1,009	)		1,257			2,827			781			793			573
Net gains (losses) on AFS assets		79			23			88			39			32			102			75
Fee income		871			869			883			807			844			1,740			1,663
Total revenue		6,050			3,140			5,715			7,506			5,157			9,190			9,360
Adjusted revenue(1)		5,040			4,963			4,968			5,338			4,992			10,040			10,052

⁽¹⁾  Adjusted revenue is a non-IFRS financial measure and excludes the impact of fair value changes in FVTPL assets and liabilities, currency, reinsurance for the insured business in SLF Canada’s Group Benefits operations and net premiums from the domestic variable annuity and individual insurance operations in SLF U.S. that closed to new sales effective December 30, 2011. For additional information, see Use of Non-IFRS Financial Measures.

Revenues were $6.1 billion for the second quarter of 2012, compared to $5.2 billion in the second quarter of 2011. Revenues increased primarily as a result of net gains in the fair value of FVTPL assets and liabilities. Adjusted revenue was $5.0 billion for the second quarter of 2012, up slightly from the same period last year.

Revenues of $9.2 billion for the six months ended June 30, 2012, were down $0.2 billion from revenues of $9.4 billion in the comparable period last year. The decrease was mainly attributable to lower net premium revenue from SLF U.S., partially offset by higher net investment income, including gains in the fair value of FVTPL assets and liabilities. Adjusted revenue of $10.0 billion for the six months ended June 30, 2012 was largely unchanged from the same period last year.

Premiums and Deposits

	Quarterly results										Year to date
($ millions)	Q2’12		Q1’12		Q4’11		Q3’11		Q2’11		2012		2011
Premiums & Deposits
Net premium revenue		1,930		2,074		2,305		2,335		2,240		4,004		4,674
Segregated fund deposits		1,819		2,113		2,912		2,298		2,406		3,932		4,972
Mutual fund sales		12,060		9,820		7,334		7,120		6,570		21,880		14,487
Managed fund sales		7,999		9,849		8,414		5,446		8,188		17,848		13,891
ASO premium & deposit equivalents		1,380		1,440		1,391		1,362		1,450		2,820		2,908
Total Premiums & Deposits		25,188		25,296		22,356		18,561		20,854		50,484		40,932
Adjusted Premiums & Deposits(1)		25,117		25,319		21,438		18,504		20,737		50,814		40,753

⁽¹⁾  Adjusted premiums and deposits is a non-IFRS financial measure that excludes the impact of foreign exchange, reinsurance for the insured business in SLF Canada’s Group Benefits operations, and net premiums and deposits from the domestic variable annuity and individual insurance operations in SLF U.S. that closed to new sales effective December 30, 2011. For additional information, see Use of Non-IFRS Financial Measures.

Premiums and deposits were $25.2 billion for the quarter ended June 30, 2012, compared to $20.9 billion for the same period last year. Adjusted premiums and deposits of $25.1 billion in the second quarter of 2012 increased by $4.4 billion, primarily as a result of strong fund sales at MFS.

Premiums and deposits were $50.5 billion for the six months ended June 30, 2012, compared to $40.9 billion for the first six months of 2011. Adjusted premiums and deposits of $50.8 billion for the six months ended June 30, 2012 increased by $10.1 billion over the same period last year. Both increases were primarily due to higher MFS fund sales.

Net life, health and annuity premium revenues, which reflect gross premiums less amounts ceded to reinsurers, were $1.9 billion in the second quarter of 2012, compared to $2.2 billion in the second quarter of 2011. The decrease of $0.3 billion was primarily related to lower annuity premiums in both SLF U.S. and Group Retirement Services at SLF Canada. Net life, health and annuity premium revenues were $4.0 billion in the first half of 2012, compared to $4.7 billion in the first half of 2011, largely driven by lower life and annuity premiums at SLF U.S.

14 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Segregated fund deposits were $1.8 billion in the second quarter of 2012, compared to $2.4 billion in the same period last year, primarily due to our decision to discontinue sales of domestic variable annuity products in SLF U.S. Segregated fund deposits were $3.9 billion for the six months of 2012, compared to $5.0 billion for the same period last year. The decrease was also largely attributable to the aforementioned decision to discontinue sales of domestic variable annuity products in SLF U.S.

Sales of mutual funds and managed funds were $20.1 billion in the second quarter of 2012, an increase of $5.3 billion over the second quarter of 2011, primarily as a result of higher MFS mutual fund sales. Mutual and managed fund sales were $39.7 billion for the first six months of 2012, compared to $28.4 billion for the same period last year, also largely due to higher MFS mutual and managed fund sales.

ASO premium and deposit equivalents of $1.4 billion in the second quarter of 2012 were mainly unchanged compared to the second quarter of 2011. ASO premium and deposit equivalents for the six months in 2012 were also largely unchanged compared to the first half of 2011.

Assets Under Management

AUM were $496.3 billion as at June 30, 2012, compared to $465.5 billion as at December 31, 2011 and $473.6 billion as at June 30, 2011. The $30.8 billion increase in AUM between December 31, 2011 and June 30, 2012 was driven by:

(i) positive market movements of mutual, managed and segregated funds totaling $17.2 billion;

(ii) net sales of mutual, managed and segregated funds of $12.0 billion; and

(iii) other business growth of $1.5 billion.

AUM increased $22.7 billion between June 30, 2011 and June 30, 2012. The increase in AUM related primarily to:

(i) an increase of $16.2 billion from the weakening of the Canadian dollar against foreign currencies;

(ii) net sales of mutual, managed and segregated funds of $10.2 billion; and

(iii) other business growth of $5.3 billion; partially offset by

(iv) unfavourable market movements of mutual, managed and segregated funds totaling $9.1 billion.

Changes in the Statement of Financial Position and Shareholders’ Equity

Total general fund assets were $132.2 billion as at June 30, 2012, compared to $129.8 billion as at December 31, 2011 and $121.6 billion as at June 30, 2011. The increase in general fund assets from December 31, 2011 was primarily due to business growth and gains in the values of FVTPL assets and liabilities.

Insurance contract liabilities of $97.9 billion as at June 30, 2012 increased by $1.5 billion compared to December 31, 2011. The increase was primarily driven by new policies, with some impact from changes in balances on in-force policies (which includes fair value changes on FVTPL assets supporting insurance contract liabilities).

Shareholders’ equity, including preferred share capital, was $16.3 billion as at June 30, 2012, compared to $15.7 billion as at December 31, 2011. The $0.6 billion increase in shareholders’ equity was primarily due to:

(i) shareholders’ net income of $798 million for the six months ended June 30, 2012, before preferred share dividends of $61 million;

(ii) net unrealized gain on AFS assets and cash flow hedges in other comprehensive income (“OCI”) of $95 million; and

(iii) proceeds of $134 million from the issuance of common shares through the Canadian Dividend Reinvestment Plan and $11 million from stock-based compensation; partially offset by

(iv) common share dividend payments of $425 million.

As at August 6, 2012, Sun Life Financial Inc. had 594.1 million common shares and 102.2 million preferred shares outstanding.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 15

Cash Flows

	Quarterly results
($ millions)	Q2’12			Q2’11
Net cash and cash equivalents, beginning of period		4,115			3,673
Cash flows provided by (used in):
Operating activities		1,664			2,081
Investing activities		(35	)		(9	)
Financing activities		(1,114	)		(328	)
Changes due to fluctuations in exchange rates		26			(41	)
Increase in cash and cash equivalents		541			1,703
Net cash and cash equivalents, end of period		4,656			5,376
Short-term securities, end of period		3,492			3,667
Net cash, cash equivalents and short-term securities		8,148			9,043

Net cash, cash equivalents and short-term securities were $8.1 billion at the end of the second quarter of 2012, compared to $9.0 billion at the end of the second quarter of 2011.

Cash provided by operating activities was $417 million lower in the second quarter of 2012 than the same period last year, primarily due to net sales of investments in the second quarter of 2011 and lower premiums from SLF U.S. Cash used in investing activities was $35 million in the second quarter of 2012, up $26 million from the second quarter of 2011. Cash used by financing activities was $1,114 million in the second quarter of 2012, compared to $328 million used in financing activities in the second quarter of 2011. This increase was primarily driven by the redemption of $800 million 6.15% Subordinated Debentures in the second quarter of 2012.

Income Taxes

During the second quarter of 2012, we reported an income tax recovery of $84 million on a loss before taxes and non-controlling interest of $4 million. This compares to an income tax expense of $63 million in the second quarter of 2011 on income before taxes and non-controlling interest of $501 million.

Our effective tax rate is generally below the statutory income tax rate of 26.5% (28.0% in 2011) due to a sustainable stream of tax benefits, such as the benefit of lower tax rates applied to income in foreign jurisdictions, a range of tax exempt investment income sources and other items. In the second quarter of 2012, the income tax recovery of $84 million was driven by the impact of the pre-tax loss and our sustainable stream of tax benefits.

In the second quarter of 2011, our income tax expense benefited from various favourable tax impacts, predominantly arising from lower taxes on investment income and releases of amounts accrued due to the finalization of prior years’ income tax returns.

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.

Historical financial results ($ millions, unless otherwise noted)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11			Q1’11			Q4’10		Q3’10
Operating net income (loss)		59			727			(221	)		(572	)		425			472			485		403
Adjustments to derive operating net income		(8	)		(41	)		(304	)		(49	)		(17	)		(34	)		19		13
Reported net income (loss)		51			686			(525	)		(621	)		408			438			504		416
Basic operating EPS ($)		0.10			1.24			(0.38	)		(0.99	)		0.74			0.82			0.85		0.71
Basic reported EPS ($)		0.09			1.17			(0.90	)		(1.07	)		0.71			0.76			0.88		0.73
Diluted operating EPS ($)		0.10			1.24			(0.38	)		(0.99	)		0.73			0.82			0.85		0.71
Diluted reported EPS ($)		0.09			1.15			(0.90	)		(1.07	)		0.68			0.73			0.84		0.70
Total revenue		6,050			3,140			5,715			7,506			5,157			4,203			4,271		7,671
Total AUM ($ billions)		496			494			466			459			474			469			465		455

16 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

First Quarter 2012

Operating net income of $727 million in the first quarter of 2012 benefited from higher equity markets and increased interest rates, the favourable impact of management actions and changes in assumptions and gains from increases in the value of real estate properties. These gains were partially offset by unfavourable morbidity experience in our Canadian group business.

Fourth Quarter 2011

The operating loss of $221 million in the fourth quarter of 2011 was impacted significantly by a change related to the valuation of our variable annuity and segregated fund insurance contract liabilities in which the expected future cost of the dynamic hedging program for variable annuity and segregated fund products is reflected in the liabilities. This resulted in a one-time charge to net income of $635 million. Partially offsetting the loss was the positive impact of a net tax benefit related to the reorganization of our U.K. operations and net excess realized gains on AFS assets.

Third Quarter 2011

The operating loss of $572 million in the third quarter of 2011 was driven by reserve increases (net of increases in asset values including hedges) of $684 million after-tax related to steep declines in both equity markets and interest rate levels, and reflected primarily in the individual life and variable annuity businesses in SLF U.S. Updates to actuarial methods and assumptions, which generally occur in the third quarter of each year, further reduced net income by $203 million. Updates to actuarial estimates and assumptions included unfavourable impacts related primarily to mortality and policyholder behaviour in SLF Canada and SLF U.S., which were partially offset by changes related to investment income tax on universal life insurance policies in SLF Canada.

Second Quarter 2011

Operating net income of $425 million for the quarter ended June 30, 2011 reflected continued growth in our in-force business, the favourable impact of investment results on insurance contract liabilities and positive credit experience. Uneven movements across the yield curve and favourable spread movements more than offset lower yields on government securities, resulting in a net benefit from interest rates in the second quarter. These net gains were partially offset by investments in growth and service initiatives in our businesses and unfavourable policyholder experience.

First Quarter 2011

Operating net income of $472 million for the quarter ended March 31, 2011 reflected continued growth in AUM, gains in the fair value of real estate classified as investment properties, the positive impact of investment activity on insurance contract liabilities, increases in equity markets and favourable mortality and morbidity experience. These gains were partially offset by increased losses in the Corporate segment.

Fourth Quarter 2010

Operating net income of $485 million for the quarter ended December 31, 2010 was favourably impacted by improvements in equity markets and increased interest rates. This was partially offset by the impact of changes to actuarial estimates and assumptions related primarily to mortality, higher levels of expenses, which included several non-recurring items, and the unfavourable impact of currency movements.

Third Quarter 2010

Operating net income of $403 million in the third quarter of 2010 was favourably impacted by improved equity market conditions and assumption changes and management actions. We increased our mortgage sectoral allowance in anticipation of continued pressure in the U.S. commercial mortgage market, however overall credit experience continued to show improvement over the prior year. The net impact from interest rates on third quarter results was not material as the unfavourable impact of lower interest rates was largely offset by positive movement in interest rate swaps used for asset-liability management.

Review of Actuarial Methods and Assumptions and Management Actions

Management makes judgments involving assumptions and estimates relating to the Company’s obligations to policyholders, some of which relate to matters that are inherently uncertain. The determination of these obligations is fundamental to the Company’s financial results and requires management to make assumptions about equity market performance, interest rates, asset default, mortality and morbidity rates, policy terminations, expenses and inflation and other factors over the life of its products.

During the second quarter of 2012, the impact of actuarial method and assumption changes and management actions reduced net income by $44 million, principally due to a revision to insurance contract liabilities related to mortality projections at SLF U.S.

Changes to the Company’s valuation assumptions related to experience updates are generally made in the third quarter. We cannot at this time reasonably estimate the aggregate impact of all assumption changes that will be made in the third quarter of 2012. There are a number of positive and negative impacts that together are expected to be negative, particularly in light of the challenging economic environment.

The Company may make changes throughout the year to reflect model refinements, changes in regulatory policies and actuarial standards and practices, as well as significant changes to product features.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 17

Investments

We had total general fund invested assets of $118 billion as at June 30, 2012⁽²⁾. The majority of our general fund is invested in medium- to long-term fixed income instruments, such as debt securities, mortgages and loans. 84.9% of the general fund assets are invested in cash and fixed income investments. Equity securities and investment properties comprised 4.0% and 4.8% of the portfolio, respectively. The remaining 6.3% of the portfolio includes policy loans, derivative assets and other invested assets.

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

	June 30, 2012				December 31, 2011
($ millions)	Carrying value		% of total carrying value		Carrying value		% of total carrying value
Cash, cash equivalents and short-term securities		8,399		7.1%		8,837		7.6%
Debt securities – FVTPL		51,463		43.4%		51,627		44.2%
Debt securities – AFS		11,891		10.0%		11,303		9.7%
Equity securities – FVTPL		3,878		3.3%		3,731		3.2%
Equity securities – AFS		824		0.7%		839		0.7%
Mortgages and loans		28,868		24.4%		27,755		23.8%
Derivative assets		2,720		2.3%		2,632		2.3%
Policy loans		3,287		2.8%		3,276		2.8%
Investment properties		5,684		4.8%		5,313		4.5%
Other invested assets		1,448		1.2%		1,348		1.2%
Total invested assets		118,462		100.0%		116,661		100.0%

Debt Securities

As at June 30, 2012, we held $63 billion of debt securities, which constituted 53% of our overall investment portfolio. Debt securities with an investment grade of “A” or higher represented 67% of the total debt securities as at June 30, 2012, compared to 68% as at December 31, 2011. Debt securities rated “BBB” or higher represented 97% of total debt securities as at June 30, 2012, consistent with December 31, 2011.

Included in the $63 billion of debt securities were $7.7 billion of non-public debt securities, which constituted 12.2% of our total debt securities, compared with $7.4 billion, or 11.8%, as at December 31, 2011. Corporate debt securities that are not issued or guaranteed by sovereign, regional and municipal governments represented 67% of our total debt securities as at June 30, 2012, compared to 66% as at December 31, 2011. Total government issued or guaranteed debt securities as at June 30, 2012 were $20.7 billion, compared to $21.5 billion as at December 31, 2011. Debt securities issued by the U.S. Government and other U.S. agencies were $3.0 billion as at June 30, 2012. As outlined in the table below, we have an immaterial amount of direct exposure to eurozone sovereign credits.

Debt securities of governments and financial institutions by geography

	June 30, 2012				December 31, 2011
($ millions)	Government issued or guaranteed		Financials		Government issued or guaranteed		Financials
Canada		12,658		1,593		13,051		1,607
United States		3,042		5,791		3,092		6,298
United Kingdom		2,235		1,413		2,533		1,245
Eurozone
France		25		129		25		101
Germany		171		30		180		28
Greece		–		–		–		–
Ireland		–		–		–		–
Italy		–		9		–		21
Netherlands		2		351		4		311
Portugal		–		–		–		–
Spain		–		48		3		55
Residual eurozone		2		178		2		170
Other		2,562		1,447		2,605		1,547
Total		20,697		10,989		21,495		11,383

⁽²⁾ The invested asset values and ratios presented in this section are based on the carrying value of the respective asset categories. Carrying values for FVTPL and AFS invested assets are generally equal to fair value. In the event of default, if the amounts recovered are insufficient to satisfy the related insurance contract liability cash flows that the assets are intended to support, credit exposure may be greater than the carrying value of the asset.

18 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Our gross unrealized losses as at June 30, 2012 for FVTPL and AFS debt securities were $0.8 billion and $0.1 billion, respectively, compared with $1.0 billion and $0.1 billion, respectively, as at December 31, 2011. Gross unrealized losses as at June 30, 2012 included $0.1 billion related to eurozone sovereign and financial debt securities.

Our debt securities as at June 30, 2012 included $11.0 billion in the financial sector, representing approximately 17.3% of our total debt securities, or 9.3% of our total invested assets. This compares to $11.4 billion, or 18.1%, of the debt security portfolio, as at December 31, 2011. The $0.4 billion decrease in the value of financial sector debt securities holdings was primarily due to reductions in our exposure to U.S. credits⁽³⁾.

Asset-backed Securities

Our debt securities as at June 30, 2012 included $3.7 billion of asset-backed securities reported at fair value, representing approximately 5.9% of our debt securities, or 3.2% of our total invested assets. This was $14 million higher than the level reported as at December 31, 2011. The credit quality of our asset-backed securities remained relatively stable for the first six months. There were no changes to the lifetime expected losses for these assets, and any changes in the asset quality of the portfolio were substantially offset by previously established actuarial reserves.

Asset-backed securities

	June 30, 2012						December 31, 2011
($ millions)	Amortized cost		Fair value		BBB and higher		Amortized cost		Fair value		BBB and higher
Commercial mortgage-backed securities		1,677		1,646		85.1%		1,703		1,662		85.0%
Residential mortgage-backed securities
Agency		540		568		100.0%		510		538		100.0%
Non-agency		704		574		39.0%		771		602		47.4%
Collateralized debt obligations		119		106		16.3%		127		99		20.3%
Other(1)		951		853		85.2%		935		833		84.8%
Total		3,991		3,747		78.4%		4,046		3,734		79.4%

⁽¹⁾ Other includes sub-prime, a portion of the Company’s exposure to Alternative-A and other asset-backed securities.

Deterioration in economic factors, such as property values and unemployment rates, or changes in the assumed default rate of the collateral pool or loss-given-default expectations may result in write-downs of our asset-backed securities. In addition, foreclosure proceedings and the sale of foreclosed homes have been delayed as a result of the large inventory of such properties. It is difficult to estimate the impact of these delays, but they could have an adverse impact on our residential mortgage-backed portfolio depending on their magnitude. Additional information on our asset-backed securities can be found in our 2011 annual MD&A.

Mortgages and Loans

As at June 30, 2012, we had a total of $28.9 billion in mortgages and loans. Loans, which consist primarily of private debt securities, were $15.5 billion. Our mortgage portfolio, which consists almost entirely of first mortgages, was $13.3 billion. The carrying value of mortgages and loans by geographic location is set out in the following table. The geographic location for mortgages is based on location of the property, while for corporate loans it is based on the country of the creditor’s parent.

Mortgages and loans by geography

	June 30, 2012						December 31, 2011
($ millions)	Mortgages		Loans		Total		Mortgages		Loans		Total
Canada		7,570		9,776		17,346		7,500		9,154		16,654
United States		5,739		3,288		9,027		5,831		3,135		8,966
United Kingdom		23		427		450		24		253		277
Other		–		2,045		2,045		–		1,858		1,858
Total		13,332		15,536		28,868		13,355		14,400		27,755

In the United States, core markets have stabilized for institutional quality assets. However, lower quality properties in secondary and tertiary markets continue to struggle. As a result of pent up demand for distressed assets and limited investment opportunities, loan sale prices are approaching the value of the underlying collateral. In the second quarter, we capitalized on this market imbalance and disposed of many of our highly distressed loans. However, we expect to continue to face headwinds as a result of anemic tenant demand, as office tenants are utilizing less space for more employees and large box retail spaces are proving to be problematic to backfill. A prolonged increase in real estate demand will be dependent upon job creation, which continues to lag.

⁽³⁾  Our exposure to debt securities (which includes governments and corporate debt securities) to any single country does not exceed 1% of total assets on our Consolidated Statements of Financial Position as at June 30, 2012 with the exception of the following countries where we have business operations: Canada, the United States and the United Kingdom.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 19

The distribution of mortgages and loans by credit quality as at June 30, 2012 and December 31, 2011 is set out in the following tables. As at June 30, 2012, our mortgage portfolio consisted mainly of commercial mortgages with a carrying value of $13.1 billion, spread across approximately 3,400 loans. Commercial mortgages include retail, office, multi-family, industrial and land properties. Our commercial portfolio has a weighted average loan-to-value ratio of approximately 60%. The estimated weighted average debt service coverage is 1.6 times, consistent with December 31, 2011. The Canada Mortgage and Housing Corporation insures 22% of the Canadian commercial mortgage portfolio.

Mortgages and loans past due or impaired

June 30, 2012

Gross carrying value

Allowance for losses

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Not past due

13,090

15,507

28,597

–

–

–

Past due:

Past due less than 90 days

3

–

3

–

–

–

Past due 90 to 179 days

–

–

–

–

–

–

Past due 180 days or more

–

–

–

–

–

–

Impaired

358

47

405

119

(1)

18

137

Total

13,451

15,554

29,005

119

18

137

December 31, 2011

Gross carrying value

Allowance for losses

($ millions)

Mortgages

Loans

Total

Mortgages

Loans

Total

Not past due

13,001

14,358

27,359

–

–

–

Past due:

Past due less than 90 days

10

–

10

–

–

–

Past due 90 to 179 days

–

–

–

–

–

–

Past due 180 days or more

–

–

–

–

–

–

Impaired

540

69

609

196

(1)

27

223

Total

13,551

14,427

27,978

196

27

223

⁽¹⁾ Includes $66 million of sectoral provisions as at June 30, 2012 and $68 million of sectoral provisions as at December 31, 2011.

Net impaired assets for mortgages and loans, net of allowances for losses, amounted to $268 million as at June 30, 2012, $118 million lower than the December 31, 2011 level for these assets. The gross carrying value of impaired mortgages decreased by $182 million to $358 million as at June 30, 2012. The majority of this net decrease is due to the sale of impaired mortgages, partially offset by an increase in mortgages where a specific provision was recorded, including the impact of mortgages that have been restructured in the period. The allowance for losses related to mortgages fell to $119 million at June 30, 2012 from $196 million as at December 31, 2011. This reduction is related to the sale of impaired mortgages and a release of specific provisions for assets that have been restructured in the period, offset by the addition of new provisions on specific mortgages. The sectoral provision related to mortgages included in the allowance decreased by $2 million to $66 million. Approximately 93% of the impaired mortgage loans are in the United States.

We have provided $3,240 million for possible future asset defaults over the lifetime of our insurance contract liabilities as at June 30, 2012, which decreased from our December 31, 2011 level of $3,376 million, primarily as a result of the release of provisions on asset-backed securities and market movements. To the extent that an asset is written off, or disposed of, any amount set aside for possible future asset defaults in insurance contract liabilities in respect of that asset will be released into income. The $3,240 million for possible future asset defaults excludes the portion of the provision that can be passed through to participating policyholders and provisions for possible reductions in the value of equity and real estate assets supporting insurance contract liabilities.

Derivative Financial Instruments

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

Derivative instruments

($ millions)	June 30, 2012		December 31, 2011
Net fair value		1,576		1,573
Total notional amount		57,361		50,859
Credit equivalent amount		971		1,026
Risk-weighted credit equivalent amount		8		8

20 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

The total notional amount of derivatives in our portfolio increased to $57.4 billion as at June 30, 2012, from $50.9 billion at the end of 2011. This increase is primarily due to interest rate option contracts purchased, primarily swaptions, for the purpose of economically hedging against interest rate risk, disintermediation risk and to improve the matching of our assets and our liabilities. The change in notional derivatives for the first six months of 2012 also included an increase in interest rate swaps. The net fair value was $1.6 billion as at June 30, 2012, unchanged from the 2011 year-end amount.

Capital Management

Our capital base consists mainly of common shareholders’ equity, preferred shareholders’ equity and subordinated debt. As at June 30, 2012, our total capital was $19.7 billion, up from $19.2 billion as at December 31, 2011. The increase in total capital was primarily the result of common shareholders’ net income of $737 million, partially offset by common shareholders’ dividends (net of the dividend reinvestment and share repurchase plan) of $291 million.

Sun Life Assurance’s MCCSR ratio was 210% as at June 30, 2012, compared to 211% as at December 31, 2011. The MCCSR ratio decreased primarily as a result of business growth, the phase-in impact of the conversion to IFRS, the impact of unfavourable markets and capital redemption, partially offset by net income (net of dividends) and capital transfers from Sun Life Financial Inc. During the quarter, Sun Life Financial Inc. injected $1,050 million of capital into Sun Life Assurance and Sun Life Assurance redeemed $800 million of subordinated debentures.

The Office of the Superintendent of Financial Institutions, Canada (“OSFI”) recently released for public consultation the draft MCCSR Guideline effective for 2013. The draft includes changes on four key items: (i) the impact of the change in accounting for defined benefit pension plans (IAS 19); (ii) the impact of the change in accounting for joint ventures (IFRS 11); (iii) the treatment of group policies where there is a sharing of risk with policyholders; and (iv) the change in interest rate environment (C-3) risk requirements for U.S. pass-through mortgage-backed securities and collateralized mortgage obligations. In relation to draft guideline changes for defined benefit plans, the actual impact will be based on the balances as at December 31, 2012. Using the year-end 2011 balances as an estimate, Sun Life Assurance’s MCCSR available capital would be reduced by approximately $130 million, resulting in a 3 percentage point decrease to MCCSR ratio, of which a significant portion could be phased-in over a two-year period starting January 1, 2013. Other draft changes are not expected to have a material impact on Sun Life Assurance’s MCCSR ratio.

OSFI is considering a number of changes to the insurance company capital rules, including new guidelines that would establish stand-alone capital adequacy requirements for operating life insurance companies, such as Sun Life Assurance, and that would update OSFI’s regulatory guidance for non-operating insurance companies acting as holding companies, such as Sun Life Financial Inc. In relation to the guidance for holding companies, OSFI has indicated that it expects to further develop and apply MCCSR and Internal Target Capital Ratio guidelines to holding companies by 2016. OSFI is also reviewing the use of internally modeled capital requirements for variable annuity and segregated fund guarantees. In addition, OSFI is reviewing the alignment of some insurance regulations with certain elements of changes made to banks’ regulatory framework under the new Basel III Capital Accord. The outcome of these initiatives is uncertain and may impact our position relative to that of other Canadian and international financial institutions with which we compete for business and capital.

Risk Management

The shaded text and table in the following section of this MD&A represents 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 June 30, 2012.

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

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

Market Risk Sensitivities

Our earnings are affected by the determination of policyholder obligations under our annuity and insurance contracts. These amounts are determined using internal valuation models and are recorded in our Consolidated Financial Statements, primarily as insurance contract liabilities. The determination of these obligations requires management to make assumptions about the future level of equity market performance, interest rates (including 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 financial statements and flow through net income.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 21

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

During the second quarter of 2012, we realized $79 million (pre-tax) in net gains on the sale of AFS assets. At June 30, 2012, the net unrealized gains or OCI position on AFS fixed income and equity assets (after-tax) was $353 million and $59 million, respectively.

The following tables set out the estimated immediate impact or sensitivity of our net income, OCI and Sun Life Assurance’s MCCSR ratio to certain instantaneous changes in interest rates and equity market prices as at June 30, 2012 and December 31, 2011.

Interest rate and equity market sensitivities

As at June 30, 2012
	Net income ($ millions)(3)	Increase/(decrease) in after-tax OCI ($ millions)(4)	MCCSR(5)
Changes in interest rates(1)
50 basis point increase	$200	$(200)	Approximate 2 percentage point increase
50 basis point decrease	$(250)	$200	Approximate 3 percentage point decrease
100 basis point increase	$350	$(400)	Approximate 4 percentage point increase
100 basis point decrease	$(550)	$400	Approximate 6 percentage point decrease
Changes in equity markets(2)
10% increase	$100	$50	Approximate 3 percentage point increase
10% decrease	$(150)	$(50)	Approximate 3 percentage point decrease
25% increase	$200	$150	Approximate 6 percentage point increase
25% decrease	$(400)	$(150)	Approximate 7 percentage point decrease
As at December 31, 2011
	Net income ($ millions)(3)	Increase/(decrease) in after-tax OCI ($ millions)(4)	MCCSR(5)
Changes in interest rates(1)
50 basis point increase	$250	$(150)	Approximate 3 percentage point increase
50 basis point decrease	$(300)	$200	Approximate 3 percentage point decrease
100 basis point increase	$500	$(350)	Approximate 7 percentage point increase
100 basis point decrease	$(700)	$350	Approximate 9 percentage point decrease
Changes in equity markets(2)
10% increase	$100	$50	Approximate 3 percentage point increase
10% decrease	$(150)	$(50)	Approximate 2 percentage point decrease
25% increase	$200	$150	Approximate 4 percentage point increase
25% decrease	$(350)	$(150)	Approximate 6 percentage point decrease
(1)  Represents a parallel shift in assumed interest rates across the entire yield curve as at June 30, 2012 and December 31, 2011, respectively. Variations in realized yields based on different terms to maturity, geographies, asset class types, credit and swap spreads and ratings may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for variable annuities and segregated funds at 10 basis point intervals (for 50 basis point changes in interest rates) and at 20 basis point intervals (for 100 basis point changes in interest rates). (2)  Represents the respective change across all equity markets as at June 30, 2012 and December 31, 2011, respectively. 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 variable annuities and segregated funds at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets). (3)  The market risk sensitivities include the expected mitigation impact of our hedging programs in effect as at June 30, 2012 and December 31, 2011, respectively, and include new business added and product changes implemented during the period. (4)  A portion of assets designated as AFS are required to support certain policyholder liabilities and any realized gains (losses) on these securities would result in a commensurate increase (decrease) in actuarial liabilities, with no net income impact in the reporting period.

⁽⁵⁾  The MCCSR sensitivities illustrate the impact on the MCCSR ratio for Sun Life Assurance as at June 30, 2012 and December 31, 2011, respectively. This excludes the impact on assets and liabilities that are included in Sun Life Financial, but not included in Sun Life Assurance.

22 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Credit Spread and Swap Spread Sensitivities

We have estimated the impact on shareholder net income attributable to specified instantaneous changes in credit and swap spreads. The credit spread sensitivities reflect the impact of changes in credit spreads on non-sovereign fixed income assets, including 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.

As of June 30, 2012 we estimate that an increase of 50 basis points in credit spread levels would increase net income by approximately $100 million and a decrease of 50 basis points in credit spread levels would decrease net income by approximately $100 million. In most instances, credit spreads are assumed to revert to long-term actuarial liability assumptions generally over a five-year period.

As of June 30, 2012 we estimate that a 20 basis point change in swap spread levels would change our net income by approximately $25 million.

The spread sensitivities assume parallel shifts in the indicated spreads (i.e., equal shift across the entire spread term structure). Variations in realized spread changes based on different terms to maturity, geographies, asset class/derivative types, underlying interest rate movements and ratings may result in realized sensitivities being significantly different from those provided above. The credit spread sensitivity estimates also exclude any credit spread impact that may arise in connection with any asset positions held in segregated and variable annuity funds. Spread sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Please refer to the section “additional cautionary language and key assumptions related to sensitivities” for important additional information regarding these estimates.

Variable Annuity and Segregated Fund Guarantees

Approximately 75% of our expected sensitivity to equity market risk and 20% of our expected sensitivity to interest rate risk is derived from segregated fund products in SLF Canada, variable annuities in SLF U.S. and run-off reinsurance in our Corporate business segment. These products provide benefit guarantees, which are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing for the guarantees in respect of our variable annuity and segregated fund contracts is uncertain and will depend upon a number of factors including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impact on net income and capital.

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

	June 30, 2012
($ millions)	Fund value		Amount at  risk(1)		Value of guarantees(2)		Insurance  contract liabilities(3)
SLF Canada		12,123		620		11,788		589
SLF U.S.		24,551		2,860		26,337		1,944
Run-off reinsurance(4)		2,598		618		2,219		523
Total		39,272		4,098		40,344		3,056
	December 31, 2011(5)
($ millions)	Fund value		Amount at risk(1)		Value of guarantees(2)		Insurance contract liabilities(3)
SLF Canada		11,823		769		11,704		655
SLF U.S.		24,692		3,123		26,914		1,997
Run-off reinsurance(4)		2,542		642		2,267		536
Total		39,057		4,534		40,885		3,188

⁽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 valuation standards.

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

⁽⁵⁾ Fund value and value of guarantees for SLF U.S. as at December 31, 2011 have been restated to reflect a change in methodology adopted in 2012.

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 23

The movement of the items in the table above from December 31, 2011 to June 30, 2012 was primarily as a result of the following factors:

(i) fund values increased due to favourable equity market movements;

(ii) the amount at risk decreased due to favourable equity market movements;

(iii) the value of guarantees decreased due to the natural run-off of the block net of new business written; and

(iv) insurance contract liabilities decreased due to favourable equity market movements, partially offset by lower interest rates.

Variable Annuity and Segregated Fund Hedging

We have implemented hedging programs, involving the use of derivative instruments, to mitigate a portion of the interest rate and equity market-related volatility in the cost of providing for variable annuity and segregated fund guarantees. As at June 30, 2012, over 90% of our total variable annuity and segregated fund contracts, as measured by associated fund values, were included in a hedging program. While a large percentage of contracts are included in the hedging program, not all of our equity and interest rate exposure related to these contracts is hedged. For those variable annuity and segregated fund contracts included in the hedging program, we generally hedge the value of expected future net claims costs and a portion of the policy fees as we are primarily focused on hedging the expected economic costs associated with providing these guarantees.

The following table illustrates the impact of our hedging program related to our sensitivity to a 50 basis point and 100 basis point decrease in interest rates and 10% and 25% decrease in equity markets for variable annuity and segregated fund contracts as at June 30, 2012.

Impact of variable annuity and segregated fund hedging ($ millions)

	Changes in interest rates(2)		Changes in equity markets(3)
Net income sensitivity(1)	50 basis point decrease	100 basis point decrease	10% decrease	25% decrease
Before hedging	(550)	(1,150)	(550)	(1,550)
Hedging impact	500	1,050	450	1,250
Net of hedging	(50)	(100)	(100)	(300)

⁽¹⁾ 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 approach will result in residual volatility to interest rate and equity market shocks in reported income and capital. The general availability and cost of these hedging instruments may be adversely impacted by a number of factors, including volatile and declining equity and interest rate market conditions.

⁽²⁾  Represents a parallel shift in assumed interest rates across the entire yield curve as at June 30, 2012. Variations in realized yields based on different terms to maturity, geographies, asset class types, credit and swap spreads and ratings may result in realized sensitivities being significantly different from those illustrated above. Sensitivities include the impact of re-balancing interest rate hedges for variable annuities and segregated funds at 10 basis point intervals (for 50 basis point changes in interest rates) and at 20 basis point intervals (for 100 basis point changes in interest rates).

⁽³⁾  Represents the change across all equity markets as at June 30, 2012. 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 variable annuities and segregated funds at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).

Real Estate Risk

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

Additional Cautionary Language and Key Assumptions Related to Sensitivities

Our market risk sensitivities are forward-looking statements. They are measures of our estimated net income and OCI sensitivity to changes in interest rate 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 impact on goodwill impairment or the current valuation allowance on deferred tax assets. The sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Actual results can differ materially from these estimates for a variety of reasons, including differences in the pattern or distribution of the market shocks, the interaction between these risk factors, model error, or changes in other assumptions such as business mix, effective tax rates, policyholder behaviour, currency exchange rates and other market variables relative to those underlying the calculation of these sensitivities. The potential extent to which actual results may differ from the indicative ranges will generally increase with larger capital market movements. Our sensitivities as at December 31, 2011 have been included for comparative purposes only.

24 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

We have also provided measures of our net income sensitivity to changes in credit spreads, swap spreads, real estate price levels and capital sensitivities to changes in interest rates and equity price levels. These sensitivities are also forward-looking statements and MCCSR sensitivities are non-IFRS financial measures. For additional information, see Use of Non-IFRS Financial Measures. The cautionary language which appears in this section is also applicable to the credit spread, swap spread, real estate and MCCSR 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.

The sensitivities reflect the composition of our assets and liabilities as at June 30, 2012 and December 31, 2011. 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 assets and programs in place as at the calculation dates. The actual impact of these hedging activities can differ materially from that assumed in the determination of these indicative sensitivities due to ongoing hedge re-balancing activities, changes in the scale or scope of hedging activities, changes in the cost or general availability of hedging instruments, basis risk (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 June 30, 2012 and December 31, 2011, as applicable. Changes in the regulatory environment, accounting or actuarial valuation methods, models or assumptions after this date could result in material changes to these reported sensitivities. Changes in excess of the ranges illustrated may result in other-than-proportionate impacts.

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

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

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

Legal and Regulatory Matters

Information concerning legal and regulatory matters is provided in our 2011 Consolidated Financial Statements, MD&A and AIF.

Amendments to International Financial Reporting Standards Issued in 2012

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

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

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 25

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 beginning on April 1, 2012 and ended on June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Use of Non-IFRS Financial Measures

We report certain financial information using non-IFRS financial measures, as we believe that they provide information that is useful to investors in understanding our performance and facilitate a comparison of the quarterly and full year results of our ongoing operations. 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. They should not be viewed as an alternative to measures of financial performance determined in accordance with IFRS. Additional information concerning these non-IFRS financial measures and reconciliations to IFRS measures are 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 & Reports.

Operating net income (loss) and financial information based on operating net income (loss), such as operating EPS and operating ROE, are non-IFRS financial measures. Operating net income (loss) excludes: (i) the impact of certain hedges that do not qualify for hedge accounting in SLF Canada; (ii) fair value adjustments on share-based payment awards at MFS; (iii) restructuring and other related costs; (iv) goodwill and intangible asset impairment charges; and (v) other items that are not operational or ongoing in nature. Operating EPS also excludes the dilutive impact of convertible securities under IFRS.

Operating net income excluding the net impact of market factors is a non-IFRS financial measure that removes certain market-related factors that create volatility in our results under IFRS in order to assist shareholders in better understanding our underlying net income. Operating net income excluding the net impact of market factors adjusts operating net income (loss) for: (i) the net impact of changes in interest rates in the reporting period, including changes in credit and swap spreads; (ii) the net impact of changes in equity markets above or below the expected level of change in the reporting period; (iii) the net impact of changes in the fair value of real estate properties in the reporting period; and (iv) the impact of changes in actuarial assumptions driven by capital market movements.

26 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

The following tables set out the amounts that were excluded from our operating net income (loss), operating net income (loss) excluding the net impact of market factors, operating EPS and operating ROE, and provides a reconciliation to our reported net income (loss), EPS and ROE based on IFRS.

Reconciliation of net income to operating net income and operating net income excluding the net impact of market factors

	IFRS
($ millions, unless otherwise noted)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11			Q1’11			Q4’10			Q3’10
Net income		51			686			(525	)		(621	)		408			438			504			416
Impact of certain hedges that do not qualify for hedge accounting in SLF Canada		(5	)		(12	)		50			(53	)		9			(9	)		43			37
Fair value adjustments on share-based payment awards at MFS		(1	)		(20	)		(33	)		4			(26	)		(25	)		(24	)		(24	)
Restructuring and other related costs		(2	)		(9	)		(55	)		–			–			–			–			–
Goodwill and intangible asset impairment charges		–			–			(266	)		–			–			–			–			–
Operating net income (loss)		59			727			(221	)		(572	)		425			472			485			403
Net interest rate impact		(196	)		95			n/a			n/a			n/a			n/a			n/a			n/a
Net equity market impact		(131	)		253			n/a			n/a			n/a			n/a			n/a			n/a
Net gains from changes in the fair value of real estate		7			22			n/a			n/a			n/a			n/a			n/a			n/a
Actuarial assumption changes driven by changes in capital market movements		–			–			n/a			n/a			n/a			n/a			n/a			n/a
Operating net income (loss) excluding the net impact of market factors		379			357			n/a			n/a			n/a			n/a			n/a			n/a
Reported EPS (diluted) ($)		0.09			1.15			(0.90	)		(1.07	)		0.68			0.73			0.84			0.70
Impact of certain hedges that do not qualify for hedge accounting in SLF Canada		(0.01	)		(0.02	)		0.09			(0.09	)		0.02			(0.02	)		0.08			0.06
Fair value adjustments on share-based payment awards at MFS		–			(0.03	)		(0.06	)		0.01			(0.04	)		(0.04	)		(0.04	)		(0.04	)
Restructuring and other related costs		–			(0.02	)		(0.09	)		–			–			–			–			–
Goodwill and intangible asset impairment charges		–			–			(0.46	)		–			–			–			–			–
Impact of convertible securities on diluted EPS		–			(0.02	)		–			–			(0.03	)		(0.03	)		(0.05	)		(0.03	)
Operating EPS (diluted)		0.10			1.24			(0.38	)		(0.99	)		0.73			0.82			0.85			0.71
Reported ROE (annualized)		1.5%			20.4%			(15.3)%			(17.4)%			11.5%			12.5%			14.4%			12.0%
Impact of certain hedges that do not qualify for hedge accounting in SLF Canada		(0.1)%			(0.4)%			1.5%			(1.5)%			0.3%			(0.3)%			1.2%			1.1%
Fair value adjustments on share-based payment awards at MFS		–			(0.6)%			(1.0)%			0.1%			(0.8)%			(0.7)%			(0.7)%			(0.7)%
Restructuring and other related costs		(0.1)%			(0.2)%			(1.5)%			–			–			–			–			–
Goodwill and intangible asset impairment charges		–			–			(7.8)%			–			–			–			–			–
Operating ROE (annualized)		1.7%			21.6%			(6.5)%			(16.0)%			12.0%			13.5%			13.9%			11.6%

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 27

Management also uses the following non-IFRS financial measures:

Adjusted revenue. This measure excludes from revenue the impact of: (i) foreign exchange; (ii) fair value changes in FVTPL assets and liabilities; (iii) reinsurance for the insured business in SLF Canada’s Group Benefits operations; and (iv) net premiums from the domestic variable annuity and individual insurance operations in SLF U.S. that closed to new sales effective December 30, 2011. This measure is an alternative measure of revenue that provides greater comparability across reporting periods.

($ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11
Revenues		6,050			3,140			5,715			7,506			5,157
Adjustments
Foreign exchange		93			67			111			21			–
Fair value changes in FVTPL assets and liabilities		1,802			(1,009	)		1,257			2,827			781
Reinsurance in SLF Canada’s Group Benefits operations		(1,064	)		(1,087	)		(1,039	)		(1,027	)		(1,028	)
Net premiums from domestic variable annuity and individual insurance operations in SLF U.S.		179			206			418			347			412
Adjusted revenue		5,040			4,963			4,968			5,338			4,992

Adjusted premiums and deposits. This measure excludes from premiums and deposits the impact of: (i) foreign exchange; (ii) reinsurance for the insured business in SLF Canada’s Group Benefits operations; and (iii) net premiums and deposits from the domestic variable annuity and individual insurance operations in SLF U.S. that closed to new sales effective December 30, 2011. This measure is an alternative measure of premiums and deposits that provides greater comparability across reporting periods.

($ millions)	Q2’12			Q1’12			Q4’11			Q3’11			Q2’11
Premiums and deposits		25,188			25,296			22,356			18,561			20,854
Adjustments
Foreign exchange		890			699			899			145			–
Reinsurance in SLF Canada’s Group Benefits operations		(1,064	)		(1,087	)		(1,039	)		(1,027	)		(1,028	)
Net premiums from domestic variable annuity and individual insurance operations in SLF U.S.		179			206			418			347			412
Deposits from domestic variable annuity and individual insurance operations in SLF U.S.		66			159			640			592			733
Adjusted premiums and deposits		25,117			25,319			21,438			18,504			20,737

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

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

MCCSR market sensitivities. Our MCCSR market sensitivities are non-IFRS financial measures, for which there are no directly comparable measures under IFRS. It is not possible to provide a reconciliation of these amounts to the most directly comparable IFRS measures on a forward-looking basis because we believe it is only possible to provide ranges of the assumptions used in determining those non-IFRS financial measures, as actual results can fluctuate significantly inside or outside those ranges and from period to period.

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 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) management actions and changes in assumptions 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.

28 Sun Life Financial Inc. Second Quarter 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward-Looking Statements

Certain statements in this document, including those relating to our strategies and statements, (i) that are predictive in nature, (ii) that depend upon or refer to future events or conditions, and (iii) that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” or similar expressions, are forward-looking statements within the meaning of securities laws. Forward-looking statements include the information concerning possible or assumed future results of operations of Sun Life Financial. These statements represent our current expectations, estimates and projections regarding future events and are not historical facts. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Future results and shareholder value may differ materially from those expressed in these forward-looking statements due to, among other factors, the matters set out in this document under the headings Impact of the Low Interest Rate Environment, Review of Actuarial Methods and Assumptions and Management Actions and Capital Management, in Sun Life Financial Inc.’s annual MD&A under Critical Accounting Policies and Estimates and Risk Management and in Sun Life Financial Inc.’s AIF under Risk Factors and the factors detailed in Sun Life Financial Inc.’s other filings with Canadian and U.S. securities regulators, including its annual and interim MD&A, and annual and interim Consolidated Financial Statements.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Second Quarter 2012 29

Consolidated Statements of Operations

		For the three months ended						For the six months ended
(unaudited in millions of Canadian dollars except for per share amounts)		June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Revenue
Premiums
Gross		$	3,197		$	3,488		$	6,588		$	7,169
Less: Ceded			1,267			1,248			2,584			2,495
Net			1,930			2,240			4,004			4,674
Net investment income (loss):
Interest and other investment income			1,368			1,260			2,551			2,375
Change in fair value through profit or loss assets and liabilities (Note 4)			1,802			781			793			573
Net gains (losses) on available-for-sale assets			79			32			102			75
Net investment income (loss)			3,249			2,073			3,446			3,023
Fee income			871			844			1,740			1,663
Total revenue			6,050			5,157			9,190			9,360
Benefits and expenses
Gross claims and benefits paid (Note 6)			3,255			3,153			6,538			6,573
Increase (decrease) in insurance contract liabilities (Note 6)			2,605			1,014			1,442			837
Decrease (increase) in reinsurance assets (Note 6)			35			4			(165	)		(53	)
Increase (decrease) in investment contract liabilities (Note 6)			(1	)		29			16			(2	)
Reinsurance expenses (recoveries) (Note 12)			(1,217	)		(1,132	)		(2,432	)		(2,279	)
Commissions			363			385			710			799
Net transfer to (from) segregated funds (Note 9)			29			154			149			362
Operating expenses			833			878			1,704			1,760
Premium taxes			57			59			121			117
Interest expense			95			112			184			218
Total benefits and expenses			6,054			4,656			8,267			8,332
Income (loss) before income taxes			(4	)		501			923			1,028
Less: Income tax expense (benefit) (Note 7)			(84	)		63			124			121
Total net income (loss)			80			438			799			907
Less: Net income (loss) attributable to participating policyholders			(1	)		3			1			7
Less: Net income (loss) attributable to non-controlling interests			–			3			–			6
Shareholders’ net income (loss)			81			432			798			894
Less: Preferred shareholders’ dividends			30			24			61			48
Common shareholders’ net income (loss)		$	51		$	408		$	737		$	846
Average exchange rates during the reporting periods:	U.S. dollars		1.01			0.97			1.01			0.98
	U.K. pounds		1.60			1.58			1.59			1.58
Earnings (loss) per share (Note 11)
Basic		$	0.09		$	0.71		$	1.25		$	1.47
Diluted		$	0.09		$	0.68		$	1.24		$	1.41
Weighted average shares outstanding in millions (Note 11)
Basic			591			578			589			576
Diluted			591			619			600			619
Dividends per common share		$	0.36		$	0.36		$	0.72		$	0.72

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

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

Consolidated Statements of Comprehensive Income (Loss)

	For the three months ended						For the six months ended
(unaudited in millions of Canadian dollars)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Total net income (loss)	$	80		$	438		$	799		$	907
Other comprehensive income (loss), net of taxes:
Change in unrealized foreign currency translation gains (losses):
Unrealized gains (losses) before net investment hedges		188			(98	)		6			(348	)
Unrealized gains (losses) on net investment hedges		(23	)		15			(6	)		54
Reclassifications to net income (loss)		–			–			–			14
Change in unrealized gains (losses) on available-for-sale assets:
Unrealized gains (losses)		15			74			191			83
Reclassifications to net income (loss)		(74	)		(43	)		(99	)		(79	)
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses)		(5	)		(6	)		7			(11	)
Reclassifications to net income (loss)		2			–			(4	)		(3	)
Total other comprehensive income (loss)		103			(58	)		95			(290	)
Total comprehensive income (loss)		183			380			894			617
Less:  Participating policyholders’ comprehensive income (loss)		–			3			1			5
Less:  Non-controlling interests in comprehensive income (loss)		–			3			–			6
Shareholders’ comprehensive income (loss)	$	183		$	374		$	893		$	606

Income Taxes included in Other Comprehensive Income (Loss)

	For the three months ended						For the six months ended
(unaudited in millions of Canadian dollars)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Income tax benefit (expense):
Unrealized foreign currency translation gains (losses), including net investment hedges	$	–		$	(3	)	$	5		$	(8	)
Reclassifications to net income of foreign currency translation gains (losses)		–			–			–			(3	)
Unrealized gains / losses on available-for-sale assets		16			(11	)		(33	)		(17	)
Reclassifications to net income for available-for-sale assets		18			9			24			16
Unrealized gains / losses on cash flow hedges		(1	)		(2	)		(7	)		(9	)
Reclassifications to net income for cash flow hedges		–			–			2			1
Total income tax benefit (expense) included in other comprehensive income (loss)	$	33		$	(7	)	$	(9	)	$	(20	)

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

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

Consolidated Statements of Financial Position

		As at
(unaudited in millions of Canadian dollars)		June 30, 2012		December 31, 2011		June 30, 2011
Assets
Cash, cash equivalents and short-term securities (Note 4)		$	8,399	$	8,837	$	9,165
Debt securities (Note 4)			63,354		62,930		57,928
Equity securities (Note 4)			4,702		4,570		4,512
Mortgages and loans			28,868		27,755		26,170
Derivative assets (Note 4)			2,720		2,632		1,496
Other invested assets (Note 4)			1,448		1,348		1,232
Policy loans			3,287		3,276		3,150
Investment properties			5,684		5,313		4,797
Invested assets			118,462		116,661		108,450
Other assets			3,157		2,885		2,877
Reinsurance assets (Note 6)			3,478		3,277		3,827
Deferred tax assets			1,663		1,648		939
Property and equipment			587		546		492
Intangible assets			888		885		875
Goodwill			3,940		3,942		4,158
Total general fund assets			132,175		129,844		121,618
Investments for account of segregated fund holders (Note 9)			90,160		88,183		89,116
Total assets		$	222,335	$	218,027	$	210,734
Liabilities and equity
Liabilities
Insurance contract liabilities (Note 6)		$	97,914	$	96,374	$	87,557
Investment contract liabilities (Note 6)			3,141		3,073		4,129
Derivative liabilities (Note 4)			1,144		1,059		694
Deferred tax liabilities			4		7		4
Other liabilities			8,102		8,011		6,316
Senior debentures			2,149		2,149		2,151
Innovative capital instruments			695		695		1,644
Subordinated debt			2,743		2,746		2,738
Total general fund liabilities			115,892		114,114		105,233
Insurance contracts for account of segregated fund holders (Note 9)			84,490		82,650		83,243
Investment contracts for account of segregated fund holders (Note 9)			5,670		5,533		5,873
Total liabilities		$	206,052	$	202,297	$	194,349
Equity
Issued share capital and contributed surplus		$	10,485	$	10,340	$	9,695
Retained earnings and accumulated other comprehensive income			5,798		5,390		6,673
Non-controlling interests			–		–		17
Total equity		$	16,283	$	15,730	$	16,385
Total liabilities and equity		$	222,335	$	218,027	$	210,734
Exchange rates at the end of the reporting periods:	U.S. dollars		1.02		1.02		0.96
	U.K. pounds		1.60		1.58		1.55

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

Approved on behalf of the Board of Directors on August 8, 2012.

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

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

Consolidated Statements of Changes in Equity

	For the six months ended
(unaudited in millions of Canadian dollars)	June 30, 2012			June 30, 2011
Shareholders:
Preferred shares
Balance, beginning and end of period	$	2,503		$	2,015
Common shares
Balance, beginning of period		7,735			7,407
Stock options exercised		6			46
Issued under dividend reinvestment and share purchase plan (Note 8)		134			129
Balance, end of period		7,875			7,582
Contributed surplus
Balance, beginning of period		102			95
Share-based payments		6			9
Stock options exercised		(1	)		(6	)
Balance, end of period		107			98
Retained earnings
Balance, beginning of period		5,219			6,489
Net Income (loss)		798			894
Dividends on common shares		(425	)		(417	)
Dividends on preferred shares		(61	)		(48	)
Change due to transactions with non-controlling interests		–			(3	)
Balance, end of period		5,531			6,915
Accumulated other comprehensive income (loss), net of taxes
Unrealized gains (losses) on available-for-sale assets		320			387
Unrealized cumulative translation differences, net of hedging activities		(287	)		(505	)
Unrealized gains (losses) on transfers to investment properties		6			6
Unrealized gains (losses) on derivatives designated as cash flow hedges		9			38
Balance, beginning of period		48			(74	)
Total other comprehensive income (loss) for the period		95			(288	)
Balance, end of period		143			(362	)
Total shareholders’ equity, end of period	$	16,159		$	16,248
Participating policyholders:
Retained earnings
Balance, beginning of period	$	124		$	117
Net Income (loss)		1			7
Balance, end of period		125			124
Accumulated other comprehensive income (loss), net of taxes
Unrealized cumulative translation differences, net of hedging activities		(1	)		(2	)
Balance, beginning of period		(1	)		(2	)
Total other comprehensive income (loss) for the period		–			(2	)
Balance, end of period		(1	)		(4	)
Total participating policyholders’ equity, end of period	$	124		$	120
Non-controlling interests:
Balance, beginning of period	$	–		$	24
Net income (loss)		–			6
Other changes in non-controlling interests		–			(13	)
Total non-controlling interests, end of period	$	–		$	17
Total equity	$	16,283		$	16,385

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

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

Consolidated Statements of Cash Flows

	For the three months ended						For the six months ended
(unaudited in millions of Canadian dollars)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Cash flows provided by (used in) operating activities
Income (loss) before income taxes	$	(4	)	$	501		$	923		$	1,028
Add: interest expense related to financing activities		95			112			184			218
Operating items not affecting cash:
Increase (decrease) in contract liabilities		2,680			1,090			1,573			876
(Increase) decrease in reinsurance assets		34			23			(203	)		(52	)
Unrealized (gains) losses on investments		(1,329	)		(640	)		(647	)		(644	)
Other non-cash items		55			(85	)		(306	)		(333	)
Operating cash items:
Deferred acquisition costs		(13	)		(12	)		(25	)		(23	)
Realized (gains) losses on investments		(552	)		(173	)		(248	)		(4	)
Sales, maturities and repayments of investments		28,747			22,580			48,659			42,686
Purchases of investments		(28,769	)		(21,475	)		(48,905	)		(41,199	)
Change in policy loans		(11	)		85			(6	)		74
Income taxes received (paid)		(20	)		(76	)		(55	)		(104	)
Other cash items		751			151			(32	)		90
Net cash provided by (used in) operating activities		1,664			2,081			912			2,613
Cash flows provided by (used in) investing activities
(Purchase) sale of property and equipment		(53	)		(4	)		(77	)		(12	)
Transactions with associates and joint ventures		38			14			32			4
Purchase of shares from non-controlling interests		–			3			–			–
Other investing activities		(20	)		(22	)		(27	)		(33	)
Net cash provided by (used in) investing activities		(35	)		(9	)		(72	)		(41	)
Cash flows provided by (used in) financing activities
Borrowed funds		(10	)		(20	)		14			(20	)
Issuance of senior financing, senior debentures and subordinated debt (Note 8)		–			–			796
Collateral on senior financing, senior debentures and subordinated debt		(3	)		(1	)		(5	)		3
Redemption of senior financing, senior debentures and subordinated debt (Note 8)		(800	)		–			(800	)
Issuance of common shares on exercise of stock options		1			3			5			40
Dividends paid on common and preferred shares		(175	)		(169	)		(346	)		(328	)
Interest expense paid		(127	)		(141	)		(210	)		(200	)
Net cash provided by (used in) financing activities		(1,114	)		(328	)		(546	)		(505	)
Changes due to fluctuations in exchange rates		26			(41	)		9			(92	)
Increase (decrease) in cash and cash equivalents		541			1,703			303			1,975
Net cash and cash equivalents, beginning of period		4,115			3,673			4,353			3,401
Net cash and cash equivalents, end of period		4,656			5,376			4,656			5,376
Short-term securities, end of period		3,492			3,667			3,492			3,667
Net cash and cash equivalents and short-term securities, end of period (Note 4)	$	8,148		$	9,043		$	8,148		$	9,043

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

34 Sun Life Financial Inc. Second Quarter 2012 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Notes to the Interim Consolidated Financial Statements

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

1.    Accounting Policies

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

Our Interim Consolidated Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued and adopted by the International Accounting Standards Board (“IASB”). We have used accounting policies which are consistent with our accounting policies in our 2011 Annual Consolidated Financial Statements. Our Interim Consolidated Financial Statements should be read in conjunction with our 2011 Annual Consolidated Financial Statements, as interim financial statements do not include all the information incorporated in annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”).

2.    Changes in Accounting Policies

Amendments to International Financial Reporting Standards Adopted in 2012

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

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

Amendments to International Financial Reporting Standards Issued in 2012

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

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

3.    Segmented Information

We have five reportable segments: Sun Life Financial Canada (“SLF Canada”), Sun Life Financial United States (“SLF U.S.”), MFS, Sun Life Financial Asia (“SLF Asia”) and Corporate. These reportable segments operate in the financial services industry and reflect our management structure and internal financial reporting. Corporate includes the results of our U.K. business unit and our Corporate Support operations, which include our run-off reinsurance operations as well as investment income, expenses, capital and other items not allocated to our other business groups. In the fourth quarter of 2011, we transferred McLean Budden Limited to our subsidiary MFS Investment Management. Consequently, the results of McLean Budden Limited are reported as part of MFS instead of SLF Canada and the related goodwill and intangible assets previously reported as part of SLF Canada are now reported as part of Corporate. Prior period information has been restated to reflect this change in organization.

Revenues from our reportable segments are derived principally from life and health insurance, investment management and annuities and mutual funds. Revenues not attributed to the strategic business units are derived primarily from Corporate investments and earnings on capital.

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

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

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

	SLF Canada		SLF U.S.			MFS			SLF Asia		Corporate			Consolidation adjustments			Total
2012
Gross premiums:
Annuities	$	244	$	127		$	–		$	–	$	59		$	–		$	430
Life insurance		818		516			–			147		26			–			1,507
Health insurance		878		377			–			2		3			–			1,260
Total gross premiums		1,940		1,020			–			149		88			–			3,197
Less: ceded premiums		1,174		81			–			6		6			–			1,267
Net investment income (loss)		1,259		1,551			(3	)		135		334			(27	)		3,249
Fee income		182		200			437			34		41			(23	)		871
Total revenue		2,207		2,690			434			312		457			(50	)		6,050
Less:
Total benefits and expenses		2,017		2,999			324			289		475			(50	)		6,054
Income tax expense (benefit)		11		(121	)		43			8		(25	)		–			(84	)
Total net income (loss)	$	179	$	(188	)	$	67		$	15	$	7		$	–		$	80
2011
Gross premiums:
Annuities	$	386	$	374		$	–		$	–	$	55		$	–		$	815
Life insurance		802		475			–			159		31			–			1,467
Health insurance		834		366			–			4		2			–			1,206
Total gross premiums		2,022		1,215			–			163		88			–			3,488
Less: ceded premiums		1,131		92			–			19		6			–			1,248
Net investment income (loss)		1,024		677			4			173		222			(27	)		2,073
Fee income		180		189			418			31		46			(20	)		844
Total revenue		2,095		1,989			422			348		350			(47	)		5,157
Less:
Total benefits and expenses		1,846		1,851			334			311		361			(47	)		4,656
Income tax expense (benefit)		20		27			41			7		(32	)		–			63
Total net income (loss)	$	229	$	111		$	47		$	30	$	21		$	–		$	438

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

Results by segment for the six months ended June 30 are as follows:

	SLF Canada		SLF U.S.		MFS		SLF Asia		Corporate			Consolidation adjustments			Total
2012
Gross premiums:
Annuities	$	743	$	221	$	–	$	–	$	115		$	–		$	1,079
Life insurance		1,629		993		–		304		52			–			2,978
Health insurance		1,769		752		–		5		5			–			2,531
Total gross premiums		4,141		1,966		–		309		172			–			6,588
Less: ceded premiums		2,359		195		–		18		12			–			2,584
Net investment income (loss)		1,647		1,225		–		305		325			(56	)		3,446
Fee income		368		402		871		65		77			(43	)		1,740
Total revenue		3,797		3,398		871		661		562			(99	)		9,190
Less:
Total benefits and expenses		3,351		3,120		672		600		623			(99	)		8,267
Income tax expense (benefit)		38		41		83		17		(55	)		–			124
Total net income (loss)	$	408	$	237	$	116	$	44	$	(6	)	$	–		$	799
2011
Gross premiums:
Annuities	$	702	$	762	$	–	$	–	$	109		$	–		$	1,573
Life insurance		1,601		1,163		–		314		64			–			3,142
Health insurance		1,693		750		–		6		5			–			2,454
Total gross premiums		3,996		2,675		–		320		178			–			7,169
Less: ceded premiums		2,280		179		–		24		12			–			2,495
Net investment income (loss)		1,578		1,031		3		247		219			(55	)		3,023
Fee income		367		370		828		59		78			(39	)		1,663
Total revenue		3,661		3,897		831		602		463			(94	)		9,360
Less:
Total benefits and expenses		3,149		3,533		663		513		568			(94	)		8,332
Income tax expense (benefit)		44		72		76		15		(86	)		–			121
Total net income (loss)	$	468	$	292	$	92	$	74	$	(19	)	$	–		$	907

Assets and liabilities by segment are as follows:

	SLF Canada		SLF U.S.		MFS		SLF Asia		Corporate		Consolidation adjustments			Total
As at June 30, 2012
Total general fund assets	$	65,757	$	44,958	$	1,143	$	8,548	$	12,060	$	(291	)	$	132,175
Investments for account of segregated fund holders	$	48,973	$	29,841	$	–	$	1,305	$	10,041	$	–		$	90,160
Total general fund liabilities	$	58,826	$	39,800	$	928	$	6,676	$	9,953	$	(291	)	$	115,892
As at December 31, 2011
Total general fund assets	$	64,192	$	44,490	$	1,180	$	8,122	$	12,165	$	(305	)	$	129,844
Investments for account of segregated fund holders	$	47,245	$	29,804	$	–	$	1,198	$	9,936	$	–		$	88,183
Total general fund liabilities	$	57,615	$	38,196	$	973	$	6,336	$	11,299	$	(305	)	$	114,114
As at June 30, 2011
Total general fund assets	$	60,183	$	42,093	$	1,036	$	7,200	$	11,347	$	(241	)	$	121,618
Investments for account of segregated fund holders	$	48,177	$	29,196	$	–	$	1,176	$	10,567	$	–		$	89,116
Total general fund liabilities	$	53,525	$	36,894	$	790	$	5,525	$	8,740	$	(241	)	$	105,233

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

4.    Financial Investments and Related Net Investment Income

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

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

As at	June 30, 2012		December 31, 2011		June 30, 2011
Cash	$	1,643	$	1,506	$	998
Cash equivalents		3,264		2,953		4,500
Short-term securities		3,492		4,378		3,667
Cash, cash equivalents and short-term securities		8,399		8,837		9,165
Less: Bank overdraft, recorded in Other liabilities		251		106		122
Net cash, cash equivalents and short-term securities	$	8,148	$	8,731	$	9,043

4.B Asset Classifications

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

As at	Fair value through profit or loss		Available-for- sale		Other(1)		Total
June 30, 2012
Debt securities	$	51,463	$	11,891	$	–	$	63,354
Equity securities	$	3,878	$	824	$	–	$	4,702
Other invested assets	$	946	$	147	$	355	$	1,448
December 31, 2011
Debt securities	$	51,627	$	11,303	$	–	$	62,930
Equity securities	$	3,731	$	839	$	–	$	4,570
Other invested assets	$	809	$	155	$	384	$	1,348
June 30, 2011
Debt securities	$	46,538	$	11,390	$	–	$	57,928
Equity securities	$	3,730	$	782	$	–	$	4,512
Other invested assets	$	782	$	157	$	293	$	1,232

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

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

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

	For the three months ended						For the six months ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Cash, cash equivalents and short-term securities	$	4		$	–		$	7		$	2
Debt securities		998			644			651			245
Equity securities		(167	)		(136	)		(2	)		15
Derivative investments		887			258			(75	)		63
Other invested assets		4			5			27			11
Investment properties		76			10			185			237
Total Change in fair value through profit or loss assets and liabilities	$	1,802		$	781		$	793		$	573

4.D Impairment of Available-For-Sale Assets

We wrote down $13 and $14 of available-for-sale assets recorded at fair value during the three months and six months ended June 30, 2012 ($1 and $1 during the three months and six months ended June 30, 2011).

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

4.E Derivative Financial Instruments and Hedging Activities

	Total notional amount			Fair value
As at June 30, 2012				Assets		Liabilities
Derivative investments(1)	$	54,399	(2)	$	2,585	$	(871	)
Fair value hedges		1,011			1		(243	)
Cash flow hedges		101			2		(17	)
Net investment hedges		1,850			132		(13	)
Total derivatives	$	57,361		$	2,720	$	(1,144	)

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

⁽²⁾  The increase in notional amount is primarily due to interest rate options purchased and interest rate swap contracts.

	Total notional amount		Fair value
As at December 31, 2011			Assets		Liabilities
Derivative investments(1)	$	47,890	$	2,494	$	(798	)
Fair value hedges		1,011		–		(228	)
Cash flow hedges		108		2		(25	)
Net investment hedges		1,850		136		(8	)
Total derivatives	$	50,859	$	2,632	$	(1,059	)

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

5.    Financial Instrument and Insurance Risk Management

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

Our financial instrument market risk sensitivities are included in our Management Discussion and Analysis (“MD&A”) for the period ended June 30, 2012. The shaded text and tables in the Risk Management section of the MD&A represent our disclosures on market risk sensitivities in accordance with IFRS 7 Financial Instruments: Disclosures, and include discussions on how we measure our risk and our objectives, policies and methodologies for managing this risk. Therefore, the shaded text and tables represent an integral part of these Interim Consolidated Financial Statements.

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

6.    Insurance Contract Liabilities and Investment Contract Liabilities

6.A Insurance Contract Liabilities

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

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

	For the three months ended June 30, 2012									For the six months ended June 30, 2012
	Insurance contract liabilities			Reinsurance assets			Net			Insurance contract liabilities			Reinsurance assets			Net
Balances, beginning of period	$	89,267		$	3,252		$	86,015		$	91,112		$	3,094		$	88,018
Change in balances on in-force policies		2,175			(10	)		2,185			348			131			217
Balances arising from new policies		399			27			372			1,038			55			983
Changes in assumptions or methodology(1)		31			(52	)		83			56			(21	)		77
Increase (decrease) in Insurance contract liabilities and Reinsurance assets		2,605			(35	)		2,640			1,442			165			1,277
Balances before the following:		91,872			3,217			88,655			92,554			3,259			89,295
Foreign exchange rate movements		695			37			658			13			(5	)		18
Balances before Other policy liabilities and assets		92,567			3,254			89,313			92,567			3,254			89,313
Other policy liabilities and assets		5,347			224			5,123			5,347			224			5,123
Total Insurance contract liabilities and Reinsurance assets	$	97,914		$	3,478		$	94,436		$	97,914		$	3,478		$	94,436
	For the three months ended June 30, 2011									For the six months ended June 30, 2011
	Insurance contract liabilities			Reinsurance assets			Net			Insurance contract liabilities			Reinsurance assets			Net
Balances, beginning of period	$	81,693		$	3,650		$	78,043		$	82,729		$	3,652		$	79,077
Change in balances on in-force policies		494			(44	)		538			(414	)		(52	)		(362	)
Balances arising from new policies		538			40			498			1,247			68			1,179
Changes in assumptions or methodology		(18	)		–			(18	)		4			37			(33	)
Increase (decrease) in Insurance contract liabilities and Reinsurance assets		1,014			(4	)		1,018			837			53			784
Balances before the following:		82,707			3,646			79,061			83,566			3,705			79,861
Other(2)		(117	)		–			(117	)		(117	)		–			(117	)
Foreign exchange rate movements		(246	)		(15	)		(231	)		(1,105	)		(74	)		(1,031	)
Balances before Other policy liabilities and assets		82,344			3,631			78,713			82,344			3,631			78,713
Other policy liabilities and assets		5,213			196			5,017			5,213			196			5,017
Total Insurance contract liabilities and Reinsurance assets	$	87,557		$	3,827		$	83,730		$	87,557		$	3,827		$	83,730

⁽¹⁾  Includes revised mortality improvement projections in the U.S. individual non-participating life line of business which increased Insurance contract liabilities by $229, Reinsurance assets by $149 and Net by $80.

Includes revised assumptions about the future recapture of reinsurance in the Canadian individual participating life line of business reducing Insurance contract liabilities and Reinsurance assets by $200, with no impact on Net.

⁽²⁾  Reduction in liabilities due to Policy loan adjustment.

6.A.ii Gross Claims and Benefits Paid

Gross claims and benefits paid consist of the following:

	For the three months ended				For the six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Maturities and surrenders	$	910	$	957	$	1,908	$	2,116
Annuity payments		328		310		645		645
Death and disability		859		768		1,667		1,587
Health		925		891		1,851		1,729
Policyholder dividends and interest on claims and deposits		233		227		467		496
Total Gross claims and benefits paid	$	3,255	$	3,153	$	6,538	$	6,573

40 Sun Life Financial Inc. Second Quarter 2012 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 June 30, 2012						For the six months ended June 30, 2012
	Measured at fair value			Measured at amortized cost			Measured at fair value			Measured at amortized cost
Balance, beginning of period	$	930		$	1,668		$	966		$	1,620
Deposits		–			93			–			195
Interest		2			9			4			18
Withdrawals		(2	)		(59	)		(21	)		(123	)
Change in fair value		–			–			–			–
Other		–			2			–			6
Foreign exchange rate movements		16			2			(3	)		(1	)
Balance, end of period	$	946		$	1,715		$	946		$	1,715
	For the three months ended June 30, 2011						For the six months ended June 30, 2011
	Measured at fair value			Measured at amortized cost			Measured at fair value			Measured at amortized cost
Balance, beginning of period	$	2,150		$	1,468		$	2,207		$	1,396
Deposits		–			63			–			191
Interest		7			10			15			20
Withdrawals		(3	)		(45	)		(14	)		(111	)
Fees		–			(1	)		–			(1	)
Change in fair value		7			–			5			–
Other		(1	)		5			–			8
Foreign exchange rate movements		(14	)		–			(67	)		(3	)
Balance, end of period	$	2,146		$	1,500		$	2,146		$	1,500

Changes in Investment contract liabilities with DPF are as follows:

	For the three months ended						For the six months ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Balance, beginning of period	$	485		$	482		$	487		$	540
Change in liabilities on in-force		(15	)		4			(15	)		(47	)
Liabilities arising from new policies		3			1			9			5
Increase (decrease) in liabilities		(12	)		5			(6	)		(42	)
Liabilities before the following:		473			487			481			498
Foreign exchange rate movements		7			(4	)		(1	)		(15	)
Balance, end of period	$	480		$	483		$	480		$	483

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

7.    Income Tax Expense (Benefit)

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

	For the three months ended											For the six months ended
	June 30, 2012					June 30, 2011						June 30, 2012						June 30, 2011
				%					%						%						%
Total net income (loss)	$	80				$	438					$	799					$	907
Add: Income taxes expense (benefit)		(84	)				63						124						121
Total income (loss) before income taxes	$	(4	)			$	501					$	923					$	1,028
Taxes at the combined Canadian federal and provincial statutory income tax rate	$	(1	)		26.5	$	140			28.0		$	245			26.5		$	288			28.0
Increase (decrease) in rate resulting from:
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions		(12	)		300.0		(6	)		(1.2	)		(10	)		(1.1	)		(31	)		(3.0	)
Tax (benefit) cost of unrecognized losses		–			–		(4	)		(0.8	)		(3	)		(0.3	)		(1	)		(0.1	)
Tax exempt investment income		(65	)		1,623.5		(51	)		(10.2	)		(105	)		(11.4	)		(106	)		(10.3	)
Changes to statutory income tax rates		(2	)		50.0		–			–			2			0.2			–			–
Adjustments in respect of prior years, including resolution of tax disputes		(4	)		100.0		(15	)		(3.0	)		(8	)		(0.9	)		(28	)		(2.7	)
Other		–			–		(1	)		(0.2	)		3			0.4			(1	)		(0.1	)
Total income tax expense (benefit) and effective income tax rate	$	(84	)		2,100.0	$	63			12.6		$	124			13.4		$	121			11.8

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

8.    Capital Management

8.A Capital and Capital Transactions

Our capital base is structured to exceed minimum regulatory and internal capital targets and maintain strong credit and financial strength ratings while maintaining a capital efficient structure. We strive to achieve an optimal capital structure by balancing the use of debt and equity financing. Capital is managed on both a consolidated basis under principles that consider all the risks associated with the business and at the business group level under the principles appropriate to the jurisdiction in which each operates. We manage the capital for all of our international subsidiaries on a local statutory basis in a manner commensurate with their individual risk profiles. Further details on our capital and how it is managed are included in Note 23 of our 2011 Annual Consolidated Financial Statements.

Sun Life Assurance is subject to the Minimum Continuing Capital and Surplus Requirements (“MCCSR”) of the Office of the Superintendent of Financial Institutions, Canada (“OSFI”). Sun Life Assurance’s MCCSR ratio as at June 30, 2012 was above the minimum levels that would require any regulatory or corrective action. The risk-based capital of Sun Life Assurance Company of Canada (U.S.), our principal operating subsidiary in the United States, was above the minimum level as at June 30, 2012. In addition, other foreign subsidiaries of SLF Inc. that must comply with local capital or solvency requirements in the jurisdiction in which they operate maintained capital levels above minimum local requirements as at June 30, 2012.

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

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

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

8.B Significant Capital Transactions

8.B.i Subordinated Debt

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

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

8.B.ii Dividend Reinvestment and Share Purchase Plan

In the first two quarters of 2012, under the dividend reinvestment and share purchase plan (“DRIP”), SLF Inc. issued 6 million common shares (4.5 million common shares in 2011) from treasury at discounts of 2% to the average market price, as determined in accordance with the DRIP, for dividend reinvestments and issued an insignificant number of common shares from treasury at no discount for optional cash purchases.

9.    Segregated Fund Disclosure

9.A Investments for Account of Segregated Fund Holders

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

As at	June 30, 2012		December 31, 2011		June 30, 2011
Segregated and mutual fund units	$	74,278	$	72,840	$	73,396
Equity securities		6,057		5,830		6,954
Debt securities		8,942		8,473		7,815
Cash, cash equivalents and short-term securities		2,333		1,425		2,848
Investment properties		303		318		309
Mortgages		20		27		27
Other assets		2,651		2,492		2,512
Total assets		94,584		91,405		93,861
Less: Liabilities arising from investing activities		4,424		3,222		4,745
Total Investments for account of segregated fund holders	$	90,160	$	88,183	$	89,116

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

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

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

	Insurance contracts						Investment contracts
For the three months ended	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Balance, beginning of the period	$	86,077		$	83,556		$	5,857		$	5,957
Additions:
Deposits		1,761			2,334			58			72
Net transfers (to) from general funds		29			154			–			–
Net realized and unrealized gains (losses)		(1,922	)		(588	)		(183	)		(31	)
Other investment income		325			355			65			15
Total additions		193			2,255			(60	)		56
Deductions:
Payments to policyholders and their beneficiaries		2,026			1,996			119			128
Management fees		282			314			13			(22	)
Taxes and other expenses		42			39			1			–
Foreign exchange rate movements		(570	)		219			(6	)		34
Total deductions		1,780			2,568			127			140
Net additions (deductions)		(1,587	)		(313	)		(187	)		(84	)
Balance, end of period	$	84,490		$	83,243		$	5,670		$	5,873
	Insurance contracts						Investment contracts
For the six months ended	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Balance, beginning of the period	$	82,650		$	81,931		$	5,533		$	6,015
Additions:
Deposits		3,843			4,837			89			135
Net transfers (to) from general funds		149			362			–			–
Net realized and unrealized gains (losses)		2,357			1,485			168			4
Other investment income		450			564			103			20
Total additions		6,799			7,248			360			159
Deductions:
Payments to policyholders and their beneficiaries		4,270			4,248			229			262
Management fees		562			589			31			(12	)
Taxes and other expenses		92			84			5			2
Foreign exchange rate movements		35			1,015			(42	)		49
Total deductions		4,959			5,936			223			301
Net additions (deductions)		1,840			1,312			137			(142	)
Balance, end of period	$	84,490		$	83,243		$	5,670		$	5,873

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

10.    Commitments, Guarantees and Contingencies

Guarantees of Sun Life Assurance Preferred Shares and Subordinated Debt

SLF Inc. has provided a subordinated guarantee of certain preferred shares and a guarantee of certain subordinated debt issued by Sun Life Assurance. As a result of these guarantees, Sun Life Assurance is entitled to rely on exemptive relief from most continuous disclosures and the certification requirements of Canadian securities laws.

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

Results for the three months ended	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)			Consolidation adjustments			SLF Inc. (consolidated)
June 30, 2012
Total revenue	$	140	$	4,685	$	1,748		$	(523	)	$	6,050
Shareholders’ net income (loss)	$	80	$	195	$	(172	)	$	(22	)	$	81
June 30, 2011
Total revenue	$	131	$	3,982	$	1,413		$	(369	)	$	5,157
Shareholders’ net income (loss)	$	433	$	333	$	38		$	(372	)	$	432
Results for the six months ended	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)			Consolidation adjustments			SLF Inc. (consolidated)
June 30, 2012
Total revenue	$	259	$	7,371	$	2,266		$	(706	)	$	9,190
Shareholders’ net income (loss)	$	795	$	560	$	137		$	(694	)	$	798
June 30, 2011
Total revenue	$	264	$	7,131	$	2,610		$	(645	)	$	9,360
Shareholders’ net income (loss)	$	894	$	669	$	102		$	(771	)	$	894
Assets and liabilities as at	SLF Inc. (unconsolidated)		Sun Life Assurance (consolidated)		Other subsidiaries of SLF Inc. (combined)			Consolidation adjustments			SLF Inc. (consolidated)
June 30, 2012
Invested assets	$	18,595	$	96,905	$	20,922		$	(17,960	)	$	118,462
Total other general fund assets	$	8,094	$	13,959	$	21,112		$	(29,452	)	$	13,713
Investments for account of segregated fund holders	$	–	$	62,070	$	28,090		$	–		$	90,160
Insurance contract liabilities	$	–	$	87,703	$	14,450		$	(4,239	)	$	97,914
Investment contract liabilities	$	–	$	2,165	$	976		$	–		$	3,141
Total other general fund liabilities	$	10,544	$	9,620	$	22,695		$	(28,022	)	$	14,837
December 31, 2011
Invested assets	$	16,435	$	94,540	$	21,243		$	(15,557	)	$	116,661
Total other general fund assets	$	8,634	$	13,412	$	19,527		$	(28,390	)	$	13,183
Investments for account of segregated fund holders	$	–	$	60,169	$	28,014		$	–		$	88,183
Insurance contract liabilities	$	–	$	85,548	$	14,942		$	(4,116	)	$	96,374
Investment contract liabilities	$	–	$	2,083	$	990		$	–		$	3,073
Total other general fund liabilities	$	9,474	$	9,529	$	22,723		$	(27,059	)	$	14,667
June 30, 2011
Invested assets	$	17,430	$	86,144	$	21,212		$	(16,336	)	$	108,450
Total other general fund assets	$	8,710	$	13,129	$	19,413		$	(28,084	)	$	13,168
Investments for account of segregated fund holders	$	–	$	61,853	$	27,263		$	–		$	89,116
Insurance contract liabilities	$	–	$	78,392	$	12,247		$	(3,082	)	$	87,557
Investment contract liabilities	$	–	$	1,999	$	2,142		$	(12	)	$	4,129
Total other general fund liabilities	$	9,906	$	8,421	$	23,026		$	(27,806	)	$	13,547

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

11.    Earnings (Loss) Per Share

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

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

	For the three months ended					For the six months ended
	June 30, 2012			June 30, 2011		June 30, 2012		June 30, 2011
Common shareholders’ net income (loss) for basic earnings per share	$	51		$	408	$	737	$	846
Add: Increase in income due to convertible instruments(1)		–	(3)		14		5		28
Common shareholders’ net income (loss) on a diluted basis	$	51		$	422	$	742	$	874
Weighted average number of shares outstanding for basic earnings per share (in millions)		591			578		589		576
Add: Dilutive impact of stock options(2) (in millions)		–			1		–		2
Add: Dilutive impact of convertible securities(1) (in millions)		–	(3)		40		11		41
Weighted average number of shares outstanding on a diluted basis (in millions)		591			619		600		619
Basic earnings (loss) per share	$	0.09		$	0.71	$	1.25	$	1.47
Diluted earnings (loss) per share	$	0.09		$	0.68	$	1.24	$	1.41

⁽¹⁾  Innovative capital instruments, Sun Life ExchangEable Capital Securities (“SLEECS”), have been issued through Sun Life Capital Trust. Holders of the $950 SLEECS A, which were redeemed on December 31, 2011, and holders of the $200 SLEECS B may exchange, at any time, all or part of their holdings of SLEECS A or SLEECS B at a price for each one thousand dollars principal amount of SLEECS to 40 non-cumulative perpetual preferred shares of Sun Life Assurance. Any non-cumulative perpetual preferred shares issued in respect of an exchange by the holders of SLEECS A or SLEECS B will become convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after June 30, 2012 in respect of the SLEECS A and on distribution dates on or after December 31, 2032 in respect of the SLEECS B. For the purposes of diluted EPS, it is assumed that the conversion to SLF Inc. common shares has occurred at the beginning of the periods presented. Common shareholders’ net income is increased by the after-tax interest on the SLEECS A and B, while the weighted average common shares are increased by the number of SLF Inc. common shares that would be issued at conversion. Since the SLEECS A were redeemed on December 31, 2011 they are not included in the diluted EPS calculations for 2012.

⁽²⁾  Diluted EPS assumes the exercise of all dilutive stock options of SLF Inc. It is assumed that the proceeds from the exercise of the options were received from the issuance of common shares of SLF Inc. at the average market price of common shares during the period. The difference between the number of shares issued for the exercise of the dilutive options and the number of shares that would have been issued at the average market price of the common shares during the period is adjusted to the weighted average number of shares for purposes of calculating diluted EPS. The number of stock options that have not been included in the weighted average number of common shares used in the calculation of diluted EPS because these stock options were anti-dilutive for the periods presented, amounted to 11 million for the three months and six months ended June 30, 2012 (9 million for the three months and six months ended June 30, 2011).

⁽³⁾  For the three months ended June 30, 2012, the adjustment related to the potential dilutive impact of the convertible securities was excluded from the calculations of diluted EPS since their effect is anti-dilutive.

12.    Reinsurance (Expenses) Recoveries

Reinsurance (expenses) recoveries consist of the following:

	For the three months ended				For the six months ended
	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Recovered claims and benefits	$	1,042	$	946	$	2,091	$	1,939
Commissions		14		15		27		28
Reserve adjustments		45		69		84		95
Operating expenses and other		116		102		230		217
Reinsurance (expenses) recoveries	$	1,217	$	1,132	$	2,432	$	2,279

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

Major Offices

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

Sun Life Financial Inc.

Corporate Headquarters

150 King Street West

Toronto, Ontario

Canada M5H 1J9

Tel: 416-979-9966

Website: sunlife.com

Sun Life Financial Canada

Canadian Headquarters

227 King Street South

Waterloo, Ontario

Canada N2J 4C5

Tel: 519-888-2290

Call centre: 1-877-SUN-LIFE /

1-877-786-5433

Website: sunlife.ca

Montreal Office

1155 Metcalfe Street

Montreal, Quebec

Canada H3B 2V9

Tel: 514-866-6411

Website: sunlife.ca

Sun Life Financial U.S.

One Sun Life Executive Park

Wellesley Hills, Massachusetts

USA 02481

Call Centre: 1-800-SUN-LIFE /

1-800-786-5433

Website: sunlife.com/us

Sun Life Financial Bermuda

Victoria Hall

11 Victoria Street

P.O. Box HM 3070

Hamilton HM NX, Bermuda

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

Website: sunlife.com/bermuda

Sun Life Financial U.K.

Matrix House

Basing View, Basingstoke

Hampshire

United Kingdom RG21 4DZ

Call Centre: 0845-0720-223

Website: sloc.co.uk

Sun Life Financial Asia

Sun Life Financial Asia Regional Office

27/F Oxford House

Taikoo Place

979 King’s Road

Hong Kong

Tel: (852) 2918-3888

Website: sunlife.com

China

Sun Life Everbright Life Insurance Company Limited

37/F Tianjin International Building

75 Nanjing Road

Tianjin, China 300050

Tel: (8622) 2339-1188

Fax: (8622) 2339-9929

Website: sunlife-everbright.com

Sun Life Assurance Company of Canada

Beijing Representative Office

Suite A01, 10^th Floor, AB Tower,

Office Park, No. 10 Jintong West Road

Chaoyang District

Beijing, China 100020

Tel: (8610) 8590-6500

Fax: (8610) 8590-6501

Hong Kong

Sun Life Hong Kong Limited

10/F, Sun Life Tower

The Gateway

15 Canton Road

Kowloon

Hong Kong

Tel: (852) 2103-8888

Call Centre: (852) 2103-8928

Website: sunlife.com.hk

India

Birla Sun Life Insurance Company Limited

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

Jupiter Mill Compound

841, Senapati Bapat Marg, Elphinstone Road

Mumbai, India 400 013

Tel: 1-800-270-7000 /

91-22-4356-9000

Website: birlasunlife.com

Birla Sun Life Asset Management

Company Limited

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

Jupiter Mill Compound

841, Senapati Bapat Marg, Elphinstone Road

Mumbai, India 400 013

Tel: 91-22-4356-8000

Website: birlasunlife.com

Sun Life Financial

One India Bulls Centre, Tower 1,

14^th Floor,

841, Senapati Bapat Marg,

Elphinstone Road

Mumbai, India 400 013

Tel: 91-22-4356-9121

Website: sunlife.com

Indonesia

PT Sun Life Financial Indonesia

World Trade Centre, 8^th Floor

JL Jend. Sudirman Kav. 29-31

Jakarta, Indonesia 12920

Tel: (6221) 5289-0000

Toll-free: 0800-140-1262

Customer Service Centre: (6221) 5289-0088

Website: sunlife.co.id

PT CIMB Sun Life

Wisma Metropolitan I, 3^rd Floor

JL Jend. Sudirman Kav. 29

Jakarta, Indonesia 12920

Tel: (6221) 2994-2888

Customer Service Centre:

(6221) 5289-0018

Toll-free: 0800-189-0018

Fax: (6221) 2994-2800

Website: cimbsunlife.co.id

Philippines

Sun Life Financial Philippines

Sun Life Centre

5^th Avenue cor. Rizal Drive

Bonifacio Global City

Taguig, Metro Manila

Philippines

Call Centre: (632) 555-8888

Website: sunlife.com.ph

Sun Life Grepa Financial, Inc.

6/F Grepalife Building

#221 Sen. Gil J. Puyat Avenue

Makati City - 1200

Philippines Tel: (632) 844-1174

Website: sunlifegrepa.com

Asia Service Centres

Sun Life India Service Centre Pvt. Ltd.

Uni-Tech World, Cyber Park, Sector-39, Gurgaon

Ground Floor (Tower A), 2^nd Floor (Tower B) & 11^th Floor (Tower C)

Haryana, India 122 001

Tel: 91-12-4456-5500

Website: sunlife.com/isc

Manila Shared Services Centre

7/F Sun Life Centre

5^th Avenue cor. Rizal Drive

Taguig, Metro Manila

Philippines

Tel: (632) 844-1174

Website: sunlife.com.ph

MFS Investment Management

Head Office

500 Boylston Street

Boston, Massachusetts

USA 02116

Tel: 617-954-5000

Toll-Free: 1-800-343-2829

Website: mfs.com

MFS McLean Budden

Head Office

145 King Street West, Suite 2525

Toronto, Ontario

Canada M5H 1J8

Tel: 416-862-9800

Website: mcleanbudden.com

Sun Life Global Investments (Canada) Inc.

Head Office

150 King St. West

Toronto, Ontario

Canada M5H 1J9

Tel: 1-877-344-1434

Website: sunlifeglobalinvestments.com

MAJOR OFFICES Sun Life Financial Inc. Second Quarter 2012 47

Corporate and Shareholder Information

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

Corporate Office

Sun Life Financial Inc.

150 King Street West

Toronto, Ontario

Canada M5H 1J9

Tel: 416-979-9966

Website: 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 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

Canadian Stock Transfer Company Inc. as agent for

CIBC Mellon Trust Company

P.O. Box 700

Station B

Montreal, Quebec

Canada H3B 3K3

Within North America:

Tel: 1-877-224-1760

Outside of North America:

Tel: 416-682-3865

Fax: 1-888-249-6189

E-mail: inquiries@canstockta.com Website: www.canstockta.com Shareholders can view their account details using Canadian Stock Transfer’s Internet service, Answerline^®. Register at www.canstockta.com/investor.

United States

American Stock Transfer & Trust Company, LLC

6201 15th Ave.

Brooklyn, NY 11219

Tel: 1-877-224-1760

E-mail: inquiries@canstockta.com

United Kingdom

Capita Registrars

The Registry

34 Beckenham Road

Beckenham, Kent

United Kingdom BR3 4TU

Within the U.K.:

Tel: 0845-602-1587

Outside the U.K.:

Tel: +44-20-8639-2064

E-mail: ssd@capitaregistrars.com

Philippines

The Hongkong and Shanghai Banking Corporation Limited

HSBC Stock Transfer

7/F, HSBC Centre

3058 Fifth Avenue West

Bonifacio Global City

Taguig City, 1634, Philippines

From Metro Manila:

Tel:  PLDT 632-581-8111

        GLOBE 632-976-8111

From the Provinces:

1-800-1-888-2422

Hong Kong

Computershare Hong Kong Investor Services Limited

17M Floor, Hopewell Centre

183 Queen’s Road East

Wanchai, Hong Kong

Tel: 852-2862-8555

E-mail:

hkinfo@computershare.com.hk

Shareholder Services

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

Fax: 416-598-3121

English E-mail: shareholderservices@sunlife.com

French E-mail: servicesauxactionnaires@sunlife.com

Dividends

2012 Dividend dates

Common shares

Record Dates	Payment Dates
March 7, 2012		March 30, 2012
May 30, 2012		June 29, 2012
August 29, 2012		September 28, 2012
November 28, 2012*		December 31, 2012

* Subject to approval by the Board of Directors

Direct deposit of dividends

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

The Request for Electronic Payment of Dividends Form is available for downloading from the Canadian Stock Transfer’s website, www.canstockta.com, or you can contact Canadian Stock Transfer 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, Canadian Stock Transfer at inquiries@canstockta.com.

Stock Exchange Listings

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

Ticker Symbols:	Series 1 – SLF.PR.A
	Series 2 – SLF.PR.B
	Series 3 – SLF.PR.C
	Series 4 – SLF.PR.D
	Series 5 – SLF.PR.E
	Series 6R – SLF.PR.F
	Series 8R – SLF.PR.G
	Series 10R – SLF.PR.H
	Series 12R – SLF.PR.I

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

As of August 6, 2012, there were 594,050,700 outstanding common shares, which are the only voting securities.

48 Sun Life Financial Inc. Second Quarter 2012 CORPORATE AND SHAREHOLDER INFORMATION

SUN LIFE FINANCIAL INC.   150 King Street West Toronto, Ontario Canada  M5H 1J9 sunlife.com