EX-99.2 3 q12020slffsn.htm EXHIBIT 99.2 Exhibit
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the three months ended
 
(unaudited, in millions of Canadian dollars, except for per share amounts)
March 31, 2020
 
March 31, 2019
 
Revenue
 
 
 
 
Premiums
 
 
 
 
Gross
 
$
5,739

 
$
4,942

Less: Ceded
 
593

 
572

Net premiums
 
5,146

 
4,370

Net investment income (loss):
 
 
 
 
Interest and other investment income
 
1,424

 
1,398

Fair value and foreign currency changes on assets and liabilities (Note 4)
(1,809
)
 
4,154

Net gains (losses) on available-for-sale assets
 
70

 
23

Net investment income (loss)
 
(315
)
 
5,575

Fee income (Note 8)
 
1,639

 
1,447

Total revenue
 
6,470

 
11,392

Benefits and expenses
 
 
 
 
Gross claims and benefits paid (Note 6)
 
4,418

 
4,120

Increase (decrease) in insurance contract liabilities (Note 6)
 
(231
)
 
4,640

Decrease (increase) in reinsurance assets (Note 6)
 
(51
)
 
(21
)
Increase (decrease) in investment contract liabilities (Note 6)
 
7

 
24

Reinsurance expenses (recoveries) (Note 7)
 
(531
)
 
(508
)
Commissions
 
648

 
564

Net transfer to (from) segregated funds (Note 11)
 
(386
)
 
(85
)
Operating expenses
 
1,733

 
1,668

Premium taxes
 
108

 
100

Interest expense
 
90

 
88

Total benefits and expenses
 
5,805

 
10,590

Income (loss) before income taxes
 
665

 
802

Less: Income tax expense (benefit) (Note 9)
 
279

 
88

Total net income (loss)
 
386

 
714

Less: Net income (loss) attributable to participating policyholders
 
(35
)
 
67

 Net income (loss) attributable to non-controlling interests
 
6

 
—

Shareholders’ net income (loss)
 
415

 
647

Less: Preferred shareholders’ dividends
 
24

 
24

Common shareholders’ net income (loss)
 
$
391

 
$
623


 
 
 
 
Average exchange rates during the reporting periods: U.S. dollars
 
1.34

 
1.33

 
 
 
 
 
Earnings (loss) per share (Note 13)
 
 
 
 
Basic
 
$
0.67

 
$
1.04

Diluted
 
$
0.67

 
$
1.04

 
 
 
 
 
Dividends per common share
 
$
0.550

 
$
0.500


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

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 37

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months ended
 
(unaudited, in millions of Canadian dollars)
March 31, 2020
 
March 31, 2019
 
Total net income (loss)
 
$
386

 
$
714

Other comprehensive income (loss), net of taxes:
 
 
 
 
Items that may be reclassified subsequently to income:
 
 
 
 
Change in unrealized foreign currency translation gains (losses):
 
 
 
 
Unrealized gains (losses)
 
1,044

 
(280
)
Change in unrealized gains (losses) on available-for-sale assets:
 
 
 
 
Unrealized gains (losses)
 
(240
)
 
269

Reclassifications to net income (loss)
 
(56
)
 
(18
)
Change in unrealized gains (losses) on cash flow hedges:
 
 
 
 
Unrealized gains (losses)
 
23

 
14

Reclassifications to net income (loss)
 
(44
)
 
(8
)
Share of other comprehensive income (loss) in joint ventures and associates:
 
 
 
 
Unrealized gains (losses)
 
64

 
28

Total items that may be reclassified subsequently to income
 
791

 
5

Items that will not be reclassified subsequently to income:
 
 
 
 
Remeasurement of defined benefit plans
 
119

 
(43
)
Total items that will not be reclassified subsequently to income
 
119

 
(43
)
Total other comprehensive income (loss)
 
910

 
(38
)
Total comprehensive income (loss)
 
1,296

 
676

Less: Participating policyholders’ comprehensive income (loss)
 
(27
)
 
66

 Non-controlling interests’ comprehensive income (loss)
 
6

 
—

Shareholders’ comprehensive income (loss)
 
$
1,317

 
$
610


INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS)
 
For the three months ended
 
(unaudited, in millions of Canadian dollars)
March 31, 2020
 
March 31, 2019
 
Income tax benefit (expense):
 
 
 
 
Items that may be reclassified subsequently to income:
 
 
 
 
Unrealized foreign currency translation gains (losses)
 
$
(1
)
 
$
—

Unrealized gains (losses) on available-for-sale assets
 
45

 
(62
)
Reclassifications to net income for available-for-sale assets
 
15

 
4

Unrealized gains (losses) on cash flow hedges
 
11

 
(5
)
Reclassifications to net income for cash flow hedges
 
(3
)
 
3

Total items that may be reclassified subsequently to income
 
67

 
(60
)
Items that will not be reclassified subsequently to income:
 
 
 
 
Remeasurement of defined benefit plans
 
(39
)
 
20

Total items that will not be reclassified subsequently to income
 
(39
)
 
20

Total income tax benefit (expense) included in other comprehensive income (loss)
 
$
28

 
$
(40
)

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


38 Sun Life Financial Inc. First Quarter 2020     INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
 
As at
(unaudited, in millions of Canadian dollars)
March 31,
2020
 
December 31,
2019
 
Assets
 
 
 
 
Cash, cash equivalents and short-term securities (Note 4)
 
$
9,548

 
$
9,575

Debt securities (Note 4)
 
84,599

 
81,606

Equity securities (Note 4)
 
4,605

 
4,787

Mortgages and loans
 
50,253

 
48,222

Derivative assets
 
3,128

 
1,548

Other invested assets (Note 4)
 
5,795

 
5,357

Policy loans
 
3,324

 
3,218

Investment properties (Note 4)
 
7,359

 
7,306

Invested assets
 
168,611


161,619

Other assets
 
5,564

 
5,216

Reinsurance assets (Note 6)
 
4,357


4,024

Deferred tax assets
 
1,606

 
1,455

Intangible assets
 
2,184

 
2,083

Goodwill
 
6,044

 
5,832

Total general fund assets
 
188,366

 
180,229

Investments for account of segregated fund holders (Note 11)
 
102,824

 
116,973

Total assets
 
$
291,190

 
$
297,202

Liabilities and equity
 
 
 
 
Liabilities
 
 
 
 
Insurance contract liabilities (Note 6)
 
$
135,252


$
131,184

Investment contract liabilities (Note 6)
 
3,120


3,116

Derivative liabilities
 
4,509

 
2,040

Deferred tax liabilities
 
313

 
406

Other liabilities
 
15,865

 
14,937

Senior debentures
 
500

 
500

Subordinated debt
 
3,539

 
3,538

Total general fund liabilities
 
163,098

 
155,721

Insurance contracts for account of segregated fund holders (Note 11)
 
97,043

 
110,269

Investment contracts for account of segregated fund holders (Note 11)
 
5,781

 
6,704

Total liabilities
 
$
265,922

 
$
272,694

Equity
 
 
 
 
Issued share capital and contributed surplus
 
$
10,579


$
10,619

Shareholders' retained earnings and accumulated other comprehensive income
 
13,599


12,779

Total shareholders’ equity
 
24,178

 
23,398

Participating policyholders’ equity
 
1,064

 
1,091

Non-controlling interests’ equity
 
26

 
19

Total equity
 
$
25,268

 
$
24,508

Total liabilities and equity
 
$
291,190

 
$
297,202

 
 
 
 
 
Exchange rates at the end of the reporting periods: U.S. dollars
 
1.41

 
1.30


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

Approved on behalf of the Board of Directors on May 5, 2020.            
deansignaturea01.jpg
sga03.jpg
Dean A. Connor
Sara Grootwassink Lewis
President and Chief Executive Officer
Director

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 39

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
For the three months ended
 
(unaudited, in millions of Canadian dollars)
March 31,
2020
 
March 31,
2019
 
Shareholders:
 
 
 
 
Preferred shares
 
 
 
 
Balance, beginning and end of period
 
$
2,257

 
$
2,257

Common shares (Note 10)
 
 
 
 
Balance, beginning of period
 
8,289

 
8,419

Stock options exercised
 
9

 
10

Common shares purchased for cancellation
 
(50
)
 
(54
)
Balance, end of period
 
8,248

 
8,375

Contributed surplus
 
 
 
 
Balance, beginning of period
 
73

 
73

Share-based payments
 
3

 
3

Stock options exercised
 
(2
)
 
(2
)
Balance, end of period
 
74

 
74

Retained earnings
 
 
 
 
Balance, beginning of period, as previously reported
 
11,318

 
11,267

Adjustment for change in accounting policy (Note 2)
 
—

 
(22
)
Balance, beginning of period, after change in accounting policy
 
11,318

 
11,245

Net income (loss)
 
415

 
647

Dividends on common shares
 
(323
)
 
(299
)
Dividends on preferred shares
 
(24
)
 
(24
)
Common shares purchased for cancellation (Note 10)
 
(150
)
 
(146
)
Balance, end of period
 
11,236

 
11,423

Accumulated other comprehensive income (loss), net of taxes (Note 14)
 
 
 
 
Balance, beginning of period
 
1,461

 
1,690

Total other comprehensive income (loss) for the period
 
902

 
(37
)
Balance, end of period
 
2,363

 
1,653

Total shareholders’ equity, end of period
 
$
24,178

 
$
23,782

Participating policyholders:
 
 
 
 
Balance, beginning of period
 
$
1,091

 
$
864

Net income (loss)
 
(35
)
 
67

Total other comprehensive income (loss) for the period (Note 14)
 
8

 
(1
)
Total participating policyholders’ equity, end of period
 
$
1,064

 
$
930

Non-controlling interests:
 
 
 
 
Balance, beginning of period
 
$
19

 
$
—

Net income (loss)
 
6

 
—

Additional contribution
 
1

 
—

Total non-controlling interests’ equity, end of period
 
$
26

 
$
—

Total equity
 
$
25,268

 
$
24,712


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

40 Sun Life Financial Inc. First Quarter 2020     INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the three months ended
 
(unaudited, in millions of Canadian dollars)
March 31, 2020
 
March 31, 2019
 
Cash flows provided by (used in) operating activities
 
 
 
 
Income (loss) before income taxes
 
$
665

 
$
802

Adjustments:
 
 
 
 
Interest expense related to financing activities
 
55

 
66

Increase (decrease) in insurance and investment contract liabilities
 
(224
)
 
4,664

Decrease (increase) in reinsurance assets
 
(51
)
 
(21
)
Realized and unrealized (gains) losses and foreign currency changes on invested assets
 
1,739

 
(4,177
)
Sales, maturities and repayments of invested assets
 
18,836

 
16,408

Purchases of invested assets
 
(20,111
)
 
(17,790
)
Income taxes received (paid)
 
(85
)
 
(230
)
Mortgage securitization (Note 4)
 
87

 
96

Other operating activities
 
(828
)
 
(1,045
)
Net cash provided by (used in) operating activities
 
83

 
(1,227
)
Cash flows provided by (used in) investing activities
 
 
 
 
Net (purchase) sale of property and equipment
 
(37
)
 
(31
)
Investment in and transactions with joint ventures and associates
 
6

 
14

Dividends received from joint ventures and associates
 
20

 
14

Other investing activities
 
(86
)
 
(34
)
Net cash provided by (used in) investing activities
 
(97
)
 
(37
)
Cash flows provided by (used in) financing activities
 
 
 
 
Increase in (repayment of) borrowed funds
 
(56
)
 
3

Issuance of common shares on exercise of stock options
 
7

 
8

Common shares purchased for cancellation (Note 10)
 
(200
)
 
(200
)
Dividends paid on common and preferred shares
 
(341
)
 
(319
)
Payment of lease liabilities
 
(37
)
 
(29
)
Interest expense paid
 
(61
)
 
(64
)
Net cash provided by (used in) financing activities
 
(688
)
 
(601
)
Changes due to fluctuations in exchange rates
 
357

 
(77
)
Increase (decrease) in cash and cash equivalents
 
(345
)
 
(1,942
)
Net cash and cash equivalents, beginning of period
 
6,685

 
7,194

Net cash and cash equivalents, end of period
 
6,340

 
5,252

Short-term securities, end of period
 
3,106

 
2,944

Net cash, cash equivalents and short-term securities, end of period (Note 4)
 
$
9,446

 
$
8,196


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


INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 41

Condensed Notes to the Interim Consolidated Financial Statements
 

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

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

Our Interim Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting as issued and adopted by the International Accounting Standards Board (“IASB”). We have used accounting policies which are consistent with our accounting policies in our 2019 Annual Consolidated Financial Statements, except as disclosed in Note 2 below. Our Interim Consolidated Financial Statements should be read in conjunction with our 2019 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 as issued by the IASB (“IFRS”).
COVID-19 Pandemic Considerations
In early 2020, the world was impacted by COVID-19, which was declared a global pandemic by the World Health Organization. The overall impact of the COVID-19 pandemic is still uncertain and dependent on the progression of the virus and on actions taken by governments, businesses and individuals, which could vary by country and result in differing outcomes.

The application of our accounting policies requires estimates, assumptions and judgments as they relate to matters that are inherently uncertain. We have established procedures to ensure that our accounting policies are applied consistently and that the processes for changing methodologies for determining estimates are controlled and occur in an appropriate and systematic manner. For additional information, please refer to Note 1 of our 2019 Annual Consolidated Financial Statements.

2. Changes in Accounting Policies
 
2.A New and Amended International Financial Reporting Standards Adopted in 2020
We adopted the following amendments on January 1, 2020:

In March 2018, the IASB issued a revised Conceptual Framework for Financial Reporting (“Conceptual Framework”), which replaced the Conceptual Framework issued in 2010. The revised Conceptual Framework includes revised definitions of an asset and a liability, as well as new guidance on measurement, derecognition, presentation and disclosure, to be applied prospectively. The adoption of this guideline did not have a material impact on our Consolidated Financial Statements.

In October 2018, the IASB issued Definition of a Business, which amended IFRS 3 Business Combinations. The amendments clarify the definition of a business to assist entities in determining whether a transaction represents a business combination or an acquisition of assets, and are applied prospectively. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements.

In October 2018, the IASB issued Definition of Material (Amendments to IAS 1 and IAS 8). The amendments clarify the definition of material and provide guidance to improve consistency in its application in IFRS standards. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements.

In September 2019, the IASB issued the Interest Rate Benchmark Reform, which includes amendments to IFRS 9 Financial Instruments (“IFRS 9”),     IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures (“IFRS 7”). The amendments clarify that entities can continue to apply certain hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform. The adoption of these amendments did not have a material impact on our Consolidated Financial Statements.
2.B New and Amended International Financial Reporting Standards to be Adopted in 2021 or Later
In May 2017, the IASB issued IFRS 17 Insurance Contracts (“IFRS 17”), which will replace IFRS 4 Insurance Contracts. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. IFRS 17 requires entities to measure insurance contract liabilities at their current fulfillment values using one of three measurement models, depending on the nature of the contract. IFRS 17 is effective for annual periods beginning on or after January 1, 2021 and is to be applied retrospectively to each group of insurance contracts unless impracticable. If, and only if, it is impracticable to apply IFRS 17 retrospectively for a group of insurance contracts, an entity shall apply IFRS 17 using a modified retrospective approach or a fair value approach. In June 2019, the IASB issued an exposure draft (“ED”) that proposed targeted amendments to        IFRS 17 for public consultation. As part of the ED, the IASB has proposed to defer the effective date by one year to January 1, 2022, as well as extend the deferral option of IFRS 9 for insurers to that same date.


42 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In March 2020, the IASB tentatively decided to defer the effective date for an additional year to January 1, 2023 and extend the deferral option of IFRS 9 for insurers to that same date. The IASB has completed deliberations on the ED and expects to issue the final amendments to IFRS 17 in June 2020. IFRS 17 will affect how we account for our insurance contracts and how we report our financial performance in our Consolidated Statements of Operations. We are currently assessing the impact that IFRS 17 will have on our Consolidated Financial Statements.

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

Revenues from our business segments are derived primarily 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 at an arm’s-length basis in a manner similar to transactions with third parties.

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

Intersegment transactions consist primarily of internal financing agreements which are measured at fair values prevailing when the arrangements are negotiated. Intersegment investment income consists primarily of interest paid by U.S. to Corporate. Intersegment fee income is primarily asset management fees paid by our business segments to Asset Management, and product distribution fees paid by Asset Management to Asia. Effective January 1, 2020, SLC Management is collecting fee income and is incurring the operational expenses associated with the management of the general fund assets. Intersegment transactions are eliminated in the Consolidation adjustments column in the following tables.

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


            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 43


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

Canada

 
U.S.

Asset Management(1)
 
 
Asia

Corporate
 
Consolidation adjustments(1)
 
 
Total

2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
427

 
$
—

 
$
—

 
$
30

 
$
3

 
$
—

 
$
460

Life insurance
 
1,276

 
398

 
—

 
901

 
22

 
—

 
2,597

Health insurance
 
1,518

 
1,147

 
—

 
13

 
4

 
—

 
2,682

Total gross premiums
 
3,221

 
1,545

 
—

 
944

 
29

 
—

 
5,739

Less: Ceded premiums
 
374

 
166

 
—

 
49

 
4

 
—

 
593

Net investment income (loss)
 
(743
)
 
658

 
(14
)
 
(154
)
 
(51
)
 
(11
)
 
(315
)
Fee income
 
341

 
20

 
1,185

 
136

 
28

 
(71
)
 
1,639

Total revenue
 
2,445

 
2,057

 
1,171

 
877

 
2

 
(82
)
 
6,470

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total benefits and expenses
 
2,300

 
1,845

 
846

 
815

 
81

 
(82
)
 
5,805

Income tax expense (benefit)
 
177

 
48

 
80

 
7

 
(33
)
 
—

 
279

Total net income (loss)
 
$
(32
)
 
$
164

 
$
245

 
$
55

 
$
(46
)
 
$
—

 
$
386

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to participating policyholders
 
10

 
—

 
—

 
(45
)
 
—

 
—

 
(35
)
Net income (loss) attributable to non-controlling interests
 
—

 
—

 
6

 
—

 
—

 
—

 
6

Shareholders’ net income (loss)
 
$
(42
)
 
$
164

 
$
239

 
$
100

 
$
(46
)
 
$
—

 
$
415

2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annuities
 
$
398

 
$
1

 
$
—

 
$
—

 
$
6

 
$
—

 
$
405

Life insurance
 
1,248

 
407

 
—

 
396

 
23

 
—

 
2,074

Health insurance
 
1,402

 
1,047

 
—

 
10

 
4

 
—

 
2,463

Total gross premiums
 
3,048

 
1,455

 
—

 
406

 
33

 
—

 
4,942

Less: Ceded premiums
 
362

 
155

 
—

 
50

 
5

 
—

 
572

Net investment income (loss)
 
3,243

 
892

 
28

 
1,014

 
406

 
(8
)
 
5,575

Fee income
 
308

 
21

 
1,023

 
126

 
35

 
(66
)
 
1,447

Total revenue
 
6,237

 
2,213

 
1,051

 
1,496

 
469

 
(74
)
 
11,392

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total benefits and expenses
 
5,966

 
2,057

 
774

 
1,402

 
465

 
(74
)
 
10,590

Income tax expense (benefit)
 
(32
)
 
32

 
58

 
13

 
17

 
—

 
88

Total net income (loss)
 
$
303

 
$
124

 
$
219

 
$
81

 
$
(13
)
 
$
—

 
$
714

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to participating policyholders
 
66

 
—

 
—

 
1

 
—

 
—

 
67

Shareholders’ net income (loss)
 
$
237

 
$
124

 
$
219

 
$
80

 
$
(13
)
 
$
—

 
$
647


(1) 
Reflects a change in presentation for our Asset Management segment effective January 1, 2020. We have updated the prior period to reflect this change in presentation.

44 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. Total Invested Assets and Related Net Investment Income
 
4.A Asset Classification
The carrying values of our Debt securities, Equity securities and Other invested assets presented in our Interim Consolidated Statements of Financial Position consist of the following:
As at
Fair value through profit
 or loss
 
Available-
for-sale
 
 
Other(1)

 
Total

March 31, 2020
 
 
 
 
 
 
 
 
Debt securities
 
$
70,714

 
$
13,885

 
$
—

 
$
84,599

Equity securities
 
$
4,304

 
$
301

 
$
—

 
$
4,605

Other invested assets
 
$
3,250

 
$
965

 
$
1,580

 
$
5,795

December 31, 2019








Debt securities

$
67,894


$
13,712


$
—


$
81,606

Equity securities

$
4,474


$
313


$
—


$
4,787

Other invested assets

$
3,016


$
813


$
1,528


$
5,357


(1) Other consists primarily of investments accounted for using the equity method of accounting.
4.B Fair Value and Foreign Currency Changes on Assets and Liabilities
Fair value and foreign currency changes on assets and liabilities presented in our Interim Consolidated Statements of Operations consist of the following:
 
For the three months ended
 

March 31, 2020
 
March 31, 2019
 
Fair value change:
 
 
 
 
Cash, cash equivalents and short-term securities
 
$
2

 
$
(2
)
Debt securities
 
(1,145
)
 
2,907

Equity securities
 
(784
)
 
421

Derivative investments
 
(332
)
 
806

Other invested assets
 
(63
)
 
49

Total change in fair value through profit or loss assets and liabilities
(2,322
)
 
4,181

Fair value changes on investment properties
 
2

 
133

Foreign exchange gains (losses)(1)
 
511

 
(160
)
Fair value and foreign currency changes on assets and liabilities
 
$
(1,809
)
 
$
4,154


(1)
Primarily arises from the translation of foreign currency denominated available-for-sale assets, as well as mortgages and loans. Any offsetting amounts arising from foreign currency derivatives are included in the fair value change on derivative investments.
4.C Impairment of Available-for-Sale Assets
We recognized impairment losses on available-for-sale assets of $3 for the three months ended March 31, 2020 ($15 for the three months ended March 31, 2019).
4.D Cash, Cash Equivalents and Short-Term Securities
Cash, cash equivalents and short-term securities presented in our Interim Consolidated Statements of Financial Position and Net cash, cash equivalents and short-term securities presented in our Interim Consolidated Statements of Cash Flows consist of the following:
As at
March 31, 2020
 
December 31, 2019
 
 
March 31, 2019
 
Cash
 
$
2,134

 
$
1,656

 
 
$
1,766

Cash equivalents
 
4,308

 
5,059

 
 
3,660

Short-term securities
 
3,106

 
2,860

 
 
2,944

Cash, cash equivalents and short-term securities
 
9,548

 
9,575

 
 
8,370

Less: Bank overdraft, recorded in Other liabilities
 
102

 
30

 
 
174

Net cash, cash equivalents and short-term securities
 
$
9,446

 
$
9,545

 
 
$
8,196


            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 45


4.E Mortgage Securitization
We securitize certain insured fixed rate commercial mortgages as described in Note 5 of our 2019 Annual Consolidated Financial Statements.

The carrying value and fair value of the securitized mortgages as at March 31, 2020 are $1,663 and $1,712, respectively ($1,587 and $1,592, respectively, as at December 31, 2019). The carrying value and fair value of the associated liabilities as at March 31, 2020 are $1,802 and $1,896, respectively ($1,715 and $1,734, respectively, as at December 31, 2019). The carrying value of asset-backed securities in the principal reinvestment account (“PRA”) as at March 31, 2020 and December 31, 2019 are $133 and $124, respectively. There are no cash and cash equivalents in the PRA as at March 31, 2020 and December 31, 2019.

The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions for asset-backed securities as described in Note 5 of our 2019 Annual Consolidated Financial Statements. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at March 31, 2020 and December 31, 2019.
4.F Fair Value Measurement
The fair value methodologies and assumptions for assets and liabilities carried at fair value as well as disclosures on unobservable inputs, sensitivities and valuation processes for Level 3 assets can be found in Note 5 of our 2019 Annual Consolidated Financial Statements.

4.F.i Fair Value Hierarchy
Our assets and liabilities that are carried at fair value on a recurring basis by hierarchy level are as follows:
As at
March 31, 2020
December 31, 2019
 
 
Level 1

 
Level 2

 
Level 3

 
Total

 
Level 1

 
Level 2

 
Level 3

 
Total

Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and short-term securities
 
$
8,943

 
$
605

 
$
—

 
$
9,548

 
$
9,044

 
$
531

 
$
—

 
$
9,575

Debt securities – fair value through profit or loss
 
1,931

 
68,578

 
205

 
70,714

 
1,641

 
66,005

 
248

 
67,894

Debt securities – available-for-sale
 
981

 
12,851

 
53

 
13,885

 
1,363

 
12,299

 
50

 
13,712

Equity securities – fair value through profit or loss
2,110

 
1,991

 
203

 
4,304

 
1,868

 
2,418

 
188

 
4,474

Equity securities – available-for-sale
 
128

 
135

 
38

 
301

 
152

 
126

 
35

 
313

Derivative assets
 
23

 
3,105

 
—

 
3,128

 
20

 
1,528

 
—

 
1,548

Other invested assets
 
1,031

 
431

 
2,753

 
4,215

 
1,000

 
384

 
2,445

 
3,829

Investment properties
 
—

 
—

 
7,359

 
7,359

 
—

 
—

 
7,306

 
7,306

Total invested assets
 
$
15,147

 
$
87,696

 
$
10,611

 
$
113,454

 
$
15,088

 
$
83,291

 
$
10,272

 
$
108,651

Investments for account of segregated fund holders
22,352

 
79,937

 
535

 
102,824

 
26,380

 
90,044

 
549

 
116,973

Total assets measured at fair value
 
$
37,499

 
$
167,633

 
$
11,146

 
$
216,278

 
$
41,468

 
$
173,335

 
$
10,821

 
$
225,624

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment contract liabilities
 
$
—

 
$
—

 
$
2

 
$
2

 
$
—

 
$
—

 
$
2

 
$
2

Derivative liabilities
 
78

 
4,431

 
—

 
4,509

 
14

 
2,026

 
—

 
2,040

Put option liability
 
—

 
—

 
1,043

 
1,043

 
—

 
—

 
956

 
956

Total liabilities measured at fair value
 
$
78

 
$
4,431

 
$
1,045

 
$
5,554

 
$
14

 
$
2,026

 
$
958

 
$
2,998



46 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Debt securities – fair value through profit or loss consist of the following:
As at
March 31, 2020
December 31, 2019
 
 
Level 1

 
Level 2

 
Level 3

 
Total

 
Level 1

 
Level 2

 
Level 3

 
Total

Canadian federal government
 
$
—

 
$
3,819

 
$
14

 
$
3,833

 
$
—

 
$
3,875

 
$
15

 
$
3,890

Canadian provincial and municipal government
 
—

 
14,679

 
—

 
14,679

 
—

 
13,811

 
15

 
13,826

U.S. government and agency
 
1,931

 
160

 
1

 
2,092

 
1,641

 
106

 
1

 
1,748

Other foreign government
 
—

 
5,329

 
—

 
5,329

 
—

 
5,172

 
9

 
5,181

Corporate
 
—

 
38,492

 
169

 
38,661

 
—

 
37,508

 
173

 
37,681

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial mortgage-backed securities
 
—

 
1,904

 
6

 
1,910

 
—

 
1,753

 
6

 
1,759

Residential mortgage-backed securities
 
—

 
2,499

 
—

 
2,499

 
—

 
2,176

 
—

 
2,176

Collateralized debt obligations
 
—

 
178

 
—

 
178

 
—

 
157

 
—

 
157

Other
 
—

 
1,518

 
15

 
1,533

 
—

 
1,447

 
29

 
1,476

Total debt securities – fair value through profit or loss
 
$
1,931

 
$
68,578

 
$
205

 
$
70,714

 
$
1,641

 
$
66,005

 
$
248

 
$
67,894


Debt securities – available-for-sale consist of the following:
As at
March 31, 2020
December 31, 2019
 
 
Level 1

 
Level 2

 
Level 3

 
Total

 
Level 1

 
Level 2

 
Level 3

 
Total

Canadian federal government
 
$
—

 
$
2,593

 
$
—

 
$
2,593

 
$
—

 
$
2,556

 
$
—

 
$
2,556

Canadian provincial and municipal government
 
—

 
1,177

 
—

 
1,177

 
—

 
1,139

 
—

 
1,139

U.S. government and agency
 
981

 
—

 
—

 
981

 
1,363

 
—

 
—

 
1,363

Other foreign government
 
—

 
789

 
1

 
790

 
—

 
735

 
1

 
736

Corporate
 
—

 
5,341

 
48

 
5,389

 
—

 
5,039

 
45

 
5,084

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial mortgage-backed securities
 
—

 
858

 
—

 
858

 
—

 
777

 
—

 
777

Residential mortgage-backed securities
 
—

 
417

 
—

 
417

 
—

 
362

 
—

 
362

Collateralized debt obligations
 
—

 
728

 
—

 
728

 
—

 
730

 
—

 
730

Other
 
—

 
948

 
4

 
952

 
—

 
961

 
4

 
965

Total debt securities – available-for-sale
 
$
981

 
$
12,851

 
$
53

 
$
13,885

 
$
1,363

 
$
12,299

 
$
50

 
$
13,712


There were no significant transfers between Level 1 and Level 2 for the three months ended March 31, 2020 and March 31, 2019.


            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 47


The following table provides a reconciliation of the beginning and ending balances for assets and liabilities that are categorized in Level 3:
For the three months ended
Debt securities – fair value through profit or loss 
 
Debt securities – available-for-sale
 
Equity securities – fair value through profit or loss
 
Equity securities – available-for-sale
 
Other invested assets
 
Investment properties
 
Total invested assets measured at fair value
 
Investments for account of segregated fund holders
 
Total assets measured at fair value
 
Put option liability
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
248

 
$
50

 
$
188

 
$
35

 
$
2,445

 
$
7,306

 
$
10,272

 
$
549

 
$
10,821

 
$
956

Included in net income(1)(2)(3)
 
(5
)
 
—

 
3

 
—

 
96

 
(29
)
 
65

 
(36
)
 
29

 
45

Included in OCI(2)
 
—

 
—

 
—

 
1

 
10

 
—

 
11

 
—

 
11

 
—

Purchases
 
—

 
—

 
5

 
—

 
196

 
66

 
267

 
15

 
282

 
—

Sales / Payments
 
(9
)
 
—

 
—

 
—

 
(55
)
 
(96
)
 
(160
)
 
(9
)
 
(169
)
 
—

Settlements
 
(1
)
 
—

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
—

Transfers (out) of Level 3(4)
 
(37
)
 
—

 
—

 
—

 
—

 
—

 
(37
)
 
—

 
(37
)
 
—

Foreign currency translation(5)
 
9

 
3

 
7

 
2

 
61

 
112

 
194

 
16

 
210

 
42

Ending balance
 
$
205

 
$
53

 
$
203

 
$
38

 
$
2,753

 
$
7,359

 
$
10,611

 
$
535

 
$
11,146

 
$
1,043

Gains (losses) included in earnings relating to instruments still held at the reporting date(1)
 
$
(4
)
 
$
—

 
$
3

 
$
—

 
$
96

 
$
(24
)
 
$
71

 
$
(23
)
 
$
48

 
$
—

March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
373

 
$
43

 
$
202

 
$
36

 
$
2,241

 
$
7,157

 
$
10,052

 
$
1,596

 
$
11,648

 
$
—

Included in net income(1)(2)(3)
 
9

 
—

 
(3
)
 
—

 
(24
)
 
107

 
89

 
(2
)
 
87

 
—

Included in OCI(2)
 
—

 
2

 
—

 
—

 
2

 
—

 
4

 
—

 
4

 
—

Purchases
 
17

 
14

 
3

 
6

 
80

 
52

 
172

 
85

 
257

 
—

Sales / Payments
 
(9
)
 
—

 
(1
)
 
—

 
(27
)
 
(281
)
 
(318
)
 
(4
)
 
(322
)
 
—

Settlements
 
(2
)
 
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
 
—

Transfers (out) of Level 3(4)
 
(84
)
 
—

 
(4
)
 
—

 
—

 
—

 
(88
)
 
—

 
(88
)
 
—

Foreign currency translation(5)
 
(3
)
 
(1
)
 
(2
)
 
(2
)
 
(12
)
 
(36
)
 
(56
)
 
(4
)
 
(60
)
 
—

Ending balance
 
$
301

 
$
58

 
$
195

 
$
40

 
$
2,260

 
$
6,999

 
$
9,853

 
$
1,671

 
$
11,524

 
$
—

Gains (losses) included in earnings relating to instruments still held at the reporting date(1)
 
$
4

 
$
—

 
$
(2
)
 
$
—

 
$
(24
)
 
$
125

 
$
103

 
$
(8
)
 
$
95

 
$
—


(1) 
Included in Net investment income (loss) for Total invested assets measured at fair value in our Interim Consolidated Statements of Operations.
(2) 
Total gains and losses in net income (loss) and other comprehensive income (“OCI”) are calculated assuming transfers into or out of Level 3 occur at the beginning of the period. For an asset or liability that transfers into Level 3 during the reporting period, the entire change in fair value for the period is included in the table above. For transfers out of Level 3 during the reporting period, the change in fair value for the period is excluded from the table above.
(3) 
Investment properties included in net income are comprised of fair value changes on investment properties of $2 ($133 in 2019), net of amortization of leasing commissions and tenant inducements of $31 ($26 in 2019). For the key unobservable inputs used in the valuation of investment properties, please refer to Note 5.A.iii Fair Value Hierarchy in our 2019 Annual Consolidated Financial Statements. At March 31, 2020, we have used assumptions that reflect known changes in the property values including changes in expected future cash flows.
(4) 
Transfers out of Level 3 occur when the pricing inputs become more transparent and satisfy the Level 1 or 2 criteria and are primarily the result of observable market data being available at the reporting date, thus removing the requirement to rely on inputs that lack observability.
(5) 
Foreign currency translation relates to the foreign exchange impact of translating Level 3 assets and liabilities of foreign subsidiaries from their functional currencies to Canadian dollars.

5. Financial Instruments and Insurance Risk Management
 

Our risk management policies and procedures for managing risks related to financial instruments and insurance contracts can be found in Notes 6 and 7, respectively, of our 2019 Annual Consolidated Financial Statements.

Our financial instruments market risk sensitivities are included in our Management’s Discussion and Analysis (“MD&A”) for the three months ended March 31, 2020. 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 and include discussions on how we measure our risk and our objectives, policies and methodologies for managing this risk. Therefore, the shaded text and tables in the MD&A represent an integral part of these Interim Consolidated Financial Statements.


48 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We use reinsurance to limit losses, minimize exposure to significant risks and to provide additional capacity for growth. Our Insurance Risk Policy sets maximum global retention limits and related management standards and practices that are applied to reduce our exposure to large claims. Amounts in excess of the Board-approved maximum retention limits are reinsured. Our single life or joint-first-to-die basis retention limit is $40 ($40 in 2019) in Canada and US$40 (US$40 in 2019) outside of Canada. For survivorship life insurance, our maximum global retention limit is $50 ($50 in 2019) in Canada and US$50 (US$50 in 2019) outside of Canada. In certain markets and jurisdictions, retention levels below the maximum are applied. Reinsurance is utilized for numerous products in most business segments, and placement is done on an automatic basis for defined insurance portfolios and on a facultative basis for individual risks with certain characteristics.

6. Insurance Contract Liabilities and Investment Contract Liabilities
 
6.A Insurance Contract Liabilities
6.A.i Changes in Insurance Contract Liabilities and Reinsurance Assets
Changes in Insurance contract liabilities and Reinsurance assets are as follows:
 
For the three months ended
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
 
Insurance contract liabilities
 
Reinsurance assets
 
Net
 
Insurance contract liabilities
 
Reinsurance assets
 
Net
 
Balances before Other policy liabilities and assets, beginning of period
$
123,894

 
$
3,395

 
$
120,499

 
$
114,902

 
$
3,653

 
$
111,249

Change in balances on in-force policies(1)
 
(968
)
 
22

 
(990
)
 
4,315

 
(14
)
 
4,329

Balances arising from new policies(1)
 
667

 
28

 
639

 
319

 
35

 
284

Method and assumption changes(2)
 
70

 
1

 
69

 
6

 
—

 
6

Increase (decrease) in Insurance contract liabilities and Reinsurance assets
 
(231
)
 
51

 
(282
)
 
4,640

 
21

 
4,619

Foreign exchange rate movements
 
4,006

 
264

 
3,742

 
(978
)
 
(73
)
 
(905
)
Balances before Other policy liabilities and assets
127,669

 
3,710

 
123,959

 
118,564

 
3,601

 
114,963

Other policy liabilities and assets
 
7,583

 
647

 
6,936

 
6,927

 
534

 
6,393

Total Insurance contract liabilities and Reinsurance assets, end of period
 
$
135,252

 
$
4,357

 
$
130,895

 
$
125,491

 
$
4,135

 
$
121,356


(1) 
Comparative figures in 2019 have been amended to conform to the current year’s methodology.
(2) 
The impact this quarter was due to an increase in provisions for adverse deviation for fixed income asset credit spreads assumed in the valuation. In March, as a result of the economic impact of the COVID-19 pandemic, credit spreads increased sharply. Credit spreads at the end of the quarter were outside of the historically normal range of spreads. With respect to all other actuarial valuation assumptions including mortality, morbidity, policyholder behaviour and asset default assumptions, no changes were made as a result of the COVID-19 pandemic and economic downturn.
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
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
 
Measured at
fair value
 
Measured at amortized cost
 
Measured at
fair value
 
Measured at amortized cost
 
Balances, beginning of period
 
$
2

 
$
2,612

 
$
3

 
$
2,646

Deposits
 
—

 
79

 
—

 
89

Interest
 
—

 
16

 
—

 
15

Withdrawals
 
—

 
(126
)
 
—

 
(134
)
Fees
 
—

 
(1
)
 
—

 
(1
)
Other
 
—

 
4

 
—

 
5

Foreign exchange rate movements
 
—

 
1

 
(1
)
 
—

Balances, end of period
 
$
2

 
$
2,585

 
$
2

 
$
2,620



            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 49


Changes in investment contract liabilities with DPF are as follows:
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
Balances, beginning of period
 
$
502

 
$
515

Change in liabilities on in-force policies
 
(9
)
 
9

Foreign exchange rate movements
 
40

 
(10
)
Balances, end of period
 
$
533

 
$
514

6.C Gross Claims and Benefits Paid
Gross claims and benefits paid consist of the following:
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
Maturities and surrenders
 
$
710

 
$
661

Annuity payments
 
485

 
472

Death and disability benefits
 
1,059

 
1,062

Health benefits
 
1,821

 
1,670

Policyholder dividends and interest on claims and deposits
 
343

 
255

Total gross claims and benefits paid
 
$
4,418

 
$
4,120


7. Reinsurance (Expenses) Recoveries
 
Reinsurance (expenses) recoveries consist of the following:
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
Recovered claims and benefits
 
$
485

 
$
468

Commissions
 
17

 
16

Reserve adjustments
 
10

 
5

Operating expenses and other
 
19

 
19

Total reinsurance (expenses) recoveries
 
$
531

 
$
508


8. Fee Income
 
Fee income consists of the following:
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
Fee income from insurance contracts
 
$
259

 
$
235

Fee income from service contracts:
 
 
 
 
Distribution fees
 
212

 
194

Fund management and other asset-based fees
 
977

 
833

Administrative service and other fees
 
191

 
185

Total fee income
 
$
1,639

 
$
1,447


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


50 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. Income Taxes
 
Our effective income tax rate differs from the combined Canadian federal and provincial statutory income tax rate as follows:
 
 
For the three months ended
 
 
 
March 31, 2020
 
 
March 31, 2019
 
 
 
 
%

 
 
%

Total net income (loss)
 
$
386

 
 
$
714

 
Add: Income tax expense (benefit)
 
279

 
 
88

 
Total net income (loss) before income taxes
 
$
665

 
 
$
802

 
Taxes at the combined Canadian federal and provincial statutory income tax rate
 
$
176

26.5

 
$
215

26.8

Increase (decrease) in rate resulting from:
 
 
 
 
 
 
Higher (lower) effective rates on income subject to taxation in foreign jurisdictions
(40
)
(6.0
)
 
(22
)
(2.7
)
Tax exempt investment (income) loss
 
139

20.9

 
(106
)
(13.2
)
Adjustments in respect of prior periods, including resolution of tax disputes
 
—

—

 
(8
)
(1.0
)
Tax (benefit) cost of unrecognized tax losses and tax credits
 
5

0.8

 
5

0.6

Tax rate and other legislative changes
 
(5
)
(0.8
)
 
—

—

Other
 
4

0.6

 
4

0.5

Total income tax expense (benefit) and effective income tax rate
 
$
279

42.0

 
$
88

11.0


In the second quarter of 2019, a provincial corporate tax rate decrease from 12% to 8% was enacted in Alberta, Canada. As a result, our statutory rate decreased from 26.75% (rounded to 26.8% in the table above) to 26.5%.

Statutory income tax rates in other jurisdictions in which we conduct business range from 0% to 30%, which creates a tax rate differential and corresponding tax provision difference compared to the Canadian federal and provincial statutory rate when applied to foreign income not subject to tax in Canada. Generally, higher earnings in jurisdictions with higher statutory tax rates result in an increase of our tax expense, while earnings arising in tax jurisdictions with statutory rates lower than 26.5% reduce our tax expense. These differences are reported in Higher (lower) effective rates on income subject to taxation in foreign jurisdictions.

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

Adjustments in respect of prior periods, including the resolution of tax disputes for the three months ended March 31, 2019 related mainly to the resolution of tax audits in MFS Investment Management.

Tax (benefit) cost of unrecognized tax losses and tax credits reflected unrecognized losses in Asia.

Tax rate and other legislative changes for the three months ended March 31, 2020 included a remeasurement of our deferred tax balances in the UK due to the reversal of an enacted future corporate tax rate reduction.

Other for the three months ended March 31, 2020 and March 31, 2019 primarily reflected withholding taxes on distributions from our foreign subsidiaries.

10. Capital Management
 
 
10.A Capital
Our capital base is structured to exceed minimum regulatory and internal capital targets and to maintain strong credit and financial strength ratings while maintaining a capital efficient structure. We strive to achieve an optimal capital structure by balancing the use of debt and equity financing. Capital is managed both on a consolidated basis under the principles that consider all the risks associated with the business as well as at the business group level under the principles appropriate to the jurisdiction in which each operates. We manage the capital for all of our international subsidiaries on a local statutory basis in a manner commensurate with their individual risk profiles. Further details on our capital, and how it is managed, are included in Note 21 of our 2019 Annual Consolidated Financial Statements.

SLF Inc. is a non-operating insurance company and is subject to the Life Insurance Capital Adequacy Test (“LICAT”) guideline. As at March 31, 2020, SLF Inc.’s LICAT ratio exceeded the regulatory minimum target as set out by the Office of the Superintendent of Financial Institutions (“OSFI”). Sun Life Assurance, SLF Inc.’s principal operating life insurance subsidiary in Canada, is also subject to the LICAT guideline. As at March 31, 2020, Sun Life Assurance’s LICAT ratio exceeded OSFI’s minimum regulatory target; as well as OSFI’s supervisory target applicable to operating life insurance companies.


            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 51


In the U.S., Sun Life Assurance operates through a branch which is subject to U.S. regulatory supervision and it exceeded the levels under which regulatory action would be required as at March 31, 2020. In addition, other subsidiaries of SLF Inc. that must comply with local capital or solvency requirements in the jurisdiction in which they operate maintained capital levels above minimum local requirements as at March 31, 2020.

Our capital base consists mainly of common shareholders’ equity, preferred shareholders’ equity, participating policyholders’ equity, non-controlling interests’ equity and certain other capital securities that qualify as regulatory capital.
10.B Significant Capital Transactions
10.B.i Common Shares
Changes in common shares issued and outstanding were as follows:
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
Common shares (in millions of shares)
Number of shares
 

Amount
Number of shares
 
 
Amount

Balance, beginning of period

587.8

 
$
8,289

 
598.5

 
$
8,419

Stock options exercised

0.2

 
9

 
0.2

 
10

Common shares purchased for cancellation
 
(3.5
)
 
(50
)
 
(4.1
)
 
(54
)
Balance, end of period

584.5

 
$
8,248

 
594.6

 
$
8,375


On August 14, 2019, SLF Inc. launched a normal course issuer bid to purchase and cancel up to 15 million common shares of SLF Inc. (“common shares”) between August 14, 2019 and August 13, 2020 (the “2019 NCIB”) and implemented an automatic repurchase plan with its designated broker in order to facilitate purchases of common shares under such bid. Under such automatic repurchase plan, SLF Inc.’s designated broker may purchase common shares pursuant to the 2019 NCIB at times when SLF Inc. ordinarily would not be active in the market due to regulatory restrictions or self-imposed blackout periods. SLF Inc. launched a normal course issuer bid on August 14, 2018 and amended it effective May 14, 2019.
Pursuant to the 2019 NCIB, common shares purchased for cancellation are able to be purchased through the facilities of the Toronto Stock Exchange, other Canadian stock exchanges, and/or alternative Canadian trading platforms, at prevailing market rates, or by way of private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities at a discount to the prevailing market price.

For the three months ended March 31, 2020, SLF Inc. purchased and cancelled approximately 3.5 million common shares at an average price per share of $56.86 for a total amount of $200 under the 2019 NCIB. The total amount paid to purchase the shares is allocated to Common shares and Retained earnings in our Consolidated Statements of Changes in Equity. The amount allocated to Common shares is based on the average cost per common share and the amounts paid above the average cost are allocated to Retained earnings. On March 13, 2020, OSFI set the expectation for all federally regulated financial institutions that share buybacks should be halted for the time being.

11. Segregated Funds
 
11.A Investments for Account of Segregated Fund Holders
The carrying value of investments held for segregated fund holders are as follows:
As at
March 31, 2020
 
December 31, 2019
 
Segregated and mutual fund units
 
$
90,224

 
$
102,071

Equity securities
 
8,019

 
10,565

Debt securities
 
3,841

 
3,825

Cash, cash equivalents and short-term securities
 
738

 
589

Investment properties
 
386

 
403

Mortgages
 
22

 
21

Other assets
 
179

 
146

Total assets
 
$
103,409

 
$
117,620

Less: Liabilities arising from investing activities
 
585

 
647

Total investments for account of segregated fund holders
 
$
102,824

 
$
116,973


52 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11.B Changes in Insurance Contracts and Investment Contracts for Account of Segregated Fund Holders
Changes in insurance contracts and investment contracts for account of segregated fund holders are as follows:
 
Insurance contracts
Investment contracts
For the three months ended
March 31, 2020
 
March 31, 2019
 
March 31, 2020
 
March 31, 2019
 
Balances, beginning of period
 
$
110,269

 
$
96,663

 
$
6,704

 
$
6,399

Additions to segregated funds:
 
 
 
 
 
 
 
 
Deposits
 
3,257

 
3,041

 
20

 
23

Net transfer (to) from general funds
 
(386
)
 
(85
)
 
—

 
—

Net realized and unrealized gains (losses)
 
(13,461
)
 
7,611

 
(987
)
 
484

Other investment income
 
323

 
240

 
44

 
27

Total additions
 
$
(10,267
)
 
$
10,807

 
$
(923
)
 
$
534

Deductions from segregated funds:
 
 
 
 
 
 
 
 
Payments to policyholders and their beneficiaries
 
3,062

 
3,732

 
134

 
149

Management fees
 
267

 
242

 
13

 
13

Taxes and other expenses
 
67

 
97

 
(7
)
 
5

Foreign exchange rate movements
 
(437
)
 
134

 
(140
)
 
20

Total deductions
 
$
2,959

 
$
4,205

 
$
—

 
$
187

Net additions (deductions)
 
(13,226
)
 
6,602

 
(923
)
 
347

Balances, end of period
 
$
97,043

 
$
103,265

 
$
5,781

 
$
6,746


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


            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 53


The following tables set forth certain consolidating summary financial information for SLF Inc. and Sun Life Assurance (consolidated):
For the three months ended
SLF Inc. (unconsolidated)
 
Sun Life Assurance (consolidated)
 
Other
subsidiaries
of SLF Inc. (combined)
 
Consolidation adjustments
 
SLF Inc. (consolidated)
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
42

 
$
4,652

 
$
2,052

 
$
(276
)
 
$
6,470

Shareholders’ net income (loss)
 
$
415

 
$
107

 
$
299

 
$
(406
)
 
$
415

March 31, 2019
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
55

 
$
10,274

 
$
1,631

 
$
(568
)
 
$
11,392

Shareholders’ net income (loss)
 
$
647

 
$
420

 
$
206

 
$
(626
)
 
$
647

As at
SLF Inc. (unconsolidated)
 
Sun Life Assurance (consolidated)
 
Other
subsidiaries
of SLF Inc. (combined)
 
Consolidation adjustments
 
SLF Inc. (consolidated)
 
March 31, 2020
 
 
 
 
 
 
 
 
 

Invested assets
 
$
24,218

 
$
160,214

 
$
8,162

 
$
(23,983
)
 
$
168,611

Total other general fund assets
 
$
4,516

 
$
25,225

 
$
13,491

 
$
(23,477
)
 
$
19,755

Investments for account of segregated fund holders
$
—

 
$
102,773

 
$
51

 
$
—

 
$
102,824

Insurance contract liabilities
 
$
—

 
$
135,467

 
$
10,504

 
$
(10,719
)
 
$
135,252

Investment contract liabilities
 
$
—

 
$
3,120

 
$
—

 
$
—

 
$
3,120

Total other general fund liabilities
 
$
4,555

 
$
28,077

 
$
7,993

 
$
(15,899
)
 
$
24,726

December 31, 2019
 
 
 
 
 
 
 
 
 
 
Invested assets
 
$
23,639

 
$
152,512

 
$
8,552

 
$
(23,084
)
 
$
161,619

Total other general fund assets
 
$
4,135

 
$
24,000

 
$
11,955

 
$
(21,480
)
 
$
18,610

Investments for account of segregated fund holders
$
—

 
$
116,918

 
$
55

 
$
—

 
$
116,973

Insurance contract liabilities
 
$
—

 
$
131,428

 
$
9,644

 
$
(9,888
)
 
$
131,184

Investment contract liabilities
 
$
—

 
$
3,116

 
$
—

 
$
—

 
$
3,116

Total other general fund liabilities
 
$
4,376

 
$
23,780

 
$
8,053

 
$
(14,788
)
 
$
21,421


13. Earnings (Loss) Per Share
 
Details of the calculation of the net income (loss) and the weighted average number of shares used in the earnings per share computations are as follows:    
 
For the three months ended
 
 
March 31, 2020
 
March 31, 2019
 
Common shareholders’ net income (loss) for basic earnings per share
 
$
391

 
$
623

Add: Increase in income due to convertible instruments(1)
 
3

 
3

Common shareholders’ net income (loss) on a diluted basis
 
$
394

 
$
626

Weighted average number of common shares outstanding for basic earnings per share (in millions)
 
587

 
597

Add: Dilutive impact of stock options(2) (in millions)
 
1

 
1

Add: Dilutive impact of convertible instruments(1) (in millions)
 
4

 
4

Weighted average number of common shares outstanding on a diluted basis (in millions)
 
592

 
602

Basic earnings (loss) per share
 
$
0.67

 
$
1.04

Diluted earnings (loss) per share
 
$
0.67

 
$
1.04


(1)
The convertible instruments are the Sun Life ExchangEable Capital Securities (“SLEECS”) – Series B issued by Sun Life Capital Trust.
(2)
Excludes the impact of 1 million stock options for the three months ended March 31, 2020 because these stock options were anti-dilutive for the period (1 million for the three months ended March 31, 2019).

54 Sun Life Financial Inc. First Quarter 2020 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14. Accumulated Other Comprehensive Income (Loss)
 
Changes in accumulated other comprehensive income (loss), net of taxes, are as follows:
 
For the three months ended
 
For the three months ended
 

March 31, 2020
 
March 31, 2019
 
 
Balance, beginning of period
 
Other comprehensive income (loss)
 
Balance,
end of period
 
Balance, beginning of period
 
Other comprehensive income (loss)
 
 Balance,
end of period
 
Items that may be reclassified subsequently to income:
 
 
 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation gains (losses), net of hedging activities
$
1,359

 
$
1,044

 
$
2,403

 
$
1,923

 
$
(280
)
 
$
1,643

Unrealized gains (losses) on available-for-sale assets
313

 
(296
)
 
17

 
(56
)
 
251

 
195

Unrealized gains (losses) on cash flow hedges
(7
)
 
(21
)
 
(28
)
 
(21
)
 
6

 
(15
)
Share of other comprehensive income (loss) in joint ventures and associates
(33
)
 
64

 
31

 
(24
)
 
28

 
4

Items that will not be reclassified subsequently to income:
 
 
 
 
 
 
 
 
 
 
Remeasurement of defined benefit plans
 
(305
)
 
119

 
(186
)
 
(263
)
 
(43
)
 
(306
)
Revaluation surplus on transfers to investment properties
145

 
—

 
145

 
145

 
—

 
145

Total
 
$
1,472

 
$
910

 
$
2,382

 
$
1,704

 
$
(38
)
 
$
1,666

Total attributable to:
 
 
 
 
 
 
 
 
 
 
 
 
Participating policyholders
 
$
11

 
$
8

 
$
19

 
$
14

 
$
(1
)
 
$
13

Shareholders
 
1,461

 
902

 
2,363

 
1,690

 
(37
)
 
1,653

Total
 
$
1,472

 
$
910

 
$
2,382

 
$
1,704

 
$
(38
)
 
$
1,666


15. Legal and Regulatory Proceedings
 

We are regularly involved in legal actions, both as a defendant and as a plaintiff. Legal actions naming us as a defendant ordinarily involve our activities as a provider of insurance protection and wealth management products, as an investor and investment advisor, and as an employer. In addition, government and regulatory bodies in Canada, the U.S., the UK and Asia, including federal, provincial, and state securities and insurance regulators and government authorities, from time to time, make inquiries and require the production of information or conduct examinations or investigations concerning our compliance with insurance, securities, and other laws.
Provisions for legal proceedings related to insurance contracts, such as for disability and life insurance claims and the cost of litigation, are included in Insurance contract liabilities in our Consolidated Statements of Financial Position. Other provisions are established outside of the Insurance contract liabilities if, in the opinion of management, it is both probable that a payment will be required and a reliable estimate can be made of the amount of the obligation. Management reviews the status of all proceedings on an ongoing basis and exercises judgment in resolving them in such manner as management believes to be in our best interest.
Two class action lawsuits have been filed against Sun Life Assurance in connection with sales practices relating to, and the administration of, individual policies issued by the Metropolitan Life Insurance Company (“MLIC”). These policies were assumed by Clarica when Clarica acquired the bulk of MLIC’s Canadian operations in 1998 and subsequently assumed by Sun Life Assurance as a result of its amalgamation with Clarica. One of the lawsuits (Fehr et al v Sun Life Assurance Company of Canada) is issued in Ontario and the other (Alamwala v Sun Life Assurance Company of Canada) is in British Columbia. The Fehr action has been certified as a class action and notice will be made to class members once the court determines the scope of the class and the manner of delivery. The next step in the process is the discovery phase. The other action (Alamwala v Sun Life Assurance Company of Canada) has remained largely dormant since it was commenced in 2011 and has not been certified. We will continue to vigorously defend against the claims in these actions. In connection with the acquisition of the Canadian operations of MLIC, MLIC agreed to indemnify Clarica for certain losses, including those incurred relating to the sales of its policies. Should either of the Fehr or the Alamwala lawsuits result in a loss, Sun Life Assurance will seek recourse against MLIC under that indemnity through arbitration.
Management does not believe that the probable conclusion of any current legal or regulatory matter, either individually or in the aggregate, will have a material adverse effect on the Consolidated Statements of Financial Position or on the Consolidated Statements of Operations.
Corporate and Shareholder Information
For information about Sun Life, corporate
United States
Direct deposit of dividends
news and financial results, please visit
American Stock Transfer & Trust
Common shareholders residing in Canada
sunlife.com.
Company, LLC
or the U.S. may have their dividend
 
6201 15th Ave.
payments deposited directly into their
Corporate office
Brooklyn, NY 11219
bank account.
Sun Life Financial Inc.
Tel: 1-877-224-1760
 
1 York Street
Email: sunlifeinquiries@astfinancial.com
The Request for Electronic Payment of
Toronto, Ontario
 
Dividends Form is available for
Canada M5J 0B6
United Kingdom
downloading from the AST Trust
Tel: 416-979-9966
Link Asset Services
Company (Canada) website,
Website: www.sunlife.com
34 Beckenham Road
www.astfinancial.com/ca-en, or you can
 
Beckenham, Kent
contact AST Trust Company (Canada) to
Investor Relations
United Kingdom BR3 4TU
have a form sent to you.
For financial analysts, portfolio managers
Tel: +44 (0) 345-602-1587
 
and institutional investors requiring
Email: enquiries@linkgroup.co.uk
Canadian dividend reinvestment
information, please contact:
 
and share purchase plan
Investor Relations
Philippines
Canadian-resident common shareholders
Fax: 416-979-4080
Rizal Commercial Banking Corporation
can enroll in the Dividend Reinvestment
Email: investor.relations@sunlife.com
(RCBC)
and Share Purchase Plan. For details visit
Please note that financial information can
RCBC Stock Transfer Processing Section
our website at sunlife.com or contact the
also be obtained from www.sunlife.com.
Ground Floor, West Wing,
Plan Agent, AST Trust Company (Canada)
 
GPL (Grepalife) Building,
at sunlifeinquiries@astfinancial.com
Transfer agent
221 Senator Gil Puyat Avenue
 
For information about your shareholdings,
Makati City, 1200,
Stock exchange listings
dividends, change in share registration or
Philippines
Sun Life Financial Inc. common shares are
address, estate transfers, lost certificates,
From Metro Manila: 632-5318-8567
listed on the Toronto (TSX), New York
or to advise of duplicate mailings, please
From the Provinces: 1-800-1-888-2422
(NYSE) and Philippine (PSE) stock
contact the Transfer Agent in the country
Email: rcbcstocktransfer@rcbc.com
exchanges. Ticker Symbol: SLF
where you reside. If you do not live in any
 
 
of the countries listed, please contact the
Hong Kong, SAR
Sun Life Financial Inc. Class A Preferred
Canadian Transfer Agent.
Computershare Hong Kong Investor
Shares are listed on the Toronto Stock
 
Services Limited
Exchange (TSX).
Canada
17M Floor, Hopewell Centre
 
 
AST Trust Company (Canada)
183 Queen’s Road East
Ticker Symbols:
Series 1 – SLF.PR.A
P.O. Box 700
Wanchai, Hong Kong
 
Series 2 – SLF.PR.B
Station B
Tel: 852-2862-8555
 
Series 3 – SLF.PR.C
Montreal, Quebec
Email: hkinfo@computershare.com.hk
 
Series 4 – SLF.PR.D
Canada H3B 3K3
 
 
Series 5 – SLF.PR.E
Within North America:
Shareholder services
 
Series 8R – SLF.PR.G
Tel: 1-877-224-1760
For shareholder account inquiries, please
 
Series 9QR – SLF.PR.J
Outside of North America:
contact the Transfer Agent in the country
 
Series 10R – SLF.PR.H
Tel: 416-682-3865
where you reside, or Shareholder Services:
 
Series 11QR – SLF.PR.K
Fax: 1-888-249-6189
Fax: 416-598-3121
 
Series 12R – SLF.PR.I
Email: sunlifeinquiries@astfinancial.com
English Email:
 
Website: www.astfinancial.com/ca-en
shareholderservices@sunlife.com
Normal course issuer bid
Shareholders can view their account
French Email:
A copy of the Notice of Intention to
details using AST Trust Company
servicesauxactionnaires@sunlife.com
commence the normal course issuer bid
(Canada)’s Internet service, Investor
 
is available without charge by contacting
Central.
2020 dividend dates
the Corporate Secretary’s Department at
Register at https://www.astfinancial.com/
Common Shares
shareholderservices@sunlife.com.
ca-en/login
 
 
 
Record dates
Payment dates
 
 
 
March 2, 2020
March 31, 2020
 
 
 
May 27, 2020
June 30, 2020
 
 
 
August 26, 2020*
September 30, 2020
*
 
 
November 25, 2020*
December 31, 2020
*
 
 
* Subject to approval by the Board of Directors
 
 
 
 
 
 
 


            CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Sun Life Financial Inc. First Quarter 2020 55