Sun Life Reports Q2 Net Income Of $595M

Sun Life Financial today announced its results for the second quarter ended June 30, 2019. Second quarter reported net income was $595 million and underlying net income⁽¹⁾ was $739 million.

“We delivered underlying net income of $739 million in the second quarter, up from $729 million in the prior year,” said Dean Connor, President & CEO of Sun Life. “Interest rates declined in the quarter leading to lower reported net income, while balance sheet strength continued with a 144% LICAT ratio, $2.2 billion of cash at the holding company level and a low Financial leverage ratio. We are pleased to announce a new share buyback program for the repurchase of up to 15 million shares, subject to regulatory approval.”

“We had a number of key developments in our Asset Management businesses this quarter. MFS achieved a pre-tax net operating profit margin ratio of 37%, expanded its non-U.S. distribution, launched two products for European distribution, increased gross sales by 22% and delivered positive net retail fund flows of US$2 billion,” Connor added. “We also rebranded our alternatives asset management business to SLC Management. We consolidated our fixed income businesses, Prime Advisors, Ryan Labs and Sun Life Institutional Investments, under this one brand to create an integrated distribution team that offers institutional Clients our broad spectrum of solutions. SLC Management’s real estate arm completed the acquisition of a majority stake in BentallGreenOak.”

Financial and Operational Highlights – Quarterly Comparison (Q2 2019 vs. Q2 2018)

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

Our reported net income of $595 million in the second quarter of 2019 decreased $111 million compared to the second quarter of 2018, primarily reflecting unfavourable market related and assumption changes and management actions⁽¹⁾ (“ACMA”) impacts. Underlying net income in the second quarter of 2019 increased $10 million to $739 million compared to the same period in 2018, primarily driven by business growth, favourable expense experience and benefits from tax related items primarily in the U.S., partially offset by unfavourable morbidity experience in Canada and the U.S., lower new business gains in International in Asia, and lower available-for-sale (“AFS”) gains in the U.S.

Our reported ROE⁽¹⁾ was 11.0% in the second quarter of 2019. Underlying ROE⁽¹⁾ was 13.7%, compared to 14.0% in the second quarter of 2018, reflecting higher underlying net income offset by increased common shareholders’ equity due to higher retained earnings and the impact of market movements reflected in other comprehensive income. SLF Inc. and its wholly-owned holding companies ended the quarter with $2.2 billion in cash and other liquid assets, reflecting the redemption of $250 million of subordinated debt which also decreased our financial leverage ratio⁽¹⁾ to 20.4%.

A Leader in Insurance and Wealth Solutions in our Canadian Home Market
Canada’s reported net income was $148 million in the second quarter of 2019, a decrease of $114 million compared to the same period in 2018, predominantly reflecting unfavourable market related and ACMA impacts. Underlying net income was $243 million, in line with the same period in 2018, reflecting favourable expense experience and continued business growth, offset by unfavourable morbidity and credit experience.

Canada insurance sales decreased 27% to $194 million in the second quarter of 2019, reflecting lower sales in Group Benefits (“GB”) due to timing of large case sales and individual insurance. Wealth sales were up 7%, driven by increased sales in Group Retirement Services (“GRS”), which continues to lead the industry in assets under administration⁽¹⁾⁽²⁾(“AUA”).

We are continuing to shape the Canadian market through innovation and digital capabilities that enhance our Client’s experience. Our digital platform, Lumino Health, provides Canadians one point of contact for a comprehensive range of health resources, including empowering Canadians to find the health care providers and health innovations they need. Our Sun Life Health platform delivers value to Canadians, as evidenced by over 10 million health care provider user ratings and average usage of approximately 10,000 searches per day.

A Leader in U.S. Group Benefits
U.S.’s reported net income was $94 million in the second quarter of 2019, a decrease of $11 million compared to the second quarter of 2018, reflecting more unfavourable market related impacts, partially offset by lower integration costs. Underlying net income was $110 million, a decrease of $15 million from the same period in the prior year, reflecting less favourable morbidity experience and lower AFS gains, partially offset by improved lapse and other policyholder behaviour experience and benefits from tax related items. The after-tax profit margin for Group Benefits¹ was 7.3% as of the second quarter of 2019 compared to 6.5% as of the second quarter of 2018.

U.S. Group Benefits sales increased 40% compared to the second quarter of 2018, driven primarily by continued strong momentum and our leadership position in medical stop-loss. Medical stop-loss business in-force increased to US$1.8 billion, up 22% from the same period in the prior year.

During the quarter, the U.S. launched a program to help employers auto-enroll employees in disability coverage, which provides an extra layer of income protection and financial security when members cannot work because of a serious illness or injury, helping to close gaps in coverage for our members. In addition, as the leading independent provider of medical stop-loss coverage, we analyzed our deep database of medical claims and released our annual High-cost claims and injectable drug trends report², which provides employers with actionable recommendations about the trends and costs affecting their health plans, enabling them to bend the medical cost curve.

A Leader in Global Asset Management
Asset Management’s reported net income was $229 million in the second quarter of 2019, an increase of $15 million from the second quarter of 2018, driven by the change in underlying net income, partially offset by higher fair value adjustments in MFS’s share based payment awards and acquisition costs in SLC Management. Underlying net income was $245 million, an increase of $29 million from the same quarter last year, driven by expense management, investment income including returns on seed capital and the favourable impact of foreign exchange. The pre-tax net operating profit margin ratio for MFS⁽¹⁾ was 37% in the second quarter of 2019, compared to 36% in the same period last year.

Asset Management ended the second quarter with $708.1 billion in assets under management, consisting of $639.9 billion (US $488.8 billion) in MFS Investment Management (“MFS”) and $68.2 billion in SLC Management. MFS experienced net outflows of $8.1 billion (US$6.1 billion) in the quarter, which included positive net retail fund flows of $2.6 billion (US$2.0 billion).

In the second quarter of 2019, 93%, 92% and 84% of MFS’s U.S. retail fund assets ranked in the top half of their Lipper categories based on ten-, five- and three-year performance, respectively.

On July 1, 2019, we completed the acquisition of our majority stake in BentallGreenOak, which was the product of the merger of the Bentall Kennedy group of companies and GreenOak Real Estate, a global real estate investment firm. This acquisition increases our global real estate investment footprint, while adding organizational depth and a full spectrum of solutions including equity and debt real estate strategies. The expected reduction to Total shareholders’ equity as a result of the acquisition is approximately $850 million, primarily driven by the establishment of financial liabilities associated with the anticipated increase of our future ownership in BentallGreenOak.

A Leader in Asia through Distribution Excellence in Higher Growth Markets
Asia’s reported net income was $134 million in the second quarter of 2019, which was in line with the second quarter of 2018, as unfavourable market related impacts were offset by the impact of acquisition, integration and restructuring costs in the second quarter of 2018. Underlying net income of $147 million was in line with the second quarter of 2018, reflecting favourable expense experience, favourable credit experience, and continued business growth, largely offset by lower new business gains in International.

Asia insurance sales were $238 million in the second quarter of 2019, up 12% compared to the second quarter of 2018, with double-digit growth in most markets. International experienced lower sales but saw improvements from the prior quarter as a result of a new product launch. Asia wealth sales were down by 28% to $1.8 billion in the second quarter of 2019, primarily due to lower sales in India as a result of weak market sentiments.

In Asia, we continue to execute our growth strategy. Agency sales in Asia were up 21% from the prior year, backed by our Most Respected Advisor program and digital enhancements to our advisor applications to improve the Advisor and Client experience. We also continued to improve our digital service experience for Clients. For example, Hong Kong launched a group medical app, which had positive adoption with both Client registrations and outpatient claim submissions, and Bowtie⁽³⁾ launched its online platform and first medical insurance product in April.

Sun Life Financial Inc.

For the period ended June 30, 2019
Dated July 31, 2019

About Sun Life
Sun Life Financial Inc. (“SLF Inc.”) is a leading international financial services organization providing insurance, wealth and asset management solutions to individual and corporate Clients. Sun Life has operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of June 30, 2019, Sun Life had total assets under management (“AUM”) of $1,025 billion. For more information please visit www.sunlife.com.

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

A. How We Report Our Results

SLF Inc., its subsidiaries and, where applicable, its joint ventures and associates are collectively referred to as “the Company”, “Sun Life”, “we”, “our”, and “us”. We manage our operations and report our financial results in five business segments: Canada, United States (“U.S.”), Asset Management, Asia, and Corporate. Prior to the second quarter of 2019, these business segments were referred to as Sun Life Financial Canada, Sun Life Financial U.S., Sun Life Financial Asset Management, Sun Life Financial Asia, and Corporate, respectively, in our interim and annual management’s discussion and analysis (“MD&A”). Information concerning these segments is included in our annual and interim consolidated financial statements and accompanying notes (“Annual Consolidated Financial Statements” and “Interim Consolidated Financial Statements”, respectively, and “Consolidated Financial Statements”, collectively) and interim and annual MD&A. We prepare our unaudited Interim Consolidated Financial Statements using International Financial Reporting Standards (“IFRS”), including in accordance with the International Accounting Standard (“IAS”) 34 Interim Financial Reporting. Reported net income (loss) refers to Common shareholders’ net income (loss) determined in accordance with IFRS.

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

1. Use of Non-IFRS Financial Measures

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

2. Forward-looking Statements

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

3. Additional Information

Additional information about SLF Inc. can be found in the Consolidated Financial Statements, the annual and interim MD&A and SLF Inc.’s Annual Information Form (“AIF”) for the year ended December 31, 2018. These documents are filed with securities regulators in Canada and are available at www.sedar.com. SLF Inc.’s Annual Consolidated Financial Statements, annual MD&A and AIF are filed with the United States Securities and Exchange Commission (“SEC”) in SLF Inc.’s annual report on Form 40-F and SLF Inc.’s interim MD&A and Interim Consolidated Financial Statements are furnished to the SEC on Form 6-Ks and are available at www.sec.gov.

B. Financial Summary

C. Profitability

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

Quarterly Comparison – Q2 2019 vs. Q2 2018

Our reported net income of $595 million in the second quarter of 2019 decreased $111 million compared to the second quarter of 2018, primarily reflecting unfavourable market related and assumption changes and management actions (“ACMA”) impacts. Underlying net income in the second quarter of 2019 increased $10 million to $739 million compared to the same period in 2018, primarily driven by business growth, favourable expense experience, and benefits from tax related items primarily in the U.S., partially offset by unfavourable morbidity experience in Canada and the U.S., lower new business gains in International in Asia, and lower available-for-sale (“AFS”) gains in the U.S. Underlying net income increased by $16 million as a result of the impact of foreign exchange translation.

1.    Market related impacts

Market related impacts in the second quarter of 2019 compared to the same period last year reflected unfavourable interest rate impacts and unfavourable changes in the fair value of investment properties, partially offset by favourable equity market impacts. See section M – Non-IFRS Financial Measures in this document for a breakdown of the components of market related impacts.

2.    Assumption changes and management actions

The effects of assumption changes and management actions in the second quarter of 2019 decreased reported net income by $20 million compared to an increase of $1 million in the second quarter of 2018.

Due to the long-term nature of our business, we make certain judgments involving assumptions and estimates to value our obligations to policyholders. The valuation of these obligations is recorded in our financial statements as insurance contract liabilities and investment contract liabilities and requires us to make assumptions about equity market performance, interest rates, asset default, mortality and morbidity experience rates, lapse and other policyholder behaviour experience, expenses and inflation and other factors over the life of our products. We will complete our annual review of actuarial methods and assumptions in the second half of 2019, with the majority of changes being implemented in the third quarter. As this is a work in progress, it is not yet possible to determine the impact on net income at this time. See section H – Risk Management for sensitivities associated with Ultimate Reinvestment Rate (“URR”).

3. Other adjustments

Other adjustments decreased reported net income by $27 million in the second quarter of 2019, compared to a decrease of $32 million in the second quarter of 2018, largely reflecting lower acquisition, integration, and restructuring costs primarily in the U.S., partially offset by higher fair value adjustments on MFS’s share-based payment awards and the unfavourable impact of certain hedges in Canada that do not qualify for hedge accounting.

4. Experience related items

Compared to the second quarter of 2018, the significant changes in experience related items are as follows:

• Unfavourable morbidity experience; and
• Favourable expense experience resulting from expense discipline while growing the businesses, as well as lower incentive compensation costs reflecting reported net income.

5. Income taxes

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

In the second quarter of 2019, our effective income tax rates on reported net income and underlying net income⁽¹⁾ were 11.9% and 15.6% compared to 19.1% and 17.1% in the second quarter of 2018, respectively. Our effective tax rate on underlying net income is within our expected range of 15% to 20%.

6. Impact of foreign exchange rates

During the second quarter of 2019, our reported net income and underlying net income increased by $15 million and $16 million, respectively, due to the impact of foreign exchange translation in the second quarter of 2019 relative to the second quarter of 2018.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018

Our reported net income was $1,218 million for the first six months of 2019, compared to $1,375 million in the first six months of 2018, predominantly reflecting unfavourable market related and ACMA impacts, partially offset by lower acquisition, integration, and restructuring costs. Underlying net income was $1,456 million, compared to $1,499 million in the first six months of 2018, reflecting interest on par seed capital⁽²⁾ of $110 million in the first quarter of 2018, unfavourable credit experience, less favourable morbidity experience in Canada, and lower new business gains in International in Asia, partially offset by favourable expense experience, business growth, benefits from tax related items primarily in the U.S., improved lapse and other policyholder behaviour experience, and favourable mortality experience.

1. Market related impacts

Market related impacts in the first six months of 2019, compared to the first six months of 2018, reflected unfavourable interest rate impacts and less favourable changes in the fair value of investment properties, partially offset by favourable equity market impacts.

2.   Assumption changes and management actions

Assumption changes and management actions decreased net income by $31 million in the first six months of 2019, compared to $2 million in the first six months of 2018.

3.   Other adjustments

Other adjustments in the first six months of 2019 decreased reported net income by $41 million, compared to a decrease of $62 million in the same period last year, primarily driven by lower acquisition, integration, and restructuring costs and lower fair value adjustments on MFS’s share-based payment awards, partially offset by the impact of certain hedges in Canada that do not qualify for hedge accounting.

4.   Experience related items

Compared to the first six months of 2018, the significant changes in experience related items are as follows:

• Unfavourable credit experience, including the net impact resulting from downgrades of indirect exposures to a single name in the utilities sector;
• Less favourable morbidity experience;
• Improved lapse and other policyholder behaviour experience; and
• Favourable expense experience resulting from expense discipline, as well as lower incentive compensation costs.

Other experience for the first quarter of 2018, predominantly included the impact of accrued investment income on seed capital of $110 million – $75 million in Canada and $35 million in the U.S. (“interest on par seed capital”). For further information, please see Note 10.C in the second quarter of 2019 Interim Consolidated Financial Statements.

5.   Income taxes

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

For the first six months of 2019, our effective tax rates on reported and underlying net income⁽¹⁾ were 11.4% and 16.7%, respectively, compared to 18.0% and 16.4%, respectively, for the first six months of 2018. Our effective tax rate on underlying net income is within our expected range of 15% to 20%.

6.   Impact of foreign exchange rates

During the first six months of 2019, our reported net income and underlying net income increased by $34 million and $37 million, respectively, due to the impact of foreign exchange translation in the first six months of 2019 relative to the first six months of 2018.

D. Growth

1. Sales and Value of New Business

Total Company insurance sales were $657 million in the second quarter of 2019, up 4% (2% on a constant currency basis) compared to the same period in 2018.

• Canada insurance sales decreased in the second quarter of 2019, reflecting lower sales in Group Benefits (“GB”) and individual insurance.
• U.S. insurance sales increased 40% in local currency, predominantly driven by medical stop-loss.
• Asia insurance sales were up 10% on a constant currency basis, with double-digit growth in most local insurance markets offset by lower sales in International.

Total Company wealth sales were $37.0 billion in the second quarter of 2019, up 20% (16% on a constant currency basis) compared to the second quarter of 2018.

• Canada wealth sales increased 7%, driven by higher sales in Group Retirement Services (“GRS”).
• Asia wealth sales were down, primarily from lower sales in India, partially offset by the impact of foreign exchange translation.
• Asset Management gross sales increased 26%, driven by higher mutual and managed fund sales in MFS Investment Management (“MFS”), the impact of foreign exchange translation and higher sales in SLC Management.

The Company’s VNB was $235 million in the second quarter of 2019, down 12% compared to the second quarter of 2018, largely due to lower sales in International in Asia and in GB in Canada, partially offset by favourable volume of Group Benefits in the U.S.

2.  Premiums and Deposits

Net premium revenue was $4.5 billion, up $0.2 billion from the second quarter of 2018, primarily driven by increased premium revenue in Canada and the U.S., and the currency impact from the change in the Canadian dollar, partially offset by a decrease in Asia. Net premium revenue was $8.9 billion in the first six months of 2019, compared to $9.0 billion in the same period of 2018. The decrease was primarily driven by lower premiums in Asia and Canada, partially offset by higher premium revenue in the U.S. and the impact of foreign exchange translation.

Segregated fund deposits were $2.9 billion in the second quarter of 2019, up $0.2 billion from the second quarter of 2018, largely attributable to increases in Canada partially offset by lower deposits in Hong Kong in Asia. Segregated fund deposits were $5.9 billion in the first six months of 2019, compared to $6.1 billion in the same period last year, due to lower deposits in Canada and Hong Kong in Asia.

Sales of mutual funds were $23.7 billion in the second quarter of 2019, up from $19.3 billion in the second quarter of 2018. Sales of mutual funds were $47.4 billion for the first six months of 2019, compared to $43.3 billion in the same period in 2018. The higher mutual fund sales in both the second quarter and first six months of 2019 were driven by increased sales in MFS and the impact of foreign exchange translation, partially offset by lower sales in Asia.

Managed fund sales of $10.5 billion in the second quarter of 2019 increased by $1.6 billion from the second quarter of 2018, primarily due to higher sales in MFS and SLC Management, and the currency impact from the change in the Canadian dollar. Sales of managed funds were $20.5 billion for the first six months of 2019, down compared to the same period in 2018, reflecting decreased sales in MFS, partially offset the impact of foreign exchange translation.

ASO premium and deposit equivalents in the second quarter of 2019 of $1.7 billion were slightly lower compared to the second quarter of 2018 due to lower ASO premium and deposit equivalents in Hong Kong in Asia. ASO premium and deposit equivalents for the first six months of 2019 of $3.4 billion were slightly lower compared to the first six months of 2018, due to lower ASO premiums and deposit equivalents in Hong Kong in Asia, partially offset by Canada.

The impact of foreign exchange translation increased total premiums and deposits by approximately $1.2 billion and $2.8 billion, respectively, for the second quarter and the first six months of 2019, in comparison to the respective periods in 2018.

3. Assets Under Management

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

AUM were $1,024.8 billion as at June 30, 2019, compared to AUM of $951.1 billion as at December 31, 2018. The increase in AUM of $73.6 billion between December 31, 2018 and June 30, 2019 resulted primarily from:

For the second quarter of 2019, net outflows of mutual, managed and segregated funds were $7.2 billion, predominantly driven by net outflows from MFS of $8.1 billion, partially offset by net inflows of $0.5 billion from Canada, $0.4 billion from Asia, and $0.2 billion from SLC Management.

E. Financial Strength

The Office of the Superintendent of Financial Institutions (“OSFI”) has developed the regulatory capital framework referred to as the Life Insurance Capital Adequacy Test for Canada. LICAT measures the capital adequacy of an insurer using a risk-based approach and includes elements that contribute to financial strength through periods when an insurer is under stress as well as elements that contribute to policyholder and creditor protection wind-up.

SLF Inc. is a non-operating insurance company and is subject to the LICAT guideline. As at June 30, 2019, SLF Inc.’s LICAT ratio was 144%, in line with December 31, 2018. The favourable impact of reported net income and market movements were offset by the impact of the payment of dividends, the repurchases of common shares, the redemption of subordinated debentures, the impact from OSFI’s 2019 LICAT guideline revisions and the impact from the de-registration of a U.S. reinsurer.

Sun Life Assurance, SLF Inc.’s principal operating life insurance subsidiary, is also subject to the LICAT guideline. As at June 30, 2019, Sun Life Assurance’s LICAT ratio was 133%, compared to 131% as at December 31, 2018. The increase was primarily due to the favourable contribution of reported net income and market movements, partially offset by dividends to SLF Inc. and the unfavourable impact from OSFI’s 2019 LICAT guideline revisions. The Sun Life Assurance LICAT ratios in both periods are well above OSFI’s supervisory ratio of 100% and regulatory minimum ratio of 90%.

Our total capital consists of subordinated debt and other capital instruments, participating policyholders’ equity, and total shareholders’ equity, which includes common shareholders’ equity and preferred shareholders’ equity. As at June 30, 2019, our total capital was $28.1 billion, compared to $28.3 billion as at December 31, 2018. The decrease in total capital was primarily due to the payment of $611 million of dividends on common shares of SLF Inc. (“common shares”), foreign currency translation loss of $539 million included in other comprehensive income (loss) (“OCI”), $400 million from the repurchase and cancellation of common shares and the redemption of $250 million principal amount of Series 2014-1 Subordinated Unsecured 2.77% Fixed/ Floating Debentures (“Series 2014-1 Debentures”) detailed below, partially offset by total net income of $1,218 million and unrealized gains on AFS assets of $400 million.

SLF Inc. and its wholly-owned holding companies had $2,214 million in cash and other liquid assets⁽¹⁾ as at June 30, 2019 ($2,523 million as at December 31, 2018). The decrease in cash and other liquid assets in the first six months of 2019 includes the impact of the redemption of $250 million principal amount of Series 2014-1 Debentures.

On May 13, 2019, SLF Inc. redeemed all of the outstanding $250 million principal amount of Series 2014-1 Debentures, in accordance with the redemption terms attached to such debentures. The redemption was funded from existing cash and other liquid assets.

On July 2, 2019, SLF Inc.’s Series D Senior Unsecured 5.70% Debentures (“Series D Debentures”) matured and SLF Inc. repaid all of the outstanding $300 million principal amount of such debentures together with all accrued and unpaid interest. Under LICAT, senior debentures do not qualify as available capital, as a result, the repayment of the Series D Debentures will have no impact on the LICAT ratio of Sun Life Assurance or SLF Inc. In addition, a separate pool of assets had been set aside to support the redemption of these debentures. As such, the redemption did not affect the cash and other liquid assets held by SLF Inc. and its wholly-owned holding companies noted above.

Normal Course Issuer Bids

SLF Inc. launched a normal course issuer bid on August 14, 2018 and amended it effective May 14, 2019 (the “2018 NCIB”). The 2018 NCIB remains in effect until the earlier of August 13, 2019 and the date on which SLF Inc. has purchased an aggregate of 18.0 million common shares under the bid. During the three months and six months ended June 30, 2019, SLF Inc. purchased approximately 3.7 million common shares at a total cost of $200 million, and 7.8 million common shares at a total cost of $400 million, respectively. All of the common shares purchased under the 2018 NCIB were subsequently cancelled. As at June 30, 2019, the total aggregate shares purchased and cancelled and associated cost under the 2018 NCIB are 16.4 million and $825 million, respectively.

On July 31, 2019, SLF Inc. announced that, subject to the approval of OSFI and the Toronto Stock Exchange (“TSX”), it intends to launch a new normal course issuer bid to purchase for cancellation up to 15 million of its common shares (the “2019 NCIB”). The 2019 NCIB is expected to commence on August 14, 2019 and continue until August 13, 2020, or such earlier date as SLF Inc. may determine or as SLF Inc. completes its purchases pursuant to the 2019 NCIB. Purchases under the 2019 NCIB may be made through the facilities of the TSX, other Canadian stock exchanges and/or alternative Canadian trading platforms, at prevailing market rates. Purchases under the 2019 NCIB may also be made by way of private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities. Any purchases made under an exemption order issued by a securities regulatory authority will generally be at a discount to the prevailing market price. The actual number of common shares purchased under the 2019 NCIB, and the timing of such purchases (if any), will be determined by SLF Inc. Any common shares purchased by SLF Inc. pursuant to the 2019 NCIB will be cancelled. The 2019 NCIB will provide the Company with the flexibility to acquire common shares in order to return capital to shareholders as part of its overall capital management strategy.

F. Performances by Business Group

Information describing the business groups and their respective business units is included in our 2018 annual MD&A. All factors discussed in this document that impact our underlying net income are also applicable to reported net income.

1. Canada

Profitability

Quarterly Comparison – Q2 2019 vs. Q2 2018
Canada’s reported net income was $148 million in the second quarter of 2019, compared to $262 million in the second quarter of 2018. Underlying net income was $243 million in the second quarter of 2019, compared to $245 million in the second quarter of 2018.

Reported net income in the second quarter of 2019 compared to the second quarter of 2018 predominantly reflected unfavourable market related impacts, which included the impacts from interest rates and changes in the fair value of investment properties, and unfavourable ACMA. Underlying net income in the second quarter of 2019 was in line with the same period in 2018, reflecting favourable expense experience and continued business growth, offset by unfavourable morbidity and credit experience.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
Canada’s reported net income was $385 million in the first six months of 2019, compared to $511 million in the same period in 2018. Underlying net income was $480 million in the first six months of 2019, compared to $540 million in the same period in 2018.

Reported net income in the first six months of 2019 compared to the first six months of 2018 reflected unfavourable market related impacts, which included the impacts from interest rates and changes in the fair value of investment properties, partially offset by equity markets, and unfavourable ACMA impact. Underlying net income in the first six months of 2019 compared to the same period in 2018 reflected interest on par seed capital of $75 million in the first quarter of 2018 and unfavourable credit and morbidity experience, partially offset by continued business growth, favourable expense experience and higher investing activity gains.

Growth

Quarterly Comparison – Q2 2019 vs. Q2 2018
Canada individual insurance sales decreased in the second quarter of 2019 to $94 million, compared to $110 million in the same period last year. Sales in GB of $100 million decreased by 36% compared to the second quarter of 2018 due to the timing of large case sales during the first half of the year.

Canada wealth sales of $3.2 billion in the second quarter of 2019 were up compared to $3.0 billion in the second quarter of 2018, driven by increased sales in GRS.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
Canada individual insurance sales were $187 million in the first six months of 2019, compared to $198 million in the same period last year. Sales in GB of $369 million were consistent with the first six months of 2018.

Canada wealth sales were $6.1 billion in the first six months of 2019, compared to $6.9 billion in the same period last year. Individual wealth sales of $3.1 billion were down 8% in the first six months of 2019 compared to the same period last year, reflecting a weaker RRSP season across the industry. GRS sales of $3.0 billion were down 15% over the first six months in 2018, mainly due to a large case defined benefit sale in the first quarter of 2018.

2. U.S.

Profitability

Quarterly Comparison – Q2 2019 vs. Q2 2018
U.S.’s reported net income was US$70 million ($94 million) in the second quarter of 2019, compared to US$81 million ($105 million) in the second quarter of 2018. Underlying net income was US$81 million ($110 million) in the second quarter of 2019, compared to US$97 million ($125 million) in the second quarter of 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $3 million and $4 million, respectively.

Reported net income in the second quarter of 2019 compared to the second quarter of 2018 reflected unfavourable market related impacts, predominantly from changes in the fair value of investment properties, partially offset by lower integration costs, as the integration of the U.S. employee benefits business acquired in 2016 nears completion. Underlying net income in the second quarter of 2019 compared to the second quarter of 2018 reflected less favourable morbidity experience driven by unfavourable experience in medical stop-loss partially offset by favourable experience in employee group benefits, and lower AFS gains, partially offset by improved lapse and other policyholder behaviour experience and benefits from tax related items. The after-tax profit margin for Group Benefits⁽¹⁾ was 7.3% as of the second quarter of 2019, compared to 6.5% as of the second quarter of 2018.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
U.S.’s reported net income was US$163 million ($218 million) in the first six months of 2019, compared to US$157 million ($201 million) in the same period in 2018. Underlying net income was US$193 million ($260 million) in the first six months of 2019, compared to US$199 million ($254 million) in the same period in 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $9 million and $11 million, respectively.

Reported net income in the first six months of 2019 compared to the first six months of 2018 was driven by lower integration costs, as the integration of the U.S. employee benefits business acquired in 2016 nears completion. Underlying net income in the first six months of 2019 compared to the same period in 2018 was driven by favourable mortality experience, improved lapse and other policyholder behaviour experience, benefits from tax related items, and continued business growth, partially offset by interest on par seed capital of US$28 million ($35 million) in the first quarter of 2018, lower AFS gains, and lower investing activity gains.

Growth

Quarterly Comparison – Q2 2019 vs. Q2 2018
U.S. Group Benefits sales of US$168 million in the second quarter of 2019 increased 40% compared to US$120 million in the second quarter of 2018, driven by strong momentum and our leadership position in medical stop-loss, where business in-force increased to US$1.8 billion, up 22% from the same period in the prior year.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018 (year-to-date)
U.S. Group Benefits sales of US$288 million in the first six months of 2019 increased 26% compared to US$228 million in the same period of 2018, primarily driven by increased medical stop-loss sales.

3. Asset Management

Profitability

Quarterly Comparison – Q2 2019 vs. Q2 2018
Asset Management’s reported net income was $229 million in the second quarter of 2019, compared to $214 million in the second quarter of 2018. Underlying net income was $245 million in the second quarter of 2019, compared to $216 million in the second quarter of 2018. The impact of foreign exchange increased reported net income and underlying net income by $8 million.

Asset Management’s reported net income in the second quarter of 2019 compared with the second quarter of 2018 was driven by the change in underlying net income, partially offset by higher fair value adjustments on MFS’s share based payment awards and higher acquisition costs in SLC Management related to the acquisition of BentallGreenOak (“BGO”). Underlying net income compared to the second quarter of 2018 was driven by expense management, investment income including returns on seed capital, and favourable impact of foreign exchange translation.

In U.S. dollars, MFS’s reported net income was US$168 million in the second quarter of 2019 compared to US$163 million in the second quarter of 2018, driven by the change in underlying net income, partially offset by higher fair value adjustments on MFS’s share based payment awards. MFS’s underlying net income was US$176 million in the second quarter of 2019, compared to US$164 million in the same period in 2018. Both quarters had similar average net assets (“ANA”), and improvements were driven by expense management and investment income including returns on seed capital. The pre-tax net operating profit margin ratio for MFS was 37% in the second quarter of 2019, compared to 36% in the same period last year.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
Asset Management’s reported net income in the first six months of 2019 was $448 million, compared to $424 million in the same period in 2018. Underlying net income was $472 million in the first six months of 2019, compared to $447 million in the same period in 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $19 million and $20 million, respectively.

Asset Management’s reported net income in the first six months of 2019 compared to the first six months of 2018 was driven by lower fair value adjustments on MFS’s share based payment awards offset by acquisition costs related to BGO. Underlying net income compared to the second quarter of 2018 was driven by expense management, favourable results in investment income including returns on seed capital and the favourable impact of foreign exchange translation, partially offset by the impacts from lower ANA.

In U.S. dollars, MFS’s reported net income was US$330 million in the first six months of 2019, compared to US$322 million in the first six months of 2018, reflecting lower fair value adjustments on MFS’s share based payment awards. MFS’s underlying net income was US$344 million in the first six months of 2019, compared to US$340 million for the same period in 2018, driven by expense management and favourable results in investment income including returns on seed capital, partially offset by the impacts from lower ANA.

SLC Management’s reported net income in the first six months of 2019 compared to the first six months of 2018 included acquisition costs related to BGO. Underlying net income in the first six months of 2019 was in line with the same period in 2018.

Growth
Asset Management’s AUM was $708.1 billion as at June 30, 2019, compared to $649.7 billion as at December 31, 2018. The increase in AUM was primarily due to asset appreciation and the impact of foreign exchange translation, partially offset by net outflows. MFS’s AUM was US$488.8 billion ($639.9 billion) as at June 30, 2019, compared to US$428.4 billion ($584.2 billion) as at December 31, 2018. The increase of US$60.4 billion was primarily driven by asset appreciation of US$72.4 billion and gross sales of US$44.4 billion, partially offset by redemptions of US$56.4 billion. MFS continued to report strong retail sales, resulting in positive net retail fund flows of $2.6 billion (US$2.0 billion) for the second quarter of 2019 and $3.6 billion (US$2.7 billion) in the first half of the year.

In the second quarter of 2019, 93%, 92% and 84% of MFS’s U.S. retail fund assets ranked in the top half of their Lipper categories based on ten-, five- and three-year performance, respectively.

SLC Management’s AUM was $68.2 billion as at June 30, 2019, compared to $65.5 billion as at December 31, 2018.

Acquisition of BentallGreenOak
On July 1, 2019, we completed the acquisition of our majority stake in BGO, which was the product of the merger of the Bentall Kennedy group of companies and GreenOak Real Estate, a global real estate investment firm. This acquisition increases our global real estate investment footprint, while adding organizational depth and a full spectrum of solutions including equity and debt real estate strategies. The expected reduction to Total shareholders’ equity as a result of the acquisition is approximately $850 million, primarily driven by the establishment of financial liabilities associated with the anticipated increase of our future ownership in BentallGreenOak. Please refer to the second quarter of 2019 Interim Consolidated Financial Statements for additional details.

4. Asia

Profitability

Quarterly Comparison – Q2 2019 vs. Q2 2018
Asia’s reported net income was $134 million in the second quarter of 2019, compared to reported net income of $133 million in the second quarter of 2018. Underlying net income was $147 million in the second quarter of 2019, compared to $145 million in the second quarter of 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $4 million and $5 million, respectively.

Reported net income in the second quarter of 2019 was in line with the second quarter of 2018, as unfavourable market related impacts, predominantly from interest rates partially offset by equity market impacts, were offset by the impact of acquisition, integration and restructuring costs in the second quarter of 2018. Underlying net income in the second quarter of 2019 was in line with the same period in 2018, reflecting favourable expense experience, favourable credit experience and continued business growth, largely offset by lower new business gains in International.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
Asia’s reported net income was $214 million in the first six months of 2019, compared to $266 million in the same period in 2018. Underlying net income was $269 million in the first six months of 2019, compared to $273 million in the same period in 2018. The impact of foreign exchange translation increased reported net income and underlying net income by $6 million and $8 million, respectively.

Reported net income in the first six months of 2019 compared to the first six months of 2018 reflected unfavourable market related impacts, predominantly from interest rates, partially offset by the impacts of acquisition, integration and restructuring costs in the second quarter of 2018. Underlying net income in the first six months of 2019 compared to the same period in 2018 reflected lower new business gains in International, and less favourable credit experience, partially offset by higher investing activity gains, continued business growth and improved expense experience.

Growth

Quarterly Comparison – Q2 2019 vs. Q2 2018
Asia insurance sales were $238 million in the second quarter of 2019, compared to $212 million in the second quarter of 2018. Total individual insurance sales increased by 12%, driven by double-digit growth in most markets. International experienced lower sales but saw improvements from the prior quarter as a result of a new product launch.

Asia wealth sales were $1.8 billion in the second quarter of 2019, compared to $2.5 billion in the second quarter of 2018. The decrease mainly reflected lower mutual fund sales in India due to weak market sentiments.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
Asia insurance sales were $496 million in the first six months of 2019, compared to $445 million in the first six months of 2018. Total individual insurance sales in the first six months of 2019 increased 12% from the first six months of 2018. On a constant currency basis, individual insurance sales increased 11%, with most markets achieving double-digit growth. International experienced lower sales but saw improvements from the prior quarter as a result of a new product launch.

Asia wealth sales were $3.7 billion in the first six months of 2019, compared to $6.2 billion in the first six months of 2018. This decrease mainly reflected lower mutual fund sales in India due to weak market sentiments and in the Philippines due to elevated money market sales in the first six months of 2018.

5. Corporate

Profitability

Quarterly Comparison – Q2 2019 vs. Q2 2018
Corporate’s reported net loss was $10 million in the second quarter of 2019, compared to reported net loss of $8 million in the second quarter of 2018. Underlying net loss was $6 million in the second quarter of 2019, compared to underlying net loss of $2 million in the second quarter of 2018.

Reported net loss in the second quarter of 2019 compared to the second quarter of 2018 reflected improved market related impacts, more than offset by the change in underlying net loss. Underlying net loss in the second quarter of 2019 compared to the same period in 2018 reflected lower earnings from the run-off businesses, partially offset by favourable expense experience.

Year-to-Date Comparison – Q2 2019 vs. Q2 2018
Corporate’s reported net loss was $47 million in the first six months of 2019, compared to $27 million in the same period in 2018. Underlying net loss was $25 million in the first six months of 2019, compared to $15 million in the same period in 2018.

Reported net loss in the first six months of 2019 compared to the first six months of 2018 reflected unfavourable ACMA. Underlying net loss in the first six months of 2019 compared to the same period in 2018 reflected lower earnings from the run-off businesses, and higher regulatory expenses including the adoption of IFRS 17 Insurance Contracts (“IFRS 17”), partially offset by favourable expense experience.

G. Investments

We had total general fund invested assets of $156.6 billion as at June 30, 2019, compared to $151.7 billion as at December 31, 2018. The increase in general fund invested assets was primarily due to the impacts of declining interest rates and operational activity, partially offset by the unfavourable impact from foreign exchange translation. Our general fund invested assets are well diversified across investment types, geographies and sectors with the majority of our portfolio invested in fixed income high-quality assets.

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

1. Debt Securities

Our debt securities portfolio is actively managed through a regular program of purchases and sales aimed at optimizing yield, quality and liquidity, while ensuring that it remains well diversified and duration-matched to insurance contract liabilities. With the exception of certain countries where we have business operations, including Canada, the United States, the United Kingdom and the Philippines, our exposure to debt securities from any single country did not exceed 1% of total invested assets on our Interim Consolidated Financial Statements as at June 30, 2019.

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

Our debt securities with a credit rating of “A” or higher represented 73% of the total debt securities as at June 30, 2019, compared to 72% as at December 31, 2018. Debt securities with a credit rating of “BBB” or higher represented 99% of total debt securities as at June 30, 2019, consistent with December 31, 2018.

Our gross unrealized losses as at June 30, 2019 for FVTPL and AFS debt securities were $0.1 billion and $0.03 billion, respectively, compared with $1.4 billion and $0.2 billion, respectively, as at December 31, 2018. The decrease in gross unrealized losses was largely due to the impact from declining interest rates and the narrowing of credit spreads.

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

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

Mortgages and Loans by Geography

As at June 30, 2019, we held $16.3 billion of mortgages, compared to $16.4 billion as at December 31, 2018. Our mortgage portfolio consists entirely of commercial mortgages, including retail, office, multi-family, industrial and land properties. As at June 30, 2019, 34% of our commercial mortgage portfolio consisted of multi-family residential mortgages; there are no single family residential mortgages. Our uninsured commercial portfolio had a weighted average loan-to-value ratio of approximately 55% as at June 30, 2019, consistent with December 31, 2018. While we generally limit the maximum loan-to-value ratio to 75% at issuance, we may invest in mortgages with a higher loan-to-value ratio in Canada if the mortgage is insured by the Canada Mortgage and Housing Corporation (“CMHC”). The estimated weighted average debt service coverage for our uninsured commercial portfolio is 1.76 times. Of the $3.6 billion of multi-family residential mortgages in the Canadian commercial mortgage portfolio, 93% were insured by the CMHC.

As at June 30, 2019, we held $31.2 billion of loans, compared to $30.4 billion as at December 31, 2018. Private placement loans provide diversification by type of loan, industry segment and borrower credit quality. The private placement loan portfolio consists of senior secured and unsecured loans to large- and mid-market sized corporate borrowers, securitized lease/loan obligations secured by a variety of assets, and project finance loans in sectors such as power and infrastructure.

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

Our impaired mortgages and loans net of allowances for losses, were $85 million as at June 30, 2019, compared to $49 million as at December 31, 2018.

3. Derivative Financial Instruments

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

The net fair value of derivatives was an asset of $110 million as at June 30, 2019, compared to a liability of $1,183 million as at December 31, 2018. The increase in net fair value was primarily due to the impact of the strengthening of the Canadian dollar against the U.S. dollar on foreign exchange contracts, as well as the impact of downward shifts in yield curves.

The total notional amount of our derivatives increased to $62.4 billion as at June 30, 2019 from $59.2 billion as at December 31, 2018. The change in notional is mainly attributable to an increase of $5.0 billion in foreign exchange contracts used for hedging foreign currency assets, partially offset by a $1.7 billion decrease in interest rate contracts primarily due to a reduction in interest rate exposure assets.

4. Asset Default Provision

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

Our asset default provision reflects the provision relating to future credit events for fixed income assets currently held by the Company that support our insurance contract liabilities. Our asset default provision as at June 30, 2019 was $2,643 million compared to $2,389 million as at December 31, 2018. The increase of $254 million was primarily due to yield curve movement, changes in credit ratings, increases in the provision for assets purchased, net of dispositions, offset by the release of provisions on fixed income assets supporting our insurance contract liabilities.

H. Risk Management

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

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

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

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

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

We realized $33 million (pre-tax) in net gains on the sale of AFS assets during the second quarter of 2019 ($41 million pre-tax in the second quarter of 2018). The net unrealized gains (losses) or OCI position on AFS fixed income and equity assets were $267 million and $77 million, respectively, after-tax as at June 30, 2019 ($(98) million and $43 million, respectively, after-tax as at December 31, 2018).

Equity Market Sensitivities
The following table sets out the estimated immediate impact on, or sensitivity of, our net income and OCI, and Sun Life Assurance’s LICAT ratio to certain instantaneous changes in equity market prices as at June 30, 2019 and December 31, 2018.

Interest Rate Sensitivities

The following table sets out the estimated immediate impact on, or sensitivity of, our net income and OCI, and Sun Life Assurance’s LICAT ratio to certain instantaneous changes in interest rates as at June 30, 2019 and December 31, 2018.

Sun Life Assurance’s LICAT ratio generally decreases with rising interest rates and increases with declining interest rates, which is opposite to our net income sensitivity. Increases to interest rates will reduce the value of our assets and margins in our actuarial liabilities, resulting in a lower LICAT ratio. The sensitivity of Sun Life Assurance’s LICAT ratio to changes in interest rates fluctuates with changes in lapse behaviour for certain products as assumed in our insurance contract liabilities, which vary with the level of short- and long-term interest rates. Sun Life Assurance’s LICAT ratio sensitivity to changes in interest rates may be non-linear due to the inter-relationships between market rates, actuarial assumptions and LICAT calculations.

On July 3, 2019, the ASB announced a decrease of 15 basis points to the promulgated URR with an effective date of October 15, 2019 with early implementation allowed. As at June 30, 2019, our estimated sensitivity to a 15 basis point decrease in the URR is a decrease in reported net income of approximately $100 million. The actual impact of this change, when implemented in the third quarter of 2019, could differ from the Company’s estimate.

2. Credit Spread and Swap Spread Sensitivities

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

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

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

Individual insurance products include universal life and other long-term life and health insurance products. Major sources of market risk exposure for individual insurance products include the reinvestment risk related to future premiums on regular premium policies, asset reinvestment risk on both regular premium and single premium policies and the guaranteed cost of insurance. Interest rate risk for individual insurance products is typically managed on a duration basis, within tolerance ranges set out in the applicable investment policy or guidelines. Targets and limits are established so that the level of residual exposure is commensurate with our risk appetite. Exposures are monitored frequently, and assets are re-balanced as necessary to maintain compliance within policy limits using a combination of assets and derivative instruments. A portion of the longer-term cash flows are backed with equities and real estate.

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

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

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

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

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

4. Segregated Fund Guarantees
Approximately one-third of our equity market sensitivity and a small amount of interest rate risk sensitivity as at June 30, 2019 are derived from segregated fund products. These products provide benefit guarantees, which are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization. The cost of providing these guarantees is uncertain and depends upon a number of factors including general capital market conditions, our hedging strategies, policyholder behaviour and mortality experience, each of which may result in negative impacts on net income and capital.

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

5. Segregated Fund Hedging

Our hedging programs use derivative instruments to mitigate the interest and equity related exposure of our segregated fund contracts. As at June 30, 2019, over 90% of our segregated fund contracts, as measured by associated fund values, were included in a hedging program. While a large percentage of contracts are included in the hedging program, not all of our market risk exposure related to these contracts is hedged. For those segregated fund contracts included in the hedging program, we generally hedge the value of expected future net claims costs and associated margins.

The following table illustrates the impact of our hedging program related to our sensitivity to a 50 basis point decrease in interest rates and a 10% and 25% decrease in equity markets for segregated fund contracts as at June 30, 2019 and December 31, 2018.

Impact of Segregated Fund Hedging

6. Real Estate Risk
Real estate risk is the potential for financial loss arising from fluctuations in the value of, or future cash flows from our investments in real estate. We are exposed to real estate risk and may experience financial losses resulting from the direct ownership of real estate investments or indirectly through fixed income investments secured by real estate property, leasehold interests, ground rents, and purchase and leaseback transactions. Real estate price risk may arise from external market conditions, inadequate property analysis, inadequate insurance coverage, inappropriate real estate appraisals, or from environmental risk exposures. We hold direct real estate investments that support general account liabilities and surplus, and fluctuations in value will impact our profitability and financial position. A material and sustained increase in interest rates may lead to deterioration in real estate values. An instantaneous 10% decrease in the value of our direct real estate investments as at June 30, 2019 would decrease net income⁽¹⁾ by approximately $275 million ($275 million decrease as at December 31, 2018). Conversely, an instantaneous 10% increase in the value of our direct real estate investments as at June 30, 2019 would increase net income by approximately $275 million ($275 million increase as at December 31, 2018).

7. Additional Cautionary Language and Key Assumptions Related to Sensitivities
Our market risk sensitivities are measures of our estimated change in net income and OCI for changes in interest rates and equity market price levels described above, based on interest rates, equity market prices and business mix in place as at the respective calculation dates. These sensitivities are calculated independently for each risk factor, generally assuming that all other risk variables stay constant. The sensitivities do not take into account indirect effects such as potential impacts on goodwill impairment or valuation allowances on deferred tax assets. The sensitivities are provided for the consolidated entity and may not be proportional across all reporting segments. Actual results can differ materially from these estimates for a variety of reasons, including differences in the pattern or distribution of the market shocks, the interaction between these risk factors, model error, or changes in other assumptions such as business mix, effective tax rates, policyholder behaviour, currency exchange rates and other market variables relative to those underlying the calculation of these sensitivities. The extent to which actual results may differ from the indicative ranges will generally increase with larger capital market movements. Our sensitivities as at December 31, 2018 have been included for comparative purposes only.

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

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

The sensitivities reflect the composition of our assets and liabilities as at June 30, 2019 and December 31, 2018, respectively. Changes in these positions due to new sales or maturities, asset purchases/sales, or other management actions could result in material changes to these reported sensitivities. In particular, these sensitivities reflect the expected impact of hedging activities based on the hedge programs in place as at the June 30 and December 31 calculation dates. The actual impact of hedging activity can differ materially from that assumed in the determination of these indicative sensitivities due to ongoing hedge re-balancing activities, changes in the scale or scope of hedging activities, changes in the cost or general availability of hedging instruments, basis risk (i.e., the risk that hedges do not exactly replicate the underlying portfolio experience), model risk, and other operational risks in the ongoing management of the hedge programs or the potential failure of hedge counterparties to perform in accordance with expectations.

The sensitivities are based on methods and assumptions in effect as at June 30, 2019 and December 31, 2018, as applicable. Changes in the regulatory environment, accounting or actuarial valuation methods, models, or assumptions (including changes to the ASB promulgated URR) after those dates could result in material changes to these reported sensitivities. Changes in interest rates and equity market prices in excess of the ranges illustrated may result in other than proportionate impacts.

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

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

Information related to market risk sensitivities and guarantees related to segregated fund products should be read in conjunction with the information contained in section M – Accounting and Control Matters – 1 – Critical Accounting Policies and Estimates in our 2018 annual MD&A. Additional information on market risk can be found in Note 6 of our 2018 Annual Consolidated Financial Statements and the Risk Factors section in the AIF.

I. Additional Financial Disclosure

1. Revenue

Revenue in the second quarter of 2019 was $10.1 billion, up $3.3 billion compared to the second quarter of 2018. Revenue was $21.5 billion for the six months ended June 30, 2019, up $8.7 billion from the comparable period last year. In both cases, the increase was mainly driven by increases in the fair value of FVTPL assets, largely due to lower interest rate yields in 2019. The currency impact from the change in the Canadian dollar relative to average exchange rates in the second quarter of 2019 and the first six months of 2019 increased revenue by $164 million and $377 million, respectively.

Adjusted revenue was $7.5 billion in the second quarter of 2019, slightly higher than the second quarter of 2018, primarily driven by increased net premium revenue. Adjusted revenue of $14.8 billion for the six months ended June 30, 2019 was $0.3 billion lower compared to the same period last year. The decrease was primarily driven by lower net premium revenue in Asia and Canada, partially offset by higher net premium revenue in the U.S.

2. Changes in the Statements of Financial Position and in Shareholders’ Equity
Total general fund assets were $174.3 billion as at June 30, 2019, compared to $168.8 billion as at December 31, 2018, primarily driven by an increase of $6.8 billion from the change in value of FVTPL assets and an increase of $1.9 billion from business activities, partially offset by of a decrease of $3.1 billion from the impact of foreign exchange translation.

Insurance contract liabilities (excluding other policy liabilities and assets) of $120.7 billion as at June 30, 2019 increased by $5.8 billion compared to December 31, 2018, mainly due to changes in balances on in-force policies (which include fair value changes on FVTPL assets supporting insurance contract liabilities) and balances arising from new policies, partially offset by the impact of foreign exchange translation.

Shareholders’ equity, including preferred share capital, was $23.7 billion as at June 30, 2019, compared to $23.7 billion as at December 31, 2018. The slight change in shareholders’ equity included:

As at July 24, 2019, SLF Inc. had 591,039,889 common shares, 3,399,484 options to acquire SLF Inc. common shares, and 92,200,000 Class A Shares outstanding.

3. Cash Flows

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

The cash flows used in financing activities in the second quarter of 2019 compared to the same period last year increased due to the repurchase of debt and repurchase of common shares for cancellation and in the second quarter of 2019.

4. Quarterly Financial Results

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

First Quarter 2019
Reported net income of $623 million in the first quarter of 2019 decreased $46 million from the first quarter of 2018, while underlying net income decreased $53 million to $717 million. This variance was primarily due to interest on par seed capital of $110 million in the first quarter of 2018 and unfavourable credit experience, partially offset by favourable mortality, lapse and other policyholder behaviour, investing activity gains, morbidity experience, and other experience.

Fourth Quarter 2018
Reported net income was $580 million in the fourth quarter of 2018, an increase compared to the same quarter in 2017, reflecting the $251 million charge in 2017 related to the enactment of the U.S. Tax Cuts and Jobs Act, positive impacts from other adjustments and ACMA, partially offset by market related impacts. Underlying net income in the fourth quarter of 2018 increased to $718 million compared to 2017, driven by the effect of the lower income tax rate in the U.S., favourable expense experience that resulted from ongoing expense management and lower incentive compensation costs, and other experience, partially offset by mortality and morbidity experience.

Third Quarter 2018
Reported net income was $567 million in the third quarter of 2018, reflecting a $269 million unfavourable change in ACMA compared to the same quarter in 2017. Underlying net income was $730 million, primarily driven by strong business growth, the lower income tax rate in the U.S. and higher investment income on surplus assets, partially offset by new business strain.

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

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

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

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

J. Legal and Regulatory Matters

Information concerning legal and regulatory matters is provided in our Annual Consolidated Financial Statements, our annual MD&A, and the AIF, in each case for the year ended December 31, 2018, and in our Interim Consolidated Financial Statements for the period ended June 30, 2019.

K. Changes in Accounting Policies

We have adopted several amended IFRS standards in the current year. In addition, new IFRS standards were issued in the current year. We adopted IFRS 16 Leases, which replaces IAS 17 Leases and related interpretations, on a modified retrospective basis as at January 1, 2019. The adoption of IFRS 16 reduced opening retained earnings by $22 million on an after-tax basis as at January 1, 2019. For additional information, refer to Note 2 in our Interim Consolidated Financial Statements for the period ended June 30, 2019.

In 2017, a new accounting standard on insurance contacts, IFRS 17, was issued, replacing the current accounting standard on insurance contracts (IFRS 4 Insurance Contracts). The original effective date was January 1, 2021. In June 2019, the IASB issued an exposure draft (“ED”) that proposes 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 Financial Instruments for insurers to that same date. Comments on the proposed amendments are due by September 25, 2019, which will be followed by a discussion period before the IASB finalizes the amendments in 2020. We will consider the implications of these amendments as we assess the financial statement and business implications of the standard as a whole.

L. Internal Control Over Financial Reporting

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

There were no changes in the Company’s internal control over financial reporting during the period, which began on April 1, 2019 and ended on June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

M. Non-IFRS Financial Measures

1. Underlying Net Income and Underlying EPS

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

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

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

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

Reconciliations of Select Net Income Measures

2. Additional Non-IFRS Measures

Management also uses the following non-IFRS financial measures:

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

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

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

Sales. In Canada, insurance sales consist of sales of individual insurance and group benefits products; wealth sales consist of sales of individual wealth products and sales in GRS. In the U.S., insurance sales consist of sales by Group Benefits. In Asia, insurance sales consist of the individual and group insurance sales by our subsidiaries and joint ventures and associates, based on our proportionate equity interest, in the Philippines, Hong Kong, Indonesia, India, China, Malaysia, Vietnam and sales from our International business unit; wealth sales consist of Hong Kong wealth sales, Philippines mutual fund sales, wealth sales by our India and China insurance joint ventures and associates, and Aditya Birla Sun Life AMC Limited’s equity and fixed income mutual fund sales based on our proportionate equity interest, including sales as reported by our bank distribution partners. Asset Management sales consist of gross sales (inflows) for retail and institutional Clients; unfunded commitments are not included in sales. Sales are also expressed on a constant currency basis, which is a measure of sales that provides greater comparability across reporting periods by excluding the impact of exchange rate fluctuations from the translation of functional currencies to the Canadian dollar.

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

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

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

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

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

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

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

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

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

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

N. Forward-looking Statements

From time to time, the Company makes written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements contained in this document include statements (i) relating to our strategies, (ii) relating to our growth initiatives and other business objectives, (iii) relating to our potential new normal course issuer bid, (iv) relating to the expected impact of the acquisition of BGO on Total shareholders’ equity, (v) relating to our annual review of actuarial methods and assumptions, (vi) relating to our expected tax range for future years, (vii) set out in this document under the heading H – Risk Management – 1. Market Risk Sensitivities – Interest Rate Sensitivities, (viii) that are predictive in nature or that depend upon or refer to future events or conditions, and (ix) that include words such as “achieve”, “aim”, “ambition”, “anticipate”, “aspiration”, “assumption”, “believe”, “could”, “estimate”, “expect”, “goal”, “initiatives”, “intend”, “may”, “objective”, “outlook”, “plan”, “project”, “seek”, “should”, “strategy”, “strive”, “target”, “will”, and similar expressions. Forward-looking statements include the information concerning our possible or assumed future results of operations. These statements represent our current expectations, estimates, and projections regarding future events and are not historical facts. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. Future results and shareholder value may differ materially from those expressed in these forward-looking statements due to, among other factors, the matters set out in this document under the headings, C – Profitability – 5 – Income taxes, E – Financial Strength and H – Risk Management and in SLF Inc.’s 2018 AIF under the heading Risk Factors and the factors detailed in SLF Inc.’s other filings with Canadian and U.S. securities regulators, which are available for review at www.sedar.com and www.sec.gov, respectively.

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

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

Earnings Conference Call

The Company’s second quarter 2019 financial results will be reviewed at a conference call on Thursday, August 1, 2019, at 10:00 a.m. ET. To listen to the call via live audio webcast and to view the presentation slides, as well as related information, please visit www.sunlife.com and click on the link to Quarterly reports under Investors – Financial results and reports 10 minutes prior to the start of the call. Individuals participating in the call in a listen-only mode are encouraged to connect via our webcast. Following the call, the webcast and presentation will be archived and made available on the Company’s website, www.sunlife.com, until the Q2 2021 period end. The conference call can also be accessed by phone by dialing 647-427-2311 (International) or 1-866-521-4909 (tollfree within North America). A replay of the conference call will be available from Thursday, August 1, 2019 at 2:00 p.m. ET until 11:59 p.m. ET on Thursday, August 15, 2019 by calling 416-621-4642 or 1-800-585-8367 (toll-free within North America) using Conference ID: 6379369.

Consolidated Statements of Operations

Consolidated Statements of Financial Position

   

Media Relations Contact:
Noah Zatzman
Corporate Communications
Tel: 647-256-1866
[email protected]

Investor Relations Contact:
Leigh Chalmers
Senior Vice-President, Head of Investor Relations & Capital Management
Tel: 647-256-8201
[email protected]

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SOURCE Sun Life Financial Inc.