Notes to the Consolidated Financial Statements

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

1. Material Accounting Policies


Description of Business

Sun Life Financial Inc. (“SLF Inc.”) is a publicly traded company domiciled in Canada and is the holding company of Sun Life Assurance Company of Canada (“Sun Life Assurance”). Both companies are incorporated under the Insurance Companies Act (Canada), and are regulated by the Office of the Superintendent of Financial Institutions, Canada (“OSFI”). SLF Inc. and its subsidiaries are collectively referred to as “us”, “our”, “ours”, “we”, or “the Company”. We are a leading international financial services organization providing asset management, wealth, insurance and health solutions to individual and institutional Clients. We have operations in a number of markets worldwide including Canada, the United States (“U.S.”), the United Kingdom (“UK”), Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia, and Bermuda.

Statement of Compliance

We prepared our Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Our accounting policies have been applied consistently within our Consolidated Financial Statements.

Basis of Presentation

Our Consolidated Statements of Financial Position are presented in the order of liquidity and each statement of financial position line item includes both current and non-current balances, as applicable.

We have defined our reportable business segments and the amounts disclosed for those segments based on our management structure and the manner in which our internal financial reporting is conducted.

The material accounting policies used in the preparation of our Consolidated Financial Statements are summarized below and are applied consistently.

Estimates, Assumptions and Judgments

The application of our accounting policies requires estimates, assumptions and judgments as they relate to matters that are inherently uncertain. We have established procedures to ensure that our accounting policies are applied consistently and that the processes for changing methodologies for determining estimates are controlled and occur in an appropriate and systematic manner.

Use of Estimates and Assumptions

The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the application of our policies and the reported amounts of assets, liabilities, revenue and expenses. Key sources of estimation uncertainty include the measurement of insurance contract assets and liabilities, reinsurance contract held assets and liabilities and investment contract liabilities, determination of fair value, determination and impairment of goodwill and intangible assets, determination of provisions and liabilities for pension plans, other post-retirement benefits, income taxes, and the determination of fair value of share-based payments. Actual results may differ from our estimates thereby impacting our Consolidated Financial Statements. Information on our use of estimates and assumptions is discussed in this Note and other Notes.

Judgments

In preparation of these Consolidated Financial Statements, we use judgments to select assumptions and determine estimates as described above. We also use judgment when applying accounting policies and when determining the classification of insurance contracts, investment contracts and service contracts; the substance of whether our relationship with a structured entity, subsidiary, joint venture or associate constitutes control, joint control or significant influence; functional currencies; contingencies; acquisitions; deferred income tax assets; and the determination of cash generating unit (“CGU”).

Significant estimates and judgments have been made in the following areas and are discussed as noted:

Insurance contract and investment contract assumptions and measurement

Note 1 Insurance Contracts and Investment Contract Liabilities Note 10 Insurance Contracts

Determination of fair value Note 1 Basis of Consolidation Note 1 Determination of Fair Value Note 3 Acquisition and Other

Note 5 Invested Assets and Net Investment Income

Determination of fair value of insurance contracts on transition for adoption of IFRS 17

Note 1 Insurance Contracts

Income taxes Note 1 Income Taxes

Note 19 Income Taxes

Pension plans Note 1 Pension Plans and Other Post-Retirement Benefits Note 24 Pension Plans and Other Post-Retirement Benefits

Goodwill and intangible assets on acquisition and impairment

Note 1 Goodwill

Note 1 Intangible Assets Note 3 Acquisition and Other

Note 9 Goodwill and Intangible Assets

Determination of control for purpose of consolidation Note 1 Basis of Consolidation

Note 15 Interests in Other Entities

Share-based payments Note 1 Share-Based Payments Note 18 Share-Based Payments

Basis of Consolidation

Our Consolidated Financial Statements include the results of operations and the financial position of subsidiaries, which includes structured entities controlled by us, after intercompany balances and transactions have been eliminated. Subsidiaries are fully consolidated from the date we obtain control, and deconsolidated on the date control ceases. The acquisition method is used to account for the acquisition of a subsidiary from an unrelated party at the date that control is obtained, with the difference between the consideration transferred and the fair value of the subsidiary’s net identifiable assets acquired recorded as goodwill. Judgment is required to determine fair value of the net identifiable assets acquired in a business combination. Interests in controlled entities held by external parties are reported as non-controlling interests (“NCI”).

We control an entity when we have power over an entity, exposure to or rights to variable returns from our involvement with an entity, and the ability to affect our returns through our power over an entity. Power exists when we have rights that give us the ability to direct the relevant activities, which are those activities that could significantly affect the entity’s returns. Power can be obtained through voting rights or other contractual arrangements. Judgment is required to determine the relevant activities and which party has power over these activities. When we have power over and variable returns from an entity, including an investment fund that we manage, we also apply significant judgment in determining whether we are acting as a principal or agent. To make this determination, we consider factors such as how much discretion we have regarding the management of the investment fund and the magnitude and extent of variability associated with our interests in the fund. If we determine we are the principal rather than the agent, we would consolidate the assets and liabilities of the fund. Interests held by external parties in investment funds that we consolidate are recorded as third-party interest in consolidated investment funds in Other liabilities. If we lose control of an entity, the assets and liabilities of that entity are derecognized from our Consolidated Statements of Financial Position at the date at which control is lost and any investment retained is remeasured to fair value.

A joint venture exists when SLF Inc., or one of its subsidiaries, has joint control of a joint arrangement and has rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control and exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which SLF Inc. or its subsidiaries are able to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an investee but not have control or joint control over those decisions. Significant influence is generally presumed to exist when SLF Inc. or its subsidiaries holds greater than 20% of the voting power of the investee but does not have control or joint control. The equity method is used to account for our interests in joint ventures and associates. A joint operation exists when SLF Inc., or one of its subsidiaries, has joint control of an arrangement that gives it rights to the assets and obligations for the liabilities of the operation, rather than the net assets of the arrangement. For joint operations, we record our share of the assets, liabilities, revenue and expenses of the joint operation. Judgment is required to determine whether contractual arrangements between multiple parties results in control, joint control or significant influence, with consideration of the relevant activities of the entity, voting rights, representation on boards of directors and other decision-making factors. Judgment is also required to determine if a joint arrangement is a joint venture or joint operation, with consideration of our rights and obligations and the structure and legal form of the arrangement.

Determination of Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is measured using the assumptions that market participants would use when pricing an asset or liability. We determine fair value by using quoted prices in active markets for identical or similar assets or liabilities. When quoted prices in active markets are not available, fair value is determined using valuation techniques that maximize the use of observable inputs. When observable valuation inputs are not available, significant judgment is required to determine fair value by assessing the valuation techniques and valuation inputs. The use of alternative valuation techniques or valuation inputs may result in a different fair value. A description of the fair value methodologies, assumptions, valuation techniques, and valuation inputs by type of asset is included in Note 5. A description of the fair value methodologies, assumptions, valuation techniques and valuation inputs for the transition of insurance contracts to IFRS 17 Insurance Contracts (“IFRS 17”) is included in Note 1.

Foreign Currency Translation

Translation of Transactions in Foreign Currencies

The financial results of SLF Inc. and its subsidiaries, joint ventures and associates are prepared in the currency in which they conduct their ordinary course of business, which is referred to as functional currency. Transactions occurring in currencies other than the functional currency are translated to the functional currency using the spot exchange rates at the dates of the transactions.

Monetary assets and liabilities in foreign currencies are translated to the functional currency at the exchange rate at the statement of financial position date. Insurance contract and reinsurance contract held assets and liabilities, including the contractual service margin (“CSM”), are monetary items. Non-monetary assets and liabilities in foreign currencies that are held at fair value are translated using the exchange rate at the statement of financial position date, while non-monetary assets and liabilities that are measured at historical cost are translated using the exchange rate at the date of the transaction.

The resulting exchange differences from the translation of monetary items and non-monetary items held at fair value, with changes in fair value recorded to net income (loss), are recognized in our Consolidated Statements of Operations. For monetary assets classified as fair value through other comprehensive income (“FVOCI”), translation differences calculated on amortized cost are recognized in our Consolidated Statements of Operations and other changes in carrying amount are recognized in other comprehensive income (“OCI”). The exchange differences from the translation of non-monetary items on these assets are recognized in OCI.

Translation to the Presentation Currency

In preparing our Consolidated Financial Statements, the financial statements of foreign operations are translated from their respective functional currencies to Canadian dollars, our presentation currency. Assets and liabilities are translated at the closing exchange rate at the statement of financial position date, and income and expenses are translated using the average exchange rates. The accumulated gains or losses arising from translation of functional currencies to the presentation currency, net of the effect of any hedges, are included as a separate component of OCI within equity. Upon disposal of a foreign operation that includes loss of control, significant influence or joint control, the cumulative exchange gain or loss related to that foreign operation is recognized in net income (loss).

Invested Assets

Financial Assets Excluding Derivative Financial Instruments

Financial assets include cash, cash equivalents and short-term securities, debt securities, equity securities, mortgages and loans, and other financial invested assets.

  1. Initial Recognition and Subsequent Measurement Classification of financial assets

    Financial assets are measured at initial recognition at fair value and are classified as and subsequently measured at fair value through profit or loss (“FVTPL”), FVOCI, or amortized cost based on the business model used to manage the financial asset and the contractual cash flow characteristics of the asset. Amortized cost is determined using the effective interest rate method, which is the gross carrying amount less the allowance for expected credit losses (“ECL”). Financial assets are not reclassified subsequent to initial recognition unless the business model used to manage the financial asset has changed. Financial assets are recognized in the Consolidated Statements of Financial Position on their trade dates, which are the dates that we commit to purchase or sell the assets. Originated mortgages and loans are recognized in the Consolidated Statements of Financial Position on their settlement dates.

    A financial asset is measured at amortized cost if both of the following conditions are met and the asset is not designated at FVTPL:

    • The asset is held within a business model that is held to collect (“HTC”), in which the collection of contractual cash flows from the financial asset is the primary objective and sales are expected to be insignificant or infrequent; and

    • The contractual terms of the asset give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.

      A financial asset is measured at FVOCI if both of the following conditions are met and the asset is not designated at FVTPL:

    • The asset is held within a business model that is held to collect and sell (“HTC&S”), in which both the collection of contractual cash flows and the sale of financial assets are integral to achieving the objective of the business model; and

    • The contractual terms of the asset give rise, on specified dates, to cash flows that are SPPI.

      Financial assets that are managed on a fair value basis and do not meet the objectives of a HTC or HTC&S business model, such as financial assets that are held for trading, are measured at FVTPL and fall within the scope of other business models.

      All financial assets not classified as amortized cost or FVOCI, as described above, are measured at FVTPL. Financial assets at FVTPL include financial assets that are held-for-trading. A financial asset is classified as held-for-trading if it is acquired principally for the purpose of selling in the near term. Cash, cash equivalents and short-term securities are held for trading for the purpose of meeting short-term cash requirements and are measured at FVTPL. On initial recognition, we may also make an irrevocable election to designate a financial asset that would otherwise be measured at amortized cost or FVOCI as measured at FVTPL if the financial asset is managed together with a related financial liability and their performance is evaluated on a fair value basis. Certain debt securities, mortgages and loan instruments that support insurance contract liabilities, which are measured at fair value, have been designated at FVTPL, as doing so significantly reduces measurement inconsistency with the related insurance contract liabilities. These financial assets would otherwise have been measured at FVOCI or amortized cost.

      Equity securities are measured at FVTPL, unless the asset is not held for trading purposes and we make an irrevocable election to designate the asset at FVOCI. This election is made on an instrument-by-instrument basis. If such an election is made, the fair value changes, including any associated foreign exchange gains or losses, are recognized in OCI and are not subsequently reclassified to the Consolidated Statements of Operations, including upon disposal. Realized gains and losses are transferred directly to retained earnings upon disposal.

      The following table summarizes the financial assets included in our Consolidated Statements of Financial Position and the applicable classifications:

      IFRS 9

      Cash, cash equivalents and short-term securities FVTPL

      Debt securities FVTPL, FVOCI

      Equity securities FVTPL, FVOCI

      Mortgages and loans FVTPL, FVOCI, Amortized cost

      Other financial invested assets FVTPL

      Business model assessment

      We determine our business models at the level that best reflects how we manage portfolios of financial assets to achieve our business objectives. Judgment is used in determining our business models, which is supported by relevant, objective evidence including:

    • How the economic activities of our businesses generate benefits, for example, through enhancing yields or hedging and how such economic activities are evaluated and reported to key management personnel;

    • The significant risks affecting the performance of our businesses, for example, market risk, credit risk, or other risks as described in the Risk Management section of Management’s Discussion and Analysis, and the activities undertaken to manage those risks;

    • The frequency, volume, and timing of sales in prior periods, the reasons for the sales and expectations about future sales activity. Information about sales activity is not considered in isolation, but as part of an overall assessment of how our stated objective for managing the financial assets is achieved and how cash flows are realized; and

    • The compensation structures for managers of our businesses, to the extent that these are directly linked to the economic performance of the business model.

      Our business models include HTC, HTC&S and other, as described above.

      Assessment of whether contractual cash flows are SPPI

      Financial assets held within a HTC or HTC&S business model are assessed to evaluate if their contractual cash flows are comprised of SPPI. SPPI payments are those which would typically be expected from basic lending arrangements, such as interest and basic lending returns, compensation for credit risk and the time value of money, costs associated with holding the financial asset for a period of time, and a profit margin. In making the SPPI assessment, we consider the contractual terms of the instrument, including assessment of whether the timing or amount of the contractual cash flows could change by a contractual term of the financial asset. A prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract.

      Where the contractual terms introduce exposure to risk or variability of the cash flows that are inconsistent with a basic lending arrangement, the related financial asset is classified as and measured at FVTPL.

      Subsequent measurement

      Equity securities, debt securities, mortgages and loans, and assets related to Collateralized Loan Obligations (“CLOs”) that are classified or designated at FVTPL are recorded at fair value in our Consolidated Statements of Financial Position, and gains or losses, including interest or dividend income and foreign exchange gains and losses, are recognized in Net investment income (loss) in the Consolidated Statements of Operations.

      Debt securities and mortgages and loans that are classified as FVOCI are recorded at fair value. Interest income, foreign exchange gains (losses), and impairment are recognized in Net investment income (loss) in the Consolidated Statements of Operations. Other gains or losses are recognized in OCI.

      Mortgages and loans classified as amortized cost are subsequently measured using the effective interest rate method. Interest income, foreign exchange gains and losses, and impairment are presented in Net investment income (loss) in the Consolidated Statements of Operations.

      Other financial invested assets include investments in limited partnerships, segregated funds, mutual funds, and assets related to CLOs that are classified as FVTPL. These financial assets are recorded at fair value, and gains or losses are recognized in Net investment income (loss) in the Consolidated Statements of Operations.

      Cash equivalents are highly liquid instruments with a term to maturity of three months or less. Cash and cash equivalents are classified as FVTPL and the fair values are assumed to approximate their carrying values, due to their short-term nature or because they are frequently repriced to current market rates. Short-term securities are those that have a term to maturity exceeding three months but less than one year. The fair value of short-term securities is approximated by their carrying amount.

  2. Derecognition

    Financial assets are derecognized when our contractual rights to the cash flows of the financial asset have expired, or when we transfer the rights to receive contractual cash flows and substantially all the risks and rewards of owning the financial assets have been transferred. When we neither retain nor transfer substantially all the risks and rewards of ownership, the financial assets are derecognized if control over the financial assets have been relinquished. If we retain control of the financial assets, we continue to recognize the transferred assets to the extent of our continuing involvement.

    When financial assets are derecognized, the difference between the carrying amount and the consideration received on the date of derecognition is recognized in Net investment income (loss) in the Consolidated Statements of Operations. For debt securities at FVOCI, the cumulative gains (losses) previously recognized in OCI are reclassified to Net investment income (loss) in the Consolidated Statements of

    Operations. For equity investments designated at FVOCI, the cumulative gains (losses) previously recognized in OCI are not reclassified to net income (loss).

    For financial assets measured at amortized cost in which modifications have resulted in derecognition, the gain (loss) is presented together with impairment losses if the modification was a result of financial difficulties of the borrower. Otherwise, the gain (loss) is presented as Net investment income (loss) in the Consolidated Statements of Operations.

    Judgment is applied in determining whether contractual rights to the cash flows from the transferred assets have expired or whether we retain the rights to receive the cash flows on the assets but have assumed an obligation to pay for those cash flows.

  3. Impairment

    We establish an allowance for ECL for financial assets not classified or designated at FVTPL. Financial assets measured at amortized cost are presented at their carrying amounts on the Consolidated Statements of Financial Position, which is the gross carrying amount less the allowance for ECL, with changes in the allowance for ECL recognized in Provision for credit losses in Net investment income (loss) in the Consolidated Statements of Operations. The allowance for ECL on financial assets measured at FVOCI, including debt securities and mortgages and loans, does not reduce the carrying amount of the assets in the Consolidated Statements of Financial Position, which remains at fair value. Rather, an amount equal to the allowance for ECL that would arise if the assets were measured at amortized cost is recognized in OCI, with changes in the allowance for ECL recognized in Provision for credit losses in Net investment income (loss) in the Consolidated Statements of Operations.

    At the end of each reporting period, we apply a three-stage impairment approach to measure the ECL on financial assets measured at amortized cost or at FVOCI:

    • Stage 1: For financial assets that have not experienced a significant increase in credit risk since the date of initial recognition, a loss allowance equal to the credit losses expected to result from default events occurring over the 12 months following the reporting date is recognized.

    • Stage 2: For financial assets that have experienced a significant increase in credit risk since the date of initial recognition, a loss allowance equal to the credit losses expected to result from default events occurring over the remaining lifetime of the financial asset is recognized.

    • Stage 3: When a financial asset is considered to be credit-impaired, a loss allowance equal to the ECL over the remaining lifetime of the financial asset is recognized. Interest income is calculated based on the carrying amount of the asset, net of the loss allowance.

      We monitor all financial assets that are subject to impairment for significant increase in credit risk. In making this assessment, we consider both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Additional details about significant increase in credit risk and forward-looking information are provided in Note 6.

      Modified financial assets

      The contractual terms of a financial asset may be modified for a number of reasons, including changing market conditions and other factors not related to a current or potential credit deterioration of the borrower. An existing financial asset whose terms have been modified may be derecognized and the renegotiated asset recognized as a new financial asset at fair value in accordance with the accounting policies in this Note.

      If modification does not result in derecognition, the financial asset continues to be subject to the assessment for significant increase in credit risk relative to initial recognition. Expected cash flows arising from the modified contractual terms are considered when calculating the ECL for the modified asset. For loans that were modified while having lifetime ECLs, such loans can revert to having 12-month ECLs if the borrower’s financial condition that led to it being identified as credit-impaired are no longer present.

      Definition of default

      The definition of default used in the measurement of ECL is consistent with the definition of default used for our internal credit risk management purposes. We consider a financial asset to be in default when the issuer is unlikely to meet its credit obligations in full, without recourse action on our part, or when the financial asset is 90 days past due. Our definition of default may differ across financial assets and consider qualitative factors, such as the terms of financial covenants, breaches of such covenants, and other indicators of financial distress, as well as quantitative factors, such as overdue status and non-payment of other obligations under the same issuer. We use internally developed data and those obtained from external sources when assessing default.

      Credit-impaired financial assets (Stage 3)

      At each reporting date, we assess whether financial assets measured at amortized cost and FVOCI are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence of credit-impairment may include indications that the borrower is experiencing significant financial difficulty, probability of bankruptcy or other financial reorganization, as well as a measurable decrease in the estimated future cash flows evidenced by the adverse changes in the payments status of the borrower or economic conditions that correlate with defaults. If a financial asset is credit-impaired, interest income is calculated based on the carrying amount of the asset, which is net of the allowance for ECL, rather than on the gross carrying amount.

      Write-off of financial assets

      The gross carrying amount of a financial asset, and the related allowance for ECL, is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when we determine that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with procedures for recovery of amounts due.

  4. Embedded Derivatives

Under IFRS 9 Financial Instruments (“IFRS 9”), derivatives embedded in contracts where the host is a financial asset in scope of IFRS 9 are not separated. Instead, the hybrid financial instrument, as a whole, is assessed for classification.

Collateral

Cash received (pledged) as collateral is recognized (derecognized) in our Consolidated Statements of Financial Position with corresponding amounts recognized in Other liabilities (Other assets), respectively. All other types of assets received (pledged) as collateral are not recognized (derecognized) in our Consolidated Statements of Financial Position.

Derivative Financial Instruments

All derivative financial instruments are recorded at fair value in our Consolidated Statements of Financial Position. Derivatives with a positive fair value are recorded as Derivative assets while derivatives with a negative fair value are recorded as Derivative liabilities.

The accounting for the changes in fair value of a derivative instrument depends on whether or not it is designated as a hedging instrument for hedge accounting purposes. Changes in fair value of derivatives that are not designated for hedge accounting purposes, which are defined as derivative investments, are recorded in Net investment income (loss) in our Consolidated Statements of Operations. Income earned or paid on these derivatives is recorded in Net investment income (loss) in our Consolidated Statements of Operations. Hedge accounting is applied to certain derivatives to reduce income statement volatility. All hedging relationships are documented at inception and hedge effectiveness is assessed at inception and on a quarterly basis to determine whether the hedging instruments are highly effective in offsetting changes attributable to the hedged risk in the fair value or cash flows of the hedged items. We have elected to continue to apply the hedge accounting principles under International Accounting Standard (“IAS”) 39 Financial Instruments: Recognition and Measurement instead of those under IFRS 9.

Cash Flow Hedges

Certain equity and foreign currency forwards are designated as hedging instruments in cash flow hedges for anticipated payments of awards under certain share-based payment plans and for anticipated foreign currency purchases of foreign operations. Changes in the fair value of derivatives for the effective portion of the hedge are recognized in OCI, while the ineffective portion of the hedge and any items excluded from the hedging relationship, such as the spot-to-forward differential, are recognized in net investment income (loss) in our Consolidated Statements of Operations. A portion of the amount recognized in OCI related to the equity forwards is reclassified to net income (loss) as a component of Operating expenses as the liabilities for the share-based payment awards are accrued over the vesting period. A portion of the amounts recognized in OCI related to the foreign currency forwards would be reclassified to net income (loss) upon disposal or impairment of the foreign operations. All amounts recognized in, or reclassified from, OCI are net of related taxes.

Investment Properties

Investment properties are real estate held to earn rental income, for capital appreciation, or both. Properties held to earn rental income or for capital appreciation that have an insignificant portion that is owner-occupied are classified as investment properties. Properties that do not meet these criteria are classified as property and equipment, included in Other assets as described below. Expenditures related to ongoing maintenance of properties incurred subsequent to acquisition are expensed. Investment properties are initially recognized at cost in our Consolidated Statements of Financial Position. Various costs incurred associated with the acquisition of an investment property are either capitalized or expensed depending on whether or not the acquisition is considered a business combination. Investment properties are subsequently measured at fair value with changes in value recorded to Fair value and foreign currency changes on assets and liabilities in our Consolidated Statements of Operations.

When the use of a property changes from owner-occupied to investment property, any gain arising on the remeasurement of the property to fair value at the date of transfer is recognized in our Consolidated Statements of Operations to the extent that it reverses a previous impairment loss. Any remaining increase is recognized in OCI.

Other Non-Financial Invested Assets

Other non-financial invested assets include investments in joint ventures and associates, which are accounted for using the equity method. Investments in joint ventures and associates are initially recorded at cost. The investment in joint ventures and associates is increased by our share of capital contributions and for purchases of additional interests and is reduced by distributions received. In addition, subsequent adjustments to the investment are made for our share of net income (loss) and our share of OCI. Our share of net income (loss) is recorded in investment income in our Consolidated Statements of Operations and our share of OCI is recorded in our Consolidated Statements of Comprehensive Income (Loss). Impairment losses on equity method investments are recognized when events or changes in circumstances indicate that they are impaired. The impairment loss recognized is the difference between the carrying amount and the recoverable amount.

Other Assets

Other assets, which are measured at amortized cost, include accounts receivable, investment income due and accrued, deferred acquisition costs from service contracts, property and equipment, and lessee’s right-of-use assets. Deferred acquisition costs from service contracts are discussed in the Service contract and fee income section of this Note. Right-of-use assets are discussed in the Leases section of this Note. Owner-occupied properties are amortized to their residual value over 25 to 49 years. Furniture, computers, other office equipment, and leasehold improvements are amortized to their residual value over 2 to 20 years.

Leases

At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For leases where we act as the lessee, we recognize a right-of-use asset and a lease liability at the commencement date of the lease. For leases where we act as the lessor, we assess whether the leases should be classified as finance or operating leases. Our leases are classified as operating leases. Operating leases are recognized into net income (loss) on a straight-line basis.

The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability with certain adjustments, and subsequently depreciated using the straight-line method, with depreciation expense included in Operating expenses in the Consolidated Statements of Operations. The right-of-use asset is depreciated to the earlier of the lease term and its useful life. The right-of-use asset is assessed for impairment under IAS 36 Impairment of Assets. Right-of-use assets are assessed for indicators of impairment at each reporting period. If there is an indication that a right-of-use asset may be impaired, an impairment test is performed by comparing the asset’s carrying

amount to its recoverable amount. If an impairment loss has been incurred, the carrying value of the right-of-use asset is reduced with the corresponding amount recognized in net income (loss).

The lease liability is initially measured at the present value of lease payments over the term of the lease using a discount rate that is based on our incremental borrowing rate. The discount rate is specific to each lease and is determined by various factors, such as the lease term and currency. The lease term includes the non-cancellable period and the optional period where it is reasonably certain we will exercise an extension or termination option, considering various factors that create an economic incentive to do so. Subsequently, the lease liability is measured at amortized cost using the effective interest rate method, with interest charged to Interest expense in the Consolidated Statements of Operations. Lease liabilities and right-of-use assets are remeasured upon lease modifications. A lease modification is considered as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease.

Intangible Assets

Intangible assets consist of finite life and indefinite life intangible assets. Finite life intangible assets are amortized on a straight-line basis or using a units-of-production method, over the useful economic lives: i) Distribution, sales potential of field force, client relationships and asset administration contracts – 3 to 40 years; ii) and internally generated software – 3 to 10 years. Amortization is charged through Operating expenses in the Consolidated Statements of Operation. The useful lives of finite life intangible assets are reviewed annually, and the amortization is adjusted as necessary. Indefinite life intangibles are not amortized and are assessed for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. Impairment is assessed by comparing the carrying values of the indefinite life intangible assets to their recoverable amounts. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. If the carrying values of the indefinite life intangibles exceed their recoverable amounts, these assets are considered impaired, and a charge for impairment is recognized in our Consolidated Statements of Operations. The recoverable amount of intangible assets is determined using various valuation models, which require management to make certain judgments and assumptions that could affect the estimates of the recoverable amount.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable tangible and intangible assets of the acquired businesses. Goodwill is carried at original cost less any impairment subsequently incurred. Goodwill is assessed for impairment annually or more frequently if events or circumstances occur that may result in the recoverable amount of a CGU or a group of CGUs falling below its carrying value. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other groups of assets. We exercise significant judgment in determining our CGUs. The factors considered in determining our CGUs include product cash inflows, product distribution, target markets, and how management monitors and evaluates the operations.

The goodwill balances are allocated to either individual or groups of CGUs that are expected to benefit from the synergies of the business combination. Goodwill impairment is quantified by comparing a CGU’s or a group of CGUs’ carrying value to its recoverable amount, which is the higher of fair value less costs of disposal and value in use. Impairment losses are recognized immediately and cannot be reversed in future periods. Significant judgment is involved in estimating the model inputs used to determine the recoverable amount of our CGUs or group of CGUs, including those for discount rates, capital, the value of new business, expenses, cash flow projections, and market multiples, due to the uncertainty and the forward-looking nature of these inputs. The assumptions may differ from the actual experience, and estimates may change from period to period based on future events or revisions of assumptions. These key assumptions are discussed in Note 9.

Insurance Contracts

Classification

Insurance contracts are comprised of insurance contracts issued, which are insurance and reinsurance or retrocession contracts that are issued by us, and reinsurance contracts held.

Insurance contracts issued are contracts under which we accept significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. The presence of significant insurance risk in individual contracts is assessed by reviewing books of contracts with homogeneous risk features.

Reinsurance contracts held are insurance contracts under which we are the policyholder and have transferred insurance risk to the issuer of the contract, either the reinsurer or the retrocessionaire. In the normal course of business, we use reinsurance to limit our exposure to large losses. We have a retention policy that requires that such arrangements be placed with well-established, highly-rated reinsurers.

Certain investment contracts contain discretionary participation features (“DPF”), whereby the policyholder has the right to receive, in addition to guaranteed amounts, potentially significant benefits based on returns on a specified pool of assets. For entities like us that issue insurance contracts, investment contracts with DPF are measured and reported as insurance contracts.

Judgment is required to determine the classification of a contract as an insurance contract, investment contract or a service contract. Contracts are classified at initial recognition. Once a contract is classified as an insurance contract, it remains an insurance contract until all rights and obligations are extinguished or the contract is derecognized.

Combination and Separation of Contracts

Derivatives embedded in insurance contracts are treated as separate contracts and measured at fair value with changes in fair value recognized in net income (loss) unless the embedded derivative itself meets the definition of an insurance contract or when the risks and characteristics of the embedded derivative are closely related to those of the host contract. Embedded derivatives that are not separated are accounted for with the host insurance contract.

Investment components of insurance contracts are amounts we repay to a policyholder in all circumstances (e.g., cash surrender values). Investment components of insurance contracts are treated as separate investment contracts only if the investment component is not highly

interrelated with the insurance component and a contract with equivalent terms could be sold separately in the same market. Investment components that are not separated are accounted for as non-distinct investment components of insurance contracts.

Service components of insurance contracts are treated as separate service contracts only if the service component is not highly interrelated with the insurance component and we provide no significant service in integrating the service component with the insurance component.

Service components that are not separated are accounted for with insurance contracts.

Insurance components of insurance contracts are treated as separate contracts only if the insurance component constitutes a separate insurance contract (e.g., certain reinsurance treaties that transfer risk on different types of insurance contracts).

For insurance contracts where both parties to the contract have the practical ability to terminate the contract, the extension of the contract beyond the termination date is treated as a new and separate contract. This occurs for most group life and health insurance contracts every year, when we have the right to reprice the contract and the policyholder has the option to not renew the contract. In such instances, each renewal is considered a new and separate contract. This also applies for many reinsurance contracts held, where the reinsurer has the right to reprice new cessions and we have the right to cease ceding new contracts with a notice period. In such instances, the cessions within each notice period are considered a new and separate reinsurance contract held.

Measurement

Insurance contracts are measured in accordance with IFRS 17, using one of the following approaches:

  • Variable fee approach (“VFA”): This approach applies to insurance contracts (excluding reinsurance contracts) with direct participation features, which are substantially investment-related service contracts where the policyholder is promised an investment return based on underlying items.

  • Premium allocation approach (“PAA”): This is a simplified measurement approach and is applied to all insurance contracts that are eligible to use it, such as the majority of those in our group life and health businesses.

  • General measurement approach (“GMA”): This approach applies to all insurance contracts not measured using the VFA or the PAA.

    Reinsurance contracts held are measured in a manner consistent with the associated underlying insurance contracts and in accordance with the terms of each reinsurance contract held. Reinsurance contracts held cannot be measured using the VFA. The measurement of reinsurance contracts held includes a provision for the risk that the reinsurer will not honour its obligations under the contract.

    The carrying value of insurance contracts comprises the liability for remaining coverage (“LRC”) and the liability for incurred claims (“LIC”):

  • The LRC is the measurement of our obligation to investigate and pay valid claims for insured events that have not yet occurred (i.e., the obligation that relates to the unexpired portion of the coverage period).

  • The LIC is the measurement of our obligation to investigate and pay valid claims for insured events that have already occurred, including events that have occurred but for which claims have not been reported. For reinsurance contracts held, the LIC is an asset for incurred claims.

    Significant judgment is required in measuring assets or liabilities for insurance contracts, including the assumptions that are used for their measurement. Application of different assumptions may result in different measurement of the insurance contracts. Actual experience may differ from assumptions, and estimates may change from period to period based on future events or revisions of assumptions. Key assumptions and considerations in selecting these assumptions are discussed in Note 10. The sensitivity of the measurement of insurance contracts to changes in risk variables are discussed in Note 7.

    Level of Aggregation

    The unit of account for the measurement of insurance contracts is a group. Each insurance contract is assigned to a group at initial recognition and remains in that group until the insurance contract is derecognized.

    Groups are subdivisions of portfolios. Portfolios are insurance contracts subject to similar risks and managed together and a portfolio is the level at which expenses are attributed and the level at which insurance contracts issued and reinsurance contracts held are presented.

    We have established portfolios in each reportable business segment, distinguished between:

  • Insurance contracts issued and reinsurance contracts held;

  • Group insurance contracts and individual insurance contracts;

  • Participating insurance contracts and non-participating insurance contracts;

  • Adjustable insurance contracts and non-adjustable insurance contracts;

  • Traditional life insurance contracts and universal life insurance contracts; and

  • Pass-through insurance contracts and discretionary crediting contracts.

    Within each portfolio, separate groups are established by:

  • Date of issue: To be in the same group, contracts must be issued within the same time period, and the period cannot be longer than one year; and

  • Level of profitability: Insurance contracts are separated into groups of contracts that are onerous at initial recognition, contracts that do not have a significant possibility of becoming onerous subsequently, and other contracts. The level of profitability for an insurance contract is based on the CSM at initial recognition of the contract (as described below in Initial Measurement).

    We do not establish additional groups beyond the minimum required except for:

  • Some portfolios of reinsurance contracts held where grouping is established to line up with the grouping of the underlying insurance contracts issued; and

  • Some individual life policies which are included in their own groups.

    Initial Measurement

    Groups of insurance contracts are recognized and measured as the total of the following measurement components:

  • Fulfilment cash flows (“FCF”), which is comprised of:

    • The present value of future cash flows (including the provisions for financial risk),

    • The risk adjustment for non-financial risk (“RA”); and

  • A CSM, representing the unearned profit that will be recognized in net income (loss) as insurance contract services are provided.

    These measurement components apply to groups of insurance contracts measured using the GMA and the VFA. Under the PAA, which is a simplified measurement approach, insurance contracts are measured based on unearned profits and do not include a CSM.

    GMA or VFA

    Using the GMA or VFA, a group of insurance contracts is measured as the total of the three measurement components, as described above.

    Estimates of the present value of future cash flows are explicit and current, and consider all reasonable and supportable information available at the reporting date without undue cost or effort. The portion of the present value of future cash flows related to financial risk variables is consistent with observable market prices and, where necessary, considers a range of scenarios that provides a good representation of possible outcomes. The cash flows for each scenario are probability-weighted and discounted using current assumptions.

    The RA for non-financial risk represents the compensation required for uncertainty related to non-financial risk (mortality, morbidity, surrender and expenses, etc.). The risk adjustment is reduced as the non-financial risks of our insurance contracts diminish over time (“release of risk adjustment”).

    The CSM at the initial recognition of an insurance contract issued is the amount that fully offsets the FCF at initial recognition, and represents unearned profits on new business that are deferred and amortized into income as insurance contract services are provided. For insurance contracts issued that are not profitable at initial recognition (“onerous insurance contracts”), a CSM is not established and losses are recognized in net income (loss) immediately.

    For reinsurance contracts held, there is no restriction on the CSM based on profitability at initial recognition, and any losses are deferred in the same manner as profits. In addition, the CSM for reinsurance contracts held can be adjusted to offset any gains or losses on the groups of underlying direct contracts that would have gone through CSM if the group of underlying direct contracts had a CSM balance.

    For onerous insurance contracts, the loss recognized in the Consolidated Statements of Operations at initial recognition is added to the loss component of the group to which the contract is assigned. The loss component is a notional portion of the LRC that represents the amount of loss that can be reversed by future profit before a CSM is re-established for the group. For groups of reinsurance contracts held for which the CSM has been adjusted to offset gains and losses on groups of underlying direct contracts without a CSM, a loss recovery component is established.

    PAA

    The LRC is initially measured as the premium received in the period. For groups using the PAA, insurance acquisition cash flows are recognized in the Consolidated Statements of Operations when incurred, rather than including such expenses in the measurement of LRC.

    Subsequent Measurement

    The subsequent measurement of FCF uses the same approach as described above for initial measurement, but with current inputs for each subsequent reporting date.

    For contracts measured using the PAA, the LRC subsequent to initial recognition is the amount of unearned revenue and the remaining loss component for any groups that are onerous. We do not adjust the LRC to reflect the time value of money and the effects of financial risk when we expect the time between providing coverage and the related premiums to be no more than one year. We do not adjust the LIC to reflect the time value of money and the effects of financial risk when we expect the claims to be fully paid within one year of the insured event occurring.

    For contracts measured using the GMA or VFA, the measurement of CSM subsequent to initial recognition is described below.

    For groups of insurance contracts issued using the GMA, the CSM at the end of a reporting period is measured as the CSM at the beginning of the reporting period, adjusted for:

  • The effect of any new contracts added to the group;

  • Interest accretion on the carrying amount of the CSM;

  • The change in FCF relating to future service, except to the extent that increases exceed the carrying amount of the CSM (giving rise to a loss) or decreases are allocated to the loss component of the LRC (reversing a prior loss);

  • The effect of any currency exchange differences on the CSM; and

  • The amount recognized as Insurance revenue due to the performance of insurance contract services in the period (“CSM amortization”).

    For groups of insurance contracts issued using the VFA, the CSM at the end of a reporting period is measured as the CSM at the beginning of the reporting period, adjusted for:

  • The effect of any new contracts added to the group;

  • The change in the entity’s share of the fair value of underlying items, except to the extent a decrease exceeds the carrying amount of the CSM (giving rise to a loss) or an increase reverses a prior loss, or that risk mitigation applies (see below);

  • The change in FCF relating to future service, except to the extent that increases exceed the carrying amount of the CSM (giving rise to a loss) or decreases are allocated to the loss component of the LRC (reversing a prior loss), or that risk mitigation applies (see below);

  • The effect of any currency exchange differences on the CSM; and

  • CSM amortization.

    The risk mitigation option is provided to avoid accounting mismatches that would otherwise occur when the financial risk of a group of insurance contracts is mitigated outside the underlying items of the group. For insurance contracts issued using the VFA, changes related to financial risk adjust the CSM, but offsetting changes from risk mitigation (e.g., derivatives) may go through net income (loss). The risk mitigation option allows for a change that would otherwise adjust CSM to be recognized in net income (loss) instead, to avoid such a mismatch. We apply the risk mitigation option where applicable to reduce accounting mismatches. The effect on CSM of applying the risk mitigation option is disclosed in more detail in Note 5.C.

    For groups of reinsurance contracts held, the CSM at the end of a reporting period is measured as the CSM at the start of the reporting period, adjusted for:

  • The effect of any new contracts added to the group;

  • Interest accretion on the carrying amount of the CSM;

  • Net income (loss) recognized in the reporting period as a result of gains or losses recognized to offset gains or losses on groups of underlying direct contracts with no CSM;

  • Reversals of a loss-recovery component to the extent those reversals are not changes in the FCF of the group of reinsurance contracts held;

  • The change in FCF relating to future service, unless the change offsets a gain or loss on groups of underlying direct contracts with no CSM or the change is related to groups of onerous insurance contracts using the PAA;

  • The effect of any currency exchange differences on the CSM; and

  • The amount recognized in net income (loss) due to services received in the period.

    We have not changed the accounting estimates made in previous interim financial statements in the preparation of these Consolidated Financial Statements. In particular, the CSM at the end of each reporting period is the CSM at the beginning of the reporting period adjusted as described above, rather than the CSM at the beginning of the calendar year adjusted as described above.

    Transition to IFRS 17

    At the transition date to IFRS 17, January 1, 2022, we applied the fair value approach for all groups of insurance contracts existing at that date that are measured using the GMA or VFA because applying the full retrospective approach was impracticable. Under this approach, the CSM at transition for a group of insurance contracts is its fair value minus the FCF measured according to the policies described in this Note. The fair value of a group of insurance contracts is the amount that a market participant would require to take over the obligations of the group of insurance contracts. Each portfolio of issued insurance contracts had one group at transition. Reinsurance contracts held were grouped according to the underlying direct contracts. The discount curve established at transition is the locked-in curve for the group. The fair value of reinsurance contracts held at transition was the difference between the fair value of underlying insurance contracts without reinsurance and with reinsurance. The determination of fair value required us to apply significant judgment in the methodology used and in our estimates and assumptions.

    Derecognition and Modification

    An insurance contract is derecognized when the obligations in the contract expire, are discharged or cancelled, this includes at the time payment is made to the policyholder, or when the contract is modified and the modification is substantial, such as when the modification results in a change in the measurement approach. When a contract modification results in derecognition, the original contract is derecognized and the modified contract is recognized as a new contract. Modifications that do not result in derecognition are treated as changes in FCF.

    Presentation on the Consolidated Financial Statements

    The carrying value of portfolios of insurance contracts issued and reinsurance contracts held that are in an asset position are presented as Insurance contract assets and Reinsurance contract held assets in the Consolidated Statements of Financial Position, while the carrying value of portfolios of insurance contracts issued and reinsurance contracts held that are liabilities are presented as Insurance Contract liabilities excluding those for account of segregated fund holders and Reinsurance contract held liabilities. Assets for insurance acquisition cash flows incurred before initial recognition of the contracts to which they are attributable are included in the carrying value of the portfolio associated with those contracts.

    Amounts related to insurance contracts that impact income are included in the Net insurance service result of the Consolidated Statements of Operations and the Insurance finance income (expenses) line in the Net investment result section. Results in those sections are presented separately for insurance contracts issued and reinsurance contracts held. We have chosen to disaggregate changes in the RA between the Insurance revenue line in Net insurance service result, and the Insurance finance income (expenses) line in Net investment result.

    Net insurance service result

    Insurance revenue is recognized as insurance contract services are provided for groups of insurance contracts. For insurance contracts issued that are measured using the GMA or the VFA, Insurance revenue includes the following services for which consideration in the form of premiums, net of premium taxes, is expected to be received:

  • Expected claims and other expenses directly attributable to fulfilling insurance contracts, measured at the amounts expected at the beginning of the period, and excluding investment components and amounts allocated to the loss component;

  • Release of the RA for the period, excluding amounts allocated to the loss component and amounts related to changes in the time value of money, which are recognized in Insurance finance income (expenses);

  • CSM amortization to reflect services provided in the period, measured using the coverage units for the reporting period as a proportion of total coverage units (additional detail on coverage units is provided in Note 10);

  • Amortization of insurance acquisition cash flows;

  • Premium experience adjustments that relate to current or past service; and

  • Expected amounts related to income taxes specifically chargeable to the policyholder.

    Amortization of insurance acquisition cash flows in Insurance revenue is an allocation of the portion of the premiums that relates to the recovery of insurance acquisition cash flows, determined in a systematic way based on the passage of time. An equal and offsetting amount is included in Insurance service expenses.

    For insurance contracts issued measured using the PAA, expected premium receipts (net of premium taxes and excluding investment components) are recognized as revenue, generally based on the passage of time.

    Insurance service expenses include:

  • Claims incurred in the period (excluding investment components and amounts allocated to the loss component);

  • Expenses incurred that are directly attributable to fulfilling the insurance contracts;

  • Losses on onerous contracts and reversals of those losses;

  • Changes related to past service (e.g., changes in the LIC in periods subsequent to the claim being incurred);

  • Amortization of insurance acquisition cash flows;

  • Insurance acquisition cash flows expensed as incurred related to PAA contracts; and

  • Impairment and reversals of impairment of assets for insurance acquisition cash flows.

    For reinsurance contracts held, we have elected to present income and expenses arising from these contracts as a single amount in the Reinsurance contract held net income (expense) line on the Consolidated Statements of Operations. This amount includes an allocation of reinsurance premiums, amounts recovered from reinsurers, and changes in the risk of non-performance by the reinsurer. Allocations of reinsurance premiums are recognized as services are received for the reinsurance contract held.

    For reinsurance contracts held measured using the GMA, the services received for which consideration is paid include:

  • Expected recoveries and expenses, excluding amounts that are paid regardless of claims;

  • Release of the RA for the period;

  • CSM recognized for services received; and

  • Premium experience adjustments that relate to current or past service.

For reinsurance contracts held measured using the PAA, expected premium payments (net of premium taxes and excluding amounts that are paid regardless of claims) are recognized as an allocation of reinsurance premiums based on the passage of time. Amounts recovered from reinsurers includes incurred claims (excluding amounts that are paid regardless of claims) and expenses, loss recoveries and reversals of loss recoveries, and changes related to past service (e.g., changes in the asset for incurred claims in periods subsequent to the claim being incurred).

Insurance finance income (expenses)

Changes in the carrying value of insurance contracts issued not measured using the VFA and reinsurance contracts held that are due to changes in the time value of money and in financial risk are recognized in the Insurance finance income (expenses) line on the Consolidated Statements of Operations. For insurance contracts issued measured using the VFA, Insurance finance income (expenses) includes changes in the fair value of underlying items and changes not recognized in the CSM when the risk mitigation option is applied. We have elected to recognize all insurance finance income (expenses) in the Consolidated Statements of Operations and not in OCI, except for insurance finance income or expenses for certain joint ventures which are disaggregated between net income and OCI. These joint ventures are accounted for using the equity method of accounting. Consequently, insurance finance income or expenses are recognized through our share of net income in Net investment income (loss) in the Consolidated Statements of Operations and our share of OCI in our Consolidated Statements of Comprehensive Income (Loss). Insurance finance income (expense) for Insurance contract liabilities for account of segregated fund holders is discussed in the Segregated Funds section of this Note.

Segregated Funds

Segregated funds are products where the benefit amount is directly linked to the fair value of the investments held in the particular segregated fund. Although the underlying assets are registered in our name and the segregated fund contract holder has no direct access to the specific assets, the contractual arrangements are such that the segregated fund policyholders bear the risks and rewards of the fund’s investment performance. In addition, certain segregated funds contracts include guarantees from us. Segregated fund contracts are classified as insurance contracts or investment contracts following the classification criteria described in the Insurance Contracts section of this Note and Note 10.

Investments for Account of Segregated Fund Holders

Investments for account of segregated fund holders are recorded separately from the Total general fund assets in our Consolidated Statements of Financial Position and are carried at fair value. Fair values are determined using quoted market values or, where quoted market values are not available, estimated fair values as determined by us. Investments for account of segregated fund holders includes investments for contracts that are classified as insurance contracts and investments for contracts that are classified as investment contracts. Unrealized gains and losses and other investment income from investments for account of segregated fund holders classified as insurance contracts is reported as Net investment income (loss) within the Net investment result for insurance contracts for account of segregated fund holders in the Consolidated Statements of Operations. Such investment income (loss) will be offset by the corresponding increase or decrease in the insurance contract liabilities for account of segregated fund holders. Changes in the fair value of the investments for account of segregated fund holders classified as investment contracts are recorded in net realized and unrealized gains (losses) within the segregated fund and are not recorded in our Consolidated Statements of Operations.

Insurance Contract Liabilities for Account of Segregated Fund Holders

Segregated fund products classified as insurance contracts are contracts with direct participation features and are therefore measured using the VFA described in the Insurance contracts section of this Note. Insurance contract liabilities for these contracts are presented as two separate lines on the Consolidated Statements of Financial Position: Insurance contract liabilities excluding those for account of segregated fund holders, and Insurance contract liabilities for account of segregated fund holders. The Insurance contract liabilities for account of segregated fund holders represents the obligation to pay the policyholder an amount equal to the fair value of the underlying items. Changes in this obligation due to changes in fair value of the underlying items are recognized as Insurance finance income or expenses in the Net investment result for insurance contracts for account of segregated fund holders in the Consolidated Statements of Operations. Such insurance finance income or expenses will be offset by the corresponding increase or decrease in Investments for account of segregated fund holders. Deposits into and payments from the segregated funds are investment components and thus excluded from insurance revenue and insurance service expenses. The Insurance contract liabilities excluding those for account of segregated fund holders on the Consolidated

Statements of Financial Position includes the remaining insurance contract liabilities for these contracts, which comprises the provision for guarantees, future expenses (less future fees), the RA and the CSM. Revenue and expenses related to these items are included in the Insurance service result on the Consolidated Statements of Operations.

Investment Contract Liabilities for Account of Segregated Fund Holders

Investment contract liabilities for account of segregated fund holders are recorded separately from the Total general fund liabilities in our Consolidated Statements of Financial Position. The liabilities reported as Investment contracts for account of segregated fund holders are measured at the aggregate of the policyholder account balances. We derive fee income from segregated funds classified as investment contracts, which is included in Fee income in our Consolidated Statements of Operations. Deposits to segregated funds and payments made from segregated funds are reflected as increases or decreases in Investment contract liabilities for account of segregated fund holders and Investments for account of segregated fund holders and are not reported as revenues or expenses in our Consolidated Statements of Operations.

Financial Liabilities

Classification and initial measurement

Our financial liabilities are classified and measured at amortized cost, except for financial guarantees, derivative liabilities, and liabilities related to CLOs. Financial guarantees, derivative liabilities, and liabilities related to CLOs are classified as FVTPL. For further details on the liabilities related to CLOs, refer to Note 5.A.i. We may also designate certain investment contracts liabilities and third-party interests in consolidated funds at FVTPL on initial recognition, and once designated, the designation is irrevocable. Financial liabilities are designated at FVTPL if doing so either eliminates or significantly reduces accounting mismatch with the supporting assets or that the liabilities and supporting assets are managed together and their performance is evaluated on a fair value basis. Liabilities related to CLOs are designated at FVTPL on initial recognition as doing so either eliminates or significantly reduces an accounting mismatch with the supporting assets. The FVTPL designation is available only for those financial liabilities for which a reliable estimate of fair value can be obtained. All other investment contracts are measured at amortized cost using the effective interest rate method.

Subsequent measurement

Financial liabilities classified or designated at FVTPL are measured at fair value. Any interest expenses, foreign exchange gains (losses), and fair value changes that are not due to changes in own credit risk are recognized in Net investment income (loss) in the Consolidated Statements of Operations, unless they arise from derivatives designated as hedging instruments in net investment hedges. For financial liabilities designated at FVTPL, fair value changes attributable to changes in our own credit risk are recorded in OCI, and are not reclassified subsequently to Net investment income (loss) in the Consolidated Statements of Operations.

Financial liabilities at amortized cost are measured at fair value less transaction costs at initial recognition, and subsequently at amortized cost using the effective interest rate method. Interest expense and foreign exchange gains (losses) are recorded in Net investment income (loss) in the Consolidated Statements of Operations.

Derecognition

We generally derecognize a financial liability when the contractual obligations expire or are discharged or cancelled. We also derecognize a financial liability when the terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any new non-cash assets transferred or liabilities assumed) is recognized in the Consolidated Statements of Operations.

Investment Contract Liabilities

Contracts issued by us that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to us, are financial liabilities and are accounted for as investment contracts, unless they have DPF, in which case they are accounted for as insurance contracts (See Insurance Contracts). Distinct service components of investment contracts are treated as service contracts (See Service Contracts and Fee Income).

Investment contract liabilities without DPF are initially recognized at fair value, less transaction costs directly attributable to the issue of the contract, and are subsequently held at amortized cost using the effective interest rate method. Amortization is recorded as a Decrease (increase) in investment contract liabilities in our Consolidated Statements of Operations. Deposits collected from and payments made to contract holders are recorded as changes in our Investment contract liabilities balance in the Consolidated Statements of Financial Position. Investment contract liabilities are derecognized when the obligation of the contract is discharged, cancelled or expired. Investment contract liabilities without DPF include term certain payout annuities in Canada, accumulation annuities and guaranteed investment contracts in Canada, unit-linked products issued in Hong Kong, and non-unit linked pensions contracts issued in Hong Kong.

As discussed in the Segregated Funds section of this Note, investment contracts under which the policyholder bears the risks associated with the underlying investments are classified as Investment contracts for account of segregated fund holders in the Consolidated Statements of Financial Position.

Obligations for Securities Borrowing

The obligation for securities borrowing represents our commitment to deliver securities under the short sale program. Under the program, we short sell the securities that we borrowed from a third party. The obligation to return the securities is not recognized in the Consolidated Statements of Financial Position until they are sold, and the risks and rewards of ownership have been transferred. Upon recognition, they are measured at fair value. The securities borrowings are returnable to the lender upon demand or at our discretion.

Other Liabilities

Other liabilities, which are measured at amortized cost, include accounts payable, credit facilities, repurchase agreements, accrued expenses and taxes, senior financing, provisions, lessee’s lease liabilities and a deferred payment liability. Liabilities for provisions, other than those

reported with insurance contract liabilities and investment contract liabilities, are recognized for present legal or constructive obligations as a result of a past event if it is probable that they will result in an outflow of economic resources and the amount can be reliably estimated. The amounts recognized for these provisions are the best estimates of the expenditures required to settle the present obligations or to transfer them to a third party at the reporting date, considering all the inherent risks and uncertainties, as well as the time value of money. These provisions are reviewed as relevant facts and circumstances change.

Lease liabilities are measured as described in the Leases Section of this Note.

Other financial liabilities are measured at amortized cost, with the exception of CLOs which are measured at FVTPL. For put option liabilities, upon initial recognition, the present value is calculated using our incremental borrowing rate and subsequent revisions to the expected timing or amount of cash flows payable as well as interest expense will be recognized in the Consolidated Statements of Operations.

Senior Debentures and Subordinated Debt

Senior debentures and subordinated debt liabilities are recorded at amortized cost using the effective interest rate method. Transaction costs are recorded as part of the liability and are recognized in income using the effective interest rate method. These liabilities are derecognized when the obligation of the contract is discharged, cancelled or expired.

Service Contracts and Fee Income

Contracts issued by us that do not transfer significant insurance risk and do not transfer financial risk from the customer to us, including contracts for investment management service, are classified as service contracts. Distinct service components of insurance and investment contracts are also accounted for as service contracts.

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

Deferred acquisition costs arising from service contracts or investment contracts are amortized over the expected life of the contracts based on the future expected fees. Where the cost of meeting the obligations of the contract exceeds the economic benefits expected to be received under it, a provision is recognized in Other liabilities in our Consolidated Statements of Financial Position.

Income Taxes

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Current and deferred income tax relating to items recognized in the current or previous period in OCI or directly in equity is accordingly recognized in OCI or equity and not in our Consolidated Statements of Operations. Interest and penalties payable to taxation authorities are recorded in Interest expense and Operating expenses, respectively, in our Consolidated Statements of Operations.

Deferred income tax assets and liabilities are calculated based on income tax rates and laws that are expected to apply when the liability is settled or the asset is realized, which are normally those enacted or considered substantively enacted at the reporting date. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent that future taxable profit is expected to be available against which these assets can be utilized. At each reporting period, we assess all available evidence, both positive and negative, to determine the amount of deferred income tax assets to be recognized. The recognition of deferred income tax assets requires estimates and significant judgment about future events, such as projections of future taxable profits, based on the information available at the reporting date.

The determination of the required provision for current and deferred income taxes requires that we interpret tax legislation in the jurisdictions in which we operate. For each reporting period, our income tax provision reflects our best estimate, based on the information available at the reporting date, of tax positions that are under audit or appeal by relevant tax authorities. To the extent that our estimate of tax positions or the timing of realization of deferred income tax assets or liabilities are not as expected, the provision for income taxes may increase or decrease in the future to reflect the actual experience.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where we control the timing of the reversal of the temporary difference and it is apparent that the temporary difference will not reverse in the foreseeable future. No deferred income tax asset or liability is recognized in relation to temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, did not affect either the accounting profit or taxable profit or loss. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxable entity and the same taxation authority and we intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Pension Plans and Other Post-Retirement Benefits

For defined benefit plans, the present value of the defined benefit obligation is calculated by independent actuaries using the projected unit credit method, and actuarial assumptions that represent best estimates of future variables that will affect the ultimate cost of these obligations. The discount rate used for our significant defined benefit plans is determined with reference to market yields of high-quality corporate bonds that are denominated in the same currency in which the benefits will be paid, and that have terms to maturity approximating

the terms of obligations. Plan assets are measured at fair value and are held in separate trustee administered funds or as qualifying insurance contracts. The difference between the fair value of the plan assets and the present value of the defined benefit obligation is recognized on the Consolidated Statements of Financial Position as an asset or liability in Other assets or Other liabilities, respectively.

Costs charged to our Consolidated Statements of Operations include current service cost, any past service costs, any gains or losses from curtailments or settlements, and interest on the net defined benefit liability (asset). Remeasurement of the net defined benefit liability (asset), which includes the impact of changes to the actuarial assumptions underlying the liability calculations, liability experience gains or losses, the difference between the return on plan assets and the amount included in the interest on the net defined benefit liability (asset), is reflected immediately in OCI, except for other long-term employee benefits, which are recognized in our Consolidated Statements of Operations. The calculation of the defined benefit expenses and obligations requires judgment as the recognition is dependent on various actuarial assumptions such as discount rates, health care cost trend rates and projected compensation increases. These key assumptions are discussed in Note 24.

Dividends

Dividends payable to holders of shares of SLF Inc. are recognized in the period in which they are authorized or approved. Dividends that have been reinvested in additional common shares under the Dividend Reinvestment and Share Purchase Plan (“DRIP”) are also reflected as dividends within retained earnings. Where SLF Inc. has issued common shares from treasury under the DRIP, the additional shares have been reflected in common shares.

Share-Based Payments

Stock options of SLF Inc. granted to employees are accounted for as equity-settled share-based payment transactions. The total compensation expense for stock options is computed based on the fair value of the stock option at the date of grant and the estimated number of options expected to vest at the end of the vesting period. The expense is recognized over the vesting period as compensation expense in Operating expenses in our Consolidated Statements of Operations, with an offset to contributed surplus in our Consolidated Statements of Changes in Equity. When options are exercised, new common shares are issued, contributed surplus is reversed and the common shares issued are credited to common shares in our Consolidated Statements of Changes in Equity.

Other share-based payment plans based on the value of SLF Inc.’s common shares are accounted for as cash-settled share-based payment transactions. The total liabilities for these plans are computed based on the estimated number of awards expected to vest at the end of the vesting period. The liabilities are recomputed at the end of each reporting period and are measured at the fair value of the award at that reporting date. The liabilities are accrued and expensed on a straight-line basis over the vesting periods. The liabilities are settled in cash at the end of the vesting period.

Share-based payment awards within MFS Investment Management (“MFS”), which are based on their own shares, are accounted for as cash-settled share-based payment awards. The vested and unvested awards, as well as the shares that have been issued under these plans, are recognized as liabilities because MFS has a practice of purchasing the issued shares from employees after a specified holding period. The total liabilities for these plans are computed based on the estimated number of awards expected to vest at the end of the vesting period. The liabilities are accrued over the vesting period and are measured at fair value at each reporting period with the change in fair value recognized as compensation expense in Operating expenses in our Consolidated Statements of Operations. The liabilities are settled in cash when the shares are purchased from the employees.

Basic and Diluted Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing the common shareholders’ net income by the weighted average number of common shares issued and outstanding.

Diluted EPS adjusts common shareholders’ net income (loss) and the weighted average number of common shares for the effects of all dilutive potential common shares under the assumption that convertible instruments are converted and that outstanding options are exercised. Diluted EPS is calculated by dividing the adjusted common shareholders’ net income (loss) by the adjusted weighted average number of common shares outstanding. For convertible instruments, common shareholders’ net income (loss) is increased by the after-tax expense on the convertible instrument while the weighted average common shares are increased by the number of common shares that would be issued at conversion. For stock options, it is assumed that the proceeds from the exercise of options whose exercise price is less than the average market price of common shares during the period are used to repurchase common shares at the average market price for the period. The difference between the number of common shares issued for the exercise of the dilutive options and the number of common shares that would have been repurchased at the average market price of the common shares during the period is adjusted to the weighted average number of common shares outstanding.

2. Changes in Accounting Policies

  1. New and Amended International Financial Reporting Standards to be Adopted in 2026 or Later

    In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”) which replaces IAS 1 Presentation of Financial Statements. IFRS 18 introduces new requirements on presentation within the statement of profit or loss, disclosure of management-defined performance measures, and principles for aggregation and disaggregation of financial information in the financial statements and the notes. IFRS 18 will be effective for annual reporting periods beginning on or after January 1, 2027. IFRS 18 is to be applied retrospectively. We are currently assessing the impact that IFRS 18 will have on our Consolidated Financial Statements.

    In May 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7 Financial Instruments: Disclosures). The amendments clarify the timing for derecognizing financial liabilities and introduce an accounting policy choice to derecognize financial liabilities settled using electronic payment systems before the settlement date if certain

    conditions are met. We have chosen to apply this early derecognition for electronic payments. The amendments also clarify the assessment of contractual cash flow characteristic of financial assets that include environmental, social and corporate governance linked features and other similar contingent features not directly related to changes in basic lending risks; and introduced additional related disclosure requirements for financial instruments with such contingent features. The amendments will be effective for annual reporting periods beginning on or after January 1, 2026. The amendments are to be applied retrospectively with no restatement of comparative periods required. We do not expect the adoption of these amendments to have a material impact on our Consolidated Financial Statements.

  2. Other Changes in Accounting Policy

We have changed our accounting policy for certain joint ventures to disaggregate insurance finance income or expenses between net income (loss) and OCI. For these joint ventures, insurance finance income or expenses on our insurance contract liabilities were previously recorded through net income (loss), while the corresponding invested assets have historically been recorded at FVOCI. The invested assets and insurance contract liabilities are managed together and presenting insurance finance income or expenses through OCI reduces accounting mismatch. We account for these joint ventures using the equity method of accounting, whereby we recognize our share of net income (loss) in Net investment income (loss) in our Consolidated Statements of Operations and our share of OCI in our Consolidated Statements of Comprehensive Income (Loss). The impact of this change is not material to our share of net income (loss) or OCI in any individual prior period. We have processed an adjustment to increase opening Retained earnings by $213 and decrease Accumulated other comprehensive income by

$213 retroactively to January 1, 2024.


Bowtie Life Insurance Company Limited

On July 15, 2025, we acquired an additional interest in Bowtie Life Insurance Company Limited (“Bowtie”), which increased our ownership interest, excluding dilution, by approximately 11% and resulted in a total ownership interest of 55.8%. Total consideration was cash of $55. Our previously held interest in Bowtie was remeasured to its fair value of $224, which resulted in a pre-tax gain of $176. The gain was recognized in Net investment income (loss) on the Consolidated Statements of Operations.

Bowtie is a Hong Kong-based virtual insurer with a prominent position in medical insurance, and forms part of our Asia business segment. The acquisition reinforces our long-term partnership with Bowtie, and is aligned with our strategy to enhance insurance accessibility.

The fair values of the identifiable assets and liabilities acquired were:

As at July 15, 2025

Intangible assets and Goodwill(1)

$ 448

Net assets

60

Deferred tax liabilities

(8)

Total identifiable net assets at fair value

500

Non-controlling interests(2)

(221)

Existing ownership interest remeasured to fair value

(224)

Total consideration

$ 55

(1) Goodwill primarily reflects the expected growth of the business. Goodwill is not tax deductible.

(2) We have elected to measure NCI at fair value for this acquisition.

We have a contractual obligation to purchase existing equity from Bowtie’s management, employees, and existing shareholders in 2026. A $14 liability, measured at fair value, was recognized in Other liabilities and offset by a reduction to Retained earnings.

Other

On December 17, 2025, we entered into an implementation agreement to increase our ownership interest in our existing joint ventures in Malaysia to a majority stake for cash consideration of approximately $240. The proposed transaction is subject to regulatory approvals and the satisfaction of certain conditions and is expected to be completed in late 2026.

On March 21, 2024, we sold a portion of our investment in Aditya Birla Sun Life AMC Limited. As a result of the disposition, our ownership interest was reduced by 6.3% and we generated gross proceeds of $136, which included a realized gain of approximately $98 (pre-tax).

Subsequently on May 31, 2024, we completed the partial disposition through the sale of an additional 0.2% of ownership interest. After the disposition, we retained ownership of the listed entity of 30%.

We have five reportable business segments: Canada, U.S., Asset Management, Asia, and Corporate. These business segments operate in the financial services industry and reflect our management structure and internal financial reporting. Asset Management includes the results of our MFS and SLC Management business units. Corporate primarily includes our Corporate Support operations, which have investment income, expenses, capital, and other items not allocated to our other business groups.

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

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

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

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

For the year ended Canada U.S.

December 31, 2025

Insurance revenue:

Asset

Management Asia Corporate

Consolidation adjustments Total

Annuities

$ 2,233

$ 286

$ – $ 23

$ – $ –

$ 2,542

Life insurance

2,304

2,082

– 1,453

– –

5,839

Health insurance

4,683

10,568

– 350

– –

15,601

Total Insurance revenue

9,220

12,936

–

1,826

–

–

23,982

Net investment income (loss)

3,237

1,642

239

3,670

171

(100)

8,859

Fee income

1,954

534

6,624

353

190

(596)

9,059

Segment revenue(1)

14,411

15,112

6,863

5,849

361

(696)

41,900

Expenses:

Insurance service expenses

7,410

12,020

–

984

–

–

20,414

Reinsurance contract held net (income) expenses

163

(115)

–

46

–

–

94

Insurance finance (income) expenses from insurance

contracts issued

2,159

1,399

–

3,229

–

–

6,787

Reinsurance finance (income) expenses

17

(105)

–

19

–

–

(69)

(Decrease) increase in investment contract liabilities

320

–

–

3

–

–

323

Interest expenses

172

129

138

87

118

(118)

526

Operating expenses and commissions

2,137

1,123

5,038

591

716

(578)

9,027

Total expenses(1)

12,378

14,451

5,176

4,959

834

(696)

37,102

Income (loss) before income taxes

2,033

661

1,687

890

(473)

–

4,798

Less: Income tax expense (benefit)

513

116

428

79

(120)

–

1,016

Total net income (loss)

1,520

545

1,259

811

(353)

–

3,782

Less:

Net income (loss) allocated to the participating

account

118

25

–

51

–

–

194

Net income (loss) attributable to non-controlling interests

–

–

45

(8)

–

–

37

Shareholders’ net income (loss)

$ 1,402

$ 520

$ 1,214 $

768

$ (353)

$ –

$ 3,551

December 31, 2024

Insurance revenue:

Annuities

$ 2,063

$ 307

$ – $

25

$ –

$ –

$ 2,395

Life insurance

2,324

2,008

–

1,279

9

–

5,620

Health insurance

4,391

9,981

–

250

–

–

14,622

Total Insurance revenue

8,778

12,296

–

1,554

9

–

22,637

Net investment income (loss)

5,039

316

281

1,648

233

(102)

7,415

Fee income

1,771

489

6,391

329

162

(561)

8,581

Segment revenue(1)

15,588

13,101

6,672

3,531

404

(663)

38,633

Expenses:

Insurance service expenses

7,309

11,345

–

974

3

–

19,631

Reinsurance contract held net (income) expenses

4

(145)

–

56

–

–

(85)

Insurance finance (income) expenses from insurance

contracts issued

3,843

63

–

1,233

–

–

5,139

Reinsurance finance (income) expenses

81

(121)

–

(11)

–

–

(51)

(Decrease) increase in investment contract liabilities

390

–

–

3

–

–

393

Other income(2)

–

–

(163)

–

–

–

(163)

Interest expenses

262

116

172

105

123

(114)

664

Operating expenses and commissions

1,989

1,127

4,596

701

902

(549)

8,766

Total expenses(1)

13,878

12,385

4,605

3,061

1,028

(663)

34,294

Income (loss) before income taxes

1,710

716

2,067

470

(624)

–

4,339

Less: Income tax expense (benefit)

395

133

411

124

(23)

–

1,040

Total net income (loss)

1,315

583

1,656

346

(601)

–

3,299

Less:

Net income (loss) allocated to the participating

account

98

27

–

(83)

–

–

42

Net income (loss) attributable to non-controlling

interests

–

–

128

– – –

128

Shareholders’ net income (loss)

$ 1,217

$ 556

$ 1,528

$ 429 $ (601) $ –

$ 3,129

(1) Segment revenue and Total expenses exclude Investment result for insurance contracts for account of segregated fund holders.

(2) Relates to the early termination of a distribution agreement. We recognized income of $163 (pre-tax) and $46 (net of taxes, NCI impact and others) for the year ended December 31, 2024.

Assets and liabilities by segment are as follows:

Canada U.S.

Asset

Management Asia Corporate

Consolidation

adjustments Total

As at December 31, 2025

Total general fund assets

$ 124,049

$ 35,825

$ 10,537

$ 49,152

$ 12,770

$ (444)

$ 231,889

Investments for account of segregated fund holders

$ 159,020

$ 406

$ –

$ 7,140

$ –

$ –

$ 166,566

Total general fund liabilities

$ 117,923

$ 29,321

$ 7,371

$ 43,018

$ 9,208

$ (444)

$ 206,397

As at December 31, 2024

Total general fund assets

$ 120,987

$

37,006

$

11,066

$

43,158

$

10,044

$

(326)

$ 221,935

Investments for account of

segregated fund holders

$ 140,900

$ 429

$ –

$ 7,457

$ –

$ –

$ 148,786

Total general fund liabilities

$ 114,300

$ 30,495

$ 7,858

$ 37,780

$ 5,699

$ (326)

$ 195,806

The revenue and assets of our business segments differ from geographic segments primarily due to the geographic segmenting of our Asset Management and Corporate segments.

The following table shows revenue by country for Asset Management and Corporate:

Asset Management Corporate

For the years ended December 31,

2025

2024

2025

2024

Revenue:

United States

$ 6,101

$ 5,995

$ 174

$ 180

United Kingdom

229

245

–

–

Canada

292

282

7

53

Other countries

241

150

180

171

Segment revenue

$ 6,863

$ 6,672

$ 361

$ 404

The following table shows total assets by country for Asset Management and Corporate:

Asset Management Corporate

As at December 31,

2025

2024

2025

2024

Total general fund assets: United States

$ 8,490

$ 9,027

$ 5,201

$ 5,161

United Kingdom

1,100

1,047

–

–

Canada

718

785

7,455

4,758

Other countries

229

207

114

125

Total general fund assets

$ 10,537

$ 11,066

$ 12,770

$ 10,044

5. Invested Assets and Net Investment Income

  1. Fair Value of Financial Instruments

    1. Carrying Value and Fair Value of Financial Assets and Financial Liabilities

      The carrying values and fair values of our financial assets and liabilities are shown in the following table:

      As at

      December 31, 2025

      December 31, 2024

      Carrying value Fair value

      Carrying value Fair value

      Financial assets

      Cash, cash equivalents and short-term securities – FVTPL

      $ 14,841

      $ 14,841

      $ 13,873

      $ 13,873

      Debt securities – FVTPL(1)

      72,599

      72,599

      68,106

      68,106

      Debt securities – FVOCI

      13,019

      13,019

      13,849

      13,849

      Equity securities – FVTPL

      12,179

      12,179

      9,900

      9,900

      Equity securities – FVOCI

      71

      71

      74

      74

      Mortgages and loans – FVTPL(2)

      55,157

      55,157

      53,233

      53,233

      Mortgages and loans – FVOCI

      2,733

      2,733

      2,525

      2,525

      Mortgages and loans – Amortized cost(3)

      1,543

      1,521

      1,861

      1,814

      Derivative assets – FVTPL

      1,534

      1,534

      1,971

      1,971

      Other financial invested assets (excluding CLOs) – FVTPL(4)

      8,161

      8,161

      7,950

      7,950

      Other financial invested assets (CLOs) – FVTPL(5)

      6,213

      6,213

      5,356

      5,356

      Total(6)

      $ 188,050

      $ 188,028

      $ 178,698

      $ 178,651

      Financial liabilities

      Investment contract liabilities – Amortized cost

      $ 11,796

      $ 11,796

      $ 11,678

      $ 11,678

      Obligations for securities borrowing – FVTPL

      267

      267

      239

      239

      Derivative liabilities – FVTPL

      2,065

      2,065

      2,077

      2,077

      Other financial liabilities – Amortized cost(7)

      2,244

      2,245

      2,265

      2,214

      Other financial liabilities (CLOs) – FVTPL(5)

      5,846

      5,846

      5,028

      5,028

      Total(8)

      $ 22,218

      $ 22,219

      $ 21,287

      $ 21,236

      (1) Includes primarily debt securities that are designated at FVTPL.

      (2) Includes primarily mortgages and loans that are designated at FVTPL.

      (3) Certain mortgages and loans are carried at amortized cost. The fair value of these mortgages and loans, for disclosure purposes, is determined based on the methodology and assumptions described in Note 5.A.iii. As at December 31, 2025, $1,502 and $19 are categorized in Level 2 and Level 3, respectively, of the fair value hierarchy described in this Note (December 31, 2024 – $1,787 and $27, respectively).

      (4) Other financial invested assets include our investments in segregated funds, mutual funds, and limited partnerships.

      (5) See below for details on CLOs.

      (6) Invested assets on our Consolidated Statements of Financial Position of $199,175 (December 31, 2024 – $189,817) include Total financial assets in this table, Investment properties of $9,432 (December 31, 2024 – $9,290), and Other non-financial invested assets of $1,693 (December 31, 2024 –

      $1,829). Other non-financial invested assets consist of investment in associates and joint ventures which are not consolidated.

      (7) Amount reflects the obligations to purchase outstanding shares of certain SLC Management subsidiaries.

      (8) Total financial liabilities excluding Senior debentures (Note 12) and Subordinated debt (Note 13).


      Collateralized Loan Obligations Structure

      Crescent Capital Group LP, a subsidiary within our Asset Management business segment, issues and manages CLOs. Each CLO is a special purpose vehicle that owns a portfolio of investments, consisting primarily of senior secured loans, and issues various tranches of senior and subordinated notes to third parties for the purpose of financing the purchase of those investments. Assets of the special purpose vehicle, the senior secured loans, are included in Other financial invested assets and the associated liabilities, the senior and subordinated notes issued to third parties, are included in Other liabilities in our Consolidated Statements of Financial Position.

      As at December 31, 2025, the carrying value of the assets related to CLOs are $6,213 (December 31, 2024 – $5,356), which consists of cash and accounts receivable of $691 (December 31, 2024 – $679) and loans of $5,522 (December 31, 2024 – $4,677). These underlying loans are mainly below investment grade.

      As at December 31, 2025, the carrying value of the liabilities related to CLOs are $5,846 (December 31, 2024 – $5,028). Our maximum contractual exposure to loss related to the CLOs is limited to our investment of $291 (December 31, 2024 – $263) in the most subordinated tranche. The net unrealized loss incurred to date is $120.

    2. Non-Financial Invested Assets

      Non-financial invested assets consist of investment properties, investment in associates and joint ventures which are not consolidated. As at December 31, 2025, the carrying value and fair value of investment properties was $9,432 (December 31, 2024 – $9,290) and $9,432 (December 31, 2024 – $9,290), respectively. The carrying value of other non-financial invested assets which were measured using the equity method of accounting was $1,693 as at December 31, 2025 (December 31, 2024 – $1,829).

    3. Fair Value Methodologies and Assumptions

      The specific inputs and valuation techniques used to determine the fair value of our invested assets and financial liabilities are noted below:

      Cash, cash equivalents and short-term securities

      Cash equivalents are highly liquid investments that are subject to insignificant changes in value and are readily convertible into known amounts of cash. Cash equivalents comprise financial assets with maturities of three months or less from the date of acquisition. Short-term securities comprise financial assets with maturities of greater than three months and less than one year when acquired. Cash, cash equivalents and short-term securities are accounted for at FVTPL.

      Government and corporate debt securities

      The fair value of government and corporate debt securities is primarily determined using unadjusted quoted prices in active markets for identical or similar securities, where available. When quoted prices in active markets are not available, fair value is determined using market standard valuation methodologies, which include a discounted cash flow method, consensus pricing from various broker dealers that are typically the market makers, or other similar techniques. The assumptions and valuation inputs in applying these market standard valuation methodologies are determined primarily using observable market inputs, which include, but are not limited to, benchmark yields, reported trades of identical or similar instruments, broker-dealer quotes, issuer spreads, bid prices, and reference data including market research publications. In limited circumstances, non-binding broker quotes are used.

      Asset-backed securities

      The fair value of asset-backed securities is primarily determined using unadjusted quoted prices in active markets for identical or similar securities, where available, or valuation methodologies and valuation inputs similar to those used for government and corporate debt securities. Additional valuation inputs include structural characteristics of the securities, and the underlying collateral performance, such as prepayment speeds and delinquencies. Expected prepayment speeds are based primarily on those previously experienced in the market at projected future interest rate levels. In limited circumstances where there is a lack of sufficient observable market data to value the securities, non-binding broker quotes are used.

      Equity securities

      The fair value of equity securities is determined using unadjusted quoted prices in active markets for identical securities or similar securities, where available. When quoted prices in active markets are not available, fair value is determined using equity valuation models, which include a discounted cash flow method and other techniques that involve benchmark comparison. Valuation inputs primarily include projected future operating cash flows and earnings, dividends, market discount rates, and earnings multiples of comparable companies. Where equity securities are less frequently traded, the most recent exchange-quoted pricing is used to determine fair value.

      Mortgages and loans

      The fair value of mortgages and loans is determined by discounting the expected future contractual cash flows using a current market interest rate applicable to financial instruments with a similar yield, credit quality, and maturity characteristics. Valuation inputs typically include benchmark yields and risk-adjusted spreads from current internal lending activities or loan issuances. Valuation inputs also include external lending activities or loan issuances from both public and private markets, enhancing the market observability of inputs. The risk-adjusted spreads are determined based on the borrower’s credit and liquidity, as well as term and other loan-specific features.

      Derivative financial instruments

      The fair value of derivative financial instruments depends upon derivative types. The fair value of exchange-traded futures and options is determined using unadjusted quoted prices in active markets, where available, while the fair value of over-the-counter (“OTC”) derivatives is determined using pricing models, such as a discounted cash flow method or other market standard valuation techniques, with primarily observable market inputs. Valuation inputs used to price OTC derivatives may include swap interest rate curves, foreign exchange spot and forward rates, index prices, the value of underlying securities, projected dividends, volatility surfaces, and in limited circumstances, counterparty quotes. The fair value of OTC derivative instruments also includes credit valuation adjustments to reflect the credit risk of both the derivative counterparty and ourselves as well as the impact of contractual factors designed to reduce our credit exposure, such as collateral and legal rights of offset under master netting agreements. Inputs into determining the appropriate credit valuation adjustments are typically obtained from publicly available information and include credit default swap spreads when available, credit spreads derived from specific bond yields, or published cumulative default experience data adjusted for current trends when credit default swap spreads are not available.

      Other financial invested assets

      The fair value of other financial invested assets consists primarily of limited partnership investments which is based on net asset value (“NAV”) provided by management of the limited partnership investments. Based on the unobservable nature of these NAVs, we do not assess whether applying reasonably possible alternative assumptions would have an impact on the fair value of the limited partnership investments.

      Investment properties

      The fair value of investment properties is generally determined using property valuation models that are based on expected capitalization rates and models that discount expected future net cash flows at current market interest rates reflective of the characteristics, location, and market of each property. Expected future net cash flows include contractual and projected cash flows and forecasted operating expenses, and take into account interest, rental and occupancy rates derived from market surveys. The estimates of future cash inflows, in addition to expected rental income from current leases, include projected income from future leases based on significant assumptions that are consistent with current market conditions. The future rental rates are estimated based on the location, type and quality of the properties, and take into account market data and projections at the valuation date. The fair values are typically compared to market-based information for reasonability, including recent transactions involving comparable assets. The methodologies and inputs used in these models are in accordance with real estate industry valuation standards. Valuations are prepared externally or internally by professionally accredited real estate appraisers.

      Investments for account of segregated fund holders

      The fair value of investments for account of segregated fund holders is determined using unadjusted quoted prices in active markets or independent valuation information provided by investment managers. The fair value of direct investments within investments for accounts of segregated fund holders, such as short-term securities and government and corporate debt securities, is determined according to valuation methodologies and inputs described above in the respective asset type sections.

      Investment contract liabilities

      The fair value of investment contracts is measured through the use of prospective discounted cash flow method. For unit-linked contracts, the fair value is equal to the current unit fund value, plus additional non-unit liability amounts on a fair value basis if required. For non-unit-linked contracts, the fair value is equal to the present value of contractual cash flow. The fair value of the investment contract liabilities approximate their carrying values due to the nature of the contracts.

      Obligations for securities borrowing

      The fair values of these obligations are based on the fair value of the underlying securities, which can include debt or equity securities. The method used to determine fair value is based on the quoted market prices where available in an active market.

      Other financial liabilities

      The fair value of other financial liabilities is determined using the discounted contractual cash flow methodology at the incremental borrowing rate or the effective interest rate, where available. Other financial liabilities categorized as Level 3 represent the present value of the estimated price we would pay to acquire any remaining outstanding shares upon exercise of a put option and any mandatory income distributions. The fair value of the liabilities is based on the average earnings before income tax, depreciation and amortization (“EBITDA”) for the preceding years before the options’ exercise dates and EBITDA multiples in accordance with the put agreements as well as the expected amount of any mandatory income distributions. A change in EBITDA would impact the fair value of other financial liabilities and our net income (loss).

      Collateralized loan obligations

      The fair value of underlying assets within our CLOs is determined primarily using observable market inputs, such as quoted prices for similar assets in active markets and other observable market data.

      The fair value of underlying liabilities within our CLOs is determined by discounting expected future contractual cash flows using a current market interest rate applicable to financial instruments with a similar yield, credit quality, maturity characteristics, and structural credit protections. The valuation technique maximizes the use of observable inputs that incorporates comparable securities’ prices and other market intelligence.

    4. Fair Value Hierarchy

      We categorize our assets and liabilities carried at fair value, based on the priority of the inputs to the valuation techniques used to measure fair value, into a three-level fair value hierarchy as follows:

      Level 1: Fair value based on the unadjusted quoted prices for identical instruments in active markets represents a Level 1 valuation. Where possible, valuations are based on quoted prices or observable inputs obtained from active markets. The types of assets and liabilities classified as Level 1 generally include cash and cash equivalents, certain U.S. government and agency securities, exchange-traded equity securities, and certain segregated and mutual fund units held for account of segregated fund holders.

      Level 2: Fair value is based on quoted prices for similar assets or liabilities traded in active markets, or prices from valuation techniques that use significant observable inputs, or inputs that are derived principally from or corroborated with observable market data through correlation or other means. When a fair value is based on all significant market observable inputs, the valuation is classified as Level 2. Financial instruments traded in a less active market are valued using indicative market prices, the present value of cash flows or other valuation methods. The types of assets and liabilities classified as Level 2 generally include Canadian federal, provincial and municipal government, other foreign government and corporate debt securities, certain asset-backed securities, repurchase agreements, OTC derivatives, and certain segregated and mutual fund units held for account of segregated fund holders

      Level 3: Fair value is based on valuation techniques that require one or more significant inputs that are not based on observable market inputs. These unobservable inputs reflect our expectations about the assumptions market participants would use in pricing the asset or liability.

      Where financial instruments trade in inactive markets or when using models where observable parameters do not exist, significant management judgment is required for valuation methodologies and model inputs. The types of assets and liabilities classified as Level 3 generally include certain corporate bonds, certain asset-backed securities, certain other financial invested assets, investment properties, and certain segregated and mutual fund units held for account of segregated fund holders.

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

      As at December 31, 2025 December 31, 2024

      Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

      Assets

      Cash, cash equivalents and short-term securities – FVTPL

      $ 13,705

      $ 1,136

      $ –

      $ 14,841

      $ 13,243

      $ 630

      $ –

      $ 13,873

      Debt securities – FVTPL

      973

      70,804

      822

      72,599

      463

      67,126

      517

      68,106

      Debt securities – FVOCI

      394

      12,507

      118

      13,019

      505

      13,193

      151

      13,849

      Equity securities – FVTPL

      8,200

      3,972

      7

      12,179

      6,331

      3,358

      211

      9,900

      Equity securities – FVOCI

      –

      –

      71

      71

      –

      –

      74

      74

      Mortgages and loans – FVTPL

      –

      54,568

      589

      55,157

      –

      50,933

      2,300

      53,233

      Mortgages and loans – FVOCI

      –

      2,711

      22

      2,733

      –

      2,512

      13

      2,525

      Derivative assets – FVTPL

      171

      1,363

      –

      1,534

      28

      1,943

      –

      1,971

      Other financial invested assets

      (excluding CLOs) – FVTPL(1)

      813

      218

      7,130

      8,161

      859

      211

      6,880

      7,950

      Other financial invested assets (CLOs) –

      FVTPL(2)

      –

      6,213

      –

      6,213

      –

      5,356

      –

      5,356

      Investment properties – FVTPL

      –

      –

      9,432

      9,432

      –

      –

      9,290

      9,290

      Total invested assets measured at fair

      value

      $ 24,256

      $ 153,492

      $ 18,191

      $ 195,939

      $ 21,429

      $ 145,262

      $ 19,436

      $ 186,127

      Investments for account of segregated

      fund holders – FVTPL 17,325

      148,778

      463

      166,566

      17,253

      131,074

      459

      148,786

      Total assets measured at fair value $ 41,581

      $302,270

      $ 18,654

      $362,505

      $ 38,682

      $276,336

      $ 19,895

      $ 334,913

      Liabilities

      Obligations for securities borrowing –

      FVTPL

      $ 7

      $ 260

      $ – $ 267

      $ 4

      $ 235

      $ – $ 239

      Derivative liabilities – FVTPL

      94

      1,971

      – 2,065

      28

      2,049

      – 2,077

      Other financial liabilities (CLOs) –

      FVTPL(2)

      –

      5,846

      –

      5,846

      –

      5,028

      –

      5,028

      Investment contract liabilities for

      account of segregated fund holders –

      FVTPL

      – –

      146,458

      146,458

      – –

      128,689

      128,689

      Total liabilities measured at fair value

      $ 101 $ 8,077

      $146,458

      $ 154,636

      $ 32 $ 7,312

      $ 128,689

      $ 136,033

      (1) Other financial invested assets (excluding CLOs) – FVTPL include our investments in segregated funds, mutual funds, and limited partnerships.

      (2) For details on CLOs, refer to Note 5.A.i.

      Debt securities at FVTPL consist of the following:

      As at

      December 31, 2025

      December 31, 2024

      Level 1

      Level 2 Level 3

      Total

      Level 1

      Level 2 Level 3

      Total

      Canadian federal government $ –

      $ 7,413 $ –

      $

      7,413

      $ –

      $ 6,790 $ 13

      $

      6,803

      Canadian provincial and municipal

      government

      –

      15,843

      –

      15,843

      –

      15,302

      –

      15,302

      U.S. government and agency

      973

      151

      –

      1,124

      463

      163

      –

      626

      Other foreign government

      –

      3,233

      52

      3,285

      –

      3,762

      34

      3,796

      Corporate

      –

      34,680

      751

      35,431

      –

      32,929

      465

      33,394

      Asset-backed securities:

      Commercial mortgage-backed securities

      –

      2,100

      –

      2,100

      –

      2,163

      –

      2,163

      Residential mortgage-backed securities

      –

      4,464

      –

      4,464

      –

      3,539

      –

      3,539

      Collateralized debt obligations

      –

      915

      19

      934

      –

      352

      1

      353

      Other

      –

      2,005

      –

      2,005

      –

      2,126

      4

      2,130

      Total debt securities at FVTPL

      $ 973

      $ 70,804

      $ 822

      $ 72,599

      $ 463

      $ 67,126

      $ 517

      $ 68,106

      Debt securities at FVOCI consist of the following:

      As at

      December 31, 2025

      December 31, 2024

      Level 1

      Level 2

      Level 3

      Total

      Level 1

      Level 2

      Level 3

      Total

      Canadian federal government $ –

      $ 480

      $ –

      $ 480

      $ –

      $ 734

      $ –

      $ 734

      Canadian provincial and municipal

      government

      –

      237

      –

      237

      –

      353

      –

      353

      U.S. government and agency

      387

      8

      –

      395

      501

      8

      –

      509

      Other foreign government

      7

      335

      14

      356

      4

      397

      12

      413

      Corporate

      –

      6,772

      85

      6,857

      –

      7,529

      90

      7,619

      Asset-backed securities:

      Commercial mortgage-backed securities

      –

      1,284

      –

      1,284

      –

      1,084

      –

      1,084

      Residential mortgage-backed securities

      –

      1,129

      –

      1,129

      –

      1,159

      11

      1,170

      Collateralized debt obligations

      –

      1,155

      19

      1,174

      –

      673

      38

      711

      Other

      –

      1,107

      –

      1,107

      –

      1,256

      –

      1,256

      Total debt securities at FVOCI

      $ 394

      $ 12,507

      $ 118

      $ 13,019

      $ 505

      $ 13,193

      $ 151

      $ 13,849

      Mortgages and loans at FVTPL consist of the following:

      As at December 31, 2025 December 31, 2024

      Level 1

      Level 2

      Level 3

      Total

      Level 1

      Level 2

      Level 3

      Total

      Mortgages:

      Retail

      $ – $ 2,256

      $ 5

      $ 2,261

      $ – $ 2,472

      $ 12

      $ 2,484

      Office

      – 2,318

      8

      2,326

      – 2,602

      12

      2,614

      Multi-family residential

      – 2,864

      –

      2,864

      – 2,887

      –

      2,887

      Industrial

      – 3,562

      –

      3,562

      – 3,447

      –

      3,447

      Other

      – 888

      –

      888

      – 1,034

      –

      1,034

      Corporate loans

      – 42,680

      576

      43,256

      – 38,491

      2,276

      40,767

      Total mortgages and loans at FVTPL

      $ – $ 54,568

      $ 589

      $ 55,157

      $ – $ 50,933

      $ 2,300

      $ 53,233

      Mortgages and loans at FVOCI consist of the following:

      As at December 31, 2025 December 31, 2024

      Level 1

      Level 2

      Level 3

      Total

      Level 1

      Level 2

      Level 3

      Total

      Mortgages:

      Retail $ –

      $ 75

      $ –

      $ 75

      $ –

      $ 83

      $ –

      $ 83

      Office –

      38

      –

      38

      –

      19

      –

      19

      Multi-family residential –

      155

      –

      155

      –

      79

      –

      79

      Industrial –

      231

      –

      231

      –

      236

      –

      236

      Corporate loans –

      2,212

      22

      2,234

      –

      2,095

      13

      2,108

      Total mortgages and loans at FVOCI $ –

      $ 2,711

      $ 22

      $ 2,733

      $ –

      $ 2,512

      $ 13

      $ 2,525

      There were no significant transfers between Level 1 and Level 2 for the year ended December 31, 2025 and December 31, 2024.

      The following table provides a reconciliation of the beginning and ending balances for assets that are categorized in Level 3:

      For the year ended

      Debt securities at FVTPL

      Debt securities at FVOCI

      Equity securities at FVTPL

      Equity securities at FVOCI

      Mortgages and loans at FVTPL

      Mortgages and loans at FVOCI

      Other financial invested assets

      at FVTPL

      Investment properties at FVTPL

      Total invested assets measured

      at fair value

      Investments for account

      of segregated fund holders

      Total assets measured

      at fair value

      December 31, 2025

      Beginning balance $ 517

      $ 151

      $ 211

      $ 74

      $ 2,300

      $ 13

      $ 6,880

      $ 9,290

      $ 19,436

      $ 459

      $ 19,895

      Included in net income

      (loss)(1)(2)(3) 3

      –

      (5)

      –

      (48)

      (2)

      39

      (277)

      (290)

      12

      (278)

      Included in OCI(2) –

      4

      –

      –

      –

      (2)

      –

      –

      2

      –

      2

      Purchases / Issuances 537

      277

      –

      –

      196

      46

      828

      626

      2,510

      84

      2,594

      Sales / Payments (42)

      (13)

      (127)

      –

      (154)

      (10)

      (539)

      (142)

      (1,027)

      (65)

      (1,092)

      Settlements (2)

      (7)

      –

      –

      (2)

      (2)

      –

      –

      (13)

      (1)

      (14)

      Transfers into Level 3(4) 15

      –

      –

      –

      328

      –

      –

      –

      343

      –

      343

      Transfers (out) of

      Level 3(4) (173)

      (284)

      (72)

      –

      (2,029)

      (21)

      –

      –

      (2,579)

      (1)

      (2,580)

      Foreign currency

      translation(5) (33)

      (10)

      –

      (3)

      (2)

      –

      (78)

      (65)

      (191)

      (25)

      (216)

      Ending balance $ 822

      $ 118

      $ 7

      $ 71

      $ 589

      $ 22

      $ 7,130

      $ 9,432

      $ 18,191

      $ 463

      $ 18,654

      Unrealized gains (losses)

      included in net income (loss) relating to instruments still held(1)

      $ 2

      $ –

      $ (5)

      $ –

      $ (59)

      $ (3)

      $ 65

      $ (283)

      $ (283)

      $ –

      $ (283)

      December 31, 2024

      Beginning balance

      $ 402

      $ 187

      $ 113

      $ 68

      $ 2,056

      $ –

      $ 6,074

      $ 9,723

      $ 18,623

      $ 341

      $ 18,964

      Included in net income (loss)(1)(2)(3)

      2

      –

      20

      –

      33

      –

      251

      (455)

      (149)

      (8)

      (157)

      Included in OCI(2)

      –

      5

      –

      –

      –

      –

      –

      –

      5

      –

      5

      Purchases / Issuances

      436

      335

      77

      –

      240

      22

      825

      146

      2,081

      173

      2,254

      Sales / Payments

      (48)

      (47)

      (1)

      –

      (133)

      –

      (389)

      (255)

      (873)

      (62)

      (935)

      Settlements

      (37)

      (50)

      –

      –

      (21)

      –

      –

      –

      (108)

      (1)

      (109)

      Transfers into Level 3(4)

      117

      62

      –

      –

      439

      6

      –

      –

      624

      –

      624

      Transfers (out) of Level 3(4)

      (367)

      (341)

      –

      –

      (320)

      (15)

      (15)

      –

      (1,058)

      –

      (1,058)

      Foreign currency translation(5)

      12

      –

      2

      6

      6

      –

      134

      131

      291

      16

      307

      Ending balance $ 517

      $ 151

      $ 211

      $ 74

      $ 2,300

      $ 13

      $ 6,880

      $ 9,290

      $ 19,436

      $ 459 $ 19,895

      Unrealized gains (losses) included in net income (loss) relating to

      instruments still held(1) $ (6)

      $ –

      $ 19

      $ –

      $ 30

      $ –

      $ 247

      $ (369)

      $ (79)

      $ – $ (79)

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

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

      (3) Investment properties included in net income (loss) is comprised of fair value changes on investment properties of $(241) (2024 – $(383)), net of amortization of leasing commissions and tenant inducements of $36 (2024 – $72). As at December 31, 2025, we have used assumptions that reflect known changes in the property values including changes in expected future cash flows.

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

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


      Unobservable Inputs and Sensitivity for Level 3 Assets

      Our assets categorized in Level 3 of the fair value hierarchy are primarily Investment properties, Mortgages and loans, Debt securities and Other invested assets (financial and non-financial).

      The fair value of Investment properties is determined by using the discounted cash flow methodology as described in Note 5.A.iii. The key unobservable inputs used in the valuation of investment properties as at December 31, 2025 include the following:

      • Estimated rental value: The estimated rental value is based on contractual rent and other local market lease transactions, net of reimbursable operating expenses. An increase (decrease) in the estimated rental value would result in a higher (lower) fair value. The estimated rental value varies depending on the property types, which include retail, office, and industrial properties. The estimated rental value (in dollars, per square foot, per annum) ranges from $12.00 to $76.00 for retail and office properties and from $3.00 to

        $21.00 for industrial properties.

      • Rental growth rate: The rental growth rate is typically estimated based on expected market behaviour, which is influenced by the type of property and geographic region of the property. An increase (decrease) in the rental growth rate would result in a higher (lower) fair

        value. The rental growth rate (per annum) ranges from 0.00% to 3.60%, however the one- to two-year short-term rent curve is either below or above this range for select properties.

      • Long-term vacancy rate: The long-term vacancy rate is typically estimated based on expected market behaviour, which is influenced by the type of property and geographic region of the property. An increase (decrease) in the long-term vacancy rate would result in a lower (higher) fair value. The long-term vacancy rate ranges from 0.00% to 25.00%.

      • Discount rate: The discount rate is derived from market activity across various property types and geographic regions and is a reflection of the expected rate of return to be realized on the investment over the next 10 years. An increase (decrease) in the discount rate would result in a lower (higher) fair value. The discount rate ranges from 5.50% to 10.00%.

      • Terminal capitalization rate: The terminal capitalization rate is derived from market activity across various property types and geographic regions and is a reflection of the expected rate of return to be realized on the investment over the remainder of its life after the 10-year period. An increase (decrease) in the terminal capitalization rate would result in a lower (higher) fair value. The terminal capitalization rate ranges from 4.50% to 8.50%.

      Changes in the estimated rental value are positively correlated with changes in the rental growth rate. Changes in the estimated rental value are negatively correlated with changes in the long-term vacancy rate, the discount rate, and the terminal capitalization rate.

      Our Mortgages and loans, categorized in Level 3, are included in Mortgages and loans – FVTPL and Mortgages and loans – FVOCI in the Level 3 roll forward table, and Mortgages and loans – Amortized cost in Note 5.A.i. The fair value of these mortgages and loans is determined by using the discounted cash flow methodology. The key unobservable inputs used in the valuation of mortgages and loans as at

      December 31, 2025 include credit spreads and liquidity adjustments. The credit spread is the difference between the instrument yield and the benchmark yield. The benchmark yield is determined by matching each asset by geography, sector, rating and maturity to a matrix comprised of spreads of publicly available corporate bonds. In some cases, a liquidity premium or discount may be applied if recent private spreads differ from public spreads. The credit spreads range from 2.00% to 3.00%. The liquidity adjustments range from a discount of 0.50% to a premium of 1.00%. Changes in the fair value of mortgages and loans are negatively correlated with changes in credit spread and liquidity adjustments.

      Our Debt securities categorized in Level 3, which are included in Debt securities – FVTPL and Debt securities – FVOCI in the Level 3 roll forward table, consist primarily of corporate bonds. The fair value of these corporate bonds is generally determined using broker quotes that cannot be corroborated with observable market transactions. Significant unobservable inputs for these corporate bonds would include issuer spreads, which are comprised of credit, liquidity, and other security-specific features of the bonds. A decrease (increase) in these issuer spreads would result in a higher (lower) fair value. Due to the unobservable nature of these broker quotes, we do not assess whether applying reasonably possible alternative assumptions would have an impact on the fair value of the Level 3 corporate bonds. The majority of our debt securities categorized in Level 3 are FVTPL assets supporting insurance contract liabilities. Changes in the fair value of these assets supporting insurance contract liabilities are largely offset by changes in the corresponding insurance contract liabilities. As a result, though using reasonably possible alternative assumptions may have an impact on the fair value of the Level 3 debt securities, it would not have a significant impact on our Consolidated Financial Statements.

      The Other financial invested assets categorized in Level 3, which are included in Other financial invested assets – FVTPL and Other financial invested assets – FVOCI in the Level 3 roll forward table, consists primarily of limited partnership investments. The fair value of our limited partnership investments is based on NAV provided by management of the limited partnership investments. Based on the unobservable nature of these NAVs, we do not assess whether applying reasonably possible alternative assumptions would have an impact on the fair value of the Level 3 limited partnership investments.

      Valuation Process for Level 3 Assets

      Our assets categorized in Level 3 of the fair value hierarchy are primarily Investment properties, Debt securities (including asset-backed securities), Mortgages and loans and limited partnership investments included in Other financial invested assets. Our valuation processes for these assets are as follows:

      The fair value of investment properties are based on the results of appraisals performed quarterly and reviewed for material changes. The valuation methodology used to determine the fair value is in accordance with the standards of the Appraisal Institute of Canada and the U.S. Investment properties are appraised externally at least once every three years. Investment properties not appraised externally in a given year are reviewed by qualified appraisers. A management committee, including investment professionals, reviews the fair value of investment properties for overall reasonability.

      The fair value of mortgages and loans is based on an internal discounted cash flow model, subject to detailed review and validation to ensure overall reasonability.

      The fair value of debt securities is generally obtained by external pricing services. We obtain an understanding of inputs and valuation methods used by external pricing services. When fair value cannot be obtained from external pricing services, broker quotes, or internal models subject to detailed review and validation processes are used. The fair value of debt securities is subject to price validation and review procedures to ensure overall reasonability.

      The fair value of limited partnership investments, included in Other financial invested assets, is based on NAV. The financial statements used in calculating the NAV are generally audited annually. We review the NAV of the limited partnership investments and perform analytical and other procedures to ensure the fair value is reasonable.

      Investment contract liabilities for account of segregated fund holders can be surrendered and units in the segregated funds can be redeemed by the holder at any time. Accordingly, the fair value of investments for account of segregated fund holders represent the net assets of the segregated funds and are not less than the amount payable on demand.

  2. Net Investment Income (Loss)

    For the years ended

    December 31, 2025

    December 31, 2024

    Financial

    Financial

    Financial

    Financial

    Instruments

    Instruments

    Instruments

    Instruments

    at FVOCI

    at FVTPL Other(1)

    Total

    at FVOCI

    at FVTPL Other(1) Total

    Interest income (expense):

    Cash, cash equivalents and

    short-term investments

    $ –

    $ 412

    $ –

    $ 412

    $ –

    $ 537

    $ –

    $ 537

    Debt securities

    571

    3,216

    –

    3,787

    604

    2,894

    –

    3,498

    Mortgages and loans

    152

    2,719

    57

    2,928

    138

    2,661

    64

    2,863

    Derivative investments

    –

    (26)

    –

    (26)

    –

    (38)

    –

    (38)

    Other financial invested assets

    2

    405

    –

    407

    1

    362

    –

    363

    Other financial liabilities

    –

    (336)

    (120)

    (456)

    –

    (299)

    (165)

    (464)

    Total interest income (expense)

    725

    6,390

    (63)

    7,052

    743

    6,117

    (101)

    6,759

    Dividend and other investment

    income:

    Equity securities

    –

    297

    –

    297

    –

    254

    –

    254

    Other financial invested assets

    –

    336

    –

    336

    –

    313

    –

    313

    Total dividend and other

    investment income

    –

    633

    –

    633

    –

    567

    –

    567

    Net realized and unrealized

    gains (losses):

    Cash, cash equivalents and short-term investments

    –

    (9)

    –

    (9)

    –

    8

    –

    8

    Debt securities

    275

    (423)

    –

    (148)

    162

    (824)

    –

    (662)

    Equity securities

    –

    1,881

    –

    1,881

    –

    1,218

    –

    1,218

    Mortgages and loans

    14

    719

    –

    733

    30

    650

    –

    680

    Derivative investments

    –

    (942)

    –

    (942)

    –

    (1,347)

    –

    (1,347)

    Other financial assets

    2

    (170)

    –

    (168)

    1

    406

    –

    407

    Other financial liabilities

    –

    31

    –

    31

    –

    (44)

    –

    (44)

    Total net realized and

    unrealized gains (losses)

    291

    1,087

    –

    1,378

    193

    67

    –

    260

    Provision for credit losses

    (11)

    –

    (1)

    (12)

    3

    –

    (7)

    (4)

    Net investment income (loss)

    from financial instruments

    $ 1,005

    $ 8,110

    $ (64)

    $ 9,051

    $ 939

    $ 6,751

    $ (108)

    $ 7,582

    Net Investment income (loss) from non-financial instruments:

    Investment properties

    rental income $ –

    $ –

    $ 685

    $ 685

    $ –

    $ –

    $ 664

    $ 664

    Investment properties expenses –

    –

    (274)

    (274)

    –

    –

    (265)

    (265)

    Investment expenses and taxes –

    –

    (292)

    (292)

    –

    –

    (278)

    (278)

    Fair value changes on

    investment properties –

    –

    (241)

    (241)

    –

    –

    (383)

    (383)

    Other investment income (loss) –

    –

    92

    92

    –

    –

    323

    323

    Foreign exchange gains (losses) –

    –

    (64)

    (64)

    –

    –

    116

    116

    Net investment income (loss) from non-financial

    instruments $ –

    $ –

    $ (94)

    $ (94)

    $ –

    $ –

    $ 177

    $ 177

    Total Net investment income

    (loss)(2) $ 1,005

    $ 8,110

    $ (158)

    $ 8,957

    $ 939

    $ 6,751

    $ 69

    $ 7,759

    (1) Primarily includes investment income (loss) on financial instruments carried at amortized cost, investment properties, and equity method investments.

    (2) Net investment income (loss) recognized in income is $8,859 (December 31, 2024 – $7,415) and net investment income (loss) recognized in OCI is

    $98 (December 31, 2024 – $344).

  3. Explanation of Investment Result

    Net investment result excluding result for account of segregated fund holders consists of the following:

    Insurance Reinsurance

    Non-

    contracts

    contracts

    Total

    insurance

    For the year ended December 31, 2025 Issued

    held

    insurance

    (all other) Total

    Net investment income (loss):

    Net investment income (loss) recognized in net income

    $ – $ – $ 7,539

    $ 1,320

    $ 8,859

    Net investment income (loss) recognized in OCI

    – – 120

    (22)

    98

    Total net investment income (loss)

    – – 7,659

    1,298

    8,957

    Total insurance finance income (expenses) recognized in net income:

    Effect of time value of money (Interest on carrying value)

    including interest on policy loans and interest on amounts

    on deposit

    (3,479)

    140

    (3,339)

    –

    (3,339)

    Impact of change in discount rate on fulfilment cash flows

    excluding where measured at locked-in rates and effect of changes in financial risk

    483

    (67)

    416

    –

    416

    Application of risk mitigation option(1)

    203

    –

    203

    –

    203

    Changes in fair value of underlying items for contracts with

    direct participation features (excluding segregated funds)

    (4,144)

    –

    (4,144)

    –

    (4,144)

    Foreign exchange gains (losses)

    (20)

    –

    (20)

    –

    (20)

    Other

    170

    (4)

    166

    –

    166

    Total insurance finance income (expenses) recognized in income

    (6,787)

    69

    (6,718)

    –

    (6,718)

    Decrease (increase) in investment contract liabilities

    –

    –

    –

    (323)

    (323)

    Net investment result

    $ –

    $ –

    $ 941

    $ 975

    $ 1,916

    Net investment result recognized in net income

    $ –

    $ –

    $ 821

    $ 997

    $ 1,818

    Net investment result recognized in OCI

    $ –

    $ –

    $ 120

    $ (22)

    $ 98

    Insurance

    Reinsurance

    Non-

    contracts

    contracts

    Total

    insurance

    For the year ended December 31, 2024 Issued

    held

    insurance

    (all other) Total

    Net investment income (loss):

    Net investment income (loss) recognized in net income

    $ – $ – $ 5,894

    $ 1,521

    $ 7,415

    Net investment income (loss) recognized in OCI

    – – 12

    332

    344

    Total net investment income (loss)

    – – 5,906

    1,853

    7,759

    Total insurance finance income (expenses) recognized in net income:

    Effect of time value of money (Interest on carrying value)

    including interest on policy loans and interest on amounts

    on deposit

    (4,474)

    190

    (4,284)

    –

    (4,284)

    Impact of change in discount rate on fulfilment cash flows

    excluding where measured at locked-in rates and effect of changes in financial risk

    1,683

    (135)

    1,548

    –

    1,548

    Application of risk mitigation option(1)

    225

    –

    225

    –

    225

    Changes in fair value of underlying items for contracts with

    direct participation features (excluding segregated funds)

    (2,642)

    –

    (2,642)

    –

    (2,642)

    Foreign exchange gains (losses)

    49

    –

    49

    –

    49

    Other

    20

    (4)

    16

    –

    16

    Total insurance finance income (expenses) recognized in income

    (5,139)

    51

    (5,088)

    –

    (5,088)

    Decrease (increase) in investment contract liabilities

    –

    –

    –

    (393)

    (393)

    Net investment result

    $ –

    $ –

    $ 818

    $ 1,460

    $ 2,278

    Net investment result recognized in net income

    $ –

    $ –

    $ 806

    $ 1,128

    $ 1,934

    Net investment result recognized in OCI

    $ –

    $ –

    $ 12

    $ 332

    $ 344

    (1) Changes in our share of the fair value of underlying items and FCF arising from changes in the effect of financial risk that are mitigated by the use of derivatives and non-derivative financial instruments are recognized in income rather than adjusting the CSM. These amounts are offset by changes in the fair value of the derivatives and non-derivative financial instruments included in Investment income. The amount above would have resulted in an adjustment to the CSM if it was recorded to the CSM.


  4. Cash, Cash Equivalents and Short-Term Securities

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

    As at December 31,

    2025

    2024

    Cash

    $ 2,498

    $ 2,294

    Cash equivalents

    7,187

    7,835

    Short-term securities

    5,156

    3,744

    Cash, cash equivalents and short-term securities

    14,841

    13,873

    Less: Bank overdraft, recorded in Other liabilities

    86

    175

    Net cash, cash equivalents and short-term securities

    $ 14,755

    $ 13,698


  5. Derivative Financial Instruments and Hedging Activities

    We apply hedge accounting to minimize volatility in income and equity caused by changes in interest rates or foreign exchange rates. Interest rate and currency fluctuations will either cause assets and liabilities to appreciate or depreciate in market value or cause variability in forecasted cash flows. When a hedging relationship is effective, gains, losses, revenue and expenses of the hedging instrument will offset the gains, losses, revenue and expenses of the hedged item. Derivatives used in hedging relationships are recorded in Derivative assets or Derivative liabilities on the Consolidated Statements of Financial Position.

    1. Derivatives Held for Risk Management

      We use other derivatives, not designated in a qualifying hedging relationship (“Derivatives investments”), to manage exposure to foreign currency, interest rate, and equity market. The instruments used include principally interest rate swaps, cross-currency swaps, forward contracts, interest rate futures, interest rate options, credit and swaps and equity swaps.

      The following table describes the fair value of derivatives held for risk management purposes by type of risk exposure:

      As at December 31,

      2025

      2024

      Assets

      Liabilities

      Assets

      Liabilities

      Interest rate contracts:

      Derivative investments

      $ 207

      $ (1,091)

      $ 392

      $ (822)

      Total interest rate derivatives

      $ 207

      $ (1,091)

      $ 392

      $ (822)

      Foreign exchange contracts:

      Designated as cash flow hedges

      $ 1

      $ (2)

      $ 8

      $ (3)

      Derivative investments

      1,028

      (865)

      1,403

      (1,195)

      Total foreign exchange derivatives

      $ 1,029

      $ (867)

      $ 1,411

      $ (1,198)

      Other contracts:

      Designated as cash flow hedges

      $ 34

      $ –

      $ 43

      $ –

      Derivative investments

      264

      (107)

      125

      (57)

      Total other contracts

      $ 298

      $ (107)

      $ 168

      $ (57)

      Total derivative contracts

      $ 1,534

      $ (2,065)

      $ 1,971

      $ (2,077)

      The maturity analysis of the notional amounts and the average rates (or weighted average rates, if applicable) and prices of the hedging instruments are disclosed in Note 6.A.iv.

    2. Hedge Accounting

      Cash flow hedges

      We use pay fixed/receive floating interest rate and cross-currency interest rate swaps to hedge the interest rate risks in respect of the benchmark interest rate (mainly sterling and Euribor or Sterling Overnight Index Average (“SONIA”), Secured Overnight Financing Rate (“SOFR”)) and foreign currency risks (mainly U.S. dollar and sterling or SONIA, SOFR) from its issuance of floating-rate notes denominated in foreign currencies. We hedge interest rate risk to the extent of benchmark interest rate exposure on its floating-rate notes to mitigate variability in its cash flows. Hedge accounting is applied where economic hedging relationships meet the hedge accounting criteria.

      We also hedge the variability of cash payments associated with changes in SLF Inc.’s common share prices using total return forwards. This is related to our Sun Share Unit (“Sun Share”) Plan as a long-term incentive award to executive employees.

      Our exposure to market risk and our approach to managing market risk, including interest rate risk and foreign currency risk, are discussed in Note 6.

      We determine the amount of the exposure to which it applies hedge accounting by assessing the potential impact of changes in interest rates and foreign currency exchange rates on the future cash flows from its issuance of floating-rate notes denominated in foreign currencies. This assessment is performed using analytical techniques, such as cash flow sensitivity analysis.

      We manage our exposure to credit risk of the counterparties to the derivatives, which is not offset by the hedged items, in a similar manner as described above for the fair value hedges.

      We determine whether an economic relationship exists between the cash flows of the hedged item and hedging instrument based on an evaluation of the qualitative characteristics of these items and the hedged risk that is supported by quantitative analysis. We consider whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of an economic relationship. We evaluate whether the cash flows of the hedged item and the hedging instrument respond similarly to the hedged risk, such as the benchmark interest rate or foreign currency. For cash flow hedging relationships directly impacted by IBOR (“Interbank Offered Rate”) reform (i.e. hedges of U.S. dollar London Inter-Bank Offered Rate (“LIBOR”) and sterling LIBOR), the cash flows of the hedged item and hedging instrument will not be altered as a result of IBOR reform. We further support this qualitative assessment by using regression analysis to assess whether the hedging instrument is expected to be and has been highly effective in offsetting changes in the present value of the hedged item. We assess hedge effectiveness using the hypothetical derivative method, which creates a derivative instrument to serve as a proxy for the hedged transaction. The terms of the hypothetical derivative match the critical terms of the hedged item and it has a fair value of zero at inception. We assess whether the derivative designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in cash flows of the hedged item (prospectively and retrospectively) using this regression analysis.

      Potential sources of hedge ineffectiveness can be attributed to differences between hedging instruments and hedge items:

      • The effect of the counterparty and our own credit risk on the fair value of the interest rate swap, which is not reflected in the fair value of the hedged item attributable to the change in interest rate.

      • Differences in maturities of the interest rate swap and the loans or debt securities.

      • Mismatches in the frequency and timing of when interest rates are reset and frequency of payment.

      • Differences in the discounting factors between the hedged item and hedging instrument.

      There were no other sources of ineffectiveness in these hedging relationships.

      The maturity analysis of the notional amounts and the average rates (or weighted average rates, if applicable) and prices of the hedging instruments are disclosed in Note 6.A.iv.

      The amounts relating to items designated as hedging instruments were as follows:

      For the years ended December 31, 2025 2024

      Hedging risks Hedged Item

      Accumulated other comprehensive income from active hedges

      Accumulated other comprehensive income from active hedges

      Foreign exchange risk(1)

      Variable rate liabilities(2)

      $ 20

      $ 14

      Equity risk

      Share-based payment(3)

      $ (19)

      $ (10)

      (1) Cross-currency swap may be used to hedge foreign exchange risk, or a combination of interest rate risk and foreign exchange risk in a single hedge relationship. Cross-currency swaps in both type of hedge relationships are disclosed in the above risk category (foreign exchange risk).

      (2) Hedged items include other financial liabilities.

      (3) Hedged items includes other liabilities.

      The amounts relating to the effectiveness of hedging relationships were as follows:

      Gain (losses) on

      Unrealized gains (losses) included in

      Other comprehensive

      Hedging risks Hedged Item

      Gains (losses) on

      hedged items for ineffectiveness measurement

      hedging

      instruments for ineffectiveness measurement

      Hedge ineffectiveness

      income as the effective portion of

      the hedging instrument

      Losses (gains) reclassified to Net interest income

      For the year ended December 31, 2025

      Foreign exchange risk(1)

      Equity risk

      Variable rate

      liabilities(2) $ 1 $ (1) $ – $ (21) $ 21

      Share-based

      payment(3) $ (32) $ 34 $ 2 $ 14 $ (18)

      For the year ended December 31, 2024

      Foreign exchange risk(1)

      Equity risk

      Variable rate

      liabilities(2) $ (5) $ 5 $ – $ 69 $ (76)

      Share-based

      payment(3) $ (42) $ 43 $ 1 $ 57 $ (41)

      (1) Cross-currency swap may be used to hedge foreign exchange risk, or a combination of interest rate risk and foreign exchange risk in a single hedge relationship. Cross-currency swaps in both type of hedge relationships are disclosed in the above risk category (foreign exchange risk).

      (2) Hedged items include other financial liabilities, that are floating rate obligations.

      (3) Hedged items include other liabilities, representing share-based payment awards.


    3. Reconciliation of Components of Equity

      The following table provides a reconciliation by risk category of the accumulated other comprehensive income and analysis of OCI items resulting from hedge accounting:

      For the years ended December 31,

      2025

      2024

      Cash flow hedges:

      Balance, beginning of year

      $ 4

      $ (1)

      Effective portion of changes in fair value:

      Foreign currency risk(1)

      (21)

      69

      Equity price risk

      14

      57

      Net amount reclassified to income (loss):

      Foreign currency risk(1)

      21

      (76)

      Equity price risk

      (18)

      (41)

      Related tax

      1

      (4)

      Balance, end of year

      $ 1

      $ 4

      (1) Cross-currency swap may be used to hedge foreign exchange risk, or a combination of interest rate risk and foreign exchange risk in a single hedge relationship. Cross-currency swaps in both type of hedge relationships are disclosed in the above risk category (foreign exchange risk).


  6. Transfers of Financial Assets

    We enter into transactions, including mortgage securitization, repurchase agreements and securities lending, where we transfer financial assets while retaining the risks and rewards of ownership of the assets. These transferred financial assets are not derecognized and remain on our Consolidated Statements of Financial Position. The carrying value of the transferred assets and the associated liabilities are described in the sections below.

    1. Mortgage Securitization

      We securitize certain insured fixed-rate commercial mortgages through the creation of mortgage-backed securities under the National Housing Act Mortgage-Backed Securities (“NHA MBS”) Program sponsored by the Canada Mortgage and Housing Corporation (“CMHC”). The NHA MBS are then sold to Canada Housing Trust, a government-sponsored security trust that issues securities to third-party investors under the Canadian Mortgage Bond (“CMB”) program. The securitization of these assets does not qualify for derecognition as we have not transferred substantially all of the risks and rewards of ownership. Specifically, we continue to be exposed to pre-payment and interest rate risk associated with these assets. There is no ECL on the securitized mortgages, as the mortgages were already insured by the CMHC prior to securitization. These assets continue to be recognized as Mortgages and loans in our Consolidated Statements of Financial Position. Proceeds from securitization transactions are recognized as secured borrowings and included in Other liabilities in our Consolidated Statements of Financial Position.

      Receipts of principal on the securitized mortgages are deposited into a principal reinvestment account (“PRA”) to meet our repayment obligation upon maturity under the CMB program. The assets in the PRA are typically comprised of cash and cash equivalents and certain asset-backed securities. We are exposed to reinvestment risk due to the amortizing nature of the securitized mortgages relative to our repayment obligation for the full principal amount due at maturity. We mitigate this reinvestment risk using interest rate swaps.

      The carrying value and fair value of the securitized mortgages as at December 31, 2025 are $1,205 and $1,181, respectively (December 31, 2024

      – $1,555 and $1,505, respectively). The carrying value and fair value of the associated liabilities as at December 31, 2025 are $1,431 and $1,407, respectively (December 31, 2024 – $1,854 and $1,807, respectively). The carrying value of securities in the PRA as at December 31, 2025 is

      $229 (December 31, 2024 – $302). There are $nil cash and cash equivalents in the PRA as at December 31, 2025 and December 31, 2024.

      The fair value of the secured borrowings from mortgage securitization is based on the methodologies and assumptions for asset-backed securities described in Note 5.A.iii. The fair value of these liabilities is categorized in Level 2 of the fair value hierarchy as at

      December 31, 2025 and December 31, 2024.

    2. Repurchase Agreements

      We enter into repurchase agreements for operational funding and liquidity purposes. Repurchase agreements have maturities ranging from 12 to 365 days, averaging 89 days, and bear interest at an average rate of 2.38% as at December 31, 2025 (December 31, 2024 – 3.52%). The carrying values of the transferred assets and the obligations related to their repurchase, which approximate their fair values, are $2,861 as at December 31, 2025 (December 31, 2024 – $2,840). These liabilities are categorized in Level 2 of the fair value hierarchy. Collateral primarily consists of cash and cash equivalents as well as government guaranteed securities. Details on the collateral pledged are included in Note 6.A.ii.

    3. Securities Lending

The Company engages in securities lending to generate additional income. Certain securities from its portfolio are lent to other institutions for short periods. Collateral exceeding the fair value of the securities lent is deposited by the borrower with a lending agent, usually a securities custodian, and maintained by the lending agent until the underlying security has been returned to us. The fair value of the securities lent is monitored on a daily basis with additional collateral obtained or refunded as the fair values fluctuate. Collateral primarily consists of Canadian federal and provincial government securities and cash and cash equivalents. Certain arrangements allow us to invest the cash collateral received for the securities lent. The carrying values of the securities lent approximate their fair values. The carrying values of the securities lent and the related collateral held are $2,360 and $2,486, respectively, as at December 31, 2025 (December 31, 2024 – $2,377 and

$2,506, respectively). Of the collateral held, we held cash collateral of $170 as at December 31, 2025 (December 31, 2024 – $194), which is recognized on our Consolidated Statements of Financial Position.

Notes to the Consolidated Financial Statements

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Sun Life Financial Inc. published this content on March 24, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on March 24, 2026 at 20:59 UTC.