• Core earnings will remain a key performance metric and the definition will be adapted to align with IFRS 17. Under the revised definition, core earnings will exclude items such as the direct impact of markets and interest rates, including investment experience from ALDA, realized gains and losses on fixed income assets, hedge ineffectiveness, and changes in methods and assumptions recorded directly in profit or loss. We believe that the revised core earnings definition represents our operating performance and the long-term earnings capacity of the business. • The treatment of new business gains under IFRS 17 is materially different from IFRS 4. The CSM is an intrinsic part of the value of an insurance business and is a measure of growth and future earnings generation capability. This highlights the importance of the CSM as a GAAP performance measure and as such, upon adoption, we will be adding two new medium-term targets: i. 15% growth per year for new business CSM, and ii. 8% to 10% growth per year in the CSM balance. In 1Q22, we confirmed our medium-term financial and operating targets under IFRS 17, and upon adoption, will adjust certain targets as 1 follows : • Core ROE will be increased to 15%+ (from 13%+ currently) due to the expected changes to core earnings and equity, 2 • Common share core dividend payout ratio will be increased to 35% to 45% (from 30% to 40% currently) due to the expected changes to core earnings, and • Leverage ratio definition will be adjusted to include the CSM in the denominator given that the CSM represents unearned profit and available capital under LICAT. 3 We reported $246 million (post-tax) from the impact of new business , which is included in core earnings and net income attributed to shareholders in 4Q22 (4Q21 – $295 million). On a year-to-date basis, the impact of new business was $879 million (post-tax) in 2022 (2021 – $1,115 million). Risks related to the new standards include: • The impact on our business strategy as a result of temporary volatility. The Company’s capital position and income for accounting purposes could be influenced by prevailing market conditions, resulting in volatility of reported results, which may require changes to business strategies. The impact to business strategy could include changes to hedging and investment strategy, product strategy and the use of reinsurance and, as a result, could impact our exposures to other risks such as counterparty risk and liquidity risk. • The impact of accounting mismatches from derivatives used for economic hedging purposes. Under CALM, both changes in insurance contract liabilities and changes in the fair value of derivatives used to economically hedge these liabilities are recognized in income, which results in a natural offset in net income. Under IFRS 17, we will elect the option to record changes in insurance contract liabilities arising from changes in interest rates through other comprehensive income (the “OCI option”). In certain circumstances, some derivatives that are used for economic hedging purposes do not qualify for hedge accounting under IFRS 9, and therefore the election of the OCI option could result in a mismatch in accounting net income, as changes in the fair value of these derivatives would be recorded in net income, while the impact of changes in discount rates on insurance contract liabilities would be recorded in other comprehensive income. In addition, if derivatives used for economic hedging purposes qualify for hedge accounting, IFRS 9 requires that the difference, if any, between the impact of changes in discount rates on the hedged portion of insurance contract liabilities and the change in the fair value of the hedging derivatives be reported in net income as hedge ineffectiveness. • The impact on tax. In certain jurisdictions, including Canada, the implementation of IFRS 17 could have a material effect on tax positions and other financial metrics that are dependent upon IFRS accounting values. • The impact of inconsistencies in timing of adoption among various jurisdictions. As a global insurer with subsidiaries in Asia and other jurisdictions, regional differences in effective dates will require us to maintain more than one set of financial records to support both consolidated financial statements and for local subsidiary reporting requirements. Additional Risk Factors That May Affect Future Results Other factors that may affect future results include changes in government trade policy, monetary policy or fiscal policy; including interest rates policy from central banks; political conditions and developments in or affecting the countries in which we operate; technological changes; public infrastructure disruptions; changes in consumer spending and saving habits; the possible impact on local, national or global economies from public health or natural disaster emergencies, and international conflicts and other developments including those relating to terrorist activities. Although we take steps to anticipate and minimize risks in general, unforeseen future events may have a negative impact on our business, financial condition and results of operations. We caution that the preceding discussion of risks that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to our Company, investors and others should carefully consider the foregoing risks, as well as other uncertainties and potential events, and other external and Company specific risks that may adversely affect the future business, financial condition or results of operations of our Company. 1 See “Caution regarding forward-looking statements” above. 2 This item is a non-GAAP ratio. See “Non-GAAP and other financial measures” below for more information. 3 The impact of new business represents the financial impact of all new business written in the period, including acquisition expenses. 84 | 2022AnnualReport | Management’sDiscussionandAnalysis