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FINANCIAL INSTRUMENTS | 6 Months Ended
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Jun. 30, 2022
Disclosure of detailed information about financial instruments [abstract] |
FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS a)Summary of cash and cash equivalents, investments and derivative assets and liabilities The summary of financial assets and financial liabilities is as follows:
|  | 2022
AS AT JUN. 30 US$ MILLIONS |  | FVTPL 1 |  | AFS |  | Amortized Cost |  | Total
Cash and cash equivalents |  |  |  |  |  |  |  |
Cash |  | $ | — |  |  | $ | — |  |  | $ | 685 |  |  | $ | 685 |
Cash equivalents |  | — |  |  | — |  |  | 1,399 |  |  | 1,399 |
Total cash and cash equivalents 2 |  | — |  |  | — |  |  | 2,084 |  |  | 2,084 |
Derivatives |  |  |  |  |  |  |  |
Foreign exchange forwards |  | 6 |  |  | — |  |  | — |  |  | 6 |
Cross currency swaps |  | 1 |  |  | — |  |  | — |  |  | 1 |
Options |  | 17 |  |  | — |  |  | — |  |  | 17 |
Total derivative assets |  | 24 |  |  | — |  |  | — |  |  | 24 |
Debt securities |  |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |  |
Government and Municipal |  | 362 |  |  | 2,042 |  |  | — |  |  | 2,404 |
Corporate |  | 1,834 |  |  | 13,469 |  |  | — |  |  | 15,303 |
Asset-backed securities |  | 228 |  |  | 720 |  |  | — |  |  | 948 |
Private debt |  | — |  |  | 209 |  |  | 13 |  |  | 222 |
Total debt securities |  | 2,424 |  |  | 16,440 |  |  | 13 |  |  | 18,877 |
Equity |  |  |  |  |  |  |  |
Common shares |  | — |  |  | 538 |  |  | — |  |  | 538 |
Preferred shares |  | 14 |  |  | 70 |  |  | — |  |  | 84 |
Private equity and other |  | — |  |  | 297 |  |  | — |  |  | 297 |
Total equity |  | 14 |  |  | 905 |  |  | — |  |  | 919 |
Loans and receivables |  |  |  |  |  |  |  |
Mortgage loans |  | — |  |  | — |  |  | 5,523 |  |  | 5,523 |
Private loans |  | — |  |  | — |  |  | 551 |  |  | 551 |
Other loans |  | — |  |  | — |  |  | 372 |  |  | 372 |
Total loans and receivables |  | — |  |  | — |  |  | 6,446 |  |  | 6,446 |
Short term investments |  |  |  |  |  |  |  |
Commercial paper |  | — |  |  | — |  |  | 655 |  |  | 655 |
Total short term investments |  | — |  |  | — |  |  | 655 |  |  | 655 |
Separately managed accounts |  | — |  |  | 118 |  |  | — |  |  | 118 |
Other invested assets |  | — |  |  | 19 |  |  | 16 |  |  | 35 |
Total investments |  | 2,438 |  |  | 17,482 |  |  | 7,130 |  |  | 27,050 |
Investment properties |  | — |  |  | — |  |  | 545 |  |  | 545 |
Separate account assets |  | — |  |  | 1,059 |  |  | — |  |  | 1,059 |
Reinsurance funds withheld |  | 4,861 |  |  | — |  |  | — |  |  | 4,861 |
Derivative liabilities |  |  |  |  |  |  |  |
Foreign exchange forwards |  | (9) |  |  | — |  |  | — |  |  | (9) |
Cross currency swaps |  | (20) |  |  | — |  |  | — |  |  | (20) |
Total derivative liabilities |  | (29) |  |  | — |  |  | — |  |  | (29) |
Funds withheld liabilities |  | (10) |  |  | — |  |  | — |  |  | (10) |
Separate account liabilities |  | — |  |  | (1,059) |  |  | — |  |  | (1,059) |
Notes payable |  | — |  |  | — |  |  | (159) |  |  | (159) |
1. All financial instruments measured at FVTPL have been designated as FVTPL at initial recognition except for derivative assets and liabilities, which are financial assets that are held for trading. 2. Cash and cash equivalents as at June 30, 2022 includes $59 million of collateral that is pledged to the benefit of the Company from its derivative counterparties with a corresponding liability to return the collateral in liabilities for derivative financial instruments.
|  | 2021
AS AT DEC. 31 US$ MILLIONS |  | FVTPL 1 |  | AFS |  | Amortized Cost |  | Total
Cash and cash equivalents |  |  |  |  |  |  |  |
Cash |  | $ | — |  |  | $ | — |  |  | $ | 320 |  |  | $ | 320 |
Cash equivalents |  | — |  |  | — |  |  | 73 |  |  | 73 |
Total cash and cash equivalents |  | — |  |  | — |  |  | 393 |  |  | 393 |
Derivatives |  |  |  |  |  |  |  |
Foreign exchange forwards |  | 10 |  |  | — |  |  | — |  |  | 10 |
Bond futures |  | 9 |  |  | — |  |  | — |  |  | 9 |
Options |  | 127 |  |  | — |  |  | — |  |  | 127 |
Total derivative assets |  | 146 |  |  | — |  |  | — |  |  | 146 |
Debt securities |  |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |  |
Government and Municipal |  | 377 |  |  | 1,287 |  |  | — |  |  | 1,664 |
Corporate |  | 1,471 |  |  | 253 |  |  | — |  |  | 1,724 |
Asset-backed securities |  | 115 |  |  | 53 |  |  | — |  |  | 168 |
Private debt |  | — |  |  | 208 |  |  | — |  |  | 208 |
Total debt securities |  | 1,963 |  |  | 1,801 |  |  | — |  |  | 3,764 |
Equity |  |  |  |  |  |  |  |
Common shares |  | — |  |  | 275 |  |  | — |  |  | 275 |
Preferred shares |  | 4 |  |  | 14 |  |  | — |  |  | 18 |
Private equity and other |  | — |  |  | 247 |  |  | — |  |  | 247 |
Total equity |  | 4 |  |  | 536 |  |  | — |  |  | 540 |
Loans and receivables |  |  |  |  |  |  |  |
Mortgage loans |  | — |  |  | — |  |  | 23 |  |  | 23 |
Private loans |  | — |  |  | — |  |  | 616 |  |  | 616 |
Total loans and receivables |  | — |  |  | — |  |  | 639 |  |  | 639 |
Total investments |  | 1,967 |  |  | 2,337 |  |  | 639 |  |  | 4,943 |
Reinsurance funds withheld |  | 4,650 |  |  | — |  |  | — |  |  | 4,650 |
Derivative liabilities |  |  |  |  |  |  |  |
Interest rate swaps |  | (1) |  |  | — |  |  | — |  |  | (1) |
Total derivative liabilities |  | (1) |  |  | — |  |  | — |  |  | (1) |
Funds withheld liabilities |  | (12) |  |  | — |  |  | — |  |  | (12) |
1. All financial instruments measured at FVTPL have been designated as FVTPL at initial recognition except for derivative assets and liabilities, which are financial assets that are held for trading. The Company assesses that the carrying value of the financial assets measured at amortized cost approximates their fair value. AFS investments and investments measured at amortized cost are individually evaluated for impairment. For the six months ended June 30, 2022, the Company did not incur any impairment expense (June 30, 2021 – $Nil). The Company had collateral pledged of $160 million as at June 30, 2022 (December 31, 2021 – $23 million) for the benefit of the Company's counterparties primarily to its derivative instrument contracts, Federal Home Loan Bank agreements, reinsurance agreements, financing and worker's compensation. b)Fair value hierarchy Investments measured at fair value are classified in accordance with a valuation hierarchy that reflects the significance of the inputs used in determining their fair value, as per IFRS 13 Fair Value Measurement. Under Level 1 of this hierarchy, fair value is derived from unadjusted quoted prices in active markets for identical investments. Under Level 2, fair value is derived from market inputs that are directly or indirectly observable other than unadjusted quoted prices for identical investments. Under Level 3, fair value is derived from inputs that are not based on observable market data. The following sets out the financial assets and financial liabilities classified in accordance with the above-mentioned fair value hierarchy, excluding financial assets and financial liabilities that are carried at amortized cost.
|  | 2022
AS AT JUN. 30 US$ MILLIONS |  | Level 1 |  | Level 2 |  | Level 3 |  |  |  | Total
Financial assets |  |  |  |  |  |  |  |  |  |
Fair value through profit or loss: |  |  |  |  |  |  |  |  |  |
Bonds |  | $ | — |  |  | $ | 2,196 |  |  | $ | — |  |  |  |  | $ | 2,196 |
Asset-backed securities |  | — |  |  | 228 |  |  | — |  |  |  |  | 228 |
Preferred shares |  | 14 |  |  | — |  |  | — |  |  |  |  | 14 |
Derivative assets |  | 3 |  |  | 21 |  |  | — |  |  |  |  | 24 |
Reinsurance funds withheld |  | — |  |  | 4,861 |  |  | — |  |  |  |  | 4,861 |
Available for sale: |  |  |  |  |  |  |  |  |  |
Bonds |  | 587 |  |  | 14,555 |  |  | 369 |  |  |  |  | 15,511 |
Asset-backed securities |  | — |  |  | 621 |  |  | 99 |  |  |  |  | 720 |
Private debt |  | — |  |  | — |  |  | 209 |  |  |  |  | 209 |
Common shares |  | 494 |  |  | 41 |  |  | 3 |  |  |  |  | 538 |
Preferred shares |  | 31 |  |  | — |  |  | 39 |  |  |  |  | 70 |
Private equity and other |  | 13 |  |  | — |  |  | 284 |  |  |  |  | 297 |
Other invested assets |  | — |  |  | 19 |  |  | — |  |  |  |  | 19 |
Separate account assets |  | 315 |  |  | 715 |  |  | 29 |  |  |  |  | 1,059 |
Separately managed accounts |  | — |  |  | — |  |  | 118 |  |  |  |  | 118 |
Total financial assets |  | $ | 1,457 |  |  | $ | 23,257 |  |  | $ | 1,150 |  |  |  |  | $ | 25,864 |
Financial liabilities |  |  |  |  |  |  |  |  |  |
Fair value through profit or loss: |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | (20) |  |  | (9) |  |  | — |  |  |  |  | (29) |
Funds withheld liabilities |  | — |  |  | (10) |  |  | — |  |  |  |  | (10) |
Available for sale: |  |  |  |  |  |  |  |  |  |
Separate account liabilities |  | (315) |  |  | (715) |  |  | (29) |  |  |  |  | (1,059) |
Total financial liabilities |  | $ | (335) |  |  | $ | (734) |  |  | $ | (29) |  |  |  |  | $ | (1,098) |
|  | 2021
AS AT DEC. 31 US$ MILLIONS |  | Level 1 |  | Level 2 |  | Level 3 |  |  |  | Total
Financial assets |  |  |  |  |  |  |  |  |  |
Fair value through profit or loss: |  |  |  |  |  |  |  |  |  |
Bonds |  | $ | — |  |  | $ | 1,848 |  |  | $ | — |  |  |  |  | $ | 1,848 |
Asset-backed securities |  | — |  |  | 115 |  |  | — |  |  |  |  | 115 |
Preferred shares |  | 4 |  |  | — |  |  | — |  |  |  |  | 4 |
Derivative assets |  | 9 |  |  | 137 |  |  | — |  |  |  |  | 146 |
Reinsurance funds withheld |  | — |  |  | 4,650 |  |  | — |  |  |  |  | 4,650 |
Available for sale: |  |  |  |  |  |  |  |  |  |
Bonds |  | 1,165 |  |  | 375 |  |  | — |  |  |  |  | 1,540 |
Asset-backed securities |  | — |  |  | 53 |  |  | — |  |  |  |  | 53 |
Private debt |  | — |  |  | — |  |  | 208 |  |  |  |  | 208 |
Common shares |  | 244 |  |  | 31 |  |  | — |  |  |  |  | 275 |
Preferred shares |  | 3 |  |  | 1 |  |  | 10 |  |  |  |  | 14 |
Private equity and other |  | — |  |  | — |  |  | 247 |  |  |  |  | 247 |
Total financial assets |  | $ | 1,425 |  |  | $ | 7,210 |  |  | $ | 465 |  |  |  |  | $ | 9,100 |
Financial liabilities |  |  |  |  |  |  |  |  |  |
Fair value through profit or loss: |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | — |  |  | (1) |  |  | — |  |  |  |  | (1) |
Funds withheld liabilities |  | — |  |  | (12) |  |  | — |  |  |  |  | (12) |
Total financial liabilities |  | $ | — |  |  | $ | (13) |  |  | $ | — |  |  |  |  | $ | (13) |
The following table summarizes the valuation techniques and key inputs used in the fair value measurement of Level 2 financial instruments:
Type of Financial Instruments | Valuation Techniques and Key Inputs
Bonds and other equities | Valuation model is based on quoted prices of similar traded securities in active markets. For example, interest rates and yield curves observed at commonly quoted intervals, implied volatility, credit spread and market-corroborated inputs. The Company evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, pricing source quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some securities, additional inputs may be necessary.
Derivative assets/Derivative liabilities | Foreign currency forward contracts—discounted cash flow model—forward exchange rates (from observable forward exchange rates at the end of the reporting period); discounted at a credit adjusted rate.
| Valuation model is based on interest rate contracts—discounted cash flow model—forward interest rates (from observable yield curves) and applicable credit spreads discounted at a credit adjusted rate.
Reinsurance funds withheld | Valuation model is based on quoted prices of similar traded securities in active markets. For example, interest rates and yield curves observed at commonly quoted intervals, implied volatility, credit spread and market-corroborated inputs.
Separate account assets and liabilities | The separate account assets included in the quantitative disclosures fair value hierarchy table are comprised of short-term investments, equity securities, and fixed maturity bonds available-for-sale. Short-term investments and fixed maturity securities are classified as Level 2 measurements. The classifications for separate assets reflect the fair value methodologies of the underlying asset and liability fair value methodologies listed above.
Funds withheld liabilities | Valuation model is based on quoted prices of similar traded securities in active markets. For example, interest rates and yield curves observed at commonly quoted intervals, implied volatility, credit spread and market-corroborated inputs.
The Company performs initial and ongoing analysis and review of the valuation techniques utilized in determining fair value to ensure that they are appropriate and consistently applied, and that the valuation assumptions are reasonable. The Company analyzes and reviews the data, assumptions and valuation model to ensure that the fair value represents a reasonable estimate as at reporting period end and to monitor controls around fair value measurement, which includes quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Fair values determined using valuation models requiring the use of unobservable inputs (Level 3 financial assets and liabilities) include assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those unobservable inputs, the Company uses observable external market inputs such as interest rate yield curves, currency rates and price and rate volatilities, as applicable, to develop assumptions regarding those unobservable inputs. The following table summarizes the valuation techniques and significant unobservable inputs used in the fair value measurement of Level 3 financial instruments:
Type of Asset | Valuation Techniques | Significant Unobservable Inputs | Significant unobservable inputs and relationship of unobservable inputs to fair value
Private equity | Discounted cash flows | • Future cash flows The future cash flows are based on cash flows flowing to the underlying investment • Discount rate The discount rate reflects the inherent risk of the underlying investment | • Increases (decreases) in future cash flows increase (decrease) fair value • Increases (decreases) in discount rate decrease (increase) fair value
Private debt | Discounted cash flows | • Future cash flows The future cash flows include expected interest and principal payments. • Discount rate The discount rate reflects the credit spreads used and the liquidity conditions of the debt instrument. | • Increases (decreases) in future cash flows increase (decrease) fair value • Increases (decreases) in discount rate decrease (increase) fair value
Equity-index Option | Heston and Black-Sholes Valuation models | • Interest rate (risk-free rate assumptions) • Underlying equity quoted index prices | • Increases (decreases) in interest rate assumptions decrease (increase) fair value • Increases (decreases) in underlying equity index prices increase (decrease) fair value
Separately managed accounts | Common Stock and Warrants • Guideline public company method uses price multiples from data on comparable public companies. • Option pricing method • Current Value Method (CVM) Preferred Stock • Guideline public company method uses price multiples from data on comparable public companies. • CVM Fixed Income • Discounted cash flows (yield analysis) • market transactions approach • CVM • Cost | Common Stock and Warrants • Next Calendar Year Multiple • Next Calendar Year +1 EBITDA Multiple •Last Twelve Months Revenue Multiple valuation metric shows revenue for the past 12 month period. • Last Twelve Months EBITDA Multiple valuation metric shows earnings before interest, taxes, depreciation and amortization adjustments for the past 12 month period. • Term • Volatility • DLOM -discount for lack of marketability Preferred Stock • Next Calendar Year Revenue Multiple • Next Calendar Year +1 EBITDA Multiple •Last Twelve Months Revenue Multiple valuation metric shows revenue for the past 12 month period. • Last Twelve Months EBITDA Multiple valuation metric shows earnings before interest, taxes, depreciation and amortization adjustments for the past 12 month period. Fixed Income • Discounted rate • Next Calendar Year EBITDA | • Increases (decreases) in Next Calendar Year Multiple increase (decrease) fair value • Increases (decreases) in Next Calendar EBITDA Multiple increase (decrease) fair value • Increases (decreases) in Last Twelve Months Revenue Multiple increase (decrease) fair value • Increases (decreases) in Last Twelve Months EBITDA Multiple increase (decrease) fair value • Increases (decreases) in term increase (decrease) fair value • Increases (decreases) in volatility increase (decrease) fair value • Increases (decreases) in DLOM decrease (increase) fair value • Increases (decreases) in discount rate decrease (increase) fair value
Separate account assets and liabilities | Equity method | • Proportionate share of net income of the underlying investment fund • Proportionate share of other comprehensive income of the underlying investment fund • Proportionate share of distribution received from the underlying investment fund | • Increases (decreases) in proportionate share of net income of the underlying investment fund increase (decrease) fair value • Increases (decreases) in proportionate share of other comprehensive income of the underlying investment fund increase (decrease) fair value • Increases (decreases) in proportionate share of distribution received from the underlying investment fund decrease (increase) fair value
There were no transfers between Level 1, Level 2 or Level 3 during the periods ended June 30, 2022 and December 31, 2021.

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