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DERIVATIVE INSTRUMENTS | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS The Company's freestanding derivative financial instruments have historically consisted of: •foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio, with options used on a standalone basis and/or in a collar strategy; •foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen; •cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures; •foreign currency swaps that are associated with variable interest entity (VIE) bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary; •interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate investments; •interest rate swaptions used to hedge changes in the fair value associated with interest rate fluctuations for certain U.S. dollar-denominated available-for-sale fixed-maturity securities; and •bond purchase commitments at the inception of investments in consolidated VIEs. Some of the Company's derivatives are designated as cash flow hedges, fair value hedges or net investment hedges; however, other derivatives do not qualify for hedge accounting or the Company elects not to designate them as accounting hedges. Derivative Types Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U.S. dollar-denominated investments. The average maturity of these forwards and options can change depending on factors such as market conditions and types of investments being held. In situations where the maturity of the forwards and options is shorter than the underlying investment being hedged, the Company may enter into new forwards and options near maturity of the existing derivative in order to continue hedging the underlying investment. In forward transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. The Company also uses one-sided foreign currency put options to mitigate the settlement risk on U.S. dollar-denominated assets related to extreme foreign currency rate changes. From time to time, Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase put options and sell call options. In the purchased put transactions, Aflac Japan obtains the option to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. In the sold call transactions, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S. dollars at a specified future date. The combination of purchasing the put option and selling the call option results in no net premium being paid (i.e. a costless or zero-cost collar). In 2021, the Company moved to a strategy that contains one-sided put options, fewer foreign currency forwards and no collars. From time to time, the Company may also enter into foreign currency forwards and options to hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, the Company agrees with another party to buy a fixed amount of U.S. dollars and sell a corresponding amount of yen at a specified price at a specified future date. In the option transactions, the Company may use a combination of foreign currency options to protect expected future cash flows by simultaneously purchasing yen put options (options that protect against a weakening yen) and selling yen call options (options that limit participation in a strengthening yen). The combination of these two actions create a zero-cost collar. Additionally, the Company enters into purchased options to hedge cash flows from the net investment in Aflac Japan. The Company enters into foreign currency swaps pursuant to which it exchanges an initial principal amount in one currency for an initial principal amount of another currency, with an agreement to re-exchange the principal amounts at a future date. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Foreign currency swaps are used primarily in the consolidated VIEs in the Company's Aflac Japan portfolio to convert foreign-denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize cash flow fluctuations. The Company also uses foreign currency swaps to economically convert certain of its U.S. dollar-denominated senior note and subordinated debenture principal and interest obligations into yen-denominated obligations. In order to reduce investment income volatility from its variable-rate investments, the Company enters into receive–fixed, pay–floating interest rate swaps. These derivatives are cleared and settled through a central clearinghouse. Swaptions are used to mitigate the adverse impact resulting from significant changes in the fair value of U.S. dollar-denominated available-for-sale securities due to fluctuation in interest rates. In a payer swaption, the Company pays a premium to obtain the right, but not the obligation, to enter into a swap contract where it will pay a fixed rate and receive a floating rate. Interest rate swaption collars are combinations of two swaption positions. In order to maximize the efficiency of the collars while minimizing cost, a collar strategy is used whereby the Company purchases a long payer swaption (the Company purchases an option that allows it to enter into a swap where the Company will pay the fixed rate and receive the floating rate of the swap) and sells a short receiver swaption (the Company sells an option that provides the counterparty with the right to enter into a swap where the Company will receive the fixed rate and pay the floating rate of the swap). The combination of purchasing the long payer swaption and selling the short receiver swaption results in no net premium being paid (i.e. a costless or zero-cost collar). Bond purchase commitments result from repackaged bond structures that are consolidated VIEs whereby there is a delay in the trade date and settlement date of the bond within the structure to ensure completion of all necessary legal agreements to support the consolidated VIE that issues the repackaged bond. Since the Company has a commitment to purchase the underlying bond at a specified price, the agreement meets the definition of a derivative where the value is derived based on the current market value of the bond compared to the fixed purchase price to be paid on the settlement date. Derivative Balance Sheet Classification The table below summarizes the balance sheet classification of the Company's derivative fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented do not include income accruals. Derivative assets are included in “Other Assets,” while derivative liabilities are included in “Other Liabilities” within the Company’s Consolidated Balance Sheets. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of exposure or credit risk.
|  |  | September 30, 2022 |  |  | December 31, 2021 |
(In millions) |  |  | Asset Derivatives |  | Liability Derivatives |  | Asset Derivatives | Liability Derivatives |
Hedge Designation/ Derivative Type |  | Notional Amount | Fair Value |  | Fair Value | Notional Amount | Fair Value | Fair Value |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency swaps - VIE |  |  | $ | 18 |  |  |  | $ | 0 |  |  |  |  | $ | 4 |  |  |  | $ | 18 |  |  |  | $ | 0 |  |  |  | $ | 2 |  |
Total cash flow hedges |  |  | 18 |  |  |  | 0 |  |  |  |  | 4 |  |  |  | 18 |  |  |  | 0 |  |  |  | 2 |  |
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  | 0 |  |  |  | 0 |  |  |  |  | 0 |  |  |  | 62 |  |  |  | 0 |  |  |  | 5 |  |
Foreign currency options |  |  | 7,749 |  |  |  | 5 |  |  |  |  | 0 |  |  |  | 8,829 |  |  |  | 5 |  |  |  | 0 |  |
Total fair value hedges |  |  | 7,749 |  |  |  | 5 |  |  |  |  | 0 |  |  |  | 8,891 |  |  |  | 5 |  |  |  | 5 |  |
Net investment hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  | 4,993 |  |  |  | 833 |  |  |  |  | 0 |  |  |  | 4,996 |  |  |  | 341 |  |  |  | 0 |  |
Foreign currency options |  |  | 1,669 |  |  |  | 0 |  |  |  |  | 0 |  |  |  | 1,949 |  |  |  | 0 |  |  |  | 0 |  |
Total net investment hedge |  |  | 6,662 |  |  |  | 833 |  |  |  |  | 0 |  |  |  | 6,945 |  |  |  | 341 |  |  |  | 0 |  |
Non-qualifying strategies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency swaps |  |  | 1,900 |  |  |  | 81 |  |  |  |  | 0 |  |  |  | 2,250 |  |  |  | 59 |  |  |  | 13 |  |
Foreign currency swaps - VIE |  |  | 3,420 |  |  |  | 65 |  |  |  |  | 458 |  |  |  | 3,151 |  |  |  | 78 |  |  |  | 412 |  |
Foreign currency forwards |  |  | 5,843 |  |  |  | 162 |  |  |  |  | 1,035 |  |  |  | 15,953 |  |  |  | 450 |  |  |  | 1,133 |  |
Foreign currency options |  |  | 5,711 |  |  |  | 0 |  |  |  |  | 0 |  |  |  | 2,746 |  |  |  | 3 |  |  |  | 0 |  |
Interest rate swaps |  |  | 11,130 |  |  |  | 0 |  |  |  |  | 590 |  |  |  | 3,500 |  |  |  | 0 |  |  |  | 54 |  |
Forward bond purchase commitment - VIE |  |  | 14 |  |  |  | 0 |  |  |  |  | 1 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |
Total non-qualifying strategies |  |  | 28,018 |  |  |  | 308 |  |  |  |  | 2,084 |  |  |  | 27,600 |  |  |  | 590 |  |  |  | 1,612 |  |
Total derivatives |  |  | $ | 42,447 |  |  |  | $ | 1,146 |  |  |  |  | $ | 2,088 |  |  |  | $ | 43,454 |  |  |  | $ | 936 |  |  |  | $ | 1,619 |  |
Cash Flow Hedges For certain variable-rate U.S. dollar-denominated available-for-sale securities held by Aflac Japan via consolidated VIEs, foreign currency swaps are used to swap the U.S. Dollar (USD) variable rate interest and principal payments to fixed rate Japanese Yen (JPY) interest and principal payments. The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). The remaining maximum length of time for which these cash flows are hedged is approximately four years. The derivatives in the Company's consolidated VIEs that are not designated as accounting hedges are discussed in the "non-qualifying strategies" section of this note. Fair Value Hedges The Company designates and accounts for certain foreign currency forwards, options, and interest rate swaptions as fair value hedges when they meet the requirements for hedge accounting. The Company recognizes gains and losses on these derivatives as well as the offsetting gain or loss on the related hedged items in current earnings. Foreign currency forwards and options hedge the foreign currency exposure of certain U.S. dollar-denominated available-for-sale fixed-maturity investments held in Aflac Japan. The change in the fair value of the foreign currency forwards related to the changes in the difference between the spot rate and the forward price is excluded from the assessment of hedge effectiveness. The change in fair value of the foreign currency option related to the time value of the option is recognized in current earnings and is excluded from the assessment of hedge effectiveness. Interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated available-for-sale securities held in Aflac Japan. For these hedging relationships, the Company excludes time value from the assessment of hedge effectiveness and recognizes changes in the intrinsic value of the swaptions in current earnings within net investment income. The change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term. The following table presents the gains and losses on derivatives and the related hedged items in fair value hedges. Fair Value Hedging Relationships
(In millions) |  |  | Hedging Derivatives |  | Hedged Items |  |
Hedging Derivatives | Hedged Items |  | Total Gains (Losses) |  | Gains (Losses) Excluded from Effectiveness Testing(1) |  | Gains (Losses) Included in Effectiveness Testing(2) |  | Gains (Losses)(2) |  | Net Investment Gains (Losses) Recognized for Fair Value Hedge
Three Months Ended September 30, 2022: |  |  |  |  |  |  |
Foreign currency options | Fixed maturity securities |  | $ | (15) |  |  | $ | (15) |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total gains (losses) |  | $ | (15) |  |  | $ | (15) |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Nine Months Ended September 30, 2022: |  |  |  |  |  |  |  |  |  |
Foreign currency options | Fixed maturity securities |  | $ | (41) |  |  | $ | (41) |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total gains (losses) |  |  | $ | (41) |  |  | $ | (41) |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Three Months Ended September 30, 2021: |  |  |  |  |  |  |  |  |  |
Foreign currency forwards | Fixed maturity securities |  | $ | (1) |  |  | $ | 0 |  |  | $ | (1) |  |  | $ | 1 |  |  | $ | 0 |
Foreign currency options | Fixed maturity securities |  | $ | (5) |  |  | $ | (5) |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Total gains (losses) |  |  | $ | (6) |  |  | $ | (5) |  |  | $ | (1) |  |  | $ | 1 |  |  | $ | 0 |
Nine Months Ended September 30, 2021: |  |  |  |  |  |  |  |  |  |
Foreign currency forwards | Fixed maturity securities |  | $ | (5) |  |  | $ | 0 |  |  | $ | (5) |  |  | $ | 5 |  |  | $ | 0 |
Foreign currency options | Fixed maturity securities |  | (16) |  |  | (15) |  |  | (1) |  |  | 4 |  |  | 3 |
Total gains (losses) |  |  | $ | (21) |  |  | $ | (15) |  |  | $ | (6) |  |  | $ | 9 |  |  | $ | 3 |
(1) Gains (losses) excluded from effectiveness testing includes the forward point on foreign currency forwards and time value change on foreign currency options which are reported in the consolidated statement of earnings as net investment gains (losses). It also includes the change in the fair value of the interest rate swaptions related to the time value of the swaptions which is recognized as a component of other comprehensive income (loss). (2) Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statement of earnings as net investment gains (losses). For interest rate swaptions and related hedged items, gains and losses included in the hedge assessment, premium amortization and time value amortization while the hedge items are still outstanding are reported within net investment income. The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains and losses consistent with the impact of the hedged item. For the three-month and nine-month periods ended September 30, 2022 and 2021, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial. The following table shows the carrying amounts of assets designated and qualifying as hedged items in fair value hedges of interest rate risk and the related cumulative hedge adjustment included in the carrying amount.
(In millions) | Carrying Amount of the Hedged Assets/(Liabilities)(1) |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities) |
|  | September 30, 2022 |  | December 31, 2021 |  | September 30, 2022 |  | December 31, 2021 |
Fixed maturity securities |  | $ | 2,166 |  |  | $ | 3,038 |  |  | $ | 193 |  |  | $ | 205 |  |
(1) The balance includes hedging adjustment on discontinued hedging relationships of $193 in 2022 and $205 in 2021. Net Investment Hedge The Company's investment in Aflac Japan is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 8) have been designated as non-derivative hedges and certain foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan. The Company's net investment hedge was effective during the three- and nine-month periods ended September 30, 2022 and 2021, respectively. Non-qualifying Strategies For the Company's derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment, all changes in their fair value are reported in current period earnings within n et i nvestment gains (losses). The amount of gain or loss recognized in earnings for the Company's VIEs is attributable to the derivatives in those investment structures. While the change in value of the swaps is recorded through current period earnings, the change in value of the available-for-sale fixed maturity securities associated with these swaps is recorded through other comprehensive income. As of September 30, 2022, the Parent Company had $1.9 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 9 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report. The Company uses foreign exchange forwards and options to economically mitigate the currency risk of some of its U.S. dollar-denominated loan receivables held within the Aflac Japan segment. These arrangements are not designated as accounting hedges, as the foreign currency remeasurement of the loan receivables impacts current period earnings, and substantially offsets gains and losses from foreign exchange forwards within net investment gains (losses). The Company also has certain foreign exchange forwards on U.S. dollar-denominated available-for-sale securities where hedge accounting is not being applied. The Company uses interest rate swaps to economically convert the variable rate investment income to a fixed rate on certain variable-rate investments. Impact of Derivatives and Hedging Instruments The following table summarizes the impact to earnings and other comprehensive income (loss) from all derivatives and hedging instruments.
| Three Months Ended September 30,
| 2022 | 2021
(In millions) | Net Investment Income (1) | Net Investment Gains (Losses) | Other Comprehensive Income (Loss)(2) | Net Investment Income (1) | Net Investment Gains (Losses) | Other Comprehensive Income (Loss)(2)
Qualifying hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency swaps - VIE |  | $ | 0 |  |  |  | $ | (1) |  |  |  | $ | 1 |  |  |  | $ | 0 |  |  |  | $ | (1) |  |  |  | $ | 1 |  |
Total cash flow hedges |  | 0 |  |  |  | (1) |  | (3) |  | 1 |  |  |  | 0 |  |  |  | (1) |  | (3) |  | 1 |  |
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency options (3) |  |  |  |  | (15) |  |  |  |  |  |  |  |  |  | (5) |  |  |  |  |
Interest rate swaptions (3) |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (1) |  |  |  | (1) |  |  |  | 1 |  |
Total fair value hedges |  | 0 |  |  |  | (15) |  |  |  | 0 |  |  |  | (1) |  |  |  | (6) |  |  |  | 1 |  |
Net investment hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-derivative hedging instruments |  |  |  |  | 0 |  |  |  | 181 |  |  |  |  |  |  | 0 |  |  |  | 41 |  |
Foreign currency forwards |  |  |  |  | 28 |  |  |  | 236 |  |  |  |  |  |  | (42) |  |  |  | 55 |  |
Foreign currency options |  |  |  |  | (1) |  |  |  | 0 |  |  |  |  |  |  | (1) |  |  |  | 0 |  |
Total net investment hedge |  |  |  |  | 27 |  |  |  | 417 |  |  |  |  |  |  | (43) |  |  |  | 96 |  |
Non-qualifying strategies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency swaps |  |  |  |  | 27 |  |  |  |  |  |  |  |  |  | 6 |  |  |  |  |
Foreign currency swaps - VIE |  |  |  |  | (19) |  |  |  |  |  |  |  |  |  | (36) |  |  |  |  |
Foreign currency forwards |  |  |  |  | (252) |  |  |  |  |  |  |  |  |  | (84) |  |  |  |  |
Interest rate swaps |  |  |  |  | (257) |  |  |  |  |  |  |  |  |  | (9) |  |  |  |  |
Forward bond purchase commitment - VIE |  |  |  |  | (1) |  |  |  |  |  |  |  |  |  | (1) |  |  |  |  |
Total non- qualifying strategies |  |  |  |  | (502) |  |  |  |  |  |  |  |  |  | (124) |  |  |  |  |
Total |  | $ | 0 |  |  |  | $ | (491) |  |  |  | $ | 418 |  |  |  | $ | (1) |  |  |  | $ | (174) |  |  |  | $ | 98 |  |
(1) Interest expense/income on cash flow hedges are recorded in net investment income. For interest rate swaptions classified as fair value hedges, the change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into net investment income over its legal term. If the swaption is early terminated but the hedge item is still outstanding, the amortization of disposal amount of the swaptions is recorded in net investment income over the remaining life of the hedged items. (2) Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains (losses). Gains and losses on net investment hedges related to changes in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss). (3) Impact of cash flow hedges reported as net investment gains (losses) includes $1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended September 30, 2022, and $1 of losses during the three-month period ended September 30, 2021. In addition, an immaterial amount of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended September 30, 2022, and $1 of losses during the three-month period ended September 30, 2021, related to fair value hedges excluded component. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).
| Nine Months Ended September 30,
| 2022 | 2021
(In millions) | Net Investment Income(1) | Net Investment Gains (Losses) | Other Comprehensive Income (Loss)(2) | Net Investment Income(1) | Net Investment Gains (Losses) | Other Comprehensive Income (Loss)(2)
Qualifying hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency swaps - VIE |  | $ | 0 |  |  |  | $ | (3) |  |  |  | $ | 2 |  |  |  | $ | 0 |  |  |  | $ | (3) |  |  |  | $ | 2 |  |
Total cash flow hedges |  | 0 |  |  |  | (3) |  | (3) |  | 2 |  |  |  | 0 |  |  |  | (3) |  | (3) |  | 2 |  |
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency options(3) |  |  |  |  | (41) |  |  |  |  |  |  |  |  |  | (12) |  |  |  |  |
Interest rate swaptions(3) |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (1) |  |  |  | (1) |  |  |  | 1 |  |
Total fair value hedges |  | 0 |  |  |  | (41) |  |  |  | 0 |  |  |  | (1) |  |  |  | (13) |  |  |  | 1 |  |
Net investment hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-derivative hedging instruments |  |  |  |  | 0 |  |  |  | 705 |  |  |  |  |  |  | 0 |  |  |  | 237 |  |
Foreign currency forwards |  |  |  |  | (73) |  |  |  | 1,059 |  |  |  |  |  |  | 7 |  |  |  | 396 |  |
Foreign currency options |  |  |  |  | (2) |  |  |  | 0 |  |  |  |  |  |  | (4) |  |  |  | 0 |  |
Total net investment hedge |  |  |  |  | (75) |  |  |  | 1,764 |  |  |  |  |  |  | 3 |  |  |  | 633 |  |
Non-qualifying strategies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency swaps |  |  |  |  | 162 |  |  |  |  |  |  |  |  |  | 105 |  |  |  |  |
Foreign currency swaps - VIE |  |  |  |  | (35) |  |  |  |  |  |  |  |  |  | (115) |  |  |  |  |
Foreign currency forwards |  |  |  |  | (966) |  |  |  |  |  |  |  |  |  | (527) |  |  |  |  |
Foreign currency options |  |  |  |  | (13) |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |
Interest rate swaps |  |  |  |  | (523) |  |  |  |  |  |  |  |  |  | (6) |  |  |  |  |
Forward bond purchase commitment - VIE |  |  |  |  | (21) |  |  |  |  |  |  |  |  |  | (2) |  |  |  |  |
Total non-qualifying strategies |  |  |  |  | (1,396) |  |  |  |  |  |  |  |  |  | (544) |  |  |  |  |
Total |  | $ | 0 |  |  |  | $ | (1,515) |  |  |  | $ | 1,766 |  |  |  | $ | (1) |  |  |  | $ | (557) |  |  |  | $ | 636 |  |
(1) Interest expense/income on cash flow hedges are recorded in net investment income. For interest rate swaptions classified as fair value hedges, the change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into net investment income over its legal term. If the swaption is early terminated but the hedge item is still outstanding, the amortization of disposal amount of the swaptions is recorded in net investment income over the remaining life of the hedged items. (2) Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains (losses). Gains and losses on net investment hedges related to changes in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss). (3) Impact of cash flow hedges reported as net investment gains (losses) includes $3 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the nine-month period ended September 30, 2022, and $3 of losses during the nine-month period ended September 30, 2021. In addition, $1 of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the nine-month period ended September 30, 2022, and $1 of losses during the nine-month period ended September 30, 2021, related to fair value hedges excluded component. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail). As of September 30, 2022, $5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months. Credit Risk Assumed through Derivatives For the foreign currency swaps associated with the Company's VIE investments for which it is the primary beneficiary, the Company bears the risk of loss due to counterparty default even though it is not a direct counterparty to those contracts. The Company is a direct counterparty to the foreign currency swaps that it has entered into in connection with certain of its senior notes and subordinated debentures; foreign currency forwards; and foreign currency options, and therefore the Company is exposed to credit risk in the event of nonperformance by the counterparties in those contracts. The risk of counterparty default for the Company's foreign currency swaps, certain foreign currency forwards, and foreign currency options is mitigated by collateral posting requirements that counterparties to those transactions must meet. As of September 30, 2022, all of the Company's derivative agreement counterparties were investment grade. The Company engages in over-the-counter (OTC) bilateral derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc. (ISDA) agreements and other documentation. Most of the ISDA agreements also include Credit Support Annexes (CSAs) provisions, which generally provide for two-way collateral postings at the first dollar of exposure. The Company mitigates the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction. In addition, a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of the Company's financial strength rating. The actual amount of payments that the Company could be required to make depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade. The Company also engages in OTC cleared derivative transactions through regulated central clearing counterparties. These positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to these derivatives. Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $1.5 billion and $904 million as of September 30, 2022, and December 31, 2021, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2022, the Company estimates that it would be required to post a maximum of $77 million of additional collateral to these derivative counterparties. The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties, although it does not typically exercise such rights. (See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates.) Offsetting of Financial Instruments and Derivatives Most of the Company's derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Parent Company or its subsidiaries and the respective counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements with the master netting arrangements generally provide that the Company will receive or pledge financial collateral at the first dollar of exposure. The Company has securities lending agreements with unaffiliated financial institutions that post collateral to the Company in return for the use of its fixed maturity and public equity securities (see Note 3). When the Company has entered into securities lending agreements with the same counterparty, the agreements generally provide for net settlement in the event of default by the counterparty. This right of set-off allows the Company to keep and apply collateral received if the counterparty failed to return the securities borrowed from the Company as contractually agreed. The tables below summarize the Company's derivatives and securities lending transactions, and as reflected in the tables, in accordance with U.S. GAAP, the Company's policy is to not offset these financial instruments in the Consolidated Balance Sheets. Offsetting of Financial Assets and Derivative Assets
September 30, 2022
|  |  | Gross Amounts Not Offset in Balance Sheet |  |
(In millions) | Gross Amount of Recognized Assets |  | Gross Amount Offset in Balance Sheet |  | Net Amount of Assets Presented in Balance Sheet |  | Financial Instruments |  | Securities Collateral |  | Cash Collateral Received |  | Net Amount
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | $ | 1,081 |  |  |  |  | $ | 0 |  |  |  |  | $ | 1,081 |  |  |  |  | $ | (167) |  |  |  | $ | (135) |  |  |  | $ | (775) |  |  |  |  | $ | 4 |  |
Total derivative assets subject to a master netting agreement or offsetting arrangement |  | 1,081 |  |  |  |  | 0 |  |  |  |  | 1,081 |  |  |  |  | (167) |  |  |  | (135) |  |  |  | (775) |  |  |  |  | 4 |  |
Derivative assets not subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | 65 |  |  |  |  |  |  |  |  | 65 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 65 |  |
Total derivative assets not subject to a master netting agreement or offsetting arrangement |  | 65 |  |  |  |  |  |  |  |  | 65 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 65 |  |
Total derivative assets |  | 1,146 |  |  |  |  | 0 |  |  |  |  | 1,146 |  |  |  |  | (167) |  |  |  | (135) |  |  |  | (775) |  |  |  |  | 69 |  |
Securities lending and similar arrangements |  | 2,691 |  |  |  |  | 0 |  |  |  |  | 2,691 |  |  |  |  | 0 |  |  |  | 0 |  |  |  | (2,691) |  |  |  |  | 0 |  |
Total |  | $ | 3,837 |  |  |  |  | $ | 0 |  |  |  |  | $ | 3,837 |  |  |  |  | $ | (167) |  |  |  | $ | (135) |  |  |  | $ | (3,466) |  |  |  |  | $ | 69 |  |
December 31, 2021
|  |  | Gross Amounts Not Offset in Balance Sheet |  |
(In millions) | Gross Amount of Recognized Assets |  | Gross Amount Offset in Balance Sheet |  | Net Amount of Assets Presented in Balance Sheet |  | Financial Instruments |  | Securities Collateral |  | Cash Collateral Received |  | Net Amount
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | $ | 858 |  |  |  |  | $ | 0 |  |  |  |  | $ | 858 |  |  |  |  | $ | (471) |  |  |  | $ | (53) |  |  |  | $ | (334) |  |  |  |  | $ | 0 |  |
Total derivative assets subject to a master netting agreement or offsetting arrangement |  | 858 |  |  |  |  | 0 |  |  |  |  | 858 |  |  |  |  | (471) |  |  |  | (53) |  |  |  | (334) |  |  |  |  | 0 |  |
Derivative assets not subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | 78 |  |  |  |  |  |  |  |  | 78 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 78 |  |
Total derivative assets not subject to a master netting agreement or offsetting arrangement |  | 78 |  |  |  |  |  |  |  |  | 78 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 78 |  |
Total derivative assets |  | 936 |  |  |  |  | 0 |  |  |  |  | 936 |  |  |  |  | (471) |  |  |  | (53) |  |  |  | (334) |  |  |  |  | 78 |  |
Securities lending and similar arrangements |  | 2,124 |  |  |  |  | 0 |  |  |  |  | 2,124 |  |  |  |  | 0 |  |  |  | 0 |  |  |  | (2,124) |  |  |  |  | 0 |  |
Total |  | $ | 3,060 |  |  |  |  | $ | 0 |  |  |  |  | $ | 3,060 |  |  |  |  | $ | (471) |  |  |  | $ | (53) |  |  |  | $ | (2,458) |  |  |  |  | $ | 78 |  |
Offsetting of Financial Liabilities and Derivative Liabilities
September 30, 2022
|  |  | Gross Amounts Not Offset in Balance Sheet |  |
(In millions) | Gross Amount of Recognized Liabilities |  | Gross Amount Offset in Balance Sheet |  | Net Amount of Liabilities Presented in Balance Sheet |  | Financial Instruments |  | Securities Collateral |  | Cash Collateral Pledged |  | Net Amount
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | $ | 1,036 |  |  |  |  | $ | 0 |  |  |  |  | $ | 1,036 |  |  |  |  | $ | (167) |  |  |  | $ | (793) |  |  |  | $ | (72) |  |  |  |  | $ | 4 |  |
OTC - cleared |  | 590 |  |  |  |  | 0 |  |  |  |  | 590 |  |  |  |  | 0 |  |  |  | 0 |  |  |  | (590) |  |  |  |  | 0 |  |
Total derivative liabilities subject to a master netting agreement or offsetting arrangement |  | 1,626 |  |  |  |  | 0 |  |  |  |  | 1,626 |  |  |  |  | (167) |  |  |  | (793) |  |  |  | (662) |  |  |  |  | 4 |  |
Derivative liabilities not subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | 462 |  |  |  |  |  |  |  |  | 462 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 462 |  |
Total derivative liabilities not subject to a master netting agreement or offsetting arrangement |  | 462 |  |  |  |  |  |  |  |  | 462 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 462 |  |
Total derivative liabilities |  | 2,088 |  |  |  |  | 0 |  |  |  |  | 2,088 |  |  |  |  | (167) |  |  |  | (793) |  |  |  | (662) |  |  |  |  | 466 |  |
Securities lending and similar arrangements |  | 2,721 |  |  |  |  | 0 |  |  |  |  | 2,721 |  |  |  |  | (2,691) |  |  |  | 0 |  |  |  | 0 |  |  |  |  | 30 |  |
Total |  | $ | 4,809 |  |  |  |  | $ | 0 |  |  |  |  | $ | 4,809 |  |  |  |  | $ | (2,858) |  |  |  | $ | (793) |  |  |  | $ | (662) |  |  |  |  | $ | 496 |  |
December 31, 2021
|  |  | Gross Amounts Not Offset in Balance Sheet |  |
(In millions) | Gross Amount of Recognized Liabilities |  | Gross Amount Offset in Balance Sheet |  | Net Amount of Liabilities Presented in Balance Sheet |  | Financial Instruments |  | Securities Collateral |  | Cash Collateral Pledged |  | Net Amount
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | $ | 1,151 |  |  |  |  | $ | 0 |  |  |  |  | $ | 1,151 |  |  |  |  | $ | (471) |  |  |  | $ | (662) |  |  |  | $ | (14) |  |  |  |  | $ | 4 |  |
OTC - cleared |  | 54 |  |  |  |  | 0 |  |  |  |  | 54 |  |  |  |  | 0 |  |  |  | 0 |  |  |  | (35) |  |  |  |  | 19 |  |
Total derivative liabilities subject to a master netting agreement or offsetting arrangement |  | 1,205 |  |  |  |  | 0 |  |  |  |  | 1,205 |  |  |  |  | (471) |  |  |  | (662) |  |  |  | (49) |  |  |  |  | 23 |  |
Derivative liabilities not subject to a master netting agreement or offsetting arrangement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OTC - bilateral |  | 414 |  |  |  |  |  |  |  |  | 414 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 414 |  |
Total derivative liabilities not subject to a master netting agreement or offsetting arrangement |  | 414 |  |  |  |  |  |  |  |  | 414 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 414 |  |
Total derivative liabilities |  | 1,619 |  |  |  |  | 0 |  |  |  |  | 1,619 |  |  |  |  | (471) |  |  |  | (662) |  |  |  | (49) |  |  |  |  | 437 |  |
Securities lending and similar arrangements |  | 2,162 |  |  |  |  | 0 |  |  |  |  | 2,162 |  |  |  |  | (2,124) |  |  |  | 0 |  |  |  | 0 |  |  |  |  | 38 |  |
Total |  | $ | 3,781 |  |  |  |  | $ | 0 |  |  |  |  | $ | 3,781 |  |  |  |  | $ | (2,595) |  |  |  | $ | (662) |  |  |  | $ | (49) |  |  |  |  | $ | 475 |  |
For additional information on the Company's financial instruments, see the accompanying Notes 1, 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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