Derivative and Hedging Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Summary of Gross Notional Amount and Fair Value of Derivative Contracts

The following table presents the gross notional amount and fair value of derivative contracts by the underlying risk exposure for derivatives in qualifying hedging and derivatives not designated in qualifying hedging relationships.



As at December 31,		2017						2016
		Notional amount		Fair value				Notional amount		Fair value
Type of hedge	Instrument type	Notional amount		Assets		Liabilities		Notional amount		Assets		Liabilities
Qualifying hedge accounting relationships
Fair value hedges	Interest rate swaps	$	548	$	–	$	20	$	2,158	$	–	$	477
	Foreign currency swaps		84		1		4		91		1		3
Cash flow hedges	Foreign currency swaps		1,757		20		333		1,285		–		447
	Forward contracts		165		–		4		255		–		23
	Equity contracts		125		16		1		126		21		1
Total derivatives in qualifying hedge accounting relationships			2,679		37		362		3,915		22		951
Derivatives not designated in qualifying hedge accounting relationships
	Interest rate swaps		246,270		12,984		6,251		281,188		21,900		10,878
	Interest rate futures		11,551		–		–		11,616		–		–
	Interest rate options		10,093		312		–		9,390		376		–
	Foreign currency swaps		16,321		494		1,122		12,226		347		1,645
	Currency rate futures		3,157		–		–		4,729		–		–
	Forward contracts		20,341		915		65		15,411		340		644
	Equity contracts		13,597		813		22		14,989		669		33
	Credit default swaps		606		14		–		662		18		–
	Equity futures		12,158		–		–		16,072		–		–
Total derivatives not designated in qualifying hedge accounting relationships			334,094		15,532		7,460		366,283		23,650		13,200
Total derivatives		$	336,773	$	15,569	$	7,822	$	370,198	$	23,672	$	14,151

Summary of Gross Notional Amount by Remaining Term to Maturity, Total Fair Value (Including Accrued Interest), Credit Risk Equivalent and Risk Weighted Amount by Contract Type

The following table presents fair value of derivative instruments by remaining term to maturity. Fair values disclosed below do not incorporate the impact of master netting agreements. Refer to note 10.


	Remaining term to maturity
As at December 31, 2017	Less than 1 year		1 to 3 years		3 to 5 years		Over 5 years		Total
Derivative assets	$	605	$	822	$	889	$	13,253	$	15,569
Derivative liabilities		224		149		168		7,281		7,822

		Remaining term to maturity
As at December 31, 2016		Less than 1 year		1 to 3 years		3 to 5 years		Over 5 years		Total
Derivative assets	$	467	$	680	$	719	$	21,806	$	23,672
Derivative liabilities		593		595		511		12,452		14,151

The following table presents gross notional amount by remaining term to maturity, total fair value (including accrued interest), credit risk equivalent and risk-weighted amount by contract type.


	Remaining term to maturity (notional amounts)								Fair value
As at December 31, 2017	Under 1 year		1 to 5 years		Over 5 years		Total		Positive		Negative			Net			Credit risk equivalent⁽¹⁾		Risk- weighted amount⁽²⁾
Interest rate contracts
OTC swap contracts	$	7,161	$	19,141	$	112,412	$	138,714	$	13,379	$	(6,867	)	$	6,512		$	6,588	$	809
Cleared swap contracts		1,615		12,928		93,561		108,104		245		(206	)		39			–		–
Forward contracts		6,036		10,614		675		17,325		903		(38	)		865			285		35
Futures		11,551		–		–		11,551		–		–			–			–		–
Options purchased		816		3,856		5,421		10,093		312		–			312			471		61
Subtotal		27,179		46,539		212,069		285,787		14,839		(7,111	)		7,728			7,344		905
Foreign exchange
Swap contracts		999		4,481		12,682		18,162		510		(1,483	)		(973	)		1,874		200
Forward contracts		3,046		135		–		3,181		12		(31	)		(19	)		101		12
Futures		3,157		–		–		3,157		–		–			–			–		–
Credit derivatives		38		568		–		606		14		–			14			–		–
Equity contracts
Swap contracts		2,612		169		–		2,781		60		(14	)		46			337		35
Futures		12,158		–		–		12,158		–		–			–			–		–
Options purchased		4,693		6,148		100		10,941		769		(10	)		759			2,606		305
Subtotal including accrued interest		53,882		58,040		224,851		336,773		16,204		(8,649	)		7,555			12,262		1,457
Less accrued interest		–		–		–		–		635		(827	)		(192	)		–		–
Total	$	53,882	$	58,040	$	224,851	$	336,773	$	15,569	$	(7,822	)	$	7,747		$	12,262	$	1,457

	Remaining term to maturity (notional amounts)								Fair value
As at December 31, 2016	Under 1 year		1 to 5 years		Over 5 years		Total		Positive		Negative			Net			Credit risk equivalent⁽¹⁾		Risk- weighted amount⁽²⁾
Interest rate contracts
OTC swap contracts	$	13,244	$	37,395	$	164,252	$	214,891	$	19,327	$	(10,154	)	$	9,173		$	10,205	$	1,493
Cleared swap contracts		717		4,786		62,952		68,455		3,507		(2,117	)		1,390			–		–
Interest rate forwards		7,229		6,143		873		14,245		326		(629	)		(303	)		192		29
Futures		11,616		–		–		11,616		–		–			–			–		–
Options purchased		483		2,927		5,980		9,390		376		–			376			458		70
Subtotal		33,289		51,251		234,057		318,597		23,536		(12,900	)		10,636			10,855		1,592
Foreign exchange
Swap contracts		425		3,917		9,259		13,601		346		(2,120	)		(1,774	)		1,491		181
Forward contracts		1,257		165		–		1,422		13		(38	)		(25	)		62		9
Futures		4,729		–		–		4,729		–		–			–			–		–
Credit derivatives		47		615		–		662		18		–			18			–		–
Equity contracts
Swap contracts		3,107		192		–		3,299		64		(35	)		29			495		54
Futures		16,072		–		–		16,072		–		–			–			–		–
Options purchased		6,007		5,809		–		11,816		626		(2	)		624			2,735		358
Subtotal including accrued interest		64,933		61,949		243,316		370,198		24,603		(15,095	)		9,508			15,638		2,194
Less accrued interest		–		–		–		–		931		(944	)		(13	)		–		–
Total	$	64,933	$	61,949	$	243,316	$	370,198	$	23,672	$	(14,151	)	$	9,521		$	15,638	$	2,194

⁽¹⁾

Credit risk equivalent is the sum of replacement cost and the potential future credit exposure. Replacement cost represents the current cost of replacing all contracts with a positive fair value. The amounts take into consideration legal contracts that permit offsetting of positions. The potential future credit exposure is calculated based on a formula prescribed by OSFI.

⁽²⁾	Risk-weighted amount represents the credit risk equivalent, weighted according to the creditworthiness of the counterparty, as prescribed by OSFI.

Summary of Fair Value of Derivative Contracts

The following table presents fair value of derivative contracts and the fair value hierarchy.


As at December 31, 2017	Fair value		Level 1		Level 2		Level 3
Derivative assets
Interest rate contracts	$	14,199	$	–	$	13,181	$	1,018
Foreign exchange contracts		527		–		527		–
Equity contracts		829		–		768		61
Credit default swaps		14		–		14		–
Total derivative assets	$	15,569	$	–	$	14,490	$	1,079
Derivative liabilities
Interest rate contracts	$	6,309	$	–	$	6,012	$	297
Foreign exchange contracts		1,490		–		1,490		–
Equity contracts		23		–		10		13
Total derivative liabilities	$	7,822	$	–	$	7,512	$	310

As at December 31, 2016	Fair value		Level 1		Level 2		Level 3
Derivative assets
Interest rate contracts	$	22,602	$	–	$	22,045	$	557
Foreign exchange contracts		362		–		361		1
Equity contracts		690		–		182		508
Credit default swaps		18		–		18		–
Total derivative assets	$	23,672	$	–	$	22,606	$	1,066
Derivative liabilities
Interest rate contracts	$	11,984	$	–	$	11,114	$	870
Foreign exchange contracts		2,133		–		2,133		–
Equity contracts		34		–		1		33
Total derivative liabilities	$	14,151	$	–	$	13,248	$	903

Net Derivative Significant Unobservable Inputs Used in Fair Value Measurement

The following table presents a roll forward for net derivative contracts measured at fair value using significant unobservable inputs (Level 3).



For the years ended December 31,	2017			2016
Balance at the beginning of the year	$	163		$	350
Net realized / unrealized gains (losses) included in:
Net income⁽¹⁾		1,082			47
OCI⁽²⁾		(9	)		40
Purchases		22			373
Settlements		(103	)		(522	)
Transfers
Into Level 3⁽³⁾		–			–
Out of Level 3⁽³⁾		(363	)		(116	)
Currency movement		(23	)		(9	)
Balance at the end of the year	$	769		$	163
Change in unrealized gains (losses) on instruments still held	$	832		$	145

⁽¹⁾	These amounts are included in investment income on the Consolidated Statements of Income.

⁽²⁾	These amounts are included in AOCI on the Consolidated Statements of Financial Position.

⁽³⁾

For derivatives transferred into and out of Level 3, the Company uses the fair value of the items at the end and beginning of the period, respectively. Transfers into Level 3 occur when the inputs used to price the assets and liabilities lack observable market data (versus the previous year). Transfers out of Level 3 occur when the inputs used to price the assets and liabilities become available from observable market data.

Summary of Recognized Gains Losses on Derivatives and Hedged Items in Fair Value Hedges in Investment Income

The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges in investment income. These investment gains (losses) are shown in the following table.


For the year ended December 31, 2017	Hedged items in qualifying fair value hedging relationships	Gains (losses) recognized on derivatives			Gains (losses) recognized for hedged items			Ineffectiveness recognized in investment income
Interest rate swaps	Fixed rate assets	$	2		$	(3	)	$	(1)
	Fixed rate liabilities		(17	)		17			–
Foreign currency swaps	Fixed rate assets		(2	)		4			2
Total		$	(17	)	$	18		$	1

For the year ended December 31, 2016	Hedged items in qualifying fair value hedging relationships	Gains (losses) recognized on derivatives			Gains (losses) recognized for hedged items			Ineffectiveness recognized in investment income
Interest rate swaps	Fixed rate assets	$	(52	)	$	30		$	(22)
	Fixed rate liabilities		(1	)		1			–
Foreign currency swaps	Fixed rate assets		–			2			2
Total		$	(53	)	$	33		$	(20)

Summary of Effects of Derivatives in Cash Flow Hedging Relationships

The effects of derivatives in cash flow hedging relationships on the Consolidated Statements of Income and the Consolidated Statements of Comprehensive Income are shown in the following table.


For the year ended December 31, 2017	Hedged items in qualifying cash flow hedging relationships	Gains (losses) deferred in AOCI on derivatives			Gains (losses) reclassified from AOCI into investment income			Ineffectiveness recognized in investment income
Interest rate swaps	Forecasted liabilities	$	–		$	(17	)	$	–
Foreign currency swaps	Fixed rate assets		3			(1	)		–
	Floating rate liabilities		95			50			–
	Fixed rate liabilities		35			7			–
Forward contracts	Forecasted expenses		10			(10	)		–
Equity contracts	Stock-based compensation		20			29			–
Total		$	163		$	58		$	–

For the year ended December 31, 2016	Hedged items in qualifying cash flow hedging relationships	Gains (losses) deferred in AOCI on derivatives			Gains (losses) reclassified from AOCI into investment income			Ineffectiveness recognized in investment income
Interest rate swaps	Forecasted liabilities	$	–		$	(18	)	$	–
Foreign currency swaps	Fixed rate assets		(4	)		–			–
	Floating rate liabilities		47			23			–
	Fixed rate liabilities		(15	)		(8	)		–
Forward contracts	Forecasted expenses		7			(14	)		–
Equity contracts	Stock-based compensation		39			(1	)		–
Non-derivative financial instrument	Forecasted expenses		–			3			–
Total		$	74		$	(15	)	$	–

Summary of Effects of Net Investment Hedging Relationships

The effects of net investment hedging relationships on the Consolidated Statements of Income and the Consolidated Statements of Other Comprehensive Income are shown in the following table.


For the year ended December 31, 2017	Gains (losses) deferred in AOCI on derivatives			Gains (losses) reclassified from AOCI into investment income		Ineffectiveness recognized in investment income
Non-functional currency denominated debt	$	355		$	–	$	–
Total	$	355		$	–	$	–

For the year ended December 31, 2016	Gains (losses) deferred in AOCI on derivatives			Gains (losses) reclassified from AOCI into investment income		Ineffectiveness recognized in investment income
Non-functional currency denominated debt	$	(25	)	$	–	$	–
Total	$	(25	)	$	–	$	–

Summary of Effects of Derivatives Not Designated in Qualifying Hedge Accounting Relationships

The effects of derivatives not designated in qualifying hedge accounting relationships on the Consolidated Statements of Income are shown in the following table.



For the years ended December 31,	2017			2016
Investment income (loss)
Interest rate swaps	$	(927	)	$	(141	)
Interest rate futures		372			(26	)
Interest rate options		(96	)		(11	)
Foreign currency swaps		529			(14	)
Currency rate futures		(92	)		263
Forward contracts		1,231			(88	)
Equity futures		(2,190	)		(2,387	)
Equity contracts		153			(171	)
Credit default swaps		(4	)		1
Total	$	(1,024)		$	(2,574	)