Insurance Contract Liabilities and Reinsurance Assets (Tables)

12 Months Ended

Dec. 31, 2017

Summary of Insurance Contract Liabilities and Reinsurance Assets

for unreported claims and policyholder amounts on deposit. The components of gross and net insurance contract liabilities are shown below.



As at December 31,	2017			2016
Gross insurance contract liabilities	$	291,767		$	284,778
Gross benefits payable and provision for unreported claims		3,376			3,309
Gross policyholder amounts on deposit		9,462			9,418
Gross insurance contract liabilities		304,605			297,505
Reinsurance assets		(30,359	)		(34,952	)
Net insurance contract liabilities	$	274,246		$	262,553

Summary of Composition of Insurance Contract Liabilities and Reinsurance Assets by Line of Business and Reporting Segment

The composition of insurance contract liabilities and reinsurance assets by line of business and reporting segment is as follows.

Gross insurance contract liabilities


	Individual insurance
As at December 31, 2017	Participating		Non- participating			Annuities and pensions		Other insurance contract liabilities⁽¹⁾		Total, net of reinsurance ceded			Total reinsurance ceded			Total, gross of reinsurance ceded
Asia division	$	32,737	$	22,705		$	4,366	$	2,435	$	62,243		$	911		$	63,154
Canadian division		11,132		34,091			19,141		11,834		76,198			(676	)		75,522
U.S. division		8,569		57,599			26,161		43,522		135,851			29,952			165,803
Corporate and Other		–		(515	)		48		421		(46	)		172			126
Total, net of reinsurance ceded		52,438		113,880			49,716		58,212		274,246		$	30,359		$	304,605
Total reinsurance ceded		11,492		11,238			6,539		1,090		30,359
Total, gross of reinsurance ceded	$	63,930	$	125,118		$	56,255	$	59,302	$	304,605

	Individual insurance
As at December 31, 2016	Participating		Non- participating			Annuities and pensions		Other insurance contract liabilities⁽¹⁾		Total, net of reinsurance ceded			Total reinsurance ceded			Total, gross of reinsurance ceded
Asia division	$	29,520	$	18,799		$	3,599	$	2,649	$	54,567		$	880		$	55,447
Canadian division		10,974		31,790			19,620		11,000		73,384			593			73,977
U.S. division		9,419		56,484			28,529		40,760		135,192			33,220			168,412
Corporate and Other		–		(833	)		62		181		(590	)		259			(331	)
Total, net of reinsurance ceded		49,913		106,240			51,810		54,590		262,553		$	34,952		$	297,505
Total reinsurance ceded		13,558		12,122			8,159		1,113		34,952
Total, gross of reinsurance ceded	$	63,471	$	118,362		$	59,969	$	55,703	$	297,505

⁽¹⁾	Other insurance contract liabilities include group insurance and individual and group health including long-term care insurance.

Summary of Carrying Value of Total Assets Backing Net Insurance Contract Liabilities, Other Liabilities and Capital

The carrying value of total assets backing net insurance contract liabilities, other liabilities and capital was as follows.


	Individual insurance
As at December 31, 2017	Participating		Non- participating		Annuities and pensions		Other insurance contract liabilities⁽¹⁾		Other liabilities⁽²⁾		Capital⁽³⁾		Total
Assets
Debt securities	$	27,946	$	63,128	$	26,621	$	25,211	$	6,635	$	24,459	$	174,000
Public equities		9,264		5,855		171		332		1,029		4,894		21,545
Mortgages		2,017		10,286		7,009		6,891		18,476		63		44,742
Private placements		3,645		12,128		8,059		7,739		367		194		32,132
Real estate		2,963		6,198		1,136		2,516		769		228		13,810
Other		6,603		16,285		6,720		15,523		377,352		20,821		443,304
Total	$	52,438	$	113,880	$	49,716	$	58,212	$	404,628	$	50,659	$	729,533

	Individual insurance
As at December 31, 2016	Participating		Non- participating		Annuities and pensions		Other insurance contract liabilities⁽¹⁾		Other liabilities⁽²⁾		Capital⁽³⁾		Total
Assets
Debt securities	$	27,473	$	56,765	$	26,331	$	23,012	$	9,965	$	25,076	$	168,622
Public equities		8,055		5,401		213		351		732		4,744		19,496
Mortgages		2,110		10,008		8,135		5,554		18,311		75		44,193
Private placements		3,277		10,823		7,096		7,070		1,272		191		29,729
Real estate		2,811		6,397		1,480		2,561		613		270		14,132
Other		6,187		16,846		8,555		16,042		377,000		19,879		444,509
Total	$	49,913	$	106,240	$	51,810	$	54,590	$	407,893	$	50,235	$	720,681

⁽¹⁾	Other insurance contract liabilities include group insurance and individual and group health including long-term care insurance.

⁽²⁾	Other liabilities are non-insurance contract liabilities which include segregated funds, bank deposits, long-term debt, deferred tax liabilities, derivatives, investment contracts, embedded derivatives and other miscellaneous liabilities.

⁽³⁾	Capital is defined in note 14.

Summary of Potential Impact on Net Income Attributed to Shareholders Arising From Changes to Non-economic Assumptions

Potential impact on net income attributed to shareholders arising from changes to non-economic assumptions^(1),(2)


As at December 31,	Decrease in net income attributable to shareholders
As at December 31,	2017			2016
Policy related assumptions
2% adverse change in future mortality rates^(3),(5)
Products where an increase in rates increases insurance contract liabilities	$	(400	)	$	(400	)
Products where a decrease in rates increases insurance contract liabilities		(400	)		(500	)
5% adverse change in future morbidity rates^(4),(5)		(3,900	)		(3,700	)
10% adverse change in future termination rates⁽⁵⁾		(2,000	)		(1,900	)
5% increase in future expense levels		(500	)		(500	)

⁽¹⁾	The sensitivities as at December 31, 2017 include the impact of lower U.S. corporate tax rates effective January 1, 2018.

⁽²⁾

The participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in non-economic assumptions. Experience gains or losses would generally result in changes to future dividends, with no direct impact to shareholders.

⁽³⁾	An increase in mortality rates will generally increase policy liabilities for life insurance contracts whereas a decrease in mortality rates will generally increase policy liabilities for policies with longevity risk such as payout annuities.

⁽⁴⁾	No amounts related to morbidity risk are included for policies where the policy liability provides only for claims costs expected over a short period, generally less than one year, such as Group Life and Health.

⁽⁵⁾	The impacts of the sensitivities on long-term care for morbidity, mortality and lapse are assumed to be moderated by partial offsets from the Company’s ability to contractually raise premium rates in such events, subject to state regulatory approval.

Summary of Actuarial Methods and Assumptions

The 2017 full year review of actuarial methods and assumptions resulted in an increase in insurance and investment contract liabilities of $277, net of reinsurance, and a decrease in net income attributed to shareholders of $35 post-tax. These charges exclude the impacts of the U.S. Tax Reform and reducing the allocation to ALDA in the Company’s portfolio asset mix. The charge to net income in the fourth quarter of 2017 for these two items was $2.8 billion, which primarily related to the post-tax change in policy liabilities. Refer to notes 6 and 8(g) for further details.

For the year ended December 31, 2017

Change in gross
insurance and
investment
contract liabilities

Change in insurance
and investment
contract liabilities
net of reinsurance⁽¹⁾

Change in net

income attributed
to shareholders

(post-tax)

Mortality and morbidity updates

(219

)

(254

)

299

Lapses and policyholder behaviour

1,057

1,019

(783

)

Other updates

ALDA and public equity investment return assumptions

1,403

1,296

(892

)

Corporate spread assumptions

(554

)

(515

)

344

Refinements to liability and tax cash flows

(1,273

)

(1,049

)

696

Other

(90

)

(220

)

301

Net impact

324

277

(35)

⁽¹⁾	The $277 increase in insurance and investment contract liabilities net of reinsurance, included an increase in net liabilities associated with participating insurance business resulting in a charge to net income attributed to participating policyholders of $88.

The 2016 full year review of actuarial methods and assumptions resulted in an increase in insurance and investment contract liabilities of $655, net of reinsurance, and a decrease in net income attributed to shareholders of $453 post-tax.


For the year ended December 31, 2016	Change in gross insurance and investment contract liabilities			Change in insurance and investment contract liabilities net of reinsurance			Change in net income attributed to shareholders (post-tax)
JH Long-Term Care triennial review	$	696		$	696		$	(452	)
Mortality and morbidity updates		(12	)		(53	)		76
Lapses and policyholder behaviour
U.S. Variable Annuities guaranteed minimum withdrawal benefit incidence and utilization		(1,024	)		(1,024	)		665
Other lapses and policyholder behaviour		516			431			(356	)
Economic reinvestment assumptions		459			443			(313	)
Other updates		719			162			(73	)
Net impact	$	1,354		$	655		$	(453	)

Summary of Insurance Contract Liabilities, Payments Due by Period

Insurance contracts give rise to obligations fixed by agreement. As at December 31, 2017, the Company’s contractual obligations and commitments relating to insurance contracts are as follows.

Payments due by period

Less than
1 year

1 to 3

years

3 to 5

years

Over 5
years

Total

Insurance contract liabilities⁽¹⁾

9,788

11,236

17,153

703,877

742,054

⁽¹⁾

Insurance contract liability cash flows include estimates related to the timing and payment of death and disability claims, policy surrenders, policy maturities, annuity payments, minimum guarantees on segregated fund products, policyholder dividends, commissions and premium taxes offset by contractual future premiums on in-force contracts. These estimated cash flows are based on the best estimate assumptions used in the determination of insurance contract liabilities. These amounts are undiscounted and reflect recoveries from reinsurance agreements. Due to the use of assumptions, actual cash flows may differ from these estimates. Cash flows include embedded derivatives measured separately at fair value.

Summary of Gross Claims and Benefits

The following table presents a breakdown of gross claims and benefits.


For the years ended December 31,	2017			2016
Death, disability and other claims	$	14,871		$	13,819
Maturity and surrender benefits		6,302			6,697
Annuity payments		4,470			4,310
Policyholder dividends and experience rating refunds		1,085			1,111
Net transfers from segregated funds		(1,734	)		(878	)
Total	$	24,994		$	25,059

Life insurance contracts [Member]

Summary of Change in Insurance Contract Liabilities

The change in insurance contract liabilities was a result of the following business activities and changes in actuarial estimates.


For the year ended December 31, 2017	Net actuarial liabilities			Other insurance contract liabilities ⁽¹⁾			Net insurance contract liabilities			Reinsurance assets			Gross insurance contract liabilities
Balance, January 1	$	251,738		$	10,815		$	262,553		$	34,952		$	297,505
New policies⁽²⁾		3,545			–			3,545			441			3,986
Normal in-force movement⁽²⁾		15,192			930			16,122			(3,097	)		13,025
Changes in methods and assumptions⁽²⁾		305			(28	)		277			47			324
Impact of U.S. Tax Reform^(2),(3)		2,246			–			2,246			–			2,246
Increase due to decision to change the portfolio asset mix supporting legacy businesses^(2),(4)		1,340			–			1,340			43			1,383
Impact of changes in foreign exchange rates		(11,275	)		(562	)		(11,837	)		(2,027	)		(13,864	)
Balance, December 31	$	263,091		$	11,155		$	274,246		$	30,359		$	304,605

For the year ended December 31, 2016	Net actuarial liabilities			Other insurance contract liabilities ⁽¹⁾			Net insurance contract liabilities			Reinsurance assets			Gross insurance contract liabilities
Balance, January 1	$	239,812		$	10,050		$	249,862		$	35,426		$	285,288
New policies⁽⁵⁾		3,617			–			3,617			294			3,911
Normal in-force movement⁽⁵⁾		12,579			1,094			13,673			(405	)		13,268
Changes in methods and assumptions⁽⁵⁾		709			(54	)		655			699			1,354
Impact of changes in foreign exchange rates		(4,979	)		(275	)		(5,254	)		(1,062	)		(6,316	)
Balance, December 31	$	251,738		$	10,815		$	262,553		$	34,952		$	297,505

⁽¹⁾	Other insurance contract liabilities are comprised of benefits payable and provision for unreported claims and policyholder amounts on deposit.

⁽²⁾

In 2017, the $20,023 increase reported as the change in insurance contract liabilities on the Consolidated Statements of Income primarily consists of changes due to normal in-force movement, new policies, changes in methods and assumptions, the impact of U.S. Tax Reform and the increase due to the decision to change the portfolio asset mix supporting legacy businesses. These five items in the gross insurance contract liabilities column of this table net to an increase of $20,964, of which $20,212 is included in the Consolidated Statements of Income increase in insurance contract liabilities and $752 is included in gross claims and benefits. The Consolidated Statements of Income change in insurance contract liabilities also includes the change in embedded derivatives associated with insurance contracts.

⁽³⁾

The impact of U.S. Tax Reform, which includes the lowering of the U.S. corporate tax rate from 35% to 21% and limits on the tax deductibility of reserves, resulted in a $2,246 pre-tax ($1,774 post-tax) increase in policy liabilities due to the impact of temporary tax timing and permanent tax rate differences on the cash flows available to satisfy policyholder obligations. The $472 deferred tax impact on this increase in policy liabilities, together with the impact of U.S. Tax Reform on the Company’s deferred tax assets and liabilities is included in note 6.

⁽⁴⁾	The decision to reduce the allocation to ALDA in the portfolio asset mix supporting the Company’s North American legacy businesses resulted in an increase in policy liabilities due to the impact on future expected investment income on assets supporting the policies.

⁽⁵⁾

In 2016, the $18,014 increase reported as the change in insurance contract liabilities on the Consolidated Statements of Income primarily consists of changes due to normal in-force movement, new policies and changes in methods and assumptions. These three items in the gross insurance contract liabilities column of this table net to an increase of $18,533, of which $17,529 is included in the Consolidated Statements of Income increase in insurance contract liabilities and $1,004 is included in gross claims and benefits. The Consolidated Statements of Income change in insurance contract liabilities also includes the change in embedded derivatives associated with insurance contracts.