Risk Management (Tables)

12 Months Ended

Dec. 31, 2017

Summary of Gross Carrying Amount of Financial Instruments Subject to Credit Exposure

The following table presents the gross carrying amount of financial instruments subject to credit exposure, without considering any collateral held or other credit enhancements.



As at December 31,	2017		2016
Debt securities
FVTPL	$	147,024	$	140,890
AFS		26,976		27,732
Mortgages		44,742		44,193
Private placements		32,132		29,729
Policy loans		5,808		6,041
Loans to Bank clients		1,737		1,745
Derivative assets		15,569		23,672
Accrued investment income		2,182		2,260
Reinsurance assets		30,359		34,952
Other financial assets		5,253		4,844
Total	$	311,782	$	316,058

Summary of Credit Quality and Carrying Value of Commercial Mortgages and Private Placements

The following table presents the credit quality and carrying value of commercial mortgages and private placements.


As at December 31, 2017	AAA		AA		A		BBB		BB		B and lower		Total
Commercial mortgages
Retail	$	110	$	1,517	$	4,363	$	2,050	$	44	$	57	$	8,141
Office		57		1,272		4,635		1,647		70		28		7,709
Multi-family residential		523		1,395		1,805		726		–		–		4,449
Industrial		33		386		1,542		477		145		–		2,583
Other		362		331		1,012		973		14		–		2,692
Total commercial mortgages		1,085		4,901		13,357		5,873		273		85		25,574
Agricultural mortgages		–		159		–		405		25		–		589
Private placements		1,038		4,246		11,978		13,160		717		993		32,132
Total	$	2,123	$	9,306	$	25,335	$	19,438	$	1,015	$	1,078	$	58,295

As at December 31, 2016	AAA		AA		A		BBB		BB		B and lower		Total
Commercial mortgages
Retail	$	97	$	1,620	$	4,391	$	2,084	$	–	$	7	$	8,199
Office		68		1,255		3,972		1,938		55		36		7,324
Multi-family residential		656		1,362		1,944		844		–		–		4,806
Industrial		22		360		1,452		831		169		–		2,834
Other		428		261		1,323		493		60		–		2,565
Total commercial mortgages		1,271		4,858		13,082		6,190		284		43		25,728
Agricultural mortgages		–		151		61		469		141		–		822
Private placements		1,086		4,466		10,671		11,606		936		964		29,729
Total	$	2,357	$	9,475	$	23,814	$	18,265	$	1,361	$	1,007	$	56,279

Summary of Carrying Value of Past Due but Not Impaired and Impaired Financial Assets

The following table presents the carrying value of past due but not impaired and impaired financial assets.


	Past due but not impaired
As at December 31, 2017	Less than 90 days		90 days and greater		Total		Total impaired
Debt securities
FVTPL	$	–	$	–	$	–	$	45
AFS		104		2		106		1
Private placements		363		–		363		40
Mortgages and loans to Bank clients		76		16		92		86
Other financial assets		46		26		72		1
Total	$	589	$	44	$	633	$	173

	Past due but not impaired
As at December 31, 2016	Less than 90 days		90 days and greater		Total		Total impaired
Debt securities
FVTPL	$	90	$	–	$	90	$	38
AFS		16		9		25		–
Private placements		215		64		279		152
Mortgages and loans to Bank clients		50		20		70		33
Other financial assets		57		54		111		8
Total	$	428	$	147	$	575	$	231

Summary of Company's Loans That are Considered Impaired

The following table summarizes the Company’s loans that are considered impaired.


As at December 31, 2017	Gross carrying value		Allowances for losses		Net carrying value
Private placements	$	79	$	39	$	40
Mortgages and loans to Bank clients		132		46		86
Total	$	211	$	85	$	126

As at December 31, 2016	Gross carrying value		Allowances for losses		Net carrying value
Private placements	$	244	$	92	$	152
Mortgages and loans to Bank clients		59		26		33
Total	$	303	$	118	$	185

Summary of Reconciliation of Allowance for Loan Losses

Allowance for loan losses



	2017									2016
For the years ended December 31,		Private placements			Mortgages and loans to Bank clients			Total			Private placements			Mortgages and loans to Bank clients			Total
Balance, January 1	$	92		$	26		$	118		$	72		$	29		$	101
Provisions		2			33			35			112			14			126
Recoveries		(12	)		(1	)		(13	)		(62	)		(7	)		(69	)
Write-offs⁽¹⁾		(43	)		(12	)		(55	)		(30	)		(10	)		(40	)
Balance, December 31	$	39		$	46		$	85		$	92		$	26		$	118

⁽¹⁾	Includes disposals and impact of changes in foreign exchange rates.

Summary of Credit Default Swap Protection Sold

The following table presents details of the credit default swap protection sold by type of contract and external agency rating for the underlying reference security.


As at December 31, 2017	Notional amount⁽²⁾		Fair value		Weighted average maturity (in years)⁽³⁾
Single name CDSs⁽¹⁾
Corporate debt
AAA	$	13	$	–		1
AA		35		1		2
A		408		10		3
BBB		150		3		2
Total single name CDSs	$	606	$	14		3
Total CDS protection sold	$	606	$	14		3

As at December 31, 2016	Notional amount⁽²⁾		Fair value		Weighted average maturity (in years)⁽³⁾
Single name CDSs⁽¹⁾
Corporate debt
AAA	$	13	$	–		2
AA		37		1		3
A		457		13		4
BBB		155		4		3
Total single name CDSs	$	662	$	18		4
Total CDS protection sold	$	662	$	18		4

⁽¹⁾	Rating agency designations are based on S&P where available followed by Moody’s, DBRS, and Fitch. If no rating is available from a rating agency, an internally developed rating is used.

⁽²⁾	Notional amounts represent the maximum future payments the Company would have to pay its counterparties assuming a default of the underlying credit and zero recovery on the underlying issuer obligation.

⁽³⁾	The weighted average maturity of the CDS is weighted based on notional amounts.

Summary of Effect of Conditional Master Netting and Similar Arrangements

The following table presents the effect of conditional master netting and similar arrangements. Similar arrangements may include global master repurchase agreements, global master securities lending agreements, and any related rights to financial collateral.


				Related amounts not set off in the Consolidated Statements of Financial Position
As at December 31, 2017	Gross amounts of financial instruments presented in the Consolidated Statements of Financial Position⁽¹⁾			Amounts subject to an enforceable master netting arrangement or similar agreements			Financial and cash collateral pledged (received)⁽²⁾			Net amount including financing trusts⁽³⁾			Net amounts excluding financing trusts
Financial assets
Derivative assets	$	16,204		$	(6,714	)	$	(9,395	)	$	95		$	95
Securities lending		1,563			–			(1,563	)		–			–
Reverse repurchase agreements		230			(46	)		(184	)		–			–
Total financial assets	$	17,997		$	(6,760	)	$	(11,142	)	$	95		$	95
Financial liabilities
Derivative liabilities	$	(8,649	)	$	6,714		$	1,718		$	(217	)	$	(30	)
Repurchase agreements		(228	)		46			182			–			–
Total financial liabilities	$	(8,877	)	$	6,760		$	1,900		$	(217	)	$	(30	)
				Related amounts not set off in the Consolidated Statements of Financial Position
As at December 31, 2016	Gross amounts of financial instruments presented in the Consolidated Statements of Financial Position⁽¹⁾			Amounts subject to an enforceable master netting arrangement or similar agreements			Financial and cash collateral pledged (received)⁽²⁾			Net amount including financing trusts⁽³⁾			Net amounts excluding financing trusts
Financial assets
Derivative assets	$	24,603		$	(12,031	)	$	(12,382	)	$	190		$	189
Securities lending		1,956			–			(1,956	)		–			–
Reverse repurchase agreements		250			–			(250	)		–			–
Total financial assets	$	26,809		$	(12,031	)	$	(14,588	)	$	190		$	189
Financial liabilities
Derivative liabilities	$	(15,095	)	$	12,031		$	2,800		$	(264	)	$	(42	)
Repurchase agreements		(255	)		–			255			–			–
Total financial liabilities	$	(15,350)		$	12,031		$	3,055		$	(264	)	$	(42	)

⁽¹⁾	Financial assets and liabilities include accrued interest of $638 and $827, respectively (2016 – $935 and $944, respectively).

⁽²⁾

Financial and cash collateral exclude over-collateralization. As at December 31, 2017, the Company was over-collateralized on OTC derivative assets, OTC derivative liabilities, securities lending and reverse purchase agreements and repurchase agreements in the amounts of $743, $382, $79 and $nil, respectively (2016 – $398, $494, $107 and $1, respectively). As at December 31, 2017, collateral pledged (received) does not include collateral-in-transit on OTC instruments or initial margin on exchange traded contracts or cleared contracts.

⁽³⁾	Includes derivative contracts entered between the Company and its financing trusts which it does not consolidate. The Company does not exchange collateral on derivative contracts entered with these trusts. Refer to note 17.

Summary of the Effect of Unconditional Netting

The following table presents the effect of unconditional netting.

As at December 31, 2017

Gross amounts of
financial instruments

Amounts subject to
an enforceable
netting arrangement

Net amounts of
financial instruments
presented in the
Consolidated
Statements of
Financial Position

Credit linked note⁽¹⁾

461

(461

)

–

Variable surplus note

(461

)

461

–

⁽¹⁾

In 2017, the Company entered into a twenty-year financing facility with a third party, agreeing to issue variable surplus notes in exchange for an equal amount of credit linked notes. These notes are held to support John Hancock Life Insurance Company (USA) (“JHUSA”) excess reserves under U.S. National Association of Insurance Commissioners’ Model Regulation XXX. In certain scenarios, the credit linked note will be drawn upon by the Company which will issue fixed surplus notes equal to the draw payment received. The third party has agreed to fund any such payment under the credit-linked notes in return for a fee. As at December 31, 2017, the Company had no fixed surplus notes outstanding.

Schedule of Distribution of Debt Securities and Private Placements Portfolio by Sector and Industry

The following table presents debt securities and private placements portfolio by sector and industry.



	2017				2016
As at December 31,	Carrying value		% of total		Carrying value		% of total
Government and agency	$	71,888		35	$	76,020		38
Utilities		40,568		20		37,561		19
Financial		27,923		13		25,027		13
Energy		16,428		8		15,775		8
Industrial		14,691		7		13,088		6
Consumer (non-cyclical)		14,009		7		12,440		6
Consumer (cyclical)		5,916		3		4,256		2
Securitized		3,577		2		3,514		2
Telecommunications		3,324		2		3,091		2
Basic materials		3,248		2		3,387		2
Technology		2,475		1		2,231		1
Media and internet		1,136		–		1,175		1
Diversified and miscellaneous		949		–		786		–
Total	$	206,132		100	$	198,351		100

Schedule of Geographic Concentration of Insurance and Investment Contract Liabilities, Including Embedded Derivatives

The geographic concentration of the Company’s insurance and investment contract liabilities, including embedded derivatives, is shown below. The disclosure is based on the countries in which the business is written.


As at December 31, 2017	Gross liabilities		Reinsurance assets			Net liabilities
U.S. and Canada	$	237,434	$	(30,225	)	$	207,209
Asia and Other		70,521		(134	)		70,387
Total	$	307,955	$	(30,359	)	$	277,596

As at December 31, 2016	Gross liabilities		Reinsurance assets			Net liabilities
U.S. and Canada	$	238,796	$	(34,987	)	$	203,809
Asia and Other		62,322		35			62,357
Total	$	301,118	$	(34,952	)	$	266,166

Asset classes and individual investment risks [Member]

Schedule of Risk Concentrations



As at December 31,	2017		2016
Debt securities and private placements rated as investment grade BBB or higher⁽¹⁾		98%		97%
Government debt securities as a per cent of total debt securities		39%		43%
Government private placements as a per cent of total private placements		10%		10%
Highest exposure to a single non-government debt security and private placement issuer	$	1,044	$	1,010
Largest single issuer as a per cent of the total equity portfolio		2%		3%
Income producing commercial office properties (2017 – 64% of real estate, 2016 – 65%)	$	8,836	$	9,200
Largest concentration of mortgages and real estate⁽²⁾ – Ontario Canada (2017 – 25%, 2016 – 24%)	$	14,779	$	13,882

⁽¹⁾	Investment grade debt securities and private placements include 42% rated A, 16% rated AA and 17% rated AAA (2016 – 41%, 14% and 21%) investments based on external ratings where available.

⁽²⁾	Mortgages and real estate are diversified geographically and by property type.

Residential mortgages and loans to bank clients [Member]

Summary of Carrying Value of Residential Mortgages and Loans to Bank Clients

The following table presents the carrying value of residential mortgages and loans to Bank clients.



	2017						2016
As at December 31,		Insured		Uninsured		Total		Insured		Uninsured		Total
Residential mortgages
Performing	$	7,256	$	11,310	$	18,566	$	7,574	$	10,050	$	17,624
Non-performing⁽¹⁾		4		9		13		6		13		19
Loans to Bank clients
Performing		n/a		1,734		1,734		n/a		1,743		1,743
Non-performing⁽¹⁾		n/a		3		3		n/a		2		2
Total	$	7,260	$	13,056	$	20,316	$	7,580	$	11,808	$	19,388

⁽¹⁾	Non-performing refers to assets that are 90 days or more past due if uninsured and 365 days or more if insured.