XML 59 R34.htm IDEA: XBRL DOCUMENT v3.10.0.1
Derivative and Hedging Instruments (Tables)
 12 Months Ended
Dec. 31, 2018
Text block [abstract]  
Summary of Gross Notional Amount and Fair Value of Derivative Instruments

The following table presents gross notional amount and fair value of derivative instruments by the underlying risk exposure.

 

As at December 31,    2018             2017  
         Notional
amount		      Fair value             Notional
amount		      Fair value  
Type of hedge   Instrument type    Assets      Liabilities             Assets      Liabilities  

Qualifying hedge accounting relationships

                                                         

Fair value hedges

  

Interest rate swaps

    $ 519      $ –      $ 13         $ 548      $ –      $ 20  
 

Foreign currency swaps

      91        5        –           84        1        4  

Cash flow hedges

  

Foreign currency swaps

      1,834        80        367           1,757        20        333  
 

Forward contracts

      80        –        9           165        –        4  
 

Equity contracts

      101        –        12           125        16        1  

Net investment hedges

  

Foreign currency forwards

      1,864        21        65           –        –        –  

Total derivatives in qualifying hedge accounting relationships

      4,489        106        466           2,679        37        362  

Derivatives not designated in qualifying hedge

accounting relationships

                     
 

Interest rate swaps

      300,704        11,204        5,675           246,270        12,984        6,251  
 

Interest rate futures

      14,297        –        –           11,551        –        –  
 

Interest rate options

      11,736        314        –           10,093        312        –  
 

Foreign currency swaps

      23,156        747        1,341           16,321        494        1,122  
 

Currency rate futures

      4,052        –        –           3,157        –        –  
 

Forward contracts

      29,248        670        158           20,341        915        65  
 

Equity contracts

      15,492        653        163           13,597        813        22  
 

Credit default swaps

      652        9        –           606        14        –  
   

Equity futures

      10,908        –        –           12,158        –        –  

Total derivatives not designated in qualifying hedge accounting relationships

      410,245        13,597        7,337           334,094        15,532        7,460  

Total derivatives

    $   414,734      $   13,703      $   7,803         $   336,773      $   15,569      $   7,822  
Summary of Gross Notional Amount by Remaining Term to Maturity, Total Fair Values (Including Accrued Interest), Credit Risk Equivalent and Risk Weighted Amount by Contract Type

The following table presents fair values of derivative instruments by the remaining term to maturity. The fair values disclosed below do not incorporate the impact of master netting agreements. Refer to note 9.

 

    

 

Remaining term to maturity

         
As at December 31, 2018   

Less than

1 year

     

1 to 3

years

     

3 to 5

years

     

Over 5

years

      Total      

Derivative assets

    $ 649      $ 671      $ 795      $ 11,588      $ 13,703      

Derivative liabilities

      359        229        227        6,988        7,803      
     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      

 

The following table presents gross notional amount by the 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, 2018   

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

    $ 3,495      $ 22,568      $ 121,817      $ 147,880        $ 11,750      $ (6,477 )     $ 5,273        $ 5,301       $ 787      

Cleared swap contracts

      5,723        16,140        131,480        153,343          95        (96 )       (1 )         –         –      

Forward contracts

      10,258        14,300        648        25,206          637        (126 )       511          259         37      

Futures

      14,297        –        –        14,297          –        –        –          –         –      

Options purchased

      1,166        4,981        5,589        11,736                317        –        317                376               58      

Subtotal

      34,939        57,989        259,534        352,462          12,799        (6,699 )       6,100          5,936         882      

Foreign exchange

                                

Swap contracts

      1,024        6,281        17,776        25,081          807        (1,736 )       (929 )         2,309         256      

Forward contracts

      5,926        60        –        5,986          54        (106 )       (52 )         108         13      

Futures

      4,052        –        –        4,052          –        –        –          –         –      

Credit derivatives

      143        509        –        652          10        –        10          –         –      

Equity contracts

                                

Swap contracts

      2,728        142        –        2,870          29        (57 )       (28 )         303         38      

Futures

      10,908        –        –        10,908          –        –        –          –         –      

Options purchased

      6,142        6,581        –        12,723                621        (118 )       503                2,277               316      

Subtotal including accrued interest

      65,862        71,562        277,310        414,734          14,320        (8,716 )       5,604          10,933         1,505      

Less accrued interest

      –        –        –        –                617        (913 )       (296 )               –               –      

Total

    $ 65,862      $ 71,562      $ 277,310      $ 414,734              $ 13,703      $ (7,803 )     $ 5,900              $ 10,933             $ 1,505      
     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      

 

(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 and the Fair Value Hierarchy of Derivative Instruments

Fair value and the fair value hierarchy of derivative instruments

 

As at December 31, 2018    Fair value      Level 1      Level 2      Level 3  

Derivative assets

            

Interest rate contracts

    $ 12,155      $ –      $ 11,537      $ 618  

Foreign exchange contracts

      886        –        876        10  

Equity contracts

      653        –        621        32  

Credit default swaps

      9        –        9        –  

Total derivative assets

    $ 13,703      $ –      $ 13,043      $ 660  

Derivative liabilities

            

Interest rate contracts

    $ 5,815      $ –      $ 5,318      $ 497  

Foreign exchange contracts

      1,814        –        1,813        1  

Equity contracts

      174        –        118        56  

Total derivative liabilities

    $ 7,803      $ –      $ 7,249      $ 554  
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  
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,    2018      2017  

Balance at the beginning of the year

    $ 769      $ 163  

Net realized / unrealized gains (losses) included in:

      

Net income(1)

        (666 )         1,082  

OCI(2)

      (48 )       (9 ) 

Purchases

      12        22  

Settlements

      18        (103 ) 

Transfers

      

Into Level 3(3)

      9        –  

Out of Level 3(3)

      (13 )       (363 ) 

Currency movement

      25        (23 ) 

Balance at the end of the year

    $ 106      $ 769  

Change in unrealized gains (losses) on instruments still held

    $ (460 )     $ 832  

 

(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, 2018  

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

    $ 1      $ (1 )     $ –       
 

Fixed rate liabilities

      3        (3 )       –       

Foreign currency swaps

  

Fixed rate assets

      7        (5 )       2       

Total

        $    11      $ (9 )     $ 2       
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       
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, 2018  

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

    $ –      $ (20 )     $ –      

Foreign currency swaps

  

Fixed rate assets

      –        (1 )       –      
 

Floating rate liabilities

      (36 )       (62 )       –      
 

Fixed rate liabilities

      60        62        –      

Forward contracts

  

Forecasted expenses

      (8 )       (2 )       –      

Equity contracts

  

Stock-based compensation

      (21 )       27        –      

Total

        $ (5 )     $ 4      $ –      
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      $         –      
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, 2018    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

    $ (469 )     $ –      $ –  

Foreign currency forward

      9        –        –  

Total

    $ (460 )     $ –      $ –  
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      $ –      $ –  
Summary of Investment Income on Derivatives Not Designated in Qualifying Hedge Accounting Relationships

Investment income on derivatives not designated in qualifying hedge accounting relationships

 

For the years ended December 31,    2018      2017  

Interest rate swaps

    $ (1,894 )     $ (927 ) 

Interest rate futures

      (298 )       372  

Interest rate options

      (52 )       (96 ) 

Foreign currency swaps

      (122 )       529  

Currency rate futures

      3        (92 ) 

Forward contracts

      (355 )       1,231  

Equity futures

              742        (2,190 ) 

Equity contracts

      (276 )       153  

Credit default swaps

      (6 )       (4 ) 

Total

    $ (2,258)      $   (1,024 )