Insurance Contract Liabilities and Reinsurance Assets (Tables)

12 Months Ended

Dec. 31, 2018

Summary of Insurance Contract Liabilities and Reinsurance Assets

The components of gross and net insurance contract liabilities are shown below.



As at December 31,	2018			2017
Gross insurance contract liabilities	$	313,737		$	291,767
Gross benefits payable and provision for unreported claims		4,398			3,376
Gross policyholder amounts on deposit		10,519			9,462
Gross insurance contract liabilities		328,654			304,605
Reinsurance assets⁽¹⁾		(42,925	)		(30,359	)
Net insurance contract liabilities	$	285,729		$	274,246

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 the line of business and reporting segment is as follows.

Gross insurance contract liabilities


	Individual insurance
As at December 31, 2018	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	$	38,470	$	29,547		$	5,062	$	3,048	$	76,127		$	1,332		$	77,459
Canada		10,743		34,677			18,339		12,869		76,628			(202	)		76,426
U.S.		8,673		63,412			16,125		44,932		133,142			41,695			174,837
Corporate and Other		–		(601	)		46		387		(168	)		100			(68	)
Total, net of reinsurance ceded		57,886		127,035			39,572		61,236		285,729		$	42,925		$	328,654
Total reinsurance ceded		11,596		12,303			17,927		1,099		42,925
Total, gross of reinsurance ceded	$	69,482	$	139,338		$	57,499	$	62,335	$	328,654

	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	$	32,737	$	22,705		$	4,366	$	2,435	$	62,243		$	911		$	63,154
Canada		11,132		34,091			19,141		11,834		76,198			(676	)		75,522
U.S.		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

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

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

The following table presents the carrying value of assets backing net insurance contract liabilities, other liabilities and capital.


	Individual insurance
As at December 31, 2018	Participating		Non- participating		Annuities and pensions		Other insurance contract liabilities⁽¹⁾		Other liabilities⁽²⁾		Capital⁽³⁾		Total
Assets
Debt securities	$	30,934	$	67,387	$	20,469	$	28,435	$	10,061	$	28,308	$	185,594
Public equities		8,416		5,562		172		262		589		4,178		19,179
Mortgages		2,218		11,111		4,972		8,732		21,295		35		48,363
Private placements		4,151		14,131		6,960		8,581		1,772		159		35,754
Real estate		3,106		6,028		1,214		1,799		397		233		12,777
Other		9,061		22,816		5,785		13,427		374,418		23,097		448,604
Total	$	57,886	$	127,035	$	39,572	$	61,236	$	408,532	$	56,010	$	750,271

	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

⁽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 13.

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⁾


As at December 31,	Decrease in net income attributed to shareholders
As at December 31,	2018			2017
Policy related assumptions
2% adverse change in future mortality rates^(2),(4)
Products where an increase in rates increases insurance contract liabilities	$	(500	)	$	(400	)
Products where a decrease in rates increases insurance contract liabilities		(500	)		(500	)
5% adverse change in future morbidity rates (incidence and termination)^(3),(4),(5)		(4,800	)		(5,100	)
10% adverse change in future policy termination rates⁽⁴⁾		(2,200	)		(2,100	)
5% increase in future expense levels		(600	)		(500	)

⁽¹⁾

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.

⁽²⁾	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.

⁽³⁾	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.

⁽⁴⁾

The impacts of the adverse sensitivities on LTC for morbidity, mortality and lapse do not assume any partial offsets from the Company’s ability to contractually raise premium rates in such events, subject to state regulatory approval. In practice, the Company would plan to file for rate increases equal to the amount of deterioration resulting from the sensitivity.

⁽⁵⁾	This includes a 5% deterioration in incidence rates and 5% deterioration in claim termination rates.

Summary of Actuarial Methods and Assumptions

The completion of the 2018 annual review of actuarial methods and assumptions resulted in a decrease in insurance contract liabilities of $174, net of reinsurance, and a decrease in net income attributed to shareholders of $51 post-tax.

Change in insurance contract liabilities,
net of reinsurance

For the year ended December 31, 2018

Total

Attributed to
participating
policyholders’
account

Attributed to
shareholders’
account

Change in net
income attributed
to shareholders
(post-tax)

Mortality and morbidity updates

$ 319

$ (192

)

$ 511

$ (360

)

Lapses and policyholder behaviour

287

–

287

(226

)

Investment return assumptions

(96

)

(146

)

143

Other updates

(684

)

(94

)

(590

)

392

Net impact

$ (174

)

$ (236

)

$ 62

$ (51

)


	Change in insurance contract liabilities, net of reinsurance
For the year ended December 31, 2017	Total			Attributed to participating policyholders’ account			Attributed to shareholders’ account			Change in net income attributed to shareholders (post-tax)
Mortality and morbidity updates	$	(254	)		$ 9			$ (263	)		$ 299
Lapses and policyholder behaviour		1,019			–			1,019			(783	)
Other updates
ALDA and public equity investment return assumptions		1,296			5			1,291			(892	)
Corporate spread assumptions		(515	)		(1	)		(514	)		344
Refinements to liability and tax cash flows		(1,049	)		–			(1,049	)		696
Other		(220	)		84			(304	)		301
Net impact	$	277			$ 97			$ 180			$ (35	)

Summary of Insurance Contract Liabilities, Payments Due by Period

As at December 31, 2018, 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⁾

9,327

10,863

17,994

750,238

788,422

⁽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,	2018			2017
Death, disability and other claims	$	15,174		$	14,871
Maturity and surrender benefits		7,722			6,302
Annuity payments		4,262			4,470
Policyholder dividends and experience rating refunds		1,809			1,085
Net transfers from segregated funds		(1,089	)		(1,734	)
Total	$	27,878		$	24,994

Long term care [member]

Statement [LineItems]

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 for Long-Term Care included in the above table^(1),(2)


As at December 31, 2018	Decrease in net income attributed to shareholders
Policy related assumptions
2% adverse change in future mortality rates		$ (200	)
5% adverse change in future morbidity incidence rates		(1,700	)
5% adverse change in future morbidity claims termination rates		(2,800	)
10% adverse change in future policy termination rates		(400	)
5% increase in future expense levels		(100	)

⁽¹⁾

⁽²⁾	The impact of favourable changes to all the sensitivities is relatively symmetrical.

Life insurance contracts [Member]

Statement [LineItems]

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, 2018	Net actuarial liabilities			Other insurance contract liabilities⁽¹⁾			Net insurance contract liabilities			Reinsurance assets			Gross insurance contract liabilities
Balance, January 1	$	263,091		$	11,155		$	274,246		$	30,359		$	304,605
New policies⁽²⁾		3,269			–			3,269			388			3,657
Normal in-force movement⁽²⁾		2,044			985			3,029			(1,150	)		1,879
Changes in methods and assumptions⁽²⁾		(173	)		(1	)		(174	)		(608	)		(782	)
Impact of annuity coinsurance transactions		(11,156	)		–			(11,156	)		11,156			–
Impact of changes in foreign exchange rates		15,686			829			16,515			2,780			19,295
Balance, December 31	$	272,761		$	12,968		$	285,729		$	42,925		$	328,654

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⁽³⁾		3,545			–			3,545			441			3,986
Normal in-force movement⁽³⁾		15,192			930			16,122			(3,097	)		13,025
Changes in methods and assumptions⁽³⁾		305			(28	)		277			47			324
Impact of U.S. Tax Reform^(3),(4)		2,246			–			2,246			–			2,246
Increase due to decision to change the portfolio asset mix supporting legacy businesses^(3),(5)		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

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

⁽²⁾

In 2018, the $2,907 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 were netted off by an increase of $4,754, of which $3,632 is included in the Consolidated Statements of Income increase in insurance contract liabilities and $1,122 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. The Company finalized its estimate of U.S. Tax reform which resulted in a $196 pre-tax ($154 post-tax) increase in insurance contract liabilities, refer to note 5.

⁽³⁾

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 were netted off by 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.

⁽⁴⁾

In 2017, 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 5.

⁽⁵⁾	In 2017, 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.