DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2020

Our company’s activities expose it to a variety of financial risks, including market risk (i.e. currency risk, interest rate risk, commodity risk and other price risk), credit risk and liquidity risk. Our company selectively uses derivative financial instruments principally to manage these risks.

The aggregate notional amount of our company’s derivative positions at December 31, 2020 and 2019 were as follows:


		As of December 31,
US$ MILLIONS	Note	2020		2019
Interest rate swaps and other	(a)	$	447	$	434
		$	447	$	434

The following table presents the change in fair values of our company’s derivative positions during the years ended December 31, 2020 and 2019:


US$ MILLIONS	Unrealized Gains on Derivative Financial Assets		Unrealized Losses on Derivative Financial Liabilities		Net Change During 2020		Net Change During 2019
Interest rate swaps and other	$	9	$	—	$	9	$	10
	$	9	$	—	$	9	$	10

(a)Interest Rates

At December 31, 2020, our company held interest rate and cross currency interest rate swap contracts having an aggregate notional amount of $275 million (2019: $267 million). Our company has inflation linked swaps with an aggregate notional amount of $172 million (2019: $167 million).

Other Information Regarding Derivative Financial Instruments

The following table presents the notional amounts underlying our company’s derivative instruments by term to maturity as at December 31, 2020 and the comparative notional amounts at December 31, 2019, for both derivatives that are classified as fair value through profit or loss and derivatives that qualify for hedge accounting:


	2020								2019
US$ MILLIONS	< 1 year		1 to 5 years		> 5 years		Total Notional Amount		Total Notional Amount
Fair value through profit or loss
Inflation rate swaps and other	$	—	$	172	$	—	$	172	$	167
	$	—	$	172	$	—	$	172	$	167
Elected for hedge accounting
Interest rate swaps and other	$	—	$	275	$	—	$	275	$	267
	$	—	$	275	$	—	$	275	$	267

The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2020 and 2019 as either cash flow hedges or net investment hedges. Changes in the fair value of the effective portion of the hedges are recorded in either other comprehensive income or net income, depending on the hedge classification, whereas changes in the fair value of the ineffective portion of the hedge are recorded in net income:


	2020						2019
AS AT AND FOR THE YEARS ENDED (US$ MILLIONS)	Notional		Effective Portion		Ineffective Portion		Notional		Effective Portion		Ineffective Portion
Cash flow hedges	$	275	$	5	$	—	$	267	$	5	$	—

Our company settles the difference between the contracted fixed and floating rates of its interest rate swaps on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce our company’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the borrowings occur simultaneously and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on borrowings affect profit or loss.