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Goodwill and Intangible Assets
 12 Months Ended
Dec. 31, 2020
Text block [abstract]  
Goodwill and Intangible Assets
Note 5     Goodwill and Intangible Assets
(a) Change in the carrying value of goodwill and intangible assets
The following table presents the change in carrying value of goodwill and intangible assets.
 
As at December 31, 2020
 Balance,
January 1		  Net additions/
(disposals)		  Amortization
expense		  Effect of changes
in foreign
exchange rates		  Balance,
December 31		 
Goodwill
 
$
5,743
 
 
$
(5
) 
 
$
n/a
 
 
$
(24
) 
 
$
5,714
 
Indefinite life intangible assets
                    
Brand
 
 
779
 
 
 
–
 
 
 
n/a
 
 
 
(15
) 
 
 
764
 
Fund management contracts and other
(1)
 
 
805
 
 
 
(2
) 
 
 
n/a
 
 
 
(7
) 
 
 
796
 
 
 
 
1,584
 
 
 
(2
) 
 
 
n/a
 
 
 
(22
) 
 
 
1,560
 
Finite life intangible assets
(2)
                    
Distribution networks
 
 
801
 
 
 
59
 
 
 
42
 
 
 
(12
) 
 
 
806
 
Customer relationships
 
 
795
 
 
 
–
 
 
 
54
 
 
 
(3
) 
 
 
738
 
Software
 
 
991
 
 
 
262
 
 
 
189
 
 
 
(5
) 
 
 
1,059
 
Other
 
 
61
 
 
 
(9
) 
 
 
4
 
 
 
4
 
 
 
52
 
 
 
 
2,648
 
 
 
312
 
 
 
289
 
 
 
(16
) 
 
 
2,655
 
Total intangible assets
 
 
4,232
 
 
 
310
 
 
 
289
 
 
 
(38
) 
 
 
4,215
 
Total goodwill and intangible assets
 
$
9,975
 
 
$
305
 
 
$
289
 
 
$
(62
) 
 
$
9,929
 
As at December 31, 2019 Balance,
January 1		  Net additions/
(disposals)		  Amortization
expense		  Effect of changes
in foreign
exchange rates		  Balance,
December 31		 
Goodwill
 $5,864  $(6)  $n/a  $(115)  $5,743 
Indefinite life intangible assets
                    
Brand
  819   –   n/a   (40)   779 
Fund management contracts and other
(1)
  798   32   n/a   (25)   805 
 
  1,617   32   n/a   (65)   1,584 
Finite life intangible assets
(2)
                    
Distribution networks
  868   6   44   (29)   801 
Customer relationships
  860   (2)   54   (9)   795 
Software
  821   357   168   (19)   991 
Other
  67   –   5   (1)   61 
 
  2,616   361   271   (58)   2,648 
Total intangible assets
  4,233   393   271   (123)   4,232 
Total goodwill and intangible assets
 $  10,097  $  387  $  271  $(238)  $  9,975 
 
(1)
Fund management contracts were mostly allocated to Canada WAM and U.S. WAM CGUs with the carrying values of $273 (2019 – $273) and $373 (2019 – $380), respectively.
(2)
Gross carrying amount of finite life intangible assets was $1,332 for distribution networks, $1,130 for customer relationships, $2,310 for software and $123 for other (2019 – $1,292, $1,133, $2,239 and $130), respectively.
(b) Goodwill impairment testing
The Company completed its annual goodwill impairment testing in the fourth quarter of 2020 by determining the recoverable amounts of its businesses using valuation techniques discussed below (refer to notes 1(f) and 5(c)). The review indicated that there was no impairment of goodwill in 2020 (2019 – $nil). 
 
The following tables present the carrying value of goodwill by CGU or group of CGUs.
 
As at December 31, 2020
CGU or group of CGUs
 Balance,
January 1,		  
Net additions/
(disposals)
  Effect of
changes in
foreign
exchange
rates		  
Balance,
December 31,
 
Asia
                
Asia Insurance (excluding Japan)
 
$
159
 
 
$
–
 
 
$
–
 
 
$
159
 
Japan Insurance
 
 
420
 
 
 
–
 
 
 
13
 
 
 
433
 
Canada Insurance
 
 
1,957
 
 
 
–
 
 
 
(2
) 
 
 
1,955
 
U.S. Insurance
 
 
349
 
 
 
(5
) 
 
 
(6
) 
 
 
338
 
Global Wealth and Asset Management
                
Asia WAM
 
 
187
 
 
 
–
 
 
 
(2
) 
 
 
185
 
Canada WAM
 
 
1,436
 
 
 
–
 
 
 
–
 
 
 
1,436
 
U.S. WAM
 
 
1,235
 
 
 
–
 
 
 
(27
) 
 
 
1,208
 
Total
 
$
5,743
 
 
$
(5
) 
 
$
(24
) 
 
$
5,714
 
     
As at December 31, 2019
CGU or group of CGUs
 Balance,
January 1,		  Net additions/
(disposals)		  Effect of
changes in
foreign
exchange
rates		  Balance,
December 31,		 
Asia
                
Asia Insurance (excluding Japan)
 $165  $  –  $(6)  $159 
Japan Insurance
  435   –   (15)   420 
Canada Insurance
    1,962   –   (5)   1,957 
U.S. Insurance
  367   –   (18)   349 
Global Wealth and Asset Management
                
Asia WAM
  196   –   (9)   187 
Canada WAM
  1,436   –         –   1,436 
U.S. WAM
  1,303   (6)   (62)   1,235 
Total
 $5,864  $(6)  $(115)  $  5,743 
The valuation techniques, significant assumptions and sensitivities, where applicable, applied in the goodwill impairment testing are described below.
(c) Valuation techniques
When determining if a CGU is impaired, the Company compares its recoverable amount to the allocated capital for that unit, which is aligned with the Company’s internal reporting practices. The recoverable amounts were based on fair value less costs to sell (“FVLCS”) for Asia Insurance (excluding Japan) and Asia WAM. For other CGUs,
value-in-use
(“VIU”) was used.
Under the FVLCS approach, the Company determines the fair value of the CGU or group of CGUs using an earnings-based approach which incorporates forecasted earnings, excluding interest and equity market impacts and normalized new business expenses multiplied by an earnings-multiple derived from the observable
price-to-earnings
multiples of comparable financial institutions. The
price-to-earnings
multiple used by the Company for testing was 10.7 (2019 – 10.3). These FVLCS valuations are categorized as Level 3 of the fair value hierarchy (2019 – Level 3).
Under the VIU approach, used for CGUs with insurance business, an embedded appraisal value is determined from a projection of future distributable earnings derived from both the
in-force
business and new business expected to be sold in the future, and therefore, reflects the economic value for each CGU’s or group of CGUs’ profit potential under a set of assumptions. This approach requires assumptions including sales and revenue growth rates, capital requirements, interest rates, equity returns, mortality, morbidity, policyholder behaviour, tax rates and discount rates. For
non-insurance
CGUs, the VIU is based on discounted cash flow analysis which incorporates relevant aspects of the embedded appraisal value approach.
(d) Significant assumptions
To calculate embedded appraisal value, the Company discounted projected earnings from
in-force
contracts and valued 20 years of new business growing at expected plan levels, consistent with the periods used for forecasting long-term businesses such as insurance. In arriving at its projections, the Company considered past experience, economic trends such as interest rates, equity returns and product mix as well as industry and market trends. Where growth rate assumptions for new business cash flows were used in the embedded appraisal value calculations, they ranged from zero per cent to 10 per cent (2019 – zero per cent to 20 per cent).
Interest rate assumptions are based on prevailing market rates at the valuation date.
Tax rates applied to the projections include the impact of internal reinsurance treaties and amounted to 28.0 per cent, 26.5 per cent and 21.0 per cent (2019 – 28.0 per cent, 26.5 per cent and 21.0 per cent) for the Japan, Canada and U.S. jurisdictions, respectively. Tax assumptions are sensitive to changes in tax laws as well as assumptions about the jurisdictions in which profits are earned. It is possible that actual tax rates could differ from those assumed.
Discount rates assumed in determining the value-in-use for applicable CGUs or group of CGUs ranged from
 8.0 per cent to 10.0 per cent on an
after-tax
basis or 10.0 per cent to 12.5 per cent on a
pre-tax
basis (2019 – 7.5 per cent to 10.0 per cent on an
after-tax
basis or 9.4 per cent to 12.5 per cent on a
pre-tax
basis).
Key assumptions may change as economic and market conditions change, which may lead to impairment charges in the future. Adverse changes in discount rates (including from decline in interest rates) and growth rate assumptions for new business cash flow projections used in the determination of embedded appraisal values or reductions in market-based earnings multiples calculations may result in impairment charges in the future which could be material.