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Derivatives and Hedging Activities
 9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities [Text Block]
14. Derivatives and Hedging Activities
Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.
Certain of the Company’s freestanding derivative instruments are subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 13 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.
The Company uses derivatives as economic hedges and accounting hedges. The following table presents the notional value and gross fair value of derivative instruments, including embedded derivatives:
September 30, 2020
December 31, 2019
NotionalGross Fair ValueNotionalGross Fair Value
Assets (1)
Liabilities (2)
Assets (1)
Liabilities (2)
(in millions)
Derivatives not designated as hedging instruments
Interest rate contracts
$70,691 $2,015 $934 $57,950 $1,451 $418 
Equity contracts
62,029 3,381 2,965 60,596 2,812 3,054 
Credit contracts
2,565 5 — 1,386 4 — 
Foreign exchange contracts
3,677 34 7 3,251 16 6 
Total non-designated hedges138,962 5,435 3,906 123,183 4,283 3,478 
Embedded derivatives
GMWB and GMAB (3)
N/A— 2,943 N/A— 763 
IUL
N/A— 926 N/A— 881 
Fixed deferred indexed annuitiesN/A— 47 N/A— 46 
Structured variable annuitiesN/A— 9 N/A— — 
Total embedded derivatives
N/A— 3,925 N/A— 1,690 
Total derivatives
$138,962 $5,435 $7,831 $123,183 $4,283 $5,168 
N/A  Not applicable.
(1) The fair value of freestanding derivative assets is included in Other assets on the Consolidated Balance Sheets.
(2) The fair value of freestanding derivative liabilities is included in Other liabilities on the Consolidated Balance Sheets. The fair value of GMWB and GMAB, IUL, fixed deferred indexed annuity and structured variable annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims on the Consolidated Balance Sheets.
(3) The fair value of the GMWB and GMAB embedded derivatives as of September 30, 2020 included $3.0 billion of individual contracts in a liability position and $36 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2019 included $981 million of individual contracts in a liability position and $218 million of individual contracts in an asset position.
See Note 12 for additional information regarding the Company’s fair value measurement of derivative instruments.
As of September 30, 2020 and December 31, 2019, investment securities with a fair value of $24 million and $84 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $24 million and $84 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both September 30, 2020 and December 31, 2019, the Company had sold, pledged, or rehypothecated none of these securities. In addition, as of both September 30, 2020 and December 31, 2019, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.
The following tables present a summary of the impact of derivatives not designated as hedging instruments, including embedded derivatives, on the Consolidated Statements of Income:
Interest Credited to Fixed AccountsBenefits, Claims, Losses and Settlement Expenses
(in millions)
Three Months Ended September 30, 2020
Interest rate contracts
$— $(371)
Equity contracts
42 (468)
Credit contracts
— (12)
Foreign exchange contracts
— (23)
GMWB and GMAB embedded derivatives— 186 
IUL embedded derivatives(29)— 
Fixed deferred indexed annuity embedded derivatives(3)— 
Structured variable annuity embedded derivatives— (3)
Total gain (loss)$10 $(691)
Nine Months Ended September 30, 2020
Interest rate contracts
$— $2,204 
Equity contracts
(7)58 
Credit contracts
— (91)
Foreign exchange contracts
— 26 
GMWB and GMAB embedded derivatives— (2,180)
IUL embedded derivatives8 — 
Fixed deferred indexed annuity embedded derivatives2 — 
Structured variable annuity embedded derivatives— (16)
Total gain (loss)$3 $1 
Interest Credited to Fixed AccountsBenefits, Claims, Losses and Settlement Expenses
(in millions)
Three Months Ended September 30, 2019
Interest rate contracts
$— $805 
Equity contracts
4 (97)
Credit contracts
— (9)
Foreign exchange contracts
— 10 
GMWB and GMAB embedded derivatives— (756)
IUL embedded derivatives22 — 
Fixed deferred indexed annuity embedded derivatives— — 
Total gain (loss)$26 $(47)
Nine Months Ended September 30, 2019
Interest rate contracts
$— $1,765 
Equity contracts
70 (981)
Credit contracts
— (78)
GMWB and GMAB embedded derivatives— (1,124)
IUL embedded derivatives(102)— 
Fixed deferred indexed annuity embedded derivatives(3)— 
Total gain (loss)$(35)$(418)
The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate, credit and foreign currency exchange rate risk related to various products and transactions of the Company.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. The Company economically hedges the aggregate exposure related to the indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions using options, swaptions, swaps and futures.
The deferred premium associated with certain of the above options and swaptions is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options and swaptions as of September 30, 2020:
Premiums PayablePremiums Receivable
(in millions)
2020 (1)
$35 $4 
2021
152 106 
2022
205 205 
2023
51 43 
2024
140 25 
2025 - 2028
379 7 
Total$962 $390 
(1) 2020 amounts represent the amounts payable and receivable for the period from October 1, 2020 to December 31, 2020.
Actual timing and payment amounts may differ due to future settlements, modifications or exercises of the contracts prior to the full premium being paid or received.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives may contain settlement provisions linked to both equity returns and interest rates. The Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates, if any, are shown in other contracts in the tables above.
Fixed deferred indexed annuity and IUL products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to fixed deferred indexed annuity and IUL products will positively or negatively impact earnings over the life of these products. The equity component of fixed deferred indexed annuity and IUL product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts.
Cash Flow Hedges
During both the nine months ended September 30, 2020 and 2019, the Company held no derivatives that were designated as cash flow hedges. During both the nine months ended September 30, 2020 and 2019, no hedge relationships were discontinued due to forecasted transactions no longer being expected to occur according to the original hedge strategy.
Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting and collateral arrangements whenever practical. See Note 13 for additional information on the Company’s credit exposure related to derivative assets.
Certain of the Company’s derivative contracts contain provisions that adjust the level of collateral the Company is required to post based on the Company’s financial strength rating (or based on the debt rating of the Company’s parent, Ameriprise Financial). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company does not maintain a specific financial strength rating or Ameriprise Financial’s debt does not maintain a specific credit rating (generally an investment grade rating). If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. As of September 30, 2020 and December 31, 2019, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $176 million and $189 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2020 and December 31, 2019 was $176 million and $189 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of September 30, 2020 and December 31, 2019 were triggered, the aggregate fair value of additional assets that would be required to be posted as collateral or needed to settle the instruments immediately would have been nil as of both September 30, 2020 and December 31, 2019.