DerivativeFinancialInstruments The Company uses derivative financial instruments (“derivatives”) including swaps, forwards and futures agreements, and options to help manage current and anticipated exposures to changes in interest rates, foreign exchange rates, commodity prices and equity market prices, and to replicate permissible investments. Refer to note 5 to the 2022 Consolidated Financial Statements for a description of the methods used to determine the fair value of derivatives. The accounting for derivatives is complex and interpretations of the primary accounting guidance continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under such accounting guidance. Differences in judgment as to the availability and application of hedge accounting designations and the appropriate accounting treatment may result in a differing impact on the Consolidated Financial Statements of the Company from previous periods. Assessments of hedge effectiveness and measurements of ineffectiveness of hedging relationships are also subject to interpretations and estimations. If it were determined that hedge accounting designations were not appropriately applied, reported net income attributed to shareholders could be materially affected. EmployeeFutureBenefits The Company maintains defined contribution and defined benefit pension plans and other post-employment plans for employees and agents, including registered (tax qualified) pension plans that are typically funded, as well as supplemental non-registered (non-qualified) pension plans for executives, retiree welfare plans and disability welfare plans that are typically not funded. The largest defined benefit pension and retiree welfare plans in the U.S. and Canada are the material plans that are discussed herein and in note 16 to the 2022 Annual Consolidated Financial Statements. Due to the long-term nature of defined benefit pension and retiree welfare plans, the calculation of the defined benefit obligation and net benefit cost depends on various assumptions such as discount rates, salary increase rates, cash balance interest crediting rates, health care cost trend rates and rates of mortality. These assumptions are determined by management and are reviewed annually. The key assumptions, as well as the sensitivity of the defined benefit obligation to changes in these assumptions, are presented in note 16 to the 2022 Annual Consolidated Financial Statements. Changes in assumptions and differences between actual and expected experience give rise to actuarial gains and losses that affect the amount of the defined benefit obligation and OCI. For 2022, the amount recorded in OCI was a loss of $49 million (2021 – gain of $217 million) for the defined benefit pension plans and a gain of $34 million (2021 – gain of $27 million) for the retiree welfare plans. Contributions to the registered (tax qualified) defined benefit pension plans are made in accordance with the applicable U.S. and Canadian regulations. During 2022, the Company contributed $3 million (2021 – $2 million) to these plans. As at December 31, 2022, the difference between the fair value of assets and the defined benefit obligation for these plans was a surplus of $441 million (2021 – surplus 1 of $600 million). For 2023, the contributions to the plans are expected to be approximately $3 million. The Company’s supplemental pension plans for executives are not funded; benefits under these plans are paid as they become due. During 2022, the Company paid benefits of $56 million (2021 – $59 million) under these plans. As at December 31, 2022, the defined benefit obligation for these plans, which is reflected as a liability in the balance sheet, amounted to $561 million (2021 – $687 million). The Company’s retiree welfare plans are partially funded, although there are no regulations or laws governing or requiring the funding of these plans. As at December 31, 2022, the difference between the fair value of plan assets and the defined benefit obligation for these plans was a surplus of $57 million (2021 – surplus of $3 million). IncomeTaxes The Company is subject to income tax laws in various jurisdictions. Tax laws are complex and potentially subject to different interpretations by the taxpayer and the relevant tax authority. The provision for income taxes represents management’s interpretation of the relevant tax laws and its estimate of current and future income tax implications of the transactions and events during the period. A deferred tax asset or liability results from temporary differences between carrying values of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are recorded based on expected future tax rates and management’s assumptions regarding the expected timing of the reversal of such temporary differences. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. A deferred tax asset is recognized to the extent that future realization of the tax benefit is probable. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the tax benefit will be realized. At December 31, 2022, we had $5,423 million of deferred tax assets (December 31, 2021 – $5,254 million). Factors in management’s determination include, among others, the following: • Future taxable income exclusive of reversing temporary differences and carryforwards; • Future reversals of existing taxable temporary differences; • Taxable income in prior carryback years; and • Tax planning strategies. 1 See “Caution regarding forward-looking statements” above. 97