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9 Derivatives and Hedge Accounting

In CHF million
        Fair value assets   Fair value liabilities   Notional amount/exposure
    Notes   31.12.2021   31.12.2020   31.12.2021   31.12.2020   31.12.2021   31.12.2020
                             
Currency derivatives
Forward contracts       797   1 002   297   230   51 096   46 200
Futures         0     0     46
Options (over-the-counter)       94   107   117   100   6 424   4 032
Total currency derivatives       891   1 109   413   330   57 519   50 277
                             
Interest rate derivatives
Forward contracts       74   202   93   10   1 544   1 296
Swaps       585   1 483   555   809   55 362   45 596
Futures       3   0   2   0   349   23
Options (over-the-counter)       143   12   3     587   0
Other       3   0   1     520   1
Total interest rate derivatives       807   1 698   654   819   58 362   46 916
                             
Equity/index derivatives
Futures       46   50   79   73   6 622   5 920
Options (over-the-counter)         0   0     9   9
Options (exchange-traded)       973   118   597   156   55 222   3 353
Other       51   33   4   9   1 845   1 549
Total equity/index derivatives       1 071   201   679   238   63 697   10 832
                             
Other derivatives
Credit derivatives         0     0     –168
Total other derivatives         0     0     –168
                             
Derivatives for the account and risk of the Swiss Life Group's customers   5    0   0       0  
                             
Total derivatives       2 768   3 008   1 746   1 387   179 578   107 858
of which derivatives designated and accounted for as hedging instruments                            
Derivatives designated as fair value hedges       29   9   3   18   6 909   8 294
Derivatives designated as cash flow hedges       76   651   111   10   1 974   2 832
Derivatives designated as net investment hedges       99   133   13   12   5 824   4 546
Derivatives held for risk management

Derivatives held for risk management primarily comprise derivatives that share a risk with other financial instruments and give rise to opposite changes in fair value that tend to offset each other (“economic hedges”). The timing of the offset does not match in all cases.

To manage the risks associated with derivative activity, the Group establishes and monitors exposure and risk limits. Exposure to price risk on both derivatives and their underlyings is managed in accordance with risk limits set by risk committees for buying or selling instruments or closing out positions. The risks arise from open positions in interest rates, currencies and equity instruments, all of which are exposed to general and specific market movements.

Derivatives designated and accounted for as hedging instruments

Derivatives designated and accounted for as hedging instruments comprise derivatives associated with fair value hedges, cash flow hedges and net investment hedges that qualify for hedge accounting.

Derivatives designated as fair value hedges as at 31 December 2021

In CHF million
    Fair value   Contract/ notional amount   Hedging instruments   Hedged items
    Assets   Liabilities       Gains   Losses   Gains   Losses
Interest rate risk                            
Interest rate swaps to hedge bond portfolios   0   3   261   10   –3   3   –10
Foreign currency risk                            
Currency forwards to hedge non-monetary investments   29   1   6 648   430   –452   452   –430
Total derivatives designated as fair value hedges   29   3   6 909   441   –455   455   –441

Derivatives designated as fair value hedges as at 31 December 2020

In CHF million
    Fair value   Contract/ notional amount   Hedging instruments   Hedged items
    Assets   Liabilities       Gains   Losses   Gains   Losses
Interest rate risk                            
Interest rate swaps to hedge bond portfolios   3   6   1 454   4   –8   8   –4
Foreign currency risk                            
Currency forwards to hedge non-monetary investments   6   12   6 840   800   –304   304   –800
Total derivatives designated as fair value hedges   9   18   8 294   803   –312   312   –803

The Swiss Life Group used interest rate swaps to hedge available-for-sale fixed-rate bonds and bonds classified as loans in Swiss francs, euro, British pounds and US dollars against changes in the fair value attributable to interest rate risk. The nominal amount of these bonds as at 31 December 2021 was CHF 270 million (2020: CHF 1.3 billion).

Forward contracts are used as hedging instruments to protect non-monetary investments against adverse movements in euro, British pound, US dollar and Japanese yen exchange rates. Such investments include equity securities, investment funds (equity funds and loan funds) and hedge funds.

Foreign currency debt designated as fair value hedge

In CHF million (if not noted otherwise)
    Fair value   Nominal amount   Hedging instruments   Hedged items
        EUR   Gains   Losses   Gains   Losses
                         
As at 31 December 2021
Foreign currency borrowing to hedge currency risk of non-monetary investments   83   80   4       –4
As at 31 December 2020
Foreign currency borrowing to hedge currency risk of non-monetary investments   87   80   0   0   0   0

Hybrid debt denominated in euro was used to protect non-monetary investments (hedge funds, equity securities and investment funds) against adverse movements in euro exchange rates.

Derivatives designated as cash flow hedges as at 31 December 2021

In CHF million (if not noted otherwise)
    Fair value   Contract/ notional amount   Fair value gains (+)/ losses (–)   Hedged cash flows
    Assets   Liabilities       Effective portion recognised in other comprehen-sive income   Ineffective portion recognised in profit or loss   Years expected to occur   Years expected to affect profit or loss
                             
Interest rate risk
Forward starting swaps/bonds                            
Swiss franc     5   150   –52     2022–2026   2022–2051
Euro   76   106   1 824   –215     2022–2026   2022–2063
Total interest rate risk   76   111   1 974   –267     n/a   n/a
                             
Total derivatives designated as cash flow hedges   76   111   1 974   –267     n/a   n/a

Derivatives designated as cash flow hedges as at 31 December 2020

In CHF million (if not noted otherwise)
    Fair value   Contract/ notional amount   Fair value gains (+)/ losses (–)   Hedged cash flows
    Assets   Liabilities       Effective portion recognised in other comprehen-sive income   Ineffective portion recognised in profit or loss   Years expected to occur   Years expected to affect profit or loss
                             
Interest rate risk                            
Forward starting swaps/bonds                            
Swiss franc   384     1 082   469     2021–2026   2021–2051
Euro   267   10   1 750   195     2021–2025   2021–2063
Total interest rate risk   651   10   2 832   663     n/a   n/a
                             
Total derivatives designated as cash flow hedges   651   10   2 832   663     n/a   n/a

The Group used forward starting swaps and forward starting bonds to hedge the exposure to variability in interest cash flows arising on the highly probable purchase of bonds in order to achieve an adequate yield level for reinvestments.

Amounts recognised in OCI are reclassified into profit or loss as investment income over the life of the hedged financial assets and as gains/losses on financial assets when a hedged financial asset is derecognised. In 2021, a gain of CHF 49 million was reclassified from other comprehensive income to profit or loss (2020: CHF 404 million), of which a gain of CHF 64 million were included in investment income (2020: gain of CHF 46 million), and a loss of CHF 15 million in net gains /losses on financial assets (2020: a gain of CHF 358 million).

Derivatives designated as net investment hedges of foreign operations

In CHF million
    Fair value   Contract/ notional amount   Fair value gains (+)/losses (–)
    Assets   Liabilities       Effective portion recognised in other comprehen-sive income   Ineffective portion recognised in profit or loss
                     
As at 31 December 2021
Currency forwards   99   13   5 824   –19  
Total derivatives designated as net investment hedges   99   13   5 824   –19  
As at 31 December 2020
Currency forwards   133   12   4 546   322  
Total derivatives designated as net investment hedges   133   12   4 546   322  

In 2021, investments in fixed income funds of USD 4219 million (2020: USD 3972 million) and EUR 971 million (2020: EUR 530 million) and investments in real estate funds of EUR 956 million (2020: EUR 395 million) were hedged.

Foreign currency debt designated as net investment hedges of foreign operations

In CHF million (if not noted otherwise)
    Fair value   Nominal amount   Fair value gains (+)/losses (–)
        EUR   Effective portion recognised in other comprehensive income   Ineffective portion recognised in profit or loss
                 
As at 31 December 2021                
Foreign currency borrowing to hedge net investments in foreign entities   185   164   7  
As at 31 December 2020                
Foreign currency borrowing to hedge net investments in foreign entities   196   182   1  

Hybrid debt denominated in euro was used to protect real estate funds against adverse movements in euro exchange rates.