e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-15787
MetLife, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-4075851
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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200 Park Avenue, New York, N.Y.
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10166-0188
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(Address of principal
executive offices)
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(Zip Code)
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(212) 578-2211
(Registrant’s telephone
number, including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.01
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New York Stock Exchange
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Floating Rate Non-Cumulative Preferred Stock, Series A, par
value $0.01
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New York Stock Exchange
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6.50% Non-Cumulative Preferred Stock, Series B, par value
$0.01
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New York Stock Exchange
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5.875% Senior Notes
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New York Stock Exchange
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5.375% Senior Notes
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Irish Stock Exchange
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5.25% Senior Notes
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Irish Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o (Do
not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant at June 30,
2009 was approximately $25 billion. At February 22,
2010, 819,117,546 shares of the registrant’s common
stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The information required to be furnished pursuant to part of
Item 10 and Item 11 through Item 14 of
Part III of this
Form 10-K
is set forth in, and is hereby incorporated by reference herein
from, the registrant’s definitive proxy statement for the
Annual Meeting of Shareholders to be held on April 27,
2010, to be filed by the registrant with the Securities and
Exchange Commission pursuant to Regulation 14A not later
than 120 days after the year ended December 31,
2009.
As used in this
Form 10-K,
“MetLife,” the “Company,” “we,”
“our” and “us” refer to MetLife, Inc., a
Delaware corporation incorporated in 1999 (the “Holding
Company”), and its subsidiaries, including Metropolitan
Life Insurance Company (“MLIC”).
Note
Regarding Forward-Looking Statements
This Annual Report on
Form 10-K,
including the Management’s Discussion and Analysis of
Financial Condition and Results of Operations, may contain or
incorporate by reference information that includes or is based
upon forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements give expectations or forecasts of
future events. These statements can be identified by the fact
that they do not relate strictly to historical or current facts.
They use words such as “anticipate,”
“estimate,” “expect,” “project,”
“intend,” “plan,” “believe” and
other words and terms of similar meaning in connection with a
discussion of future operating or financial performance. In
particular, these include statements relating to future actions,
prospective services or products, future performance or results
of current and anticipated services or products, sales efforts,
expenses, the outcome of contingencies such as legal
proceedings, trends in operations and financial results. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Any or all forward-looking statements may turn out to be wrong.
They can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. Many such factors will be
important in determining MetLife’s actual future results.
These statements are based on current expectations and the
current economic environment. They involve a number of risks and
uncertainties that are difficult to predict. These statements
are not guarantees of future performance. Actual results could
differ materially from those expressed or implied in the
forward-looking statements. Risks, uncertainties, and other
factors that might cause such differences include the risks,
uncertainties and other factors identified in MetLife,
Inc.’s filings with the U.S. Securities and Exchange
Commission (the “SEC”). These factors include:
(i) difficult and adverse conditions in the global and
domestic capital and credit markets; (ii) continued
volatility and further deterioration of the capital and credit
markets, which may affect the Company’s ability to seek
financing or access its credit facilities;
(iii) uncertainty about the effectiveness of the
U.S. government’s plan to stabilize the financial
system by injecting capital into financial institutions,
purchasing large amounts of illiquid, mortgage-backed and other
securities from financial institutions, or otherwise;
(iv) exposure to financial and capital market risk;
(v) changes in general economic conditions, including the
performance of financial markets and interest rates, which may
affect the Company’s ability to raise capital, generate fee
income and market-related revenue and finance statutory reserve
requirements and may require the Company to pledge collateral or
make payments related to declines in value of specified assets;
(vi) potential liquidity and other risks resulting from
MetLife’s participation in a securities lending program and
other transactions; (vii) investment losses and defaults,
and changes to investment valuations; (viii) impairments of
goodwill and realized losses or market value impairments to
illiquid assets; (ix) defaults on the Company’s
mortgage loans; (x) the impairment of other financial
institutions; (xi) MetLife’s ability to identify and
consummate on successful terms any future acquisitions, and to
successfully integrate acquired businesses with minimal
disruption; (xii) economic, political, currency and other
risks relating to the Company’s international operations;
(xiii) MetLife, Inc.’s primary reliance, as a holding
company, on dividends from its subsidiaries to meet debt payment
obligations and the applicable regulatory restrictions on the
ability of the subsidiaries to pay such dividends;
(xiv) downgrades in MetLife, Inc.’s and its
affiliates’ claims paying ability, financial strength or
credit ratings; (xv) ineffectiveness of risk management
policies and procedures, including with respect to guaranteed
benefits (which may be affected by fair value adjustments
arising from changes in our own credit spread) on certain of the
Company’s variable annuity products;
(xvi) availability and effectiveness of reinsurance or
indemnification arrangements; (xvii) discrepancies between
actual claims experience and assumptions used in setting prices
for the Company’s products and establishing the liabilities
for the Company’s obligations for future policy benefits
and claims; (xviii) catastrophe losses;
(xix) heightened competition, including with respect to
pricing, entry of new competitors, consolidation of
distributors, the development of new products by new and
existing competitors and for personnel; (xx) unanticipated
changes in industry trends; (xxi) changes in accounting
standards, practices
and/or
policies; (xxii) changes in assumptions related to deferred
policy acquisition costs (“DAC”), value of business
acquired (“VOBA”) or goodwill; (xxiii) increased
expenses relating to pension and postretirement benefit plans;
(xxiv) deterioration in the experience of the “closed
block” established in connection with the reorganization of
MLIC; (xxv) adverse results or other consequences from
litigation, arbitration or regulatory investigations;
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(xxvi) discrepancies between actual experience and
assumptions used in establishing liabilities related to other
contingencies or obligations; (xxvii) regulatory,
legislative or tax changes that may affect the cost of, or
demand for, the Company’s products or services;
(xxviii) the effects of business disruption or economic
contraction due to terrorism, other hostilities, or natural
catastrophes; (xxix) the effectiveness of the
Company’s programs and practices in avoiding giving its
associates incentives to take excessive risks; and
(xxx) other risks and uncertainties described from time to
time in MetLife, Inc.’s filings with the SEC.
MetLife, Inc. does not undertake any obligation to publicly
correct or update any forward-looking statement if MetLife, Inc.
later becomes aware that such statement is not likely to be
achieved. Please consult any further disclosures MetLife, Inc.
makes on related subjects in reports to the SEC.
Note
Regarding Reliance on Statements in Our Contracts
In reviewing the agreements included as exhibits to this Annual
Report on
Form 10-K,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife, Inc., its subsidiaries or the other parties to the
agreements. The agreements contain representations and
warranties by each of the parties to the applicable agreement.
These representations and warranties have been made solely for
the benefit of the other parties to the applicable agreement and:
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should not in all instances be treated as categorical statements
of fact, but rather as a way of allocating the risk to one of
the parties if those statements prove to be inaccurate;
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have been qualified by disclosures that were made to the other
party in connection with the negotiation of the applicable
agreement, which disclosures are not necessarily reflected in
the agreement;
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may apply standards of materiality in a way that is different
from what may be viewed as material to investors; and
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were made only as of the date of the applicable agreement or
such other date or dates as may be specified in the agreement
and are subject to more recent developments.
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Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were
made or at any other time. Additional information about MetLife,
Inc. and its subsidiaries may be found elsewhere in this Annual
Report on
Form 10-K
and MetLife, Inc.’s other public filings, which are
available without charge through the SEC website at www.sec.gov.
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Part I
As used in this
Form 10-K,
“MetLife,” the “Company,” “we,”
“our” and “us” refer to MetLife, Inc., a
Delaware corporation incorporated in 1999 (the “Holding
Company”), and its subsidiaries, including Metropolitan
Life Insurance Company (“MLIC”).
With a more than
140-year
history, we have grown to become a leading, global provider of
insurance, employee benefits and financial services with more
than 70 million customers and operations throughout the
United States and the regions of Latin America, Asia
Pacific and Europe, Middle East and India (“EMEI”).
Over the past several years, we have grown our core businesses,
as well as successfully executed on our growth strategy. This
has included completing a number of transactions that have
resulted in the acquisition and in some cases divestiture of
certain businesses while also further strengthening our balance
sheet to position MetLife for continued growth.
In December 2009, we began reporting results under our new
U.S. Business organization. U.S. Business consists of
Insurance Products, Retirement Products, Corporate Benefit
Funding (“CBF”) and Auto & Home. The former
Institutional Business & Individual Business segments
have been reclassified into the following three segments:
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Insurance Products (group life, individual life and non-medical
health insurance products);
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Retirement Products (individual and institutional annuity
products); and
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Corporate Benefit Funding (pension closeouts, structured
settlements and other benefit funding solutions).
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The financial reporting format for the Auto & Home
segment, which is also part of U.S. Business and consists
of our property & casualty insurance products, remains
unchanged from prior periods.
Through our U.S. Business organization, we provide a
variety of insurance and financial services products —
including life, dental, disability and long-term care insurance,
guaranteed interest and stable value products, various annuity
products, and auto & home insurance —
through both proprietary and independent retail distribution
channels, as well as at the workplace. This business serves over
60,000 group customers, including over 90 of the top one hundred
FORTUNE
500®
companies, and provides protection and retirement solutions to
millions of individuals.
Our International segment operates in 16 countries within the
Latin America, Asia Pacific and EMEI regions. MetLife is the
largest life insurer in Mexico and also holds leading market
positions in Chile and Japan. We are also investing in organic
growth efforts in a number of countries, including India, China
and South Korea. International is the fastest-growing of
MetLife’s businesses, and we have clearly identified it to
be one of the biggest future growth areas.
Within the U.S., we also provide a wide array of savings and
mortgage banking products. Through its own organic growth
efforts and the completion of two mortgage company acquisitions
in 2008, MetLife Bank, National Association (“MetLife
Bank”), ranked among the top four reverse mortgage
originators and the top 11 mortgage originators for the year
ended December 31, 2009, according to Reverse Mortgage
Insight and Inside Mortgage Finance, an industry trade group
publication. Results of our banking operation are reported in
Banking, Corporate & Other.
Revenues derived from any customer did not exceed 10% of
consolidated revenues in any of the last three years. Financial
information, including revenues, expenses, income and loss, and
total assets by segment, is provided in Note 22 of the
Notes to the Consolidated Financial Statements.
With a $328 billion general account portfolio invested
primarily in investment grade corporate bonds, structured
finance securities, commercial & agricultural mortgage
loans, U.S. Treasury, agency and government guaranteed
securities, as well as real estate and corporate equity, we are
one of the largest institutional investors in the United States.
Over the past several years, we have taken a number of actions
to further diversify and strengthen our general account
portfolio.
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Our well-recognized brand names, leading market positions,
competitive and innovative product offerings and financial
strength and expertise should help drive future growth and
enhance shareholder value, building on a long history of
fairness, honesty and integrity.
Over the course of the next several years, we will pursue the
following specific objectives to achieve our goals:
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Build on our widely recognized brand name
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Capitalize on our large customer base of institutions and
individual consumers
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Expand and leverage our broad, diverse distribution
channels
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Continue to introduce innovative and competitive products
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Focus on growing our businesses around the globe
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Capitalize on opportunities to provide retirement income
solutions
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Maintain balanced focus on income and protection products
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Maintain and enhance capital efficiency
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Continue to achieve organizational efficiencies through our
Operational Excellence initiative
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Focus on margin improvement and return on equity expansion
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Further our commitment to a diverse workplace
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U.S.
Business
Overview
Insurance
Products
Our Insurance Products segment offers a broad range of
protection products and services aimed at serving the financial
needs of our customers throughout their lives. These products
are sold to individuals and corporations, as well as other
institutions and their respective employees. We have built a
leading position in the U.S. group insurance market through
long-standing relationships with many of the largest corporate
employers in the United States, and are one of the largest
issuers of individual life insurance products in the United
States. We are organized into three businesses: Group Life,
Individual Life and Non-Medical Health.
Our Group Life insurance products and services include variable
life, universal life, and term life products. We offer group
insurance products as employer-paid benefits or as voluntary
benefits where all or a portion of the premiums are paid by the
employee. These group products and services also include
employee paid supplemental life and are offered as standard
products or may be tailored to meet specific customer needs.
Our Individual Life insurance products and services include
variable life, universal life, term life and whole life
products. Additionally, through our broker-dealer affiliates, we
offer a full range of mutual funds and other securities
products. The elimination of transactions from activity between
the segments within U.S. Business occurs within Individual Life.
The major products in this area are:
Variable Life. Variable life products provide
insurance coverage through a contract that gives the
policyholder flexibility in investment choices and, depending on
the product, in premium payments and coverage amounts, with
certain guarantees. Most importantly, with variable life
products, premiums and account balances can be directed by the
policyholder into a variety of separate accounts or directed to
the Company’s general account. In the separate accounts,
the policyholder bears the entire risk of the investment
results. We collect specified fees for the management of these
various investment accounts and any net return is credited
directly to the policyholder’s account. In some instances,
third-party money management firms manage investment accounts
that support variable insurance products. With some products, by
maintaining a certain premium level, policyholders may have the
advantage of various guarantees that may protect the death
benefit from adverse investment experience.
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Universal Life. Universal life products
provide insurance coverage on the same basis as variable life,
except that premiums, and the resulting accumulated balances,
are allocated only to the Company’s general account.
Universal life products may allow the insured to increase or
decrease the amount of death benefit coverage over the term of
the contract and the owner to adjust the frequency and amount of
premium payments. We credit premiums to an account maintained
for the policyholder. Premiums are credited net of specified
expenses. Interest is credited to the policyholder’s
account at interest rates we determine, subject to specified
minimums. Specific charges are made against the
policyholder’s account for the cost of insurance protection
and for expenses. With some products, by maintaining a certain
premium level, policyholders may have the advantage of various
guarantees that may protect the death benefit from adverse
investment experience.
Term Life. Term life products provide a
guaranteed benefit upon the death of the insured for a specified
time period in return for the periodic payment of premiums.
Specified coverage periods range from one year to 30 years,
but in no event are they longer than the period over which
premiums are paid. Death benefits may be level over the period
or decreasing. Decreasing coverage is used principally to
provide for loan repayment in the event of death. Premiums may
be guaranteed at a level amount for the coverage period or may
be non-level and non-guaranteed. Term insurance products are
sometimes referred to as pure protection products, in that there
are typically no savings or investment elements. Term contracts
expire without value at the end of the coverage period when the
insured party is still living.
Whole Life. Whole life products provide a
guaranteed benefit upon the death of the insured in return for
the periodic payment of a fixed premium over a predetermined
period. Premium payments may be required for the entire life of
the contract period, to a specified age or period, and may be
level or change in accordance with a predetermined schedule.
Whole life insurance includes policies that provide a
participation feature in the form of dividends. Policyholders
may receive dividends in cash or apply them to increase death
benefits, increase cash values available upon surrender or
reduce the premiums required to maintain the contract in-force.
Because the use of dividends is specified by the policyholder,
this group of products provides significant flexibility to
individuals to tailor the product to suit their specific needs
and circumstances, while at the same time providing guaranteed
benefits.
Our Non-Medical Health insurance products and services include
dental insurance, group short- and long-term disability,
individual disability income, long-term care (“LTC”),
critical illness and accidental death & dismemberment
coverages. Other products and services include
employer-sponsored auto and homeowners insurance provided
through the Auto & Home segment and prepaid legal
plans. We also sell administrative services-only
(“ASO”) arrangements to some employers. The major
products in this area are:
Dental. Dental products provide insurance and
ASO plans that assist employees, retirees and their families in
maintaining oral health while reducing
out-of-pocket
expenses and providing superior customer service. Dental plans
include the Preferred Dentist Program and the Dental Health
Maintenance Organization.
Disability. Disability products provide a
benefit in the event of the disability of the insured. In most
instances, this benefit is in the form of monthly income paid
until the insured reaches age 65. In addition to income
replacement, the product may be used to provide for the payment
of business overhead expenses for disabled business owners or
mortgage payment protection. This is offered on both a group and
individual basis.
Long-term Care. LTC products provide a fixed
benefit amount on a daily or monthly basis for individuals who
need assistance with activities of daily living or have a
cognitive impairment. These products are offered on both a group
and individual basis.
Retirement
Products
Our Retirement products segment includes a variety of variable
and fixed annuities that are primarily sold to individuals and
employees of corporations and other institutions. The major
products in this area are:
Variable Annuities. Variable annuities provide
for both asset accumulation and asset distribution needs.
Variable annuities allow the contractholder to make deposits
into various investment accounts, as determined by the
contractholder. The investment accounts are separate accounts
and risks associated with such investments are borne entirely by
the contractholder, except where guaranteed minimum benefits are
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involved. In certain variable annuity products, contractholders
may also choose to allocate all or a portion of their account to
the Company’s general account and are credited with
interest at rates we determine, subject to certain minimums. In
addition, contractholders may also elect certain minimum death
benefit and minimum living benefit guarantees for which
additional fees are charged.
Fixed Annuities. Fixed annuities provide for
both asset accumulation and asset distribution needs. Fixed
annuities do not allow the same investment flexibility provided
by variable annuities, but provide guarantees related to the
preservation of principal and interest credited. Deposits made
into deferred annuity contracts are allocated to the
Company’s general account and are credited with interest at
rates we determine, subject to certain minimums. Credited
interest rates are guaranteed not to change for certain limited
periods of time, ranging from one to ten years. Fixed income
annuities provide a guaranteed monthly income for a specified
period of years
and/or for
the life of the annuitant.
Corporate
Benefit Funding
Our Corporate Benefit Funding segment includes an array of
annuity and investment products, including, guaranteed interest
products and other stable value products, income annuities, and
separate account contracts for the investment management of
defined benefit and defined contribution plan assets. This
segment also includes certain products to fund postretirement
benefits and company, bank or trust owned life insurance used to
finance non-qualified benefit programs for executives. The major
products in this area are:
Stable Value Products. We offer general
account guaranteed interest contracts, separate account
guaranteed interest contracts, and similar products used to
support the stable value option of defined contribution plans.
We also offer private floating rate funding agreements that are
used for money market funds, securities lending cash collateral
portfolios and short-term investment funds.
Pensions Closeouts. We offer general account
and separate account annuity products, generally in connection
with the termination of defined benefit pension plans, both
domestically and in the United Kingdom. We also offer
partial risk transfer solutions that allow for partial transfers
of pension liabilities. Annuity products include single premium
buyouts and terminal funding contracts.
Torts and Settlements. We offer innovative
strategies for complex litigation settlements, primarily
structured settlement annuities.
Capital Markets Investment Products. Products
offered include funding agreements (including our Global GIC
Programs), Federal Home Loan Bank advances and funding agreement
backed commercial paper.
Other Corporate Benefit Funding Products and
Services. We offer specialized life insurance
products designed specifically to provide solutions for
non-qualified benefit and retiree benefit funding purposes.
Auto &
Home
Our Auto & Home segment includes personal lines
property and casualty insurance offered directly to employees at
their employer’s worksite, as well as to individuals
through a variety of retail distribution channels, including
independent agents, property and casualty specialists, direct
response marketing and the agency distribution group.
Auto & Home primarily sells auto insurance, which
represented 68% of Auto & Home’s total net earned
premiums in 2009. Homeowners and other insurance represented 32%
of Auto & Home’s total net earned premiums in
2009. The major products in this area are:
Auto Coverages. Auto insurance policies
provide coverage for private passenger automobiles, utility
automobiles and vans, motorcycles, motor homes, antique or
classic automobiles and trailers. Auto & Home offers
traditional coverage such as liability, uninsured motorist, no
fault or personal injury protection and collision and
comprehensive.
Homeowners and Other
Coverages. Homeowners’ insurance policies
provide protection for homeowners, renters, condominium owners
and residential landlords against losses arising out of damage
to dwellings and contents from a wide variety of perils, as well
as coverage for liability arising from ownership
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or occupancy. Other insurance includes personal excess liability
(protection against losses in excess of amounts covered by other
liability insurance policies), and coverage for recreational
vehicles and boat owners.
Traditional insurance policies for dwellings represent the
majority of Auto & Home’s homeowners’
policies providing protection for loss on a “replacement
cost” basis. These policies provide additional coverage for
reasonable, normal living expenses incurred by policyholders
that have been displaced from their homes.
Sales
Distribution
Our U.S. Business markets our products and services through
various distribution groups. Our life insurance and retirement
products targeted to individuals are sold via sales forces,
comprised of MetLife employees, in addition to third-party
organizations. Our group life and non-medical health insurance
and corporate benefit funding products are sold via sales forces
primarily comprised of MetLife employees. Personal lines
property and casualty insurance products are directly marketed
to employees at their employer’s worksite. Auto &
Home products are also marketed and sold to individuals by
independent agents and property and casualty specialists through
a direct response channel and the agency distribution group.
MetLife sales employees work with all distribution groups to
better reach and service customers, brokers, consultants and
other intermediaries.
Individual
Sales Distribution
Our individual distribution targets the large middle-income
market, as well as affluent individuals, owners of small
businesses and executives of small- to medium-sized companies.
We have also been successful in selling our products in various
multi-cultural markets.
Insurance Products are sold through our individual sales
distribution organization and also through various third-party
organizations utilizing two models. In the coverage model,
wholesalers sell to high net worth individuals and small- to
medium-sized businesses through independent general agencies,
financial advisors, consultants, brokerage general agencies and
other independent marketing organizations under contractual
arrangements. Wholesalers sell through financial intermediaries,
including regional broker-dealers, brokerage firms, financial
planners and banks.
Retirement Products are sold through our individual sales
distribution organization and also through various third-party
organizations such as regional broker-dealers, New York Stock
Exchange (“NYSE”) brokerage firms, financial planners
and banks.
Individual sales distribution representatives market
Auto & Home products to individuals through a variety
of means.
The individual sales distribution organization is comprised of
three channels: the MetLife distribution channel, a career
agency system, the New England financial distribution channel, a
general agency system, and MetLife Resources, a career agency
system.
The MetLife distribution channel had 5,762 MetLife agents under
contract in 82 agencies at December 31, 2009. The career
agency sales force focuses on the large middle-income and
affluent markets, including multi-cultural markets. We support
our efforts in multi-cultural markets through targeted
advertising, specially trained agents and sales literature
written in various languages.
The New England financial distribution channel included 36
general agencies providing support to 2,232 general agents and a
network of independent brokers throughout the United States at
December 31, 2009. The New England financial distribution
channel targets high net worth individuals, owners of small
businesses and executives of small- to medium-sized companies.
MetLife Resources, a focused distribution channel of MetLife,
markets retirement, annuity and other financial products on a
national basis through 621 MetLife agents and independent
brokers at December 31, 2009. MetLife Resources targets the
nonprofit, educational and healthcare markets.
8
We market and sell Auto & Home products through
independent agents, property and casualty specialists, a direct
response channel and the agency distribution group. In recent
years, we have increased the number of independent agents
appointed to sell these products.
In 2009, Auto & Home’s business was concentrated
in the following states, as measured by amount and percentage of
total direct earned premiums:
| |
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
|
(In millions)
|
|
Percent
|
|
|
|
New York
|
|
$
|
392
|
|
|
|
13
|
%
|
|
Massachusetts
|
|
$
|
281
|
|
|
|
9
|
%
|
|
Illinois
|
|
$
|
201
|
|
|
|
7
|
%
|
|
Florida
|
|
$
|
169
|
|
|
|
6
|
%
|
|
Connecticut
|
|
$
|
150
|
|
|
|
5
|
%
|
|
Texas
|
|
$
|
129
|
|
|
|
4
|
%
|
Group
Sales Distribution
Insurance Products distributes its group life and non-medical
health insurance products and services through a sales force
that is segmented by the size of the target customer. Marketing
representatives sell either directly to corporate and other
group customers or through an intermediary, such as a broker or
consultant. Voluntary products are sold through the same sales
channels, as well as by specialists for these products.
Employers have been emphasizing such voluntary products and, as
a result, we have increased our focus on communicating and
marketing to such employees in order to further foster sales of
those products. At December 31, 2009, the group life and
non-medical health insurance sales channels had 385 marketing
representatives.
Retirement Products markets its retirement, savings, investment
and payout annuity products and services to sponsors and
advisors of benefit plans of all sizes. These products and
services are offered to private and public pension plans,
collective bargaining units, nonprofit organizations, recipients
of structured settlements and the current and retired members of
these and other institutions.
Corporate Benefit Funding products and services are distributed
through dedicated sales teams and relationship managers located
in 12 offices around the country. In addition, the
retirement & benefits funding organization works with
individual distribution and group life and non-medical health
insurance distribution areas to better reach and service
customers, brokers, consultants and other intermediaries.
Auto & Home is a leading provider of personal lines
property and casualty insurance products offered to employees at
their employer’s worksite. At December 31, 2009, 2,223
employers offered MetLife Auto & Home products to
their employees.
Group marketing representatives market personal lines property
and casualty insurance products to employers through a variety
of means, including broker referrals and cross-selling to group
customers. Once permitted by the employer, MetLife commences
marketing efforts to employees. Employees who are interested in
the auto and homeowners products can call a toll-free number to
request a quote to purchase coverage and to request payroll
deduction over the telephone. Auto & Home has also
developed a proprietary software that permits an employee in
most states to obtain a quote for auto insurance through
Auto & Home’s Internet website.
We have entered into several joint ventures and other
arrangements with third parties to expand the marketing and
distribution opportunities of group products and services. We
also seek to sell our group products and services through
sponsoring organizations and affinity groups. For example, we
are the provider of LTC products for the National Long-Term Care
Coalition, a group of some of the nation’s largest
employers. In addition, we also provide life and dental coverage
to federal employees.
9
International
Overview
International provides life insurance, accident and health
insurance, credit insurance, annuities, endowment and
retirement & savings products to both individuals and
groups. We focus on emerging markets primarily within the Latin
America, Asia Pacific and EMEI regions. We operate in
international markets through subsidiaries and joint ventures.
See “Risk Factors — Fluctuations in Foreign
Currency Exchange Rates and Foreign Securities Markets Could
Negatively Affect Our Profitability,” and “Risk
Factors — Our International Operations Face Political,
Legal, Operational and Other Risks that Could Negatively Affect
Those Operations or Our Profitability,” and
“Quantitative and Qualitative Disclosures About Market
Risk.”
Latin
America Region
We operate in the Latin America region in Mexico, Chile, Brazil,
Argentina, and Uruguay. The operations in Mexico and Chile
represented 83% of the total premiums and fees in this region
for the year ended December 31, 2009. The Mexican operation
is the largest life insurance company in both the individual and
group businesses in Mexico according to Asociación Mexicana
de Instituciones de Seguro, a Mexican industry trade group which
provides ranking for insurance companies. The Chilean operation
is the second largest annuity company in Chile, based on market
share according to Superintendencia Valores y Seguros, the
Chilean insurance regulator. The Chilean operation also offers
individual life insurance and group insurance products. We also
actively market individual life insurance, group insurance
products and credit life coverage in Argentina, but the
nationalization of the pension system substantially reduced our
presence in Argentina. The business environment in Argentina has
been, and may continue to be, affected by governmental and legal
actions which impact our results of operations.
Asia
Pacific Region
We operate in the Asia Pacific region in South Korea, Hong Kong,
Taiwan, Australia, Japan, and China. The activities in the
region are primarily focused on individual business. The
operations in South Korea and Hong Kong represented 63% of the
total premiums and fees in this region for the year ended
December 31, 2009. The South Korean operation has
significant sales of variable universal life and annuity
products. The Hong Kong operation has significant sales of
variable universal life and endowment products. The Japanese
joint venture operation offers fixed and guaranteed variable
annuities and variable life products. We have a quota share
reinsurance agreement with the joint venture in Japan, whereby
we assume 100% of the living and death guarantee benefits
associated with the variable annuity business written after
April 2005 by the joint venture. The operating results of the
joint venture operations in Japan and China are reflected in net
investment income and are not consolidated in the financial
results.
Europe,
Middle East and India Region
We operate in Europe in the United Kingdom, Belgium, Poland and
Ireland. The results of our operations in the Middle East and
our consolidated joint venture in India are also included in our
EMEI region. The operations in the United Kingdom and India
represented 72% of the total premiums and fees in this region
for the year ended December 31, 2009. The United Kingdom
operation underwrites risk in its home market and fourteen other
countries across Europe and the Middle East offering credit
insurance coverage. The Indian operation has significant sales
of unit-linked and traditional life insurance products.
Banking,
Corporate & Other
Banking, Corporate & Other contains the excess capital
not allocated to the business segments, which is invested to
optimize investment spread and to fund company initiatives,
various
start-up
entities, and run-off entities. Banking, Corporate &
Other also includes interest expense related to the majority of
our outstanding debt and expenses associated with certain legal
proceedings. The elimination of transactions from activity
between U.S. Business, International, and Banking,
Corporate & Other occurs within Banking,
Corporate & Other.
10
Banking, Corporate & Other also includes the financial
results of MetLife Bank, which offers a variety of residential
mortgage and deposit products. The residential mortgage banking
activities include the origination and servicing of mortgage
loans. Mortgage loans are
held-for-investment
or sold primarily into Federal National Mortgage Association
(“FNMA”), Federal Home Loan Mortgage Corporation
(“FHLMC”) or Government National Mortgage Association
(“GNMA”) securities. MetLife Bank also leverages
MetLife’s investment platform to source commercial and
agriculture loans as investments on its balance sheet. MetLife
Bank is a member of the Federal Reserve System and the Federal
Home Loan Bank of New York (“FHLB”) and is subject to
regulation, examination and supervision by the Office of the
Comptroller of the Currency (“OCC”) and secondarily by
the Federal Deposit Insurance Corporation (“FDIC”) and
the Federal Reserve.
Products offered by MetLife Bank include forward and reverse
residential mortgage loans and consumer deposits. Residential
mortgage loans are originated through MetLife Bank’s
national sales force, mortgage brokers and mortgage
correspondents. In addition, MetLife Bank principally seeks
deposits from direct customers via the Internet and mail, as
well as customers of its affiliates having access to
affiliates’ distribution channels and field force,
including through voluntary benefits platforms.
The origination of forward and reverse mortgage single family
loans include both variable and fixed rate products. MetLife
Bank does not originate
sub-prime or
alternative residential mortgage loans (“Alt-A”)
mortgage loans and the funding for the mortgage banking
activities is provided by deposits and borrowings.
Deposit products include traditional savings accounts, money
market savings accounts, certificates of deposit
(“CDs”) and individual retirement accounts. MetLife
Bank participates in the Certificate of Deposit Account Registry
Service program through which certain customer CDs are exchanged
for CDs of similar amounts from participating banks. The deposit
products provide a relatively stable source of funding and
liquidity and are used to fund securities and loans.
Policyholder
Liabilities
We establish, and carry as liabilities, actuarially determined
amounts that are calculated to meet our policy obligations when
a policy matures or is surrendered, an insured dies or becomes
disabled or upon the occurrence of other covered events, or to
provide for future annuity payments. We compute the amounts for
actuarial liabilities reported in our consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America (“GAAP”). For
more details on Policyholder Liabilities see
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Summary of
Critical Accounting Estimates — Liability for Future
Policy Benefits” and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Policyholder Liabilities.”
Pursuant to state insurance laws, the Holding Company’s
insurance subsidiaries establish statutory reserves, reported as
liabilities, to meet their obligations on their respective
policies. These statutory reserves are established in amounts
sufficient to meet policy and contract obligations, when taken
together with expected future premiums and interest at assumed
rates. Statutory reserves generally differ from actuarial
liabilities for future policy benefits determined using GAAP.
The New York Insurance Law and regulations require certain
MetLife entities to submit to the New York Superintendent of
Insurance or other state insurance departments, with each annual
report, an opinion and memorandum of a “qualified
actuary” that the statutory reserves and related actuarial
amounts recorded in support of specified policies and contracts,
and the assets supporting such statutory reserves and related
actuarial amounts, make adequate provision for their statutory
liabilities with respect to these obligations. See
“— Regulation — Insurance Regulation
— Policy and Contract Reserve Sufficiency
Analysis.”
Underwriting
and Pricing
Underwriting
Underwriting generally involves an evaluation of applications
for Insurance Products, Retirement Products, Corporate Benefit
Funding, and Auto & Home by a professional staff of
underwriters and actuaries, who determine the type and the
amount of risk that we are willing to accept. In addition to the
products described above, the International segment, also offers
credit insurance and in a limited number of countries, major
medical products. We
11
employ detailed underwriting policies, guidelines and procedures
designed to assist the underwriter to properly assess and
quantify risks before issuing policies to qualified applicants
or groups.
Insurance underwriting considers not only an applicant’s
medical history, but also other factors such as financial
profile, foreign travel, vocations and alcohol, drug and tobacco
use. Group underwriting generally evaluates the risk
characteristics of each prospective insured group, although with
certain voluntary products, employees may be underwritten on an
individual basis. We generally perform our own underwriting;
however, certain policies are reviewed by intermediaries under
guidelines established by us. Generally, we are not obligated to
accept any risk or group of risks from, or to issue a policy or
group of policies to, any employer or intermediary. Requests for
coverage are reviewed on their merits and generally a policy is
not issued unless the particular risk or group has been examined
and approved by our underwriters.
Our remote underwriting offices, intermediaries, as well as our
corporate underwriting office are periodically reviewed via
continuous on-going internal underwriting audits to maintain
high-standards of underwriting and consistency across the
Company. Such offices are also subject to periodic external
audits by reinsurers with whom we do business.
We have established senior level oversight of the underwriting
process that facilitates quality sales and serves the needs of
our customers, while supporting our financial strength and
business objectives. Our goal is to achieve the underwriting,
mortality and morbidity levels reflected in the assumptions in
our product pricing. This is accomplished by determining and
establishing underwriting policies, guidelines, philosophies and
strategies that are competitive and suitable for the customer,
the agent and us.
Auto & Home’s underwriting function has six
principal aspects: evaluating potential worksite marketing
employer accounts and independent agencies; establishing
guidelines for the binding of risks; reviewing coverage bound by
agents; underwriting potential insureds, on a case by case
basis, presented by agents outside the scope of their binding
authority; pursuing information necessary in certain cases to
enable Auto & Home to issue a policy within our
guidelines; and ensuring that renewal policies continue to be
written at rates commensurate with risk.
Subject to very few exceptions, agents in each of the
U.S. Business distribution channels have binding authority
for risks which fall within its published underwriting
guidelines. Risks falling outside the underwriting guidelines
may be submitted for approval to the underwriting department;
alternatively, agents in such a situation may call the
underwriting department to obtain authorization to bind the risk
themselves. In most states, the Company generally has the right
within a specified period (usually the first 60 days) to
cancel any policy.
Pricing
Pricing has traditionally reflected our corporate underwriting
standards. Product pricing is based on the expected payout of
benefits calculated through the use of assumptions for
mortality, morbidity, expenses, persistency and investment
returns, as well as certain macroeconomic factors, such as
inflation. Investment-oriented products are priced based on
various factors, which may include investment return, expenses,
persistency and optionality. For certain investment oriented
products in the U.S. and certain business sold
internationally, pricing may include prospective and
retrospective experience rating features. Prospective experience
rating involves the evaluation of past experience for the
purpose of determining future premium rates and all prior year
gains and losses are borne by the Company. Retrospective
experience rating also involves the evaluation of past
experience for the purpose of determining the actual cost of
providing insurance for the customer, however, the contract
includes certain features that allow the Company to recoup
certain losses or distribute certain gains back to the
policyholder based on actual prior years’ experience.
Rates for group life and non-medical health products are based
on anticipated results for the book of business being
underwritten. Renewals are generally reevaluated annually or
biannually and are repriced to reflect actual experience on such
products. Products offered by CBF are priced frequently and are
very responsive to bond yields, and such prices include
additional margin in periods of market uncertainty. This
business is predominantly illiquid, because policyholders have
no contractual rights to cash values and no options to change
the form of the product’s benefits.
12
Rates for individual life insurance products are highly
regulated and must be approved by the state regulators where the
product is sold. Generally such products are renewed annually
and may include pricing terms that are guaranteed for a certain
period of time. Fixed and variable annuity products are also
highly regulated and approved by the individual state
regulators. Such products generally include penalties for early
withdrawals and policyholder benefit elections to tailor the
form of the product’s benefits to the needs of the opting
policyholder. The Company periodically reevaluates the costs
associated with such options and will periodically adjust
pricing levels on its guarantees. Further, the Company from time
to time may also reevaluate the type and level of guarantee
features currently being offered.
Rates for Auto & Home’s major lines of insurance
are based on its proprietary database, rather than relying on
rating bureaus. Auto & Home determines prices in part
from a number of variables specific to each risk. The pricing of
personal lines insurance products takes into account, among
other things, the expected frequency and severity of losses, the
costs of providing coverage (including the costs of acquiring
policyholders and administering policy benefits and other
administrative and overhead costs), competitive factors and
profit considerations. The major pricing variables for personal
lines insurance include characteristics of the insured property,
such as age, make and model or construction type, as well as
characteristics of the insureds, such as driving record and loss
experience, and the insured’s personal financial
management. Auto & Home’s ability to set and
change rates is subject to regulatory oversight.
As a condition of our license to do business in each state,
Auto & Home, like all other automobile insurers, is
required to write or share the cost of private passenger
automobile insurance for higher risk individuals who would
otherwise be unable to obtain such insurance. This
“involuntary” market, also called the “shared
market,” is governed by the applicable laws and regulations
of each state, and policies written in this market are generally
written at rates higher than standard rates.
We continually review our underwriting and pricing guidelines so
that our policies remain competitive and supportive of our
marketing strategies and profitability goals. The current
economic environment, with its volatility and uncertainty is not
expected to materially impact the pricing of our products.
Reinsurance
Activity
We enter into various agreements with reinsurers that cover
individual risks, group risks or defined blocks of business,
primarily on a coinsurance, yearly renewable term, excess or
catastrophe excess basis. These reinsurance agreements spread
risk and minimize the effect of losses. The extent of each risk
retained by us depends on our evaluation of the specific risk,
subject, in certain circumstances, to maximum retention limits
based on the characteristics of coverages. We also cede first
dollar mortality risk under certain contracts. In addition to
reinsuring mortality risk, we reinsure other risks, as well as
specific coverages. We routinely reinsure certain classes of
risks in order to limit our exposure to particular travel,
avocation and lifestyle hazards. We obtain reinsurance for
capital requirement purposes and also when the economic impact
of the reinsurance agreement makes it appropriate to do so.
Under the terms of the reinsurance agreements, the reinsurer
agrees to reimburse us for the ceded amount in the event a claim
is paid. However, we remain liable to our policyholders with
respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. Since we bear the
risk of nonpayment by one or more of our reinsurers, we
primarily cede reinsurance to well-capitalized, highly rated
reinsurers. We analyze recent trends in arbitration and
litigation outcomes in disputes, if any, with our reinsurers. We
monitor ratings and evaluate the financial strength of our
reinsurers by analyzing their financial statements. In addition,
the reinsurance recoverable balance due from each reinsurer is
evaluated as part of the overall monitoring process.
Recoverability of reinsurance recoverable balances are evaluated
based on these analyses. We generally secure large reinsurance
recoverable balances with various forms of collateral, including
secured trusts, funds withheld accounts and irrevocable letters
of credit.
We reinsure our business through a diversified group of
reinsurers. In the event that reinsurers do not meet their
obligations under the terms of the reinsurance agreements,
reinsurance balances recoverable could become uncollectible.
Cessions under reinsurance arrangements do not discharge our
obligations as the primary insurer.
13
U.S.
Business
Our Insurance Products segment participates in reinsurance
activities in order to limit losses, minimize exposure to
significant risks, and provide additional capacity for future
growth. For our individual life insurance products, we have
historically reinsured the mortality risk primarily on an excess
of retention basis or a quota share basis. Until 2005, we
reinsured up to 90% of the mortality risk for all new individual
life insurance policies that we wrote through our various
subsidiaries. During 2005, we changed our retention practices
for certain individual life insurance policies. Under the new
retention guidelines, we reinsure up to 90% of the mortality
risk in excess of $1 million. Retention limits remain
unchanged for other new individual life insurance policies.
Policies reinsured in years prior to 2005 remain reinsured under
the original reinsurance agreements. On a case by case basis, we
may retain up to $20 million per life and reinsure 100% of
amounts in excess of our retention limits. We evaluate our
reinsurance programs routinely and may increase or decrease our
retention at any time. Placement of reinsurance is done
primarily on an automatic basis and also on a facultative basis
for risks with specific characteristics.
For other policies within the Insurance Products segment, we
generally retain most of the risk and only cede particular risks
on certain client arrangements.
Our Retirement Products segment reinsures a portion of the
living and death benefit guarantees issued in connection with
our variable annuities. Under these reinsurance agreements, we
pay a reinsurance premium generally based on fees associated
with the guarantees collected from policyholders, and receive
reimbursement for benefits paid or accrued in excess of account
values, subject to certain limitations. We enter into similar
agreements for new or in-force business depending on market
conditions.
Our Corporate Benefit Funding segment has periodically engaged
in reinsurance activities, as considered appropriate.
Our Auto & Home segment purchases reinsurance to
manage its exposure to large losses (primarily catastrophe
losses) and to protect statutory surplus. We cede to reinsurers
a portion of losses and premiums based upon the exposure of the
policies subject to reinsurance. To manage exposure to large
property and casualty losses, we utilize property catastrophe,
casualty and property per risk excess of loss agreements.
International
Our International segment has periodically engaged in
reinsurance activities, as considered appropriate.
Banking,
Corporate & Other
We also reinsure through 100% quota share reinsurance agreements
certain run-off long-term care and workers’ compensation
business written by MetLife Insurance Company of Connecticut
(“MICC”), a subsidiary of the Company.
Catastrophe
Coverage
We have exposure to catastrophes, which could contribute to
significant fluctuations in our results of operations. We use
excess of retention and quota share reinsurance arrangements to
provide greater diversification of risk and minimize exposure to
larger risks.
Reinsurance
Recoverables
For information regarding ceded reinsurance recoverable
balances, included in premiums and other receivables in the
consolidated balance sheets, see Note 9 of the Notes to the
Consolidated Financial Statements.
Regulation
Insurance
Regulation
Metropolitan Life Insurance Company is licensed to transact
insurance business in, and is subject to regulation and
supervision by, all 50 states, the District of Columbia,
Guam, Puerto Rico, Canada, the U.S. Virgin Islands and
14
Northern Mariana Islands. Each of MetLife’s insurance
subsidiaries is licensed and regulated in each U.S. and
international jurisdiction where they conduct insurance
business. The extent of such regulation varies, but most
jurisdictions have laws and regulations governing the financial
aspects of insurers, including standards of solvency, statutory
reserves, reinsurance and capital adequacy, and the business
conduct of insurers. In addition, statutes and regulations
usually require the licensing of insurers and their agents, the
approval of policy forms and certain other related materials
and, for certain lines of insurance, the approval of rates. Such
statutes and regulations also prescribe the permitted types and
concentration of investments. New York Insurance Law limits the
amount of compensation that insurers doing business in New York
may pay to their agents, as well as the amount of total
expenses, including sales commissions and marketing expenses,
that such insurers may incur in connection with the sale of life
insurance policies and annuity contracts throughout the United
States.
Each insurance subsidiary is required to file reports, generally
including detailed annual financial statements, with insurance
regulatory authorities in each of the jurisdictions in which it
does business, and its operations and accounts are subject to
periodic examination by such authorities. These subsidiaries
must also file, and in many jurisdictions and in some lines of
insurance obtain regulatory approval for, rules, rates and forms
relating to the insurance written in the jurisdictions in which
they operate.
The National Association of Insurance Commissioners
(“NAIC”) has established a program of accrediting
state insurance departments. NAIC accreditation contemplates
that accredited states will conduct periodic examinations of
insurers domiciled in such states. NAIC-accredited states will
not accept reports of examination of insurers from unaccredited
states, except under limited circumstances. As a direct result,
insurers domiciled in unaccredited states may be subject to
financial examination by accredited states in which they are
licensed, in addition to any examinations conducted by their
domiciliary states. In 2009, the New York State Department of
Insurance (the “Department”), MLIC’s principal
insurance regulator, received accreditation from the NAIC.
Previously, the Department was not accredited by the NAIC, but
the absence of this accreditation did not have a significant
impact upon our ability to conduct our insurance businesses.
State and federal insurance and securities regulatory
authorities and other state law enforcement agencies and
attorneys general from time to time make inquiries regarding
compliance by the Holding Company and its insurance subsidiaries
with insurance, securities and other laws and regulations
regarding the conduct of our insurance and securities
businesses. We cooperate with such inquiries and take corrective
action when warranted. See Note 16 of the Notes to the
Consolidated Financial Statements.
Holding Company Regulation. The Holding
Company and its insurance subsidiaries are subject to regulation
under the insurance holding company laws of various
jurisdictions. The insurance holding company laws and
regulations vary from jurisdiction to jurisdiction, but
generally require a controlled insurance company (insurers that
are subsidiaries of insurance holding companies) to register
with state regulatory authorities and to file with those
authorities certain reports, including information concerning
its capital structure, ownership, financial condition, certain
intercompany transactions and general business operations.
State insurance statutes also typically place restrictions and
limitations on the amount of dividends or other distributions
payable by insurance company subsidiaries to their parent
companies, as well as on transactions between an insurer and its
affiliates. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations —
Liquidity and Capital Resources — The Holding
Company — Liquidity and Capital Sources —
Dividends from Subsidiaries.” The New York Insurance Law
and the regulations thereunder also restrict the aggregate
amount of investments MLIC may make in non-life insurance
subsidiaries, and provide for detailed periodic reporting on
subsidiaries.
Guaranty Associations and Similar
Arrangements. Most of the jurisdictions in which
the Company’s insurance subsidiaries are admitted to
transact business require life and property and casualty
insurers doing business within the jurisdiction to participate
in guaranty associations, which are organized to pay certain
contractual insurance benefits owed pursuant to insurance
policies issued by impaired, insolvent or failed insurers. These
associations levy assessments, up to prescribed limits, on all
member insurers in a particular state on the basis of the
proportionate share of the premiums written by member insurers
in the lines of business in which the impaired, insolvent or
failed insurer is engaged. Some states permit member insurers to
recover assessments paid through full or partial premium tax
offsets.
15
In the past five years, the aggregate assessments levied against
MetLife have not been material. We have established liabilities
for guaranty fund assessments that we consider adequate for
assessments with respect to insurers that are currently subject
to insolvency proceedings. See Note 16 of the Notes to the
Consolidated Financial Statements for additional information on
the insolvency assessments.
Statutory Insurance Examination. As part of
their regulatory oversight process, state insurance departments
conduct periodic detailed examinations of the books, records,
accounts, and business practices of insurers domiciled in their
states. State insurance departments also have the authority to
conduct examinations of non-domiciliary insurers that are
licensed in their states. During the three-year period ended
December 31, 2009, MetLife has not received any material
adverse findings resulting from state insurance department
examinations of its insurance subsidiaries conducted during this
three-year period.
Regulatory authorities in a small number of states and Financial
Industry Regulatory Authority (“FINRA”) have had
investigations or inquiries relating to sales of individual life
insurance policies or annuities or other products by MLIC,
MetLife Securities, Inc., New England Mutual Life Insurance
Company, New England Life Insurance Company, New England
Securities Corporation, General American Life Insurance Company,
Walnut Street Securities, Inc., MICC and Tower Square
Securities, Inc. Over the past several years, these and a number
of investigations by other regulatory authorities were resolved
for monetary payments and certain other relief. We may continue
to resolve investigations in a similar manner. See Note 16
of the Notes to the Consolidated Financial Statements.
Policy and Contract Reserve Sufficiency
Analysis. Annually, MetLife’s
U.S. insurance subsidiaries are required to conduct an
analysis of the sufficiency of all statutory reserves. In each
case, a qualified actuary must submit an opinion which states
that the statutory reserves, when considered in light of the
assets held with respect to such reserves, make good and
sufficient provision for the associated contractual obligations
and related expenses of the insurer. If such an opinion cannot
be provided, the insurer must set up additional reserves by
moving funds from surplus. Since inception of this requirement,
the Company’s insurance subsidiaries which are required by
their states of domicile to provide these opinions have provided
such opinions without qualifications.
Surplus and Capital. The Company’s
U.S. insurance subsidiaries are subject to the supervision
of the regulators in each jurisdiction in which they are
licensed to transact business. Regulators have discretionary
authority, in connection with the continued licensing of these
insurance subsidiaries, to limit or prohibit sales to
policyholders if, in their judgment, the regulators determine
that such insurer has not maintained the minimum surplus or
capital or that the further transaction of business will be
hazardous to policyholders. See “— Risk-Based
Capital.”
Risk-Based Capital
(“RBC”). Each of the
Company’s U.S. insurance subsidiaries is subject to
RBC requirements and reports its RBC based on a formula
calculated by applying factors to various asset, premium and
statutory reserve items, as well as taking into account the risk
characteristics of the insurer. The major categories of risk
involved are asset risk, insurance risk, interest rate risk,
market risk and business risk. The formula is used as an early
warning regulatory tool to identify possible inadequately
capitalized insurers for purposes of initiating regulatory
action, and not as a means to rank insurers generally. State
insurance laws provide insurance regulators the authority to
require various actions by, or take various actions against,
insurers whose RBC ratio does not meet or exceed certain RBC
levels. As of the date of the most recent annual statutory
financial statements filed with insurance regulators, the RBC of
each of these subsidiaries was in excess of each of those RBC
levels. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Liquidity and Capital Resources — The Company
— Capital.”
The NAIC provides standardized insurance industry accounting and
reporting guidance through its Accounting Practices and
Procedures Manual (the “Manual”). However, statutory
accounting principles continue to be established by individual
state laws, regulations and permitted practices. The Department
has adopted the Manual with certain modifications for the
preparation of statutory financial statements of insurance
companies domiciled in New York. Changes to the Manual or
modifications by the various state insurance departments may
impact the statutory capital and surplus of the Company’s
insurance subsidiaries.
16
Regulation of Investments. Each of the
Company’s U.S. insurance subsidiaries are subject to
state laws and regulations that require diversification of its
investment portfolios and limit the amount of investments in
certain asset categories, such as below investment grade fixed
income securities, equity real estate, other equity investments,
and derivatives. Failure to comply with these laws and
regulations would cause investments exceeding regulatory
limitations to be treated as non-admitted assets for purposes of
measuring surplus, and, in some instances, would require
divestiture of such non-qualifying investments. We believe that
the investments made by each of the Company’s insurance
subsidiaries complied, in all material respects, with such
regulations at December 31, 2009.
Federal Initiatives. Although the federal
government generally does not directly regulate the insurance
business, federal initiatives often have an impact on our
business in a variety of ways. From time to time, federal
measures are proposed which may significantly affect the
insurance business. In addition, various forms of direct and
indirect federal regulation of insurance have been proposed from
time to time, including proposals for the establishment of an
optional federal charter for insurance companies. As part of a
proposed comprehensive reform of financial services regulation,
Congress is considering the creation of an office within the
federal government to collect information about the insurance
industry, recommend prudential standards, and represent the
United States in dealings with foreign insurance regulators. See
“Risk Factors — Our Insurance and Banking
Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth.”
Legislative Developments. As part of their
proposed financial services regulatory reform legislation, the
Obama Administration and Congress have made various proposals
that would change the capital and liquidity requirements, credit
exposure concentrations and similar prudential matters for bank
holding companies, banks and other financial firms. For example:
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•
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Bank regulatory agencies have issued proposed interagency
guidance for funding and liquidity risk management that would
apply to MetLife as a bank holding company.
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•
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The proposals under consideration in Congress also include
special regulatory and insolvency regimes, including even higher
capital and liquidity standards, for financial institutions that
are deemed to be systemically significant. These insolvency
regimes could vary from the resolution regimes currently
applicable to some subsidiaries of such companies and could
include assessments on financial companies to provide for a
systemic resolution fund.
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•
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The Obama Administration, members of Congress and Federal
banking regulators have suggested new or increased taxes or
assessments on banks and financial firms to mitigate the costs
to taxpayers of various government programs established to
address the financial crisis and to offset the costs of
potential future crises.
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•
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The proposed legislation also includes new conditions on the
writing and trading of certain standardized and non-standardized
derivatives.
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Congress is also considering establishing a new governmental
agency that would supervise and regulate institutions that
provide certain financial products and services to consumers.
Although the consumer financial services to which this
legislation would apply might exclude certain insurance
business, the new agency would have authority to regulate
consumer services provided by MetLife Bank. The proposed
legislation may also eliminate or significantly restrict federal
pre-emption of state consumer protection laws applicable to
banking services, which would increase the regulatory and
compliance burden on MetLife Bank and could adversely affect its
business and results of operations. We cannot predict whether
these or other proposals will be adopted, or what impact, if
any, such proposals or, if enacted, such laws, could have on our
business, financial condition or results of operations or on our
dealings with other financial institutions. See “Risk
Factors — Our Insurance and Banking Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth.”
We cannot predict what other proposals may be made, what
legislation may be introduced or enacted or the impact of any
such legislation on our business, results of operations and
financial condition.
17
Governmental
Responses to Extraordinary Market Conditions
U.S. Federal Governmental
Responses. Throughout 2008 and continuing in
2009, Congress, the Federal Reserve Bank of New York, the
U.S. Treasury and other agencies of the Federal government
took a number of increasingly aggressive actions (in addition to
continuing a series of interest rate reductions that began in
the second half of 2007) intended to provide liquidity to
financial institutions and markets, to avert a loss of investor
confidence in particular troubled institutions and to prevent or
contain the spread of the financial crisis. These measures
included:
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•
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expanding the types of institutions that have access to the
Federal Reserve Bank of New York’s discount window;
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•
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providing asset guarantees and emergency loans to particular
distressed companies;
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a temporary ban on short selling of shares of certain financial
institutions (including, for a period, MetLife);
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•
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programs intended to reduce the volume of mortgage foreclosures
by modifying the terms of mortgage loans for distressed
borrowers;
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temporarily guaranteeing money market funds; and
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programs to support the mortgage-backed securities market and
mortgage lending.
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In addition to these actions, pursuant to the Emergency Economic
Stabilization Act of 2008 (“EESA”), enacted in October
2008, the U.S. Treasury injected capital into selected
financial institutions and their holding companies. EESA also
authorizes the U.S. Treasury to purchase mortgage-backed
and other securities from financial institutions as part of the
overall $700 billion available for the purpose of
stabilizing the financial markets. The Federal government, the
Federal Reserve Bank of New York, FDIC and other governmental
and regulatory bodies also took other actions to address the
financial crisis. For example, the Federal Reserve Bank of New
York made funds available to commercial and financial companies
under a number of programs, including the Commercial Paper
Funding Facility (the “CPFF”), and the FDIC
established the Temporary Liquidity Guarantee Program (the
“FDIC Program”). In March 2009, MetLife, Inc. issued
$397 million of senior notes guaranteed by the FDIC under
the FDIC Program. The FDIC Program and the CPFF expired in late
2009 and early 2010, respectively. During the period of its
existence, the Company made limited use of the CPFF, and no
amounts were outstanding under the CPFF at December 31,
2009. In October 2009, the FDIC established a limited six-month
emergency guarantee facility upon expiration of the FDIC
Program. Participating entities can apply to the FDIC for
permission to issue FDIC-guaranteed debt during the period
beginning October 31, 2009 through April 30, 2010.
In February 2009, the Treasury Department outlined a financial
stability plan with additional measures to provide capital
relief to institutions holding troubled assets, including a
capital assistance program for banks that have undergone a
“stress test” (the “Capital Assistance
Program”) and a public-private investment fund to purchase
troubled assets from financial institutions. MetLife was
eligible to participate in the U.S. Treasury’s Capital
Purchase Program, a voluntary capital infusion program
established under EESA, but elected not to participate in that
program. MetLife took part in the “stress test” and
was advised by the Federal Reserve in May 2009 that, based on
the stress test’s economic scenarios and methodology,
MetLife had adequate capital to sustain a further deterioration
in the economy. The choices made by the U.S. Treasury in
its distribution of amounts available under the EESA, the
Capital Assistance Program and other programs could have the
effect of supporting some aspects of the financial services
industry more than others or providing advantages to some of our
competitors. See “Risk Factors — Competitive
Factors May Adversely Affect Our Market Share and
Profitability.”
In addition to the various measures to foster liquidity and
recapitalize the banking sector, the Federal government also
passed the American Recovery and Reinvestment Act in February
2009 that provided for nearly $790 billion in additional
federal spending, tax cuts and federal aid intended to spur
economic activity.
MetLife, Inc. and some or all of its affiliates may be eligible
to sell assets to the U.S. Treasury under one or more of
the programs established under EESA, and some of their assets
may be among those the U.S. Treasury or the public-private
investment partnership proposed by the U.S. Treasury offers
to purchase, either directly or through auction. MetLife, Inc.
and its affiliates may also be able to purchase assets under
some of these programs,
18
including the public-private investment program and the Term
Asset-Backed Securities Loan Facility, which provides funding
for the purchase of specified types of asset-backed securities.
MetLife Bank has the capacity to borrow from the Federal Reserve
Bank of New York’s Discount Window and from the Federal
Reserve Bank of New York under the Term Auction Facility. At
December 31, 2009, there were no outstanding borrowings
under the Term Auction Facility.
State Insurance Regulatory Responses. In
January 2009, the NAIC considered, but declined, a number of
reserve and capital relief proposals made by the American
Council of Life Insurers (the “ACLI”), acting on
behalf of its member companies. However, notwithstanding that
NAIC action, insurance companies had the right to approach the
insurance regulator in their respective state of domicile and
request relief. Several MetLife insurance entities requested and
were granted relief, resulting in a beneficial impact on
reserves and capital. During the latter part of 2009, the NAIC
adopted a number of reserve and capital relief proposals made by
the ACLI, acting on behalf of its member companies. These
changes superseded the actions described above and have
generally resulted in lower statutory reserve and capital
requirements, effective December 31, 2009, for life
insurance companies. We cannot quantify or project the impact on
the competitive landscape of the reserve and capital relief
granted or any subsequent regulatory relief that may be granted.
In late 2009, following rating agency downgrades of virtually
all residential mortgage-backed securities (“RMBS”)
from certain vintages, the NAIC engaged PIMCO, a well-known
investment management firm, to analyze approximately 20,000
residential mortgage-backed securities held by insurers and
evaluate the likely loss that holders of those securities would
suffer in the event of a default. PIMCO’s analysis showed
that the severity of expected losses on those securities
evaluated that are held by our insurance companies was
significantly less than would be implied by the rating
agencies’ ratings of such securities. The NAIC incorporated
the results of PIMCO’s analysis into the risk-based capital
charges assigned to the evaluated securities, with a beneficial
impact on the risk-based capital to our insurance subsidiaries.
In late 2009, the NAIC approved an adjustment, for year-end 2009
only, to the mortgage experience adjustment factor (the
“MEAF”), which is utilized in calculating the RBC
charges that are assigned to commercial and agricultural
mortgages held by our domestic insurers. The MEAF calculation
includes the ratio of an insurer’s commercial and
agricultural mortgage default experience to the industry average
commercial and agricultural mortgage default experience and,
prior to the adjustment, had a cap of 350% and a floor of 50% of
an industry-wide base factor. As a result of the adjustment, the
minimum adjustment factor was raised from 50% to 75% and the
maximum adjustment factor was lowered from 350% to 125%, based
on an insurer’s actual experience. As a result of our
experience and the increase in the floor, the corresponding RBC
charges of certain of our domestic insurers, including MLIC,
increased. It is our understanding that the Capital Adequacy
Task Force of the NAIC will monitor market conditions and
progress on proposals that may result in modifying or extending
the proposal beyond 2009. There can be no assurance that the
short-term adjustment will continue beyond 2009.
In late 2009, the NAIC issued Statement of Statutory Accounting
Principles (“SSAP”) 10R (“SSAP 10R”). SSAP
10R increased the amount of deferred tax assets that may be
admitted on a statutory basis. The admission criteria for
realizing the value of deferred tax assets was increased from a
one year to a three year period. Further, the aggregate cap on
deferred tax assets that may be admitted was increased from 10%
to 15% of surplus. These changes increased the capital and
surplus of our insurance subsidiaries, thereby positively
impacting RBC at December 31, 2009. To temper this positive
RBC impact, and as a temporary measure at December 31, 2009
only, a 5% pre-tax RBC charge must be applied to the additional
admitted deferred tax assets generated by SSAP 10R.
Foreign Governmental Responses. In an effort
to strengthen the financial condition of key financial
institutions or avert their collapse, and to forestall or reduce
the effects of reduced lending activity, a number of foreign
governments have also taken actions similar to some of those
taken by the U.S. Federal government, including injecting
capital into domestic financial institutions in exchange for
ownership stakes. We cannot predict whether these actions will
achieve their intended purpose or how they will impact
competition in the financial services industry.
19
Broker-Dealer
and Securities Regulation
Some of the Company’s subsidiaries and their activities in
offering and selling variable insurance products are subject to
extensive regulation under the federal securities laws
administered by the SEC. These subsidiaries issue variable
annuity contracts and variable life insurance policies through
separate accounts that are registered with the SEC as investment
companies under the Investment Company Act of 1940, as amended
(the “Investment Company Act”). Each registered
separate account is generally divided into
sub-accounts,
each of which invests in an underlying mutual fund which is
itself a registered investment company under the Investment
Company Act. In addition, the variable annuity contracts and
variable life insurance policies issued by the separate accounts
are registered with the SEC under the Securities Act of 1933, as
amended (the “Securities Act”). Other subsidiaries are
registered with the SEC as broker-dealers under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
and are members of, and subject to, regulation by the FINRA.
Further, some of the Company’s subsidiaries are registered
as investment advisers with the SEC under the Investment
Advisers Act of 1940, as amended (the “Investment Advisers
Act”), and are also registered as investment advisers in
various states, as applicable. Certain variable contract
separate accounts sponsored by the Company’s subsidiaries
are exempt from registration, but may be subject to other
provisions of the federal securities laws.
Federal and state securities regulatory authorities and FINRA
from time to time make inquiries and conduct examinations
regarding compliance by the Holding Company and its subsidiaries
with securities and other laws and regulations. We cooperate
with such inquiries and examinations and take corrective action
when warranted.
Federal and state securities laws and regulations are primarily
intended to protect investors in the securities markets and
generally grant regulatory agencies broad rulemaking and
enforcement powers, including the power to limit or restrict the
conduct of business for failure to comply with such laws and
regulations. We may also be subject to similar laws and
regulations in the foreign countries in which we provide
investment advisory services, offer products similar to those
described above, or conduct other activities.
Environmental
Considerations
As an owner and operator of real property, we are subject to
extensive federal, state and local environmental laws and
regulations. Inherent in such ownership and operation is also
the risk that there may be potential environmental liabilities
and costs in connection with any required remediation of such
properties. In addition, we hold equity interests in companies
that could potentially be subject to environmental liabilities.
We routinely have environmental assessments performed with
respect to real estate being acquired for investment and real
property to be acquired through foreclosure. We cannot provide
assurance that unexpected environmental liabilities will not
arise. However, based on information currently available to us,
we believe that any costs associated with compliance with
environmental laws and regulations or any remediation of such
properties will not have a material adverse effect on our
business, results of operations or financial condition.
Employee
Retirement Income Security Act of 1974 (“ERISA”)
Considerations
We provide products and services to certain employee benefit
plans that are subject to ERISA, or the Internal Revenue Code of
1986, as amended (the “Code”). As such, our activities
are subject to the restrictions imposed by ERISA and the Code,
including the requirement under ERISA that fiduciaries must
perform their duties solely in the interests of ERISA plan
participants and beneficiaries and the requirement under ERISA
and the Code that fiduciaries may not cause a covered plan to
engage in prohibited transactions with persons who have certain
relationships with respect to such plans. The applicable
provisions of ERISA and the Code are subject to enforcement by
the Department of Labor, the Internal Revenue Service and the
Pension Benefit Guaranty Corporation (“PBGC”).
In John Hancock Mutual Life Insurance Company v.
Harris Trust and Savings Bank (1993), the
U.S. Supreme Court held that certain assets in excess of
amounts necessary to satisfy guaranteed obligations under a
participating group annuity general account contract are
“plan assets.” Therefore, these assets are subject to
certain fiduciary obligations under ERISA, which requires
fiduciaries to perform their duties solely in the interest of
ERISA plan participants and beneficiaries. On January 5,
2000, the Secretary of Labor issued final regulations
indicating, in cases where an insurer has issued a policy backed
by the insurer’s general account to or for an employee
benefit
20
plan, the extent to which assets of the insurer constitute plan
assets for purposes of ERISA and the Code. The regulations apply
only with respect to a policy issued by an insurer on or before
December 31, 1998 (“Transition Policy”). No
person will generally be liable under ERISA or the Code for
conduct occurring prior to July 5, 2001, where the basis of
a claim is that insurance company general account assets
constitute plan assets. An insurer issuing a new policy that is
backed by its general account and is issued to or for an
employee benefit plan after December 31, 1998 will
generally be subject to fiduciary obligations under ERISA,
unless the policy is a guaranteed benefit policy.
The regulations indicate the requirements that must be met so
that assets supporting a Transition Policy will not be
considered plan assets for purposes of ERISA and the Code. These
requirements include detailed disclosures to be made to the
employee benefits plan and the requirement that the insurer must
permit the policyholder to terminate the policy on 90 day
notice and receive without penalty, at the policyholder’s
option, either (i) the unallocated accumulated fund balance
(which may be subject to market value adjustment) or (ii) a
book value payment of such amount in annual installments with
interest. We have taken and continue to take steps designed to
ensure compliance with these regulations.
Banking
Regulation
As a federally chartered national association, MetLife Bank is
subject to a wide variety of banking laws, regulations and
guidelines. Federal banking laws regulate most aspects of the
business of MetLife Bank, but certain state laws may apply as
well. MetLife Bank is principally regulated by the OCC, the
Federal Reserve and the FDIC. Federal banking laws and
regulations address various aspects of MetLife Bank’s
business and operations with respect to, among other things,
chartering to carry on business as a bank; maintaining minimum
capital ratios; capital management in relation to the
bank’s assets; safety and soundness standards; loan loss
and other statutory reserves; liquidity; financial reporting and
disclosure standards; counterparty credit concentration;
restrictions on related party and affiliate transactions;
lending limits; payment of interest; unfair or deceptive acts or
practices; privacy; and bank holding company and bank change of
control. The FDIC has the right to assess FDIC-insured banks for
funds to help pay the obligations of insolvent banks to
depositors. Federal and state banking regulators regularly
re-examine existing laws and regulations applicable to banks and
their products. Changes in these laws and regulations, or in
interpretations thereof, are often made for the benefit of the
consumer at the expense of the bank.
Financial
Holding Company Regulation
Regulatory Agencies. In connection with its
acquisition of a federally-chartered commercial bank, MetLife,
Inc. became a bank holding company and financial holding company
on February 28, 2001. As such, the Holding Company is
subject to regulation under the Bank Holding Company Act of
1956, as amended (the “BHC Act”), and to inspection,
examination, and supervision by the Board of Governors of the
Federal Reserve Bank of New York. In addition, MetLife Bank is
subject to regulation and examination primarily by the OCC and
secondarily by the Federal Reserve Bank of New York and the FDIC.
Financial Holding Company Activities. As a
financial holding company, MetLife, Inc.’s activities and
investments are restricted by the BHC Act, as amended by the
Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), to
those that are “financial” in nature or
“incidental” or “complementary” to such
financial activities. Activities that are financial in nature
include securities underwriting, dealing and market making,
sponsoring mutual funds and investment companies, insurance
underwriting and agency, merchant banking and activities that
the Federal Reserve Board has determined to be closely related
to banking. In addition, under the insurance company investment
portfolio provision of the GLB Act, financial holding companies
are authorized to make investments in other financial and
non-financial companies, through their insurance subsidiaries,
that are in the ordinary course of business and in accordance
with state insurance law, provided the financial holding company
does not routinely manage or operate such companies except as
may be necessary to obtain a reasonable return on investment.
Other Restrictions and Limitations on Bank Holding Companies
and Financial Holding Companies
— Capital. MetLife, Inc. and MetLife
Bank are subject to risk-based and leverage capital guidelines
issued by the federal banking
21
regulatory agencies for banks and financial holding companies.
The federal banking regulatory agencies are required by law to
take specific prompt corrective actions with respect to
institutions that do not meet minimum capital standards. At
December 31, 2009, MetLife, Inc. and MetLife Bank were in
compliance with the aforementioned guidelines.
Other Restrictions and Limitations on Bank Holding Companies
and Financial Holding Companies — Consumer Protection
Laws. Numerous other federal and state laws also
affect the Holding Company’s and MetLife Bank’s
earnings and activities, including federal and state consumer
protection laws. The GLB Act included consumer privacy
provisions that, among other things, require disclosure of a
financial institution’s privacy policy to customers. In
addition, these provisions permit states to adopt more extensive
privacy protections through legislation or regulation. As part
of its consideration of comprehensive reform of financial
services regulation, Congress is considering establishing a
Consumer Financial Protection Agency, a new governmental agency
that would supervise and regulate institutions that provide
certain financial products and services to consumers. Although
the consumer financial services to which this legislation would
apply might exclude certain insurance business, the new agency
would have authority to regulate consumer services provided by
MetLife Bank. The proposed legislation may also eliminate or
significantly restrict federal pre-emption of state consumer
protection laws applicable to banking services, which would
increase the regulatory and compliance burden on MetLife Bank
and could adversely affect its business and results of
operations.
Other Restrictions and Limitations on Bank Holding Companies
and Financial Holding Companies — Change of
Control. Because MetLife, Inc. is a financial
holding company and bank holding company under the federal
banking laws, no person may acquire control of MetLife, Inc.
without the prior approval of the Federal Reserve Board. A
change of control is conclusively presumed upon acquisition of
25% or more of any class of voting securities and rebuttably
presumed upon acquisition of 10% or more of any class of voting
securities. Further, as a result of MetLife, Inc.’s
ownership of MetLife Bank, approval from the OCC would be
required in connection with a change of control (generally
presumed upon the acquisition of 10% or more of any class of
voting securities) of MetLife, Inc.
Competition
We believe that competition faced by our business segments is
based on a number of factors, including service, product
features, scale, price, financial strength, claims-paying
ratings, credit ratings, ebusiness capabilities and name
recognition. We compete with a large number of other insurance
companies, as well as non-insurance financial services
companies, such as banks, broker-dealers and asset managers, for
individual consumers, employer and other group customers as well
as agents and other distributors of insurance and investment
products. Some of these companies offer a broader array of
products, have more competitive pricing or, with respect to
other insurance companies, have higher claims paying ability
ratings. Many of our insurance products are underwritten
annually and, accordingly, there is a risk that group purchasers
may be able to obtain more favorable terms from competitors
rather than renewing coverage with us.
We believe that the turbulence in financial markets that began
in the latter half of 2008, its impact on the capital position
of many competitors, and subsequent actions by regulators and
rating agencies have altered the competitive environment. In
particular, we believe that these factors have highlighted
financial strength as the most significant differentiator from
the perspective of some customers and certain distributors. We
believe the Company is well positioned to compete in this
environment. In particular, the Company distributes many of its
individual products through other financial institutions such as
banks and broker-dealers. These distribution partners are
currently placing greater emphasis on the financial strength of
the company whose products they sell. In addition, the financial
market turbulence has highlighted the extent of the risk
associated with certain variable annuity products and has led
many companies in our industry to re-examine the pricing and
features of the products they offer. The effects of current
market conditions may also lead to consolidation in the life
insurance industry. Although we cannot predict the ultimate
impact of these conditions, we believe that the strongest
companies will enjoy a competitive advantage as a result of the
current circumstances.
We must attract and retain productive sales representatives to
sell our insurance, annuities and investment products. Strong
competition exists among insurance companies for sales
representatives with demonstrated ability. We compete with other
insurance companies for sales representatives primarily on the
basis of our financial
22
position, support services and compensation and product
features. See “— U.S. Business —
Sales Distribution.” We continue to undertake several
initiatives to grow our career agency force, while continuing to
enhance the efficiency and production of our existing sales
force. We cannot provide assurance that these initiatives will
succeed in attracting and retaining new agents. Sales of
individual insurance, annuities and investment products and our
results of operations and financial position could be materially
adversely affected if we are unsuccessful in attracting and
retaining agents.
Numerous aspects of our business are subject to regulation.
Legislative and other changes affecting the regulatory
environment can affect our competitive position within the life
insurance industry and within the broader financial services
industry. See “— Regulation,” “Risk
Factors — Our Insurance and Banking Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth” and “Risk Factors
— Changes in U.S. Federal and State Securities
Laws and Regulations May Affect Our Operations and Our
Profitability.”
Company
Ratings
Insurer financial strength ratings represent the opinions of
rating agencies, including A.M. Best Company
(“A.M. Best”), Fitch Ratings (“Fitch”),
Moody’s Investors Service (“Moody’s”) and
Standard & Poor’s Ratings Services
(“S&P”), regarding the ability of an insurance
company to meet its financial obligations to policyholders and
contractholders. Credit ratings represent the opinions of rating
agencies regarding an issuer’s ability to repay its
indebtedness.
Rating
Stability Indicators
Rating agencies use an “outlook statement” of
“positive,” “stable,” “negative”
or “developing” to indicate a medium- or long-term
trend in credit fundamentals which, if continued, may lead to a
rating change. A rating may have a “stable” outlook to
indicate that the rating is not expected to change; however, a
“stable” rating does not preclude a rating agency from
changing a rating at any time, without notice. Certain rating
agencies assign rating modifiers such as “CreditWatch”
or “Under Review” to indicate their opinion regarding
the potential direction of a rating. These ratings modifiers are
generally assigned in connection with certain events such as
potential mergers and acquisitions, or material changes in a
company’s results, in order for the rating agencies to
perform its analysis to fully determine the rating implications
of the event. See “Risk Factors — A Downgrade or
a Potential Downgrade in Our Financial Strength or Credit
Ratings Could Result in a Loss of Business and Materially
Adversely Affect Our Financial Condition and Results of
Operations.”
Rating
Actions
Throughout 2009, A.M. Best, Fitch, Moody’s, and
S&P maintained its outlook for the U.S. life insurance
sector as negative. We believe the rating agencies have
heightened the level of scrutiny that they apply to such
institutions, increased the frequency and scope of their credit
reviews, and have requested additional information from the
companies that they rate. In December 2009 and February 2010,
Moody’s and Fitch, respectively, downgraded by one notch
the insurer financial strength and credit ratings assigned to
MetLife, Inc. and its subsidiaries and each raised the rating
outlook from “negative” to “stable.” In
February 2010, S&P and A.M. Best each placed the
ratings of MetLife, Inc. and its subsidiaries on
“CreditWatch with negative implications” and
23
“Under Review with negative implications,”
respectively, based on our disclosure of a potential
acquisition. Our insurer financial strength ratings and credit
ratings at the date of this filing are listed in the tables
below:
Insurer
Financial Strength Ratings
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A.M. Best (1)*
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Fitch (2)
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Moody’s (3)
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S&P (4)**
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First MetLife Investors Insurance Company
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A+
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N/R
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N/R
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AA−
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General American Life Insurance Company
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A+
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AA−
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Aa3
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AA−
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MetLife Insurance Company of Connecticut
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A+
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AA−
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Aa3
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AA−
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MetLife Investors Insurance Company
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A+
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AA−
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Aa3
|
|
|
AA−
|
|
MetLife Investors USA Insurance Company
|
|
A+
|
|
AA−
|
|
|
Aa3
|
|
|
AA−
|
|
Metropolitan Casualty Insurance Company
|
|
A
|
|
N/R
|
|
|
N/R
|
|
|
N/R
|
|
Metropolitan Direct Property and Casualty Insurance Company
|
|
A
|
|
N/R
|
|
|
N/R
|
|
|
N/R
|
|
Metropolitan General Insurance Company
|
|
A
|
|
N/R
|
|
|
N/R
|
|
|
N/R
|
|
Metropolitan Group Property & Casualty Insurance
Company
|
|
A
|
|
N/R
|
|
|
N/R
|
|
|
N/R
|
|
Metropolitan Life Insurance Company
|
|
A+
|
|
AA−
|
|
|
Aa3
|
|
|
AA−
|
|
Metropolitan Lloyds Insurance Company of Texas
|
|
A
|
|
N/R
|
|
|
N/R
|
|
|
N/R
|
|
Metropolitan Property and Casualty Insurance Company
|
|
A
|
|
N/R
|
|
|
N/R
|
|
|
N/R
|
|
Metropolitan Tower Life Insurance Company
|
|
A+
|
|
N/R
|
|
|
Aa3
|
|
|
N/R
|
|
New England Life Insurance Company
|
|
A+
|
|
AA−
|
|
|
Aa3
|
|
|
AA−
|
Credit
Ratings
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.M. Best (1)*
|
|
Fitch (2)
|
|
Moody’s (3)
|
|
S&P (4)**
|
|
|
|
General American Life Insurance Company (Surplus Notes)
|
|
|
a
|
|
|
|
N/R
|
|
|
|
A2
|
|
|
|
A
|
|
|
MetLife Capital Trust IV & X
(Trust Securities)
|
|
|
bbb
|
|
|
|
BBB
|
|
|
|
Baa2
|
|
|
|
BBB
|
|
|
MetLife Funding, Inc. (Commercial Paper)
|
|
|
AMB-1+
|
|
|
|
F1+
|
|
|
|
P-1
|
|
|
|
A-1+
|
|
|
MetLife Short Term Funding LLC (Commercial Paper)
|
|
|
N/R
|
|
|
|
N/R
|
|
|
|
P-1
|
|
|
|
A-1+
|
|
|
MetLife, Inc. (Commercial Paper)
|
|
|
AMB-1
|
|
|
|
F1
|
|
|
|
P-2
|
|
|
|
A-2
|
|
|
MetLife, Inc. (Senior Unsecured Debt)
|
|
|
a−
|
|
|
|
A−
|
|
|
|
A3
|
|
|
|
A−
|
|
|
MetLife, Inc. (Subordinated Debt)
|
|
|
bbb+
|
|
|
|
N/R
|
|
|
|
Baa1
|
|
|
|
NR
|
|
|
MetLife, Inc. (Junior Subordinated Debt)
|
|
|
bbb
|
|
|
|
BBB
|
|
|
|
Baa2
|
|
|
|
BBB
|
|
|
MetLife, Inc. (Preferred Stock)
|
|
|
bbb
|
|
|
|
NR
|
|
|
|
Baa2
|
|
|
|
BBB
|
|
|
MetLife, Inc. (Non−Cumulative Preferred Stock)
|
|
|
bbb
|
|
|
|
BBB
|
|
|
|
Baa2
|
|
|
|
BBB−
|
|
|
Metropolitan Life Insurance Company (Surplus Notes)
|
|
|
a
|
|
|
|
A
|
|
|
|
A2
|
|
|
|
A
|
|
|
Metropolitan Life Global Funding I (Senior Secured Debt)
|
|
|
aa−
|
|
|
|
NR
|
|
|
|
Aa3
|
|
|
|
AA−
|
|
|
MetLife Institutional Funding I, LLC (Senior Secured Debt)
|
|
|
aa−
|
|
|
|
NR
|
|
|
|
Aa3
|
|
|
|
AA−
|
|
|
|
|
|
* |
|
Under Review with negative implications |
| |
|
** |
|
CreditWatch negative outlook |
| |
|
(1) |
|
A.M. Best financial strength ratings range from “A++
(superior)” to “S (Suspended).” Ratings of
“A+” and “A” are in the “superior”
and “excellent” categories, respectively. |
| |
|
|
|
A.M. Best’s long-term credit ratings range from
“aaa (exceptional)” to “d (in default).” A
“+” or “−” may be appended to ratings
from “aa” to “ccc” to indicate relative
position within a category. Ratings of “a” and
“bbb” are in the “strong” and
“adequate” categories. |
| |
|
|
|
A.M. Best’s short-term credit ratings range from
“AMB-1+ (strongest)” to “d (in default).” |
| |
|
(2) |
|
Fitch insurer financial strength ratings range from “AAA
(exceptionally strong)” to “C (ceased or interrupted
payments imminent).” A “+” or “−”
may be appended to ratings from “AA” to
“CCC” to indicate relative position within a category.
A rating of “AA” is in the “very strong”
category. |
24
|
|
|
|
|
|
Fitch long-term credit ratings range from “AAA (highest
credit quality),” to “D (default).” A
“+” or “−” may be appended to ratings
from “AA” to “CCC” to indicate relative
position within a category. Ratings of “A” and
“BBB” are in the “strong” and
“adequate” categories, respectively. |
| |
|
|
|
Fitch short-term credit ratings range from “F1+
(exceptionally strong credit quality)” to “D (in
default).” A rating of “F1” is in the
“highest credit quality” category. |
| |
|
(3) |
|
Moody’s insurance financial strength ratings range from
“Aaa (exceptional)” to “C (extremely poor).”
A numeric modifier may be appended to ratings from
“Aa” to “Caa” to indicate relative position
within a category, with 1 being the highest and 3 being the
lowest. A rating of “Aa” is in the
“excellent” category. Moody’s long-term credit
ratings range from “Aaa (highest quality)” to “C
(typically in default).” A numeric modifier may be appended
to ratings from “Aa” to “Caa” to indicate
relative position within a category, with 1 being the highest
and 3 being the lowest. Ratings of “A” and
“Baa” are in the “upper-medium grade” and
“medium-grade” categories, respectively. |
| |
|
|
|
Moody’s short-term credit ratings range from
“P-1
(superior)” to “NP (not prime).” |
| |
|
(4) |
|
S&P long-term insurer financial strength ratings range from
“AAA (extremely strong)” to “R (under regulatory
supervision).” A “+” or “−” may
be appended to ratings from “AA” to “CCC” to
indicate relative position within a category. A rating of
“AA” is in the “very strong” category. |
| |
|
|
|
S&P long-term credit ratings range from “AAA
(extremely strong)” to “D (payment default).” A
“+” or “−” may be appended to ratings
from “AA” to “CCC” to indicate relative
position within a category. A rating of “A” is in the
“strong” category. A rating of “BBB” has
adequate protection parameters and is considered investment
grade. |
| |
|
|
|
S&P short-term credit ratings range from
“A-1+
(extremely strong)” to “D (payment default).” A
rating of
“A-1”
is in the “strong” category. |
The foregoing insurer financial strength ratings reflect each
rating agency’s opinion of MLIC and the Holding
Company’s other insurance subsidiaries’ financial
characteristics with respect to their ability to pay obligations
under insurance policies and contracts in accordance with their
terms, and are not evaluations directed toward the protection of
investors in the Holding Company’s securities. Credit
ratings are opinions of each agency with respect to specific
securities and contractual financial obligations and the
issuer’s ability and willingness to meet those obligations
when due. Neither insurer financial strength nor credit ratings
are statements of fact nor are they recommendations to purchase,
hold or sell any security, contract or policy. Each rating
should be evaluated independently of any other rating.
A ratings downgrade (or the potential for such a downgrade) of
MLIC or any of the Holding Company’s other insurance
subsidiaries could potentially, among other things, increase the
number of policies surrendered and withdrawals by policyholders
of cash values from their policies, adversely affect
relationships with broker-dealers, banks, agents, wholesalers
and other distributors of our products and services, negatively
impact new sales, and adversely affect our ability to compete
and thereby have a material adverse effect on our business,
results of operations and financial condition. See also
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources” for a more complete description of the
impact of a ratings downgrade.
Employees
At December 31, 2009, we had approximately
54,000 employees. We believe that our relations with our
employees are satisfactory.
Executive
Officers of the Registrant
Set forth below is information regarding the executive officers
of MetLife, Inc. and MLIC:
C. Robert Henrikson, age 62, has been Chairman,
President and Chief Executive Officer of MetLife, Inc. and MLIC
since April 25, 2006. Previously, he was President and
Chief Executive Officer of MetLife, Inc. and MLIC from
March 1, 2006, President and Chief Operating Officer of
MetLife, Inc. from June 2004, and President of
25
the U.S. Insurance and Financial Services businesses of
MetLife, Inc. and MLIC from July 2002 to June 2004. He served as
President of Institutional Business of MetLife, Inc. from
September 1999 to July 2002 and President of Institutional
Business of MLIC from May 1999 through June 2002. He was Senior
Executive Vice President, Institutional Business, of MLIC from
December 1997 to May 1999, Executive Vice President,
Institutional Business, from January 1996 to December 1997, and
Senior Vice President, Pensions, from January 1991 to January
1995. He is a director of MetLife, Inc. and MLIC.
Gwenn L. Carr, age 64, has been Executive Vice
President and Chief of Staff to the Chairman and Chief Executive
Officer of MetLife, Inc. and MLIC since August 2009. Previously,
she was Senior Vice President and Chief of Staff to the Chairman
and Chief Executive Officer of MetLife, Inc. and MLIC from June
2009, Senior Vice President, Secretary and Chief of Staff to the
Chairman and Chief Executive Officer of MetLife, Inc, and MLIC
from 2007, Senior Vice President and Secretary of MetLife, Inc.
and MLIC from October 2004, and Vice President and Secretary of
MetLife, Inc. and MLIC from August 1999. Ms. Carr was Vice
President and Secretary of ITT Corporation from 1990 to 1999.
Steven A. Kandarian, age 57, has been Executive Vice
President and Chief Investment Officer of MetLife, Inc. and MLIC
since April 2005. Previously, he was the executive director of
the Pension Benefit Guaranty Corporation from 2001 to 2004.
Before joining the Pension Benefit Guaranty Corporation,
Mr. Kandarian was founder and managing partner of Orion
Capital Partners, LP, where he managed a private equity fund
specializing in venture capital and corporate acquisitions for
eight years. He is a director of MetLife Bank.
James L. Lipscomb, age 63, has been Executive Vice
President and General Counsel of MetLife, Inc. and MLIC since
July 2003. He was Senior Vice President and Deputy General
Counsel from July 2001 to July 2003. Mr. Lipscomb was
President and Chief Executive Officer of Conning Corporation, a
former subsidiary of MLIC, from March 2000 to July 2001, prior
to which he served in various senior management positions with
MLIC for more than five years.
Maria R. Morris, age 47, has been Executive Vice
President, Technology and Operations, of MetLife, Inc. and MLIC
since January 2008. Previously, she was Executive Vice President
of MLIC from December 2005 to January 2008, Senior Vice
President of MLIC from July 2003 to December 2005, and Vice
President of MLIC from March 1997 to July 2003. Ms. Morris
is a director of MetLife Insurance Company of Connecticut.
William J. Mullaney, age 50, has been President,
U.S. Business of MetLife, Inc. and MLIC since August 2009.
Previously, he was President, Institutional Business, of
MetLife, Inc. and MLIC from January 2007 to July 2009, President
of Metropolitan Property and Casualty Insurance Company from
January 2005 to January 2007, Senior Vice President of
Metropolitan Property and Casualty Insurance Company from July
2002 to December 2004, Senior Vice President, Institutional
Business, of MLIC from August 2001 to July 2002, and a Vice
President of MLIC for more than five years. He is a director of
MetLife Bank.
William J. Toppeta, age 61, has been President,
International, of MetLife, Inc. and MLIC since June 2001. He was
President of Client Services and Chief Administrative Officer of
MetLife, Inc. from September 1999 to June 2001 and President of
Client Services and Chief Administrative Officer of MLIC from
May 1999 to June 2001. He was Senior Executive Vice President,
Head of Client Services, of MLIC from March 1999 to May 1999,
Senior Executive Vice President, Individual, from February 1998
to March 1999, Executive Vice President, Individual Business,
from July 1996 to February 1998, Senior Vice President from
October 1995 to July 1996 and President and Chief Executive
Officer of its Canadian Operations from July 1993 to October
1995.
William J. Wheeler, age 48, has been Executive Vice
President and Chief Financial Officer of MetLife, Inc. and MLIC
since December 2003, prior to which he was a Senior Vice
President of MLIC from 1997 to December 2003. Previously, he was
a Senior Vice President of Donaldson, Lufkin &
Jenrette for more than five years. Mr. Wheeler is a
director of MetLife Bank.
Trademarks
We have a worldwide trademark portfolio that we consider
important in the marketing of our products and services,
including, among others, the trademark “MetLife.” We
also have the exclusive license to use the
Peanuts®
characters in the area of financial services and healthcare
benefit services in the United States and internationally
26
under an advertising and premium agreement with United Feature
Syndicate until December 31, 2014. Furthermore, we also
have a non-exclusive license to use certain Citigroup-owned
trademarks in connection with the marketing, distribution or
sale of life insurance and annuity products under a licensing
agreement with Citigroup until June 30, 2015. We believe
that our rights in our trademarks and under our
Peanuts®
characters license and our Citigroup license are well protected.
Available
Information
MetLife files periodic reports, proxy statements and other
information with the SEC. Such reports, proxy statements and
other information may be obtained by visiting the Public
Reference Room of the SEC at its Headquarters Office,
100 F Street, N.E., Washington D.C. 20549 or by
calling the SEC at 1-202-551-8090 or
1-800-SEC-0330
(Office of Investor Education and Advocacy). In addition, the
SEC maintains an internet website (www.sec.gov) that contains
reports, proxy statements, and other information regarding
issuers that file electronically with the SEC, including
MetLife, Inc.
MetLife makes available, free of charge, on its website
(www.metlife.com) through the Investor Relations page, its
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to all those reports, as soon as reasonably
practicable after filing (furnishing) such reports to the SEC.
Other information found on the website is not part of this or
any other report filed with or furnished to the SEC.
Difficult
Conditions in the Global Capital Markets and the Economy
Generally May Materially Adversely Affect Our Business and
Results of Operations and These Conditions May Not Improve in
the Near Future
Our business and results of operations are materially affected
by conditions in the global capital markets and the economy
generally, both in the United States and elsewhere around the
world. The stress experienced by global capital markets that
began in the second half of 2007 continued and substantially
increased during 2008 and into 2009. Concerns over the
availability and cost of credit, the U.S. mortgage market,
geopolitical issues, energy costs, inflation and a declining
real estate market in the United States contributed to increased
volatility and diminished expectations for the economy and the
markets in the near term. These factors, combined with declining
business and consumer confidence and increased unemployment,
precipitated a recession. Most economists believe this recession
ended in the third quarter of 2009, when positive growth
returned, and now expect positive growth will continue in 2010.
However, the expected recovery is weaker than normal, and the
unemployment rate is expected to remain high for some time. In
addition, the fixed-income markets have experienced a period of
extreme volatility which negatively impacted market liquidity
conditions. Initially, the concerns on the part of market
participants were focused on the
sub-prime
segment of the mortgage-backed securities market. However, these
concerns expanded to include a broad range of mortgage- and
asset-backed and other fixed income securities, including those
rated investment grade, the U.S. and international credit
and interbank money markets generally, and a wide range of
financial institutions and markets, asset classes and sectors.
Securities that are less liquid are more difficult to value and
have less opportunity for disposal. Domestic and international
equity markets have also experienced heightened volatility and
turmoil, with issuers (such as our company) that have exposure
to the real estate, mortgage and credit markets particularly
affected. These events and continued market upheavals may have
an adverse effect on us, in part because we have a large
investment portfolio and are also dependent upon customer
behavior. Our revenues are likely to decline in such
circumstances and our profit margins could erode. In addition,
in the event of extreme prolonged market events, such as the
global credit crisis, we could incur significant capital or
operating losses. Even in the absence of a market downturn, we
are exposed to substantial risk of loss due to market volatility.
We are a significant writer of variable annuity products. The
account values of these products decrease as a result of
downturns in capital markets. Decreases in account values reduce
the fees generated by our variable annuity products, cause the
amortization of deferred acquisition costs to accelerate and
could increase the level of liabilities we must carry to support
those variable annuities issued with any associated guarantees.
Factors such as consumer spending, business investment,
government spending, the volatility and strength of the capital
markets, and inflation all affect the business and economic
environment and, ultimately, the amount and
27
profitability of our business. In an economic downturn
characterized by higher unemployment, lower family income, lower
corporate earnings, lower business investment and lower consumer
spending, the demand for our financial and insurance products
could be adversely affected. In addition, we may experience an
elevated incidence of claims and lapses or surrenders of
policies. Our policyholders may choose to defer paying insurance
premiums or stop paying insurance premiums altogether. Adverse
changes in the economy could affect earnings negatively and
could have a material adverse effect on our business, results of
operations and financial condition. The recent market turmoil
has also raised the possibility of legislative, regulatory and
governmental actions. We cannot predict whether or when such
actions may occur, or what impact, if any, such actions could
have on our business, results of operations and financial
condition. See “— Actions of the
U.S. Government, Federal Reserve Bank of New York and Other
Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect MetLife’s Competitive
Position,” “— Our Insurance and Banking
Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth” and “— Competitive Factors May
Adversely Affect Our Market Share and Profitability”.
Adverse
Capital and Credit Market Conditions May Significantly Affect
Our Ability to Meet Liquidity Needs, Access to Capital and Cost
of Capital
The capital and credit markets are sometimes subject to periods
of extreme volatility and disruption. Such volatility and
disruption could cause liquidity and credit capacity for certain
issuers to be limited.
We need liquidity to pay our operating expenses, interest on our
debt and dividends on our capital stock, maintain our securities
lending activities and replace certain maturing liabilities.
Without sufficient liquidity, we will be forced to curtail our
operations, and our business will suffer. The principal sources
of our liquidity are insurance premiums, annuity considerations,
deposit funds, and cash flow from our investment portfolio and
assets, consisting mainly of cash or assets that are readily
convertible into cash. Sources of liquidity in normal markets
also include short-term instruments such as repurchase
agreements and commercial paper. Sources of capital in normal
markets include long-term instruments, medium- and long-term
debt, junior subordinated debt securities, capital securities
and equity securities.
In the event market or other conditions have an adverse impact
on our capital and liquidity beyond expectations and our current
resources do not satisfy our needs, we may have to seek
additional financing. The availability of additional financing
will depend on a variety of factors such as market conditions,
regulatory considerations, the general availability of credit,
the volume of trading activities, the overall availability of
credit to the financial services industry, our credit ratings
and credit capacity, as well as the possibility that customers
or lenders could develop a negative perception of our long- or
short-term financial prospects if we incur large investment
losses or if the level of our business activity decreased due to
a market downturn. Similarly, our access to funds may be
impaired if regulatory authorities or rating agencies take
negative actions against us. Our internal sources of liquidity
may prove to be insufficient, and in such case, we may not be
able to successfully obtain additional financing on favorable
terms, or at all.
Our liquidity requirements may change if, among other things, we
are required to return significant amounts of cash collateral on
short notice under securities lending agreements.
Disruptions, uncertainty or volatility in the capital and credit
markets may also limit our access to capital required to operate
our business, most significantly our insurance operations. Such
market conditions may limit our ability to replace, in a timely
manner, maturing liabilities; satisfy statutory capital
requirements; and access the capital necessary to grow our
business. As such, we may be forced to delay raising capital,
issue different types of securities than we would otherwise,
less effectively deploy such capital, issue shorter tenor
securities than we prefer, or bear an unattractive cost of
capital which could decrease our profitability and significantly
reduce our financial flexibility. Our results of operations,
financial condition, cash flows and statutory capital position
could be materially adversely affected by disruptions in the
financial markets.
28
Actions
of the U.S. Government, Federal Reserve Bank of New York and
Other Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect MetLife’s Competitive
Position
In response to the financial crises affecting the banking system
and financial markets and going concern threats to investment
banks and other financial institutions, on October 3, 2008,
President Bush signed the Emergency Economic Stabilization Act
of 2008 (“EESA”) into law. Pursuant to EESA, the
U.S. Treasury has the authority to, among other things,
purchase up to $700 billion of mortgage-backed and other
securities (including newly issued preferred shares and
subordinated debt) from financial institutions for the purpose
of stabilizing the financial markets. The U.S. federal
government, the Federal Reserve Bank of New York, the FDIC and
other governmental and regulatory bodies have taken or are
considering taking other actions to address the financial
crisis. For example, the Federal Reserve Bank of New York made
funds available to commercial and financial companies under a
number of programs, including the Commercial Paper Funding
Facility, which expired in early 2010. The U.S. Treasury
has established programs based in part on EESA and in part on
the separate authority of the Federal Reserve Board and the
FDIC, to foster purchases from and by banks, insurance companies
and other financial institutions of certain kinds of assets for
which valuations have been low and markets weak. Some of the
programs established by governmental and regulatory bodies have
recently been discontinued or will be in the near term. We
cannot predict what impact, if any, this could have on our
business, results of operations and financial condition.
Although such actions appear to have provided some stability to
the financial markets, our business, financial condition and
results of operations and the trading price of our common stock
could be materially and adversely affected to the extent that
credit availability and prices for financial assets revert to
their low levels of late 2008 and early 2009 or do not continue
to improve. Furthermore, Congress has considered, and may
consider in the future, legislative proposals that could impact
the estimated fair value of mortgage loans, such as legislation
that would permit bankruptcy courts to rewrite the terms of a
mortgage contract, including reducing the principal balance of
mortgage loans owed by bankrupt borrowers. If such legislation
is enacted, it could cause loss of principal on certain of our
non-agency prime RMBS holdings and could cause a ratings
downgrade in such holdings which, in turn, would cause an
increase in unrealized losses on such securities and increase
the risk-based capital that we must hold to support such
securities. See “ — We Are Exposed to Significant
Financial and Capital Markets Risk Which May Adversely Affect
Our Results of Operations, Financial Condition and Liquidity,
and Our Net Investment Income Can Vary from Period to
Period.” In addition, the U.S. federal government
(including the FDIC) and private lenders have begun programs to
reduce the monthly payment obligations of mortgagors
and/or
reduce the principal payable on residential mortgage loans. As a
result, we may need to maintain or increase our engagement in
similar activities in order to comply with program requirements
and to remain competitive. We cannot predict whether the funds
made available by the U.S. federal government and its
agencies will be enough to continue stabilizing or to further
revive the financial markets or, if additional amounts are
necessary, whether Congress will be willing to make the
necessary appropriations, what the public’s sentiment would
be towards any such appropriations, or what additional
requirements or conditions might be imposed on the use of any
such additional funds.
President Obama has proposed a “Financial Crisis
Responsibility Fee” which would be imposed on financial
firms with more than $50 billion in consolidated assets.
The fee is intended to recover the cost of the Troubled Assets
Relief Program established under EESA, which the Obama
Administration currently estimates will be $117 billion.
The fee would be imposed annually on covered financial firms for
at least ten years and possibly longer. As a bank holding
company with more than $50 billion of consolidated assets,
MetLife appears to be subject to the proposed fee. Full details
of the proposed fee, the companies subject to it, and the manner
in which it would be assessed have not yet been released, so we
cannot estimate its financial impact on us. However, it is
possible that the proposed fee could have a material adverse
impact on our results of operations.
The choices made by the U.S. Treasury, the Federal Reserve
Board and the FDIC in their distribution of amounts available
under EESA and any of the proposed new asset purchase programs
could have the effect of supporting some aspects of the
financial services industry more than others. Some of our
competitors have received, or may in the future receive, funding
under one or more of the federal government’s capital
infusion programs. This
29
could adversely affect our competitive position. See
“ — Competitive Factors May Adversely Affect Our
Market Share and Profitability.”
See also “— Proposals to Regulate Compensation,
if Implemented, Could Hinder or Prevent Us From Attracting and
Retaining Management and Other Employees with the Talent and
Experience to Manage and Conduct Our Business Effectively”
and “— Our Insurance and Banking Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth.”
Our
Insurance and Banking Businesses Are Heavily Regulated, and
Changes in Regulation May Reduce Our Profitability and
Limit Our Growth
Our insurance operations are subject to a wide variety of
insurance and other laws and regulations. See
“Business — Regulation — Insurance
Regulation.” State insurance laws regulate most aspects of
our U.S. insurance businesses, and our insurance
subsidiaries are regulated by the insurance departments of the
states in which they are domiciled and the states in which they
are licensed. Our
non-U.S. insurance
operations are principally regulated by insurance regulatory
authorities in the jurisdictions in which they are domiciled and
operate.
State laws in the United States grant insurance regulatory
authorities broad administrative powers with respect to, among
other things:
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licensing companies and agents to transact business;
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calculating the value of assets to determine compliance with
statutory requirements;
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mandating certain insurance benefits;
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regulating certain premium rates;
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reviewing and approving policy forms;
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regulating unfair trade and claims practices, including through
the imposition of restrictions on marketing and sales practices,
distribution arrangements and payment of inducements;
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regulating advertising;
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protecting privacy;
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establishing statutory capital and reserve requirements and
solvency standards;
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fixing maximum interest rates on insurance policy loans and
minimum rates for guaranteed crediting rates on life insurance
policies and annuity contracts;
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approving changes in control of insurance companies;
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restricting the payment of dividends and other transactions
between affiliates; and
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regulating the types, amounts and valuation of investments.
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State insurance guaranty associations have the right to assess
insurance companies doing business in their state for funds to
help pay the obligations of insolvent insurance companies to
policyholders and claimants. Because the amount and timing of an
assessment is beyond our control, the liabilities that we have
currently established for these potential liabilities may not be
adequate. See “Business — Regulation —
Insurance Regulation — Guaranty Associations and
Similar Arrangements.”
State insurance regulators and the NAIC regularly
re-examine
existing laws and regulations applicable to insurance companies
and their products. Changes in these laws and regulations, or in
interpretations thereof, are often made for the benefit of the
consumer at the expense of the insurer and, thus, could have a
material adverse effect on our financial condition and results
of operations.
The NAIC and several states’ legislatures have considered
the need for regulations
and/or laws
to address agent or broker practices that have been the focus of
investigations of broker compensation in the State of New York
and in
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other jurisdictions. The NAIC adopted a Compensation Disclosure
Amendment to its Producers Licensing Model Act which, if adopted
by the states, would require disclosure by agents or brokers to
customers that insurers will compensate such agents or brokers
for the placement of insurance and documented acknowledgement of
this arrangement in cases where the customer also compensates
the agent or broker. Several states have enacted laws similar to
the NAIC amendment. Others have enacted laws or proposed
disclosure regulations which, under differing circumstances,
require disclosure of specific compensation earned by a producer
on the sale of an insurance or annuity product. We cannot
predict how many states may promulgate the NAIC amendment or
alternative regulations or the extent to which these regulations
may have a material adverse impact on our business.
Currently, the U.S. federal government does not directly
regulate the business of insurance. However, federal legislation
and administrative policies in several areas can significantly
and adversely affect insurance companies. These areas include
financial services regulation, securities regulation, pension
regulation, health care regulation, privacy, tort reform
legislation and taxation. In addition, various forms of direct
and indirect federal regulation of insurance have been proposed
from time to time, including proposals for the establishment of
an optional federal charter for insurance companies. As part of
a proposed comprehensive reform of financial services
regulation, Congress is considering the creation of an office
within the federal government to collect information about the
insurance industry, recommend prudential standards, and
represent the United States in dealings with foreign insurance
regulators.
Other aspects of financial services regulatory reform proposals
that have been considered could affect our business. For example:
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The Obama Administration and Congress have made various
proposals that would change the capital and liquidity
requirements, credit exposure concentrations and similar
prudential matters for bank holding companies, banks and other
financial firms.
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Bank regulatory agencies have issued proposed interagency
guidance for funding and liquidity risk management that would
apply to MetLife as a bank holding company.
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The proposals under consideration in Congress also include
special regulatory and insolvency regimes, including even higher
capital, prudential and liquidity standards for financial
institutions that are deemed to be systemically significant.
These insolvency regimes could vary from the resolution regimes
currently applicable to some subsidiaries of such companies and
could include assessments on financial companies to provide for
a systemic resolution fund.
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The Obama Administration, members of Congress and Federal
banking regulators have suggested new or increased taxes or
assessments on banks and financial firms to mitigate the costs
to taxpayers of various government programs established to
address the financial crisis and to offset the costs of
potential future crises. See “— Actions of the
U.S. Government, Federal Reserve Bank of New York and Other
Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect MetLife’s Competitive
Position.”
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The proposed legislation also includes new conditions on the
writing and trading of certain standardized and non-standardized
derivatives.
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The creation of an additional supervisor with authority over
MetLife, Inc. and its subsidiaries, the likelihood of additional
regulations, and the other changes discussed above could require
changes to MetLife’s operations. Whether such changes would
affect our competitiveness in comparison to other institutions
is uncertain, since it is possible that at least some of our
competitors will be similarly affected. Competitive effects are
possible, however, if MetLife, Inc. were required to pay any new
or increased taxes, or if it were determined to be systemically
significant and were subjected to higher capital and liquidity
requirements and generally stricter prudential supervisory
standards as a result. It is unclear at present whether
systemically significant institutions will be helped or hurt
competitively if such additional requirements are imposed. We
cannot predict whether these or other proposals will be adopted,
or what impact, if any, such proposals or, if enacted, such
laws, could have on our business, financial condition or results
of operations or on our dealings with other financial
institutions.
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As a federally chartered national association, MetLife Bank is
subject to a wide variety of banking laws, regulations and
guidelines. Federal banking laws regulate most aspects of the
business of MetLife Bank, but certain state laws may apply as
well. MetLife Bank is principally regulated by the OCC, the
Federal Reserve and the FDIC.
Federal banking laws and regulations address various aspects of
MetLife Bank’s business and operations with respect to,
among other things:
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chartering to carry on business as a bank;
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maintaining minimum capital ratios;
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capital management in relation to the bank’s assets;
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safety and soundness standards;
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loan loss and other related liabilities;
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liquidity;
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financial reporting and disclosure standards;
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counterparty credit concentration;
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restrictions on related party and affiliate transactions;
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lending limits;
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payment of interest;
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unfair or deceptive acts or practices;
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privacy; and
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bank holding company and bank change of control.
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Furthermore, Congress is considering establishing a new
governmental agency that would supervise and regulate
institutions that provide certain financial products and
services to consumers. Although the consumer financial services
to which this legislation would apply might exclude certain
insurance business, the new agency would have authority to
regulate consumer services provided by MetLife Bank. Federal
pre-emption of state consumer protection laws applicable to
banking services may be eliminated or significantly restricted
in any financial services regulatory reform legislation that
Congress may pass, which would increase the regulatory and
compliance burden on MetLife Bank and could adversely affect its
business and results of operations.
The FDIC has the right to assess FDIC-insured banks for funds to
help pay the obligations of insolvent banks to depositors.
Because the amount and timing of an assessment is beyond our
control, the liabilities that we have currently established for
these potential liabilities may not be adequate.
Federal and state banking regulators regularly re-examine
existing laws and regulations applicable to banks and their
products. Changes in these laws and regulations, or in
interpretations thereof, are often made for the benefit of the
consumer at the expense of the bank and, thus, could have a
material adverse effect on the financial condition and results
of operations of MetLife Bank.
Our international operations are subject to regulation in the
jurisdictions in which they operate, which in many ways is
similar to that of the state regulation outlined above. Many of
our customers and independent sales intermediaries also operate
in regulated environments. Changes in the regulations that
affect their operations also may affect our business
relationships with them and their ability to purchase or
distribute our products. Accordingly, these changes could have a
material adverse effect on our financial condition and results
of operations. See “— Our International
Operations Face Political, Legal, Operational and Other Risks
that Could Negatively Affect Those Operations or Our
Profitability.”
Compliance with applicable laws and regulations is time
consuming and personnel-intensive, and changes in these laws and
regulations may materially increase our direct and indirect
compliance and other expenses of doing business, thus having a
material adverse effect on our financial condition and results
of operations.
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From time to time, regulators raise issues during examinations
or audits of MetLife, Inc.’s subsidiaries that could, if
determined adversely, have a material impact on us. We cannot
predict whether or when regulatory actions may be taken that
could adversely affect our operations. In addition, the
interpretations of regulations by regulators may change and
statutes may be enacted with retroactive impact, particularly in
areas such as accounting or statutory reserve requirements.
We are also subject to other regulations, including banking
regulations, and may in the future become subject to additional
regulations. See “Business — Regulation.”
We Are
Exposed to Significant Financial and Capital Markets Risk Which
May Adversely Affect Our Results of Operations, Financial
Condition and Liquidity, and Our Net Investment Income Can Vary
from Period to Period
We are exposed to significant financial and capital markets
risk, including changes in interest rates, credit spreads,
equity prices, real estate markets, foreign currency exchange
rates, market volatility, the performance of the economy in
general, the performance of the specific obligors included in
our portfolio and other factors outside our control.
Our exposure to interest rate risk relates primarily to the
market price and cash flow variability associated with changes
in interest rates. A rise in interest rates will increase the
net unrealized loss position of our fixed income investment
portfolio and, if long-term interest rates rise dramatically
within a six to twelve month time period, certain of our life
insurance businesses may be exposed to disintermediation risk.
Disintermediation risk refers to the risk that our policyholders
may surrender their contracts in a rising interest rate
environment, requiring us to liquidate fixed income investments
in an unrealized loss position. Due to the long-term nature of
the liabilities associated with certain of our life insurance
businesses, guaranteed benefits on variable annuities, and
structured settlements, sustained declines in long-term interest
rates may subject us to reinvestment risks and increased hedging
costs. In other situations, declines in interest rates may
result in increasing the duration of certain life insurance
liabilities, creating asset-liability duration mismatches. Our
investment portfolio also contains interest rate sensitive
instruments, such as fixed income securities, which may be
adversely affected by changes in interest rates from
governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our
control. A rise in interest rates would increase the net
unrealized loss position of our fixed income investment
portfolio, offset by our ability to earn higher rates of return
on funds reinvested. Conversely, a decline in interest rates
would decrease the net unrealized loss position of our fixed
income investment portfolio, offset by lower rates of return on
funds reinvested. Our mitigation efforts with respect to
interest rate risk are primarily focused towards maintaining an
investment portfolio with diversified maturities that has a
weighted average duration that is approximately equal to the
duration of our estimated liability cash flow profile. However,
our estimate of the liability cash flow profile may be
inaccurate and we may be forced to liquidate fixed income
investments prior to maturity at a loss in order to cover the
liability. Although we take measures to manage the economic
risks of investing in a changing interest rate environment, we
may not be able to mitigate the interest rate risk of our fixed
income investments relative to our liabilities. See also
“— Changes in Market Interest Rates May
Significantly Affect Our Profitability.”
Our exposure to credit spreads primarily relates to market price
and cash flow variability associated with changes in credit
spreads. A widening of credit spreads will increase the net
unrealized loss position of the fixed-income investment
portfolio, will increase losses associated with credit based
non-qualifying derivatives where we assume credit exposure, and,
if issuer credit spreads increase significantly or for an
extended period of time, would likely result in higher
other-than-temporary
impairments (“OTTI”). Credit spread tightening will
reduce net investment income associated with new purchases of
fixed maturity securities. In addition, market volatility can
make it difficult to value certain of our securities if trading
becomes less frequent. As such, valuations may include
assumptions or estimates that may have significant period to
period changes which could have a material adverse effect on our
consolidated results of operations or financial condition.
Credit spreads on both corporate and structured securities
widened significantly during 2008, resulting in continuing
depressed pricing. As a result of improved conditions, credit
spreads narrowed in 2009. If there is a resumption of
significant volatility in the markets, it could cause changes in
credit spreads and defaults and a lack of pricing transparency
which, individually or in tandem, could have a material adverse
effect on our consolidated results of operations, financial
condition,
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liquidity or cash flows through realized investment losses,
impairments, and changes in unrealized loss positions. See also
“— Guarantees Within Certain of Our Variable
Annuity Guarantee Benefits that Protect Policyholders Against
Significant Downturns in Equity Markets May Increase the
Volatility of Our Results Related to the Inclusion of an Own
Credit Adjustment in the Estimated Fair Value of the Liability
for These Guaranteed Benefits.”
Our primary exposure to equity risk relates to the potential for
lower earnings associated with certain of our insurance
businesses where fee income is earned based upon the estimated
fair value of the assets under management. Equity market
downturns and volatility may discourage purchases of separate
account products, such as variable annuities and variable life
insurance that have underlying mutual funds with returns linked
to the performance of the equity markets, and may cause some of
our existing customers to withdraw cash values or reduce
investments in those products. In addition, downturns and
volatility in equity markets can have a material adverse effect
on the revenues and returns from our savings and investment
products and services. Because these products and services
depend on fees related primarily to the value of assets under
management, a decline in the equity markets could reduce our
revenues by reducing the value of the investments we manage. The
retail annuity business in particular is highly sensitive to
equity markets, and a sustained weakness in the equity markets
could decrease revenues and earnings in variable annuity
products. Furthermore, certain of our annuity products offer
guaranteed benefits which increase our potential benefit
exposure should equity markets decline. The Company uses
derivatives to mitigate the impact of such increased potential
benefit exposures. We are also exposed to interest rate and
equity risk based upon the discount rate and expected long-term
rate of return assumptions associated with our pension and other
postretirement benefit obligations. Sustained declines in
long-term interest rates or equity returns likely would have a
negative effect on the funded status of these plans.
We also provide certain guarantees within some of our products
that protect policyholders against significant downturns in the
equity markets. For example, we offer variable annuity products
with guaranteed features, such as death benefits, withdrawal
benefits, and minimum accumulation and income benefits. In
volatile or declining equity market conditions, we may need to
increase liabilities for future policy benefits and policyholder
account balances, negatively affecting our net income. The
Company uses derivatives to mitigate the impact of volatile or
declining equity market conditions. A decline in equity markets
also may reduce the estimated fair value of the investments
supporting our pension and post retirement benefit plan
obligations, changing the funded status of such plans, and
adversely affect our results of operations. Lastly, we invest a
portion of our investments in equity securities, leveraged
buy-out funds, hedge funds and other private equity funds and
the estimated fair value of such investments may be impacted by
downturns or volatility in equity markets.
Our primary exposure to real estate risk relates to commercial
and agricultural real estate. Our exposure to commercial and
agricultural real estate risk stems from various factors. These
factors include, but are not limited to, market conditions
including the demand and supply of space, creditworthiness of
tenants and partners, capital markets volatility and the
inherent interest rate movement. Recently, a significantly
weakened economic environment has led to declining commercial
real estate tenant demand, increasing vacancy rates and
declining property incomes. In addition, capital market
conditions and accessibility to financing has prompted an
increase in the risk premiums assessed in the sector. These
trends have resulted in decreases in the value of our equity
commercial real estate holdings, and deterioration in the value
of the collateral securing our commercial mortgages. In
addition, our real estate joint venture development program is
subject to risks including, but not limited to, reduced property
sales and decreased availability of financing which could
adversely impact the joint venture developments
and/or
operations. The state of the economy and speed of recovery in
fundamental and capital market conditions in the commercial and
agricultural real estate sectors will continue to influence the
performance of our investments in these sectors. These factors
and others beyond our control could have a material adverse
effect on our consolidated results of operations, financial
condition, liquidity or cash flows through net investment
income, realized investment losses and impairments.
Our primary foreign currency exchange risks are described under
“— Fluctuations in Foreign Currency Exchange
Rates and Foreign Securities Markets Could Negatively Affect Our
Profitability.” Significant declines in equity prices,
changes in U.S. interest rates, changes in credit spreads,
and changes in foreign currency exchange rates could have a
material adverse effect on our consolidated results of
operations, financial condition or liquidity. Changes in these
factors, which are significant risks to us, can affect our net
investment income in any period, and such changes can be
substantial.
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A portion of our investments are made in leveraged buy-out
funds, hedge funds and other private equity funds reported
within other limited partnership interests, many of which make
private equity investments. The amount and timing of net
investment income from such investment funds tends to be uneven
as a result of the performance of the underlying investments,
including private equity investments. The timing of
distributions from the funds, which depends on particular events
relating to the underlying investments, as well as the
funds’ schedules for making distributions and their needs
for cash, can be difficult to predict. As a result, the amount
of net investment income that we record from these investments
can vary substantially from quarter to quarter. Recent equity,
real estate and credit market volatility have further reduced
net investment income and related yields for these types of
investments and we may continue to experience reduced net
investment income due to continued volatility in the equity,
real estate and credit markets in 2010.
In 2009, the disruption in the global financial markets
moderated, although not all markets are functioning normally and
many remain reliant upon government investments and liquidity.
Continuing challenges include continued weakness in the
U.S. real estate market and increased mortgage loan
delinquencies, investor anxiety over the U.S. economy,
rating agency downgrades of various structured products and
financial issuers, unresolved issues with structured investment
vehicles and monoline financial guarantee insurers, deleveraging
of financial institutions and hedge funds and a serious
dislocation in the inter-bank market. If there is a resumption
of significant volatility in the markets, it could cause changes
in interest rates, declines in equity prices, and the
strengthening or weakening of foreign currencies against the
U.S. Dollar which, individually or in tandem, could have a
material adverse effect on our consolidated results of
operations, financial condition, liquidity or cash flows through
realized investment losses, impairments, and changes in
unrealized loss positions.
Changes
in Market Interest Rates May Significantly Affect Our
Profitability
Some of our products, principally traditional whole life
insurance, fixed annuities and guaranteed interest contracts,
expose us to the risk that changes in interest rates will reduce
our “spread,” or the difference between the amounts
that we are required to pay under the contracts in our general
account and the rate of return we are able to earn on general
account investments intended to support obligations under the
contracts. Our spread is a key component of our net income.
As interest rates decrease or remain at low levels, we may be
forced to reinvest proceeds from investments that have matured
or have been prepaid or sold at lower yields, reducing our
investment margin. Moreover, borrowers may prepay or redeem the
fixed income securities, commercial or agricultural mortgage
loans and mortgage-backed securities in our investment portfolio
with greater frequency in order to borrow at lower market rates,
which exacerbates this risk. Lowering interest crediting rates
can help offset decreases in investment margins on some
products. However, our ability to lower these rates could be
limited by competition or contractually guaranteed minimum rates
and may not match the timing or magnitude of changes in asset
yields. As a result, our spread could decrease or potentially
become negative. Our expectation for future spreads is an
important component in the amortization of DAC and VOBA, and
significantly lower spreads may cause us to accelerate
amortization, thereby reducing net income in the affected
reporting period. In addition, during periods of declining
interest rates, life insurance and annuity products may be
relatively more attractive investments to consumers, resulting
in increased premium payments on products with flexible premium
features, repayment of policy loans and increased persistency,
or a higher percentage of insurance policies remaining in force
from year to year, during a period when our new investments
carry lower returns. A decline in market interest rates could
also reduce our return on investments that do not support
particular policy obligations. Accordingly, declining interest
rates may materially adversely affect our results of operations,
financial position and cash flows and significantly reduce our
profitability.
The sufficiency of our life insurance statutory reserves in
Taiwan is highly sensitive to interest rates and other related
assumptions. This is due to the sustained low interest rate
environment in Taiwan coupled with long-term interest rate
guarantees of approximately 6% embedded in the life and health
contracts sold prior to 2003 and the lack of availability of
long-duration investments in the Taiwanese capital markets to
match such long-duration liabilities. The key assumptions
include current Taiwan government bond yield rates increasing
from current levels of 1.8% to 3.0% over the next ten years, a
modest increase in lapse rates, mortality and morbidity levels
remaining consistent with recent experience, and
U.S. Dollar-denominated investments making up 35% of total
assets backing
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life insurance statutory reserves. Current statutory reserve
adequacy analysis shows that provisions are adequate; however,
adverse changes in key assumptions for interest rates, lapse
experience and mortality and morbidity levels could lead to a
need to strengthen reserves.
Increases in market interest rates could also negatively affect
our profitability. In periods of rapidly increasing interest
rates, we may not be able to replace, in a timely manner, the
investments in MetLife’s general account with higher
yielding investments needed to fund the higher crediting rates
necessary to keep interest sensitive products competitive. We,
therefore, may have to accept a lower spread and, thus, lower
profitability or face a decline in sales and greater loss of
existing contracts and related assets. In addition, policy
loans, surrenders and withdrawals may tend to increase as
policyholders seek investments with higher perceived returns as
interest rates rise. This process may result in cash outflows
requiring that we sell investments at a time when the prices of
those investments are adversely affected by the increase in
market interest rates, which may result in realized investment
losses. Unanticipated withdrawals and terminations may cause us
to accelerate the amortization of DAC and VOBA, which would
increase our current expenses and reduce net income. An increase
in market interest rates could also have a material adverse
effect on the value of our investment portfolio, for example, by
decreasing the estimated fair values of the fixed income
securities that comprise a substantial portion of our investment
portfolio. Lastly, an increase in interest rates could result in
decreased fee income associated with a decline in the value of
variable annuity account balances invested in fixed income funds.
Some
of Our Investments Are Relatively Illiquid and Are in Asset
Classes that Have Been Experiencing Significant Market Valuation
Fluctuations
We hold certain investments that may lack liquidity, such as
privately-placed fixed maturity securities; mortgage loans;
policy loans and leveraged leases; equity real estate, including
real estate joint ventures and funds; and other limited
partnership interests. These asset classes represented 33.2% of
the carrying value of our total cash and investments at
December 31, 2009. Even some of our very high quality
investments have been more illiquid as a result of the current
market conditions.
If we require significant amounts of cash on short notice in
excess of normal cash requirements or are required to post or
return cash collateral in connection with our investment
portfolio, derivatives transactions or securities lending
program, we may have difficulty selling these investments in a
timely manner, be forced to sell them for less than we otherwise
would have been able to realize, or both.
The reported value of our relatively illiquid types of
investments, our investments in the asset classes described
above and, at times, our high quality, generally liquid asset
classes, do not necessarily reflect the lowest current market
price for the asset. If we were forced to sell certain of our
investments in the current market, there can be no assurance
that we will be able to sell them for the prices at which we
have recorded them and we could be forced to sell them at
significantly lower prices.
Our
Participation in a Securities Lending Program Subjects Us to
Potential Liquidity and Other Risks
We participate in a securities lending program whereby blocks of
securities, which are included in fixed maturity securities and
short-term investments, are loaned to third parties, primarily
brokerage firms and commercial banks. We generally obtain
collateral in an amount equal to 102% of the estimated fair
value of the loaned securities, which is obtained at the
inception of a loan and maintained at a level greater than or
equal to 100% for the duration of the loan. In limited
instances, during the extraordinary market events beginning in
the fourth quarter of 2008 and through part of 2009, we accepted
collateral less than 102% at the inception of certain loans, but
never less than 100%, of the estimated fair value of such loaned
securities. At December 31, 2009, we had no loans
outstanding where we had accepted at the inception of the loan
collateral less than 102%, of the estimated fair value of such
loaned securities. These loans involved U.S. Government
Treasury Bills which we considered to have limited variation in
their estimated fair value during the term of the loan. See
“ Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Investments — Securities Lending.”
Returns of loaned securities by the third parties would require
us to return the cash collateral associated with such loaned
securities. In addition, in some cases, the maturity of the
securities held as invested collateral (i.e., securities that we
have purchased with cash received from the third parties) may
exceed the term of the related
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securities on loan and the estimated fair value may fall below
the amount of cash received as collateral and invested. If we
are required to return significant amounts of cash collateral on
short notice and we are forced to sell securities to meet the
return obligation, we may have difficulty selling such
collateral that is invested in securities in a timely manner, be
forced to sell securities in a volatile or illiquid market for
less than we otherwise would have been able to realize under
normal market conditions, or both. In addition, under stressful
capital market and economic conditions, such as those conditions
we experienced during 2008 and 2009, liquidity broadly
deteriorates, which may further restrict our ability to sell
securities.
If we decrease the amount of our securities lending activities
over time, the amount of investment income generated by these
activities will also likely decline.
Our
Requirements to Pledge Collateral or Make Payments Related to
Declines in Estimated Fair Value of Specified Assets May
Adversely Affect Our Liquidity and Expose Us to Counterparty
Credit Risk
Some of our transactions with financial and other institutions
specify the circumstances under which the parties are required
to pledge collateral related to any decline in the estimated
fair value of the specified assets. In addition, under the terms
of some of our transactions, we may be required to make payments
to our counterparties related to any decline in the estimated
fair value of the specified assets. The amount of collateral we
may be required to pledge and the payments we may be required to
make under these agreements may increase under certain
circumstances, which could adversely affect our liquidity. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources — The Company — Liquidity
and Capital Sources — Collateral Financing
Arrangements” and Note 12 of the Notes to the
Consolidated Financial Statements.
Gross
Unrealized Losses on Fixed Maturity and Equity Securities May be
Realized or Result in Future Impairments, Resulting in a
Reduction in Our Net Income
Fixed maturity and equity securities classified as
available-for-sale,
except trading securities, are reported at their estimated fair
value. Unrealized gains or losses on
available-for-sale
securities are recognized as a component of other comprehensive
income (loss) and are, therefore, excluded from net income. Our
gross unrealized losses on fixed maturity and equity securities
at December 31, 2009 were $10.8 billion. The portion
of the $10.8 billion of gross unrealized losses for fixed
maturity and equity securities where the estimated fair value
has declined and remained below amortized cost or cost by 20% or
more for six months or greater was $5.1 billion at
December 31, 2009. The accumulated change in estimated fair
value of these
available-for-sale
securities is recognized in net income when the gain or loss is
realized upon the sale of the security or in the event that the
decline in estimated fair value is determined to be
other-than-temporary
and an impairment charge to earnings is taken. Realized losses
or impairments may have a material adverse effect on our net
income in a particular quarterly or annual period.
The
Determination of the Amount of Allowances and Impairments Taken
on Our Investments is Highly Subjective and Could Materially
Impact Our Results of Operations or Financial
Position
The determination of the amount of allowances and impairments
varies by investment type and is based upon our periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available. We update our evaluations regularly and
reflect changes in allowances and impairments in net investment
losses as such evaluations are revised. There can be no
assurance that we have accurately assessed the level of
impairments taken and allowances provided as reflected in our
consolidated financial statements. Furthermore, additional
impairments may need to be taken or allowances provided for in
the future. Historical trends may not be indicative of future
impairments or allowances.
For example, the cost of our fixed maturity and equity
securities is adjusted for impairments deemed to be
other-than-temporary
that are charged to earnings in the period in which the
determination is made. The assessment of whether impairments
have occurred is based on our
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The review of our fixed maturity and
equity securities for impairments includes an analysis of the
total gross unrealized losses by three categories of securities:
(i) securities where the estimated fair
37
value has declined and remained below cost or amortized cost by
less than 20%; (ii) securities where the estimated fair
value has declined and remained below cost or amortized cost by
20% or more for less than six months; and (iii) securities
where the estimated fair value has declined and remained below
cost or amortized cost by 20% or more for six months or greater.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-term recovery. Inherent
in our evaluation of the security are assumptions and estimates
about the operations of the issuer and its future earnings
potential. Considerations in the impairment evaluation process
include, but are not limited to: (i) the length of time and
the extent to which the estimated fair value has been below cost
or amortized cost; (ii) the potential for impairments of
securities when the issuer is experiencing significant financial
difficulties; (iii) the potential for impairments in an
entire industry sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources; (vi) with respect to fixed
maturity securities, whether we have the intent to sell or will
more likely than not be required to sell a particular security
before recovery of the decline in estimated fair value below
cost or amortized cost; (vii) with respect to equity
securities, whether we have the ability and intent to hold a
particular security for a period of time sufficient to allow for
the recovery of its estimated fair value to an amount at least
equal to its cost; (viii) unfavorable changes in forecasted
cash flows on mortgage-backed and asset-backed securities; and
(ix) other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
Defaults
on Our Mortgage Loans and Volatility in Performance May
Adversely Affect Our Profitability
Our mortgage loans face default risk and are principally
collateralized by commercial, agricultural and residential
properties, as well as automobiles. The carrying value of
mortgage loans is stated at original cost net of repayments,
amortization of premiums, accretion of discounts and valuation
allowances, except for residential mortgage loans
held-for-sale
accounted for under the fair value option which are carried at
estimated fair value, as determined on a recurring basis, and
certain commercial and residential mortgage loans carried at the
lower of cost or estimated fair value, as determined on a
nonrecurring basis. We establish valuation allowances for
estimated impairments at the balance sheet date. Such valuation
allowances are based on the excess carrying value of the loan
over the present value of expected future cash flows discounted
at the loan’s original effective interest rate, the
estimated fair value of the loan’s collateral if the loan
is in the process of foreclosure or otherwise collateral
dependent, or the loan’s observable market price if the
loan is
held-for-sale.
We also establish valuation allowances for loan losses when a
loss contingency exists for pools of loans with similar
characteristics, such as mortgage loans based on similar
property types or loans having similar
loan-to-value
or similar debt service coverage factors. At December 31,
2009, loans that were either delinquent or in the process of
foreclosure totaled less than 0.5% of our mortgage loan
investments. The performance of our mortgage loan investments,
however, may fluctuate in the future. In addition, substantially
all of our mortgage loans
held-for-investment
have balloon payment maturities. An increase in the default rate
of our mortgage loan investments could have a material adverse
effect on our business, results of operations and financial
condition through realized investment losses or increases in our
valuation allowances. See “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Investments — Mortgage
Loans.”
Further, any geographic or sector concentration of our mortgage
loans may have adverse effects on our investment portfolios and
consequently on our consolidated results of operations or
financial condition. While we seek to mitigate this risk by
having a broadly diversified portfolio, events or developments
that have a negative effect on any particular geographic region
or sector may have a greater adverse effect on the investment
portfolios to the extent that the portfolios are concentrated.
Moreover, our ability to sell assets relating to such particular
groups of related assets may be limited if other market
participants are seeking to sell at the same time. In addition,
legislative proposals that would allow or require modifications
to the terms of mortgage loans could be enacted. We cannot
predict whether these proposals will be adopted, or what impact,
if any, such proposals or, if enacted, such laws, could have on
our business or investments.
38
The
Impairment of Other Financial Institutions Could Adversely
Affect Us
We have exposure to many different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment banks, hedge
funds and other investment funds and other institutions. Many of
these transactions expose us to credit risk in the event of
default of our counterparty. In addition, with respect to
secured transactions, our credit risk may be exacerbated when
the collateral held by us cannot be realized or is liquidated at
prices not sufficient to recover the full amount of the loan or
derivative exposure due to us. We also have exposure to these
financial institutions in the form of unsecured debt
instruments, non-redeemable and redeemable preferred securities,
derivative transactions and equity investments. Further,
potential action by governments and regulatory bodies in
response to the financial crisis affecting the global banking
system and financial markets, such as investment,
nationalization, conservatorship, receivership and other
intervention, whether under existing legal authority or any new
authority that may be created, could negatively impact these
instruments, securities, transactions and investments. There can
be no assurance that any such losses or impairments to the
carrying value of these investments would not materially and
adversely affect our business and results of operations.
We
Face Unforeseen Liabilities or Asset Impairments or Rating
Actions Arising from Possible Acquisitions and Dispositions of
Businesses or Difficulties Integrating Such
Businesses
We have engaged in dispositions and acquisitions of businesses
in the past, and expect to continue to do so in the future.
There could be unforeseen liabilities or asset impairments,
including goodwill impairments, that arise in connection with
the businesses that we may sell or the businesses that we may
acquire in the future. In addition, there may be liabilities or
asset impairments that we fail, or are unable, to discover in
the course of performing due diligence investigations on each
business that we have acquired or may acquire. Furthermore, the
use of our own funds as consideration in any acquisition would
consume capital resources that would no longer be available for
other corporate purposes. Moreover, as a result of uncertainty
and risks associated with potential acquisitions and
dispositions of businesses, rating agencies may take certain
actions with respect to the ratings assigned to MetLife, Inc.
and/or its
subsidiaries. See “Business — Company
Ratings — Rating Actions.”
Our ability to achieve certain benefits we anticipate from any
acquisitions of businesses will depend in large part upon our
ability to successfully integrate such businesses in an
efficient and effective manner. We may not be able to integrate
such businesses smoothly or successfully, and the process may
take longer than expected. The integration of operations may
require the dedication of significant management resources,
which may distract management’s attention from
day-to-day
business. If we are unable to successfully integrate the
operations of such acquired businesses, we may be unable to
realize the benefits we expect to achieve as a result of such
acquisitions and our business and results of operations may be
less than expected.
Fluctuations
in Foreign Currency Exchange Rates and Foreign Securities
Markets Could Negatively Affect Our Profitability
We are exposed to risks associated with fluctuations in foreign
currency exchange rates against the U.S. Dollar resulting
from our holdings of
non-U.S. Dollar
denominated investments, investments in foreign subsidiaries and
net income from foreign operations and issuance of
non-U.S. Dollar
denominated instruments, including guaranteed interest contracts
and funding agreements. These risks relate to potential
decreases in estimated fair value and income resulting from a
strengthening or weakening in foreign exchange rates versus the
U.S. Dollar. In general, the weakening of foreign
currencies versus the U.S. Dollar will adversely affect the
estimated fair value of our
non-U.S. Dollar
denominated investments and our investments in foreign
subsidiaries. Although we use foreign currency swaps and forward
contracts to mitigate foreign currency exchange rate risk, we
cannot provide assurance that these methods will be effective or
that our counterparties will perform their obligations. See
“Quantitative and Qualitative Disclosures About Market
Risk.”
From time to time, various emerging market countries have
experienced severe economic and financial disruptions, including
significant devaluations of their currencies. Our exposure to
foreign exchange rate risk is exacerbated by our investments in
certain emerging markets.
39
We have matched substantially all of our foreign currency
liabilities in our foreign subsidiaries with investments
denominated in their respective foreign currency, which limits
the effect of currency exchange rate fluctuation on local
operating results; however, fluctuations in such rates affect
the translation of these results into our U.S. Dollar basis
consolidated financial statements. Although we take certain
actions to address this risk, foreign currency exchange rate
fluctuation could materially adversely affect our reported
results due to unhedged positions or the failure of hedges to
effectively offset the impact of the foreign currency exchange
rate fluctuation. See “Quantitative and Qualitative
Disclosures About Market Risk.”
Our
International Operations Face Political, Legal, Operational and
Other Risks that Could Negatively Affect Those Operations or Our
Profitability
Our international operations face political, legal, operational
and other risks that we do not face in our domestic operations.
We face the risk of discriminatory regulation, nationalization
or expropriation of assets, price controls and exchange controls
or other restrictions that prevent us from transferring funds
from these operations out of the countries in which they operate
or converting local currencies we hold into U.S. Dollars or
other currencies. Some of our foreign insurance operations are,
and are likely to continue to be, in emerging markets where
these risks are heightened. See “Quantitative and
Qualitative Disclosures About Market Risk.” In addition, we
rely on local sales forces in these countries and may encounter
labor problems resulting from workers’ associations and
trade unions in some countries. In Japan, China and India we
operate with local business partners with the resulting risk of
managing partner relationships to the business objectives. If
our business model is not successful in a particular country, we
may lose all or most of our investment in building and training
the sales force in that country.
We are currently planning to expand our international operations
in certain markets where we operate and in selected new markets.
This may require considerable management time, as well as
start-up
expenses for market development before any significant revenues
and earnings are generated. Operations in new foreign markets
may achieve low margins or may be unprofitable, and expansion in
existing markets may be affected by local economic and market
conditions. Therefore, as we expand internationally, we may not
achieve expected operating margins and our results of operations
may be negatively impacted.
In recent years, the operating environment in Argentina has been
very challenging. In Argentina, we were formerly principally
engaged in the pension business. In December 2008, the Argentine
government nationalized private pensions and seized the pension
funds’ investments, eliminating the private pensions
business in Argentina. As a result, we have experienced and will
continue to experience reductions in the operation’s
revenues and cash flows. The Argentine government now controls
all assets which previously were managed by our Argentine
pension operations. Further governmental or legal actions
related to our operations in Argentina could negatively impact
our operations in Argentina and result in future losses.
See also “— Changes in Market Interest Rates May
Significantly Affect Our Profitability” regarding the
impact of low interest rates on our Taiwanese operations.
As a
Holding Company, MetLife, Inc. Depends on the Ability of Its
Subsidiaries to Transfer Funds to It to Meet Its Obligations and
Pay Dividends
MetLife, Inc. is a holding company for its insurance and
financial subsidiaries and does not have any significant
operations of its own. Dividends from its subsidiaries and
permitted payments to it under its tax sharing arrangements with
its subsidiaries are its principal sources of cash to meet its
obligations and to pay preferred and common dividends. If the
cash MetLife, Inc. receives from its subsidiaries is
insufficient for it to fund its debt service and other holding
company obligations, MetLife, Inc. may be required to raise cash
through the incurrence of debt, the issuance of additional
equity or the sale of assets.
The payment of dividends and other distributions to MetLife,
Inc. by its insurance subsidiaries is regulated by insurance
laws and regulations. In general, dividends in excess of
prescribed limits require insurance regulatory approval. In
addition, insurance regulators may prohibit the payment of
dividends or other payments by its insurance subsidiaries to
MetLife, Inc. if they determine that the payment could be
adverse to our policyholders or contractholders. See
“Business — Regulation — Insurance
Regulation” and Note 18 of the Notes to the
Consolidated Financial Statements and “Management’s
Discussion and Analysis of Financial Condition and
40
Results of Operations — Liquidity and Capital
Resources — The Holding Company — Liquidity
and Capital Sources — Dividends from
Subsidiaries.”
Any payment of interest, dividends, distributions, loans or
advances by our foreign subsidiaries to MetLife, Inc. could be
subject to taxation or other restrictions on dividends or
repatriation of earnings under applicable law, monetary transfer
restrictions and foreign currency exchange regulations in the
jurisdiction in which such foreign subsidiaries operate. See
“— Our International Operations Face Political,
Legal, Operational and Other Risks That Could Negatively Affect
Those Operations or Our Profitability.”
A
Downgrade or a Potential Downgrade in Our Financial Strength or
Credit Ratings Could Result in a Loss of Business and Materially
Adversely Affect Our Financial Condition and Results of
Operations
Financial strength ratings, which various Nationally Recognized
Statistical Rating Organizations (each, an “NRSRO”)
publish as indicators of an insurance company’s ability to
meet contractholder and policyholder obligations, are important
to maintaining public confidence in our products, our ability to
market our products and our competitive position. See
“Business — Company Ratings — Insurer
Financial Strength Ratings.”
Downgrades in our financial strength ratings could have a
material adverse effect on our financial condition and results
of operations in many ways, including:
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reducing new sales of insurance products, annuities and other
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adversely affecting our relationships with our sales force and
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materially increasing the number or amount of policy surrenders
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requiring us to reduce prices for many of our products and
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adversely affecting our ability to obtain reinsurance at
reasonable prices or at all.
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In addition to the financial strength ratings of our insurance
subsidiaries, various NRSROs also publish credit ratings for
MetLife, Inc. and several of its subsidiaries. Credit ratings
are indicators of a debt issuer’s ability to meet the terms
of debt obligations in a timely manner and are important factors
in our overall funding profile and ability to access certain
types of liquidity. See “Business — Company
Ratings — Credit Ratings.” Downgrades in our
credit ratings could have a material adverse effect on our
financial condition and results of operations in many ways,
including adversely limiting our access to capital markets,
potentially increasing the cost of debt, and requiring us to
post collateral. For example, with respect to derivative
transactions with credit ratings downgrade triggers, a two-notch
downgrade would have impacted our derivative collateral
requirements by $146 million at December 31, 2009.
Also, $480 million of liabilities associated with funding
agreements and other capital market products were subject to
credit ratings downgrade triggers that permit early termination
subject to a notice period of 90 days.
In view of the difficulties experienced during 2008 and 2009 by
many financial institutions, including our competitors in the
insurance industry, we believe it is possible that the NRSROs
will continue to heighten the level of scrutiny that they apply
to such institutions, will continue to increase the frequency
and scope of their credit reviews, will continue to request
additional information from the companies that they rate, and
may adjust upward the capital and other requirements employed in
the NRSRO models for maintenance of certain ratings levels.
Rating agencies use an “outlook statement” of
“positive,” “stable,” “negative”
or “developing” to indicate a medium- or long-term
trend in credit fundamentals which, if continued, may lead to a
ratings change. A rating may have a “stable” outlook
to indicate that the rating is not expected to change; however,
a “stable” rating does not preclude a rating agency
from changing a rating at any time, without notice. Certain
rating agencies assign rating modifiers such as
“CreditWatch” or “Under Review” to indicate
their opinion regarding the potential direction of a rating.
These ratings modifiers are generally assigned in connection
with certain events such as potential mergers and acquisitions,
or material changes in a company’s results, in order for
the rating agencies to perform its analysis to fully determine
the rating implications of the event. Certain rating agencies
have recently implemented rating actions, including downgrades,
outlook changes and modifiers, for MetLife, Inc.’s and
certain of its subsidiaries’ insurer financial strength and
credit ratings. See “Business — Company
Ratings — Rating Actions.”
41
We cannot predict what actions rating agencies may take, or what
actions we may take in response to the actions of rating
agencies, which could adversely affect our business. As with
other companies in the financial services industry, our ratings
could be downgraded at any time and without any notice by any
NRSRO.
An
Inability to Access Our Credit Facilities Could Result in a
Reduction in Our Liquidity and Lead to Downgrades in Our Credit
and Financial Strength Ratings
We have a $2.85 billion five-year revolving credit facility
that matures in June 2012, as well as other facilities which we
enter into in the ordinary course of business. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources — The Holding Company —
Liquidity and Capital Sources — Credit and Committed
Facilities” and Note 11 of the Notes to the
Consolidated Financial Statements.
We rely on our credit facilities as a potential source of
liquidity. The availability of these facilities could be
critical to our credit and financial strength ratings and our
ability to meet our obligations as they come due in a market
when alternative sources of credit are tight. The credit
facilities contain certain administrative, reporting, legal and
financial covenants. We must comply with covenants under our
credit facilities (including the $2.85 billion five-year
revolving credit facility), including a requirement to maintain
a specified minimum consolidated net worth.
Our right to make borrowings under these facilities is subject
to the fulfillment of certain important conditions, including
our compliance with all covenants, and our ability to borrow
under these facilities is also subject to the continued
willingness and ability of the lenders that are parties to the
facilities to provide funds. Our failure to comply with the
covenants in the credit facilities or fulfill the conditions to
borrowings, or the failure of lenders to fund their lending
commitments (whether due to insolvency, illiquidity or other
reasons) in the amounts provided for under the terms of the
facilities, would restrict our ability to access these credit
facilities when needed and, consequently, could have a material
adverse effect on our financial condition and results of
operations.
Defaults,
Downgrades or Other Events Impairing the Carrying Value of Our
Fixed Maturity or Equity Securities Portfolio May Reduce Our
Earnings
We are subject to the risk that the issuers, or guarantors, of
fixed maturity securities we own may default on principal and
interest payments they owe us. We are also subject to the risk
that the underlying collateral within loan-backed securities,
including mortgage-backed securities, may default on principal
and interest payments causing an adverse change in cash flows
paid to our investment. Fixed maturity securities represent a
significant portion of our investment portfolio. The occurrence
of a major economic downturn (such as the downturn in the
economy during late 2008 and 2009), acts of corporate
malfeasance, widening risk spreads, or other events that
adversely affect the issuers, guarantors or underlying
collateral of these securities could cause the estimated fair
value of our fixed maturity securities portfolio and our
earnings to decline and the default rate of the fixed maturity
securities in our investment portfolio to increase. A ratings
downgrade affecting issuers or guarantors of particular
securities, or similar trends that could worsen the credit
quality of issuers, such as the corporate issuers of securities
in our investment portfolio, could also have a similar effect.
With economic uncertainty, credit quality of issuers or
guarantors could be adversely affected. Similarly, a ratings
downgrade affecting
asset-backed
securities (“ABS”) we hold could indicate the credit
quality of that security has deteriorated and could increase the
capital we must hold to support that security to maintain our
risk-based capital levels. Any event reducing the estimated fair
value of these securities other than on a temporary basis could
have a material adverse effect on our business, results of
operations and financial condition. Levels of writedowns or
impairments are impacted by our assessment of intent to sell, or
whether it is more likely than not that we will be required to
sell, fixed maturity securities and the intent and ability to
hold equity securities which have declined in value until
recovery. If we determine to reposition or realign portions of
the portfolio so as not to hold certain equity securities, or
intend to sell or determine that it is more likely than not that
we will be required to sell, certain fixed maturity securities
in an unrealized loss position prior to recovery, then we will
incur an
other-than-temporary
impairment charge in the period that the decision was made not
to hold the equity security to recovery, or to sell, or the
determination was made it is more likely than not that we will
be required to sell the fixed maturity security.
42
Our
Risk Management Policies and Procedures May Leave Us Exposed to
Unidentified or Unanticipated Risk, Which Could Negatively
Affect Our Business
Management of risk requires, among other things, policies and
procedures to record properly and verify a large number of
transactions and events. We have devoted significant resources
to develop our risk management policies and procedures and
expect to continue to do so in the future. Nonetheless, our
policies and procedures may not be comprehensive. Many of our
methods for managing risk and exposures are based upon the use
of observed historical market behavior or statistics based on
historical models. As a result, these methods may not fully
predict future exposures, which can be significantly greater
than our historical measures indicate. Other risk management
methods depend upon the evaluation of information regarding
markets, clients, catastrophe occurrence or other matters that
is publicly available or otherwise accessible to us. This
information may not always be accurate, complete,
up-to-date
or properly evaluated. See “Quantitative and Qualitative
Disclosures About Market Risk.”
Reinsurance
May Not Be Available, Affordable or Adequate to Protect Us
Against Losses
As part of our overall risk management strategy, we purchase
reinsurance for certain risks underwritten by our various
business segments. See “Business — Reinsurance
Activity.” While reinsurance agreements generally bind the
reinsurer for the life of the business reinsured at generally
fixed pricing, market conditions beyond our control determine
the availability and cost of the reinsurance protection for new
business. In certain circumstances, the price of reinsurance for
business already reinsured may also increase. Any decrease in
the amount of reinsurance will increase our risk of loss and any
increase in the cost of reinsurance will, absent a decrease in
the amount of reinsurance, reduce our earnings. Accordingly, we
may be forced to incur additional expenses for reinsurance or
may not be able to obtain sufficient reinsurance on acceptable
terms, which could adversely affect our ability to write future
business or result in the assumption of more risk with respect
to those policies we issue.
If the
Counterparties to Our Reinsurance or Indemnification
Arrangements or to the Derivative Instruments We Use to Hedge
Our Business Risks Default or Fail to Perform, We May Be Exposed
to Risks We Had Sought to Mitigate, Which Could Materially
Adversely Affect Our Financial Condition and Results of
Operations
We use reinsurance, indemnification and derivative instruments
to mitigate our risks in various circumstances. In general,
reinsurance does not relieve us of our direct liability to our
policyholders, even when the reinsurer is liable to us.
Accordingly, we bear credit risk with respect to our reinsurers
and indemnitors. We cannot provide assurance that our reinsurers
will pay the reinsurance recoverables owed to us or that
indemnitors will honor their obligations now or in the future or
that they will pay these recoverables on a timely basis. A
reinsurer’s or indemnitor’s insolvency, inability or
unwillingness to make payments under the terms of reinsurance
agreements or indemnity agreements with us could have a material
adverse effect on our financial condition and results of
operations.
In addition, we use derivative instruments to hedge various
business risks. We enter into a variety of derivative
instruments, including options, forwards, interest rate, credit
default and currency swaps with a number of counterparties. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations —
Investments.” If our counterparties fail or refuse to honor
their obligations under these derivative instruments, our hedges
of the related risk will be ineffective. This is a more
pronounced risk to us in view of the stresses suffered by
financial institutions over the past two years. Such failure
could have a material adverse effect on our financial condition
and results of operations.
Differences
Between Actual Claims Experience and Underwriting and Reserving
Assumptions May Adversely Affect Our Financial
Results
Our earnings significantly depend upon the extent to which our
actual claims experience is consistent with the assumptions we
use in setting prices for our products and establishing
liabilities for future policy benefits and claims. Our
liabilities for future policy benefits and claims are
established based on estimates by actuaries of how much we will
need to pay for future benefits and claims. For life insurance
and annuity products, we calculate these liabilities based on
many assumptions and estimates, including estimated premiums to
be received over the assumed
43
life of the policy, the timing of the event covered by the
insurance policy, the amount of benefits or claims to be paid
and the investment returns on the investments we make with the
premiums we receive. We establish liabilities for property and
casualty claims and benefits based on assumptions and estimates
of damages and liabilities incurred. To the extent that actual
claims experience is less favorable than the underlying
assumptions we used in establishing such liabilities, we could
be required to increase our liabilities.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of liabilities for
future policy benefits and claims, we cannot determine precisely
the amounts which we will ultimately pay to settle our
liabilities. Such amounts may vary from the estimated amounts,
particularly when those payments may not occur until well into
the future. We evaluate our liabilities periodically based on
changes in the assumptions used to establish the liabilities, as
well as our actual experience. We charge or credit changes in
our liabilities to expenses in the period the liabilities are
established or re-estimated. If the liabilities originally
established for future benefit payments prove inadequate, we
must increase them. Such increases could affect earnings
negatively and have a material adverse effect on our business,
results of operations and financial condition.
Catastrophes
May Adversely Impact Liabilities for Policyholder Claims and
Reinsurance Availability
Our life insurance operations are exposed to the risk of
catastrophic mortality, such as a pandemic or other event that
causes a large number of deaths. Significant influenza pandemics
have occurred three times in the last century, but neither the
likelihood, timing, nor the severity of a future pandemic can be
predicted. A significant pandemic could have a major impact on
the global economy or the economies of particular countries or
regions, including travel, trade, tourism, the health system,
food supply, consumption, overall economic output and,
eventually, on the financial markets. In addition, a pandemic
that affected our employees or the employees of our distributors
or of other companies with which we do business could disrupt
our business operations. The effectiveness of external parties,
including governmental and non-governmental organizations, in
combating the spread and severity of such a pandemic could have
a material impact on the losses experienced by us. In our group
insurance operations, a localized event that affects the
workplace of one or more of our group insurance customers could
cause a significant loss due to mortality or morbidity claims.
These events could cause a material adverse effect on our
results of operations in any period and, depending on their
severity, could also materially and adversely affect our
financial condition.
Our Auto & Home business has experienced, and will
likely in the future experience, catastrophe losses that may
have a material adverse impact on the business, results of
operations and financial condition of the Auto & Home
segment. Although Auto & Home makes every effort to
manage our exposure to catastrophic risks through volatility
management and reinsurance programs, these efforts do not
eliminate all risk. Catastrophes can be caused by various
events, including pandemics, hurricanes, windstorms,
earthquakes, hail, tornadoes, explosions, severe winter weather
(including snow, freezing water, ice storms and blizzards),
fires and man-made events such as terrorist attacks.
Historically, substantially all of our catastrophe-related
claims have related to homeowners coverages. However,
catastrophes may also affect other Auto & Home
coverages. Due to their nature, we cannot predict the incidence,
timing and severity of catastrophes. In addition, changing
climate conditions, primarily rising global temperatures, may be
increasing, or may in the future increase, the frequency and
severity of natural catastrophes such as hurricanes.
Hurricanes and earthquakes are of particular note for our
homeowners coverages. Areas of major hurricane exposure include
coastal sections of the northeastern United States (including
lower New York, Connecticut, Rhode Island and Massachusetts),
the Gulf Coast (including Alabama, Mississippi, Louisiana and
Texas) and Florida. We also have some earthquake exposure,
primarily along the New Madrid fault line in the central United
States and in the Pacific Northwest.
The extent of losses from a catastrophe is a function of both
the total amount of insured exposure in the area affected by the
event and the severity of the event. Most catastrophes are
restricted to small geographic areas; however, pandemics,
hurricanes, earthquakes and man-made catastrophes may produce
significant damage in larger areas, especially those that are
heavily populated. Claims resulting from natural or man-made
catastrophic events could cause substantial volatility in our
financial results for any fiscal quarter or year and could
materially reduce our profitability or harm our financial
condition. Also, catastrophic events could harm the financial
44
condition of our reinsurers and thereby increase the probability
of default on reinsurance recoveries. Our ability to write new
business could also be affected. It is possible that increases
in the value, caused by the effects of inflation or other
factors, and geographic concentration of insured property, could
increase the severity of claims from catastrophic events in the
future.
Most of the jurisdictions in which our insurance subsidiaries
are admitted to transact business require life and property and
casualty insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay
contractual benefits owed pursuant to insurance policies issued
by impaired, insolvent or failed insurers. These associations
levy assessments, up to prescribed limits, on all member
insurers in a particular state on the basis of the proportionate
share of the premiums written by member insurers in the lines of
business in which the impaired, insolvent or failed insurer is
engaged. In addition, certain states have government owned or
controlled organizations providing life and property and
casualty insurance to their citizens. The activities of such
organizations could also place additional stress on the adequacy
of guaranty fund assessments. Many of these organizations also
have the power to levy assessments similar to those of the
guaranty associations described above. Some states permit member
insurers to recover assessments paid through full or partial
premium tax offsets. See “Business —
Regulation — Insurance Regulation — Guaranty
Associations and Similar Arrangements.”
While in the past five years, the aggregate assessments levied
against MetLife have not been material, it is possible that a
large catastrophic event could render such guaranty funds
inadequate and we may be called upon to contribute additional
amounts, which may have a material impact on our financial
condition or results of operations in a particular period. We
have established liabilities for guaranty fund assessments that
we consider adequate for assessments with respect to insurers
that are currently subject to insolvency proceedings, but
additional liabilities may be necessary. See Note 16 of the
Notes to the Consolidated Financial Statements.
Consistent with industry practice and accounting standards, we
establish liabilities for claims arising from a catastrophe only
after assessing the probable losses arising from the event. We
cannot be certain that the liabilities we have established will
be adequate to cover actual claim liabilities. From time to
time, states have passed legislation that has the effect of
limiting the ability of insurers to manage risk, such as
legislation restricting an insurer’s ability to withdraw
from catastrophe-prone areas. While we attempt to limit our
exposure to acceptable levels, subject to restrictions imposed
by insurance regulatory authorities, a catastrophic event or
multiple catastrophic events could have a material adverse
effect on our business, results of operations and financial
condition.
Our ability to manage this risk and the profitability of our
property and casualty and life insurance businesses depends in
part on our ability to obtain catastrophe reinsurance, which may
not be available at commercially acceptable rates in the future.
See “— Reinsurance May Not Be Available,
Affordable or Adequate to Protect Us Against Losses.”
Our
Statutory Reserve Financings May be Subject to Cost Increases
and New Financings May be Subject to Limited Market
Capacity
To support statutory reserves for several products including,
but not limited to, our level premium term life and universal
life with secondary guarantees and MLIC’s closed block, we
currently utilize capital markets solutions for financing a
portion of our statutory reserve requirements. While we have
financing facilities in place for our previously written
business and have remaining capacity in existing facilities to
support writings through the end of 2010 or later, certain of
these facilities are subject to cost increases upon the
occurrence of specified ratings downgrades of MetLife or are
subject to periodic repricing. Any resulting cost increases
could negatively impact our financial results.
Future capacity for these statutory reserve funding structures
in the marketplace is not guaranteed. If capacity becomes
unavailable for a prolonged period of time, hindering our
ability to obtain funding for these new structures, our ability
to write additional business in a cost effective manner may be
impacted.
45
Competitive
Factors May Adversely Affect Our Market Share and
Profitability
Our business segments are subject to intense competition. We
believe that this competition is based on a number of factors,
including service, product features, scale, price, financial
strength, claims-paying ratings, credit ratings,
e-business
capabilities and name recognition. We compete with a large
number of other insurers, as well as non-insurance financial
services companies, such as banks, broker-dealers and asset
managers, for individual consumers, employers and other group
customers and agents and other distributors of insurance and
investment products. Some of these companies offer a broader
array of products, have more competitive pricing or more
attractive features in their products or, with respect to other
insurers, have higher claims paying ability ratings. Some may
also have greater financial resources with which to compete.
National banks, which may sell annuity products of life insurers
in some circumstances, also have pre-existing customer bases for
financial services products.
Many of our group insurance products are underwritten annually,
and, accordingly, there is a risk that group purchasers may be
able to obtain more favorable terms from competitors rather than
renewing coverage with us. The effect of competition may, as a
result, adversely affect the persistency of these and other
products, as well as our ability to sell products in the future.
In addition, the investment management and securities brokerage
businesses have relatively few barriers to entry and continually
attract new entrants. See “Business —
Competition.”
Finally, the choices made by the U.S. Treasury in the
administration of EESA and in its distribution of amounts
available thereunder could have the effect of supporting some
parts of the financial system more than others. See
“— Actions of the U.S. Government, Federal
Reserve Bank of New York and Other Governmental and Regulatory
Bodies for the Purpose of Stabilizing and Revitalizing the
Financial Markets and Protecting Investors and Consumers May Not
Achieve the Intended Effect or Could Adversely Affect
MetLife’s Competitive Position.”
Industry
Trends Could Adversely Affect the Profitability of Our
Businesses
Our business segments continue to be influenced by a variety of
trends that affect the insurance industry, including competition
with respect to product features, price, distribution
capability, customer service and information technology. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Industry
Trends.” The impact on our business and on the life
insurance industry generally of the volatility and instability
of the financial markets is difficult to predict, and our
business plans, financial condition and results of operations
may be negatively impacted or affected in other unexpected ways.
In addition, the life insurance industry is subject to state
regulation, and, as complex products are introduced, regulators
may refine capital requirements and introduce new reserving
standards. Furthermore, regulators have undertaken market and
sales practices reviews of several markets or products,
including variable annuities and group products. The market
environment may also lead to changes in regulation that may
benefit or disadvantage us relative to some of our competitors.
See “— Competitive Factors May Adversely Affect
Our Market Share and Profitability” and
“Business — Competition.”
Consolidation
of Distributors of Insurance Products May Adversely Affect the
Insurance Industry and the Profitability of Our
Business
The insurance industry distributes many of its individual
products through other financial institutions such as banks and
broker-dealers. An increase in bank and broker-dealer
consolidation activity may negatively impact the industry’s
sales, and such consolidation could increase competition for
access to distributors, result in greater distribution expenses
and impair our ability to market insurance products to our
current customer base or to expand our customer base.
Consolidation of distributors
and/or other
industry changes may also increase the likelihood that
distributors will try to renegotiate the terms of any existing
selling agreements to terms less favorable to us.
46
Our
Investments are Reflected Within the Consolidated Financial
Statements Utilizing Different Accounting Bases and Accordingly
We May Have Recognized Differences, Which May Be Significant,
Between Cost and Estimated Fair Value in our Consolidated
Financial Statements
Our principal investments are in fixed maturity and equity
securities, trading securities, short-term investments, mortgage
loans, policy loans, real estate, real estate joint ventures and
other limited partnership interests and other invested assets.
The carrying value of such investments is as follows:
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Fixed maturity and equity securities are classified as
available-for-sale,
except for trading securities, and are reported at their
estimated fair value. Unrealized investment gains and losses on
these securities are recorded as a separate component of other
comprehensive income (loss), net of policyholder related amounts
and deferred income taxes.
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Trading securities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income.
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Short-term investments include investments with remaining
maturities of one year or less, but greater than three months,
at the time of acquisition. Short-term investments that meet the
definition of a security are stated at estimated fair value, and
short-term investments that do not meet the definition of a
security are stated at amortized cost, which approximates
estimated fair value.
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The carrying value of mortgage loans is stated at original cost
net of repayments, amortization of premiums, accretion of
discounts and valuation allowances, except for residential
mortgage loans
held-for-sale
accounted for under the fair value option which are carried at
estimated fair value, as determined on a recurring basis, and
certain commercial and residential mortgage loans carried at the
lower of cost or estimated fair value, as determined on a
nonrecurring basis.
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Policy loans are stated at unpaid principal balances.
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Real estate
held-for-investment,
including related improvements, is stated at cost, less
accumulated depreciation.
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Real estate joint ventures and other limited partnership
interests in which we have more than a minor equity interest or
more than a minor influence over the joint ventures or
partnership’s operations, but where we do not have a
controlling interest and are not the primary beneficiary, are
carried using the equity method of accounting. We use the cost
method of accounting for investments in real estate joint
ventures and other limited partnership interests in which we
have a minor equity investment and virtually no influence over
the joint ventures or the partnership’s operations.
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Other invested assets consist principally of freestanding
derivatives with positive estimated fair values and leveraged
leases. Freestanding derivatives are carried at estimated fair
value with changes in estimated fair value reflected in income
for both non-qualifying derivatives and derivatives in fair
value hedging relationships. Changes in estimated fair value of
derivatives in cash flow or in net investments in foreign
operations hedging relationships are reflected as a separate
component of other comprehensive income (loss). Leveraged leases
are recorded net of non-recourse debt.
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Investments not carried at estimated fair value in our
consolidated financial statements — principally,
mortgage loans
held-for-investment,
policy loans, real estate, real estate joint ventures, other
limited partnerships and leveraged leases — may have
estimated fair values which are substantially higher or lower
than the carrying value reflected in our consolidated financial
statements. Each of these asset classes is regularly evaluated
for impairment under the accounting guidance appropriate to the
respective asset class.
47
Our
Valuation of Fixed Maturity, Equity and Trading Securities and
Short-Term Investments May Include Methodologies, Estimations
and Assumptions Which Are Subject to Differing Interpretations
and Could Result in Changes to Investment Valuations that May
Materially Adversely Affect Our Results of Operations or
Financial Condition
Fixed maturity, equity, and trading securities and short-term
investments which are reported at estimated fair value on the
consolidated balance sheets represent the majority of our total
cash and investments. We have categorized these securities into
a three-level hierarchy, based on the priority of the inputs to
the respective valuation technique. The fair value hierarchy
gives the highest priority to quoted prices in active markets
for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). An asset
or liability’s classification within the fair value
hierarchy is based on the lowest level of significant input to
its valuation. The input levels are as follows:
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Level 1
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Unadjusted quoted prices in active markets for identical assets
or liabilities. We define active markets based on average
trading volume for equity securities. The size of the bid/ask
spread is used as an indicator of market activity for fixed
maturity securities.
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Level 2
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Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other inputs that are observable or can
be derived principally from or corroborated by observable market
data for substantially the full term of the assets or
liabilities.
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Level 3
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Unobservable inputs that are supported by little or no market
activity and are significant to the fair value of the assets or
liabilities. Unobservable inputs reflect the reporting
entity’s own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value
requires significant management judgment or estimation.
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At December 31, 2009, 8.0%, 84.3% and 7.7% of these
securities represented Level 1, Level 2 and
Level 3, respectively. The Level 1 securities
primarily consist of certain U.S. Treasury, agency and
government guaranteed fixed maturity securities; certain foreign
government fixed maturity securities; exchange-traded common
stock; certain trading securities; and certain short-term
investments. The Level 2 assets include fixed maturity and
equity securities priced principally through independent pricing
services using observable inputs. These fixed maturity
securities include most U.S. Treasury, agency and
government guaranteed securities, as well as the majority of
U.S. and foreign corporate securities, RMBS, commercial
mortgage-backed securities (“CMBS”), state and
political subdivision securities, foreign government securities,
and ABS. Equity securities classified as Level 2 primarily
consist of non-redeemable preferred securities and certain
equity securities where market quotes are available but are not
considered actively traded and are priced by independent pricing
services. We review the valuation methodologies used by the
independent pricing services on an ongoing basis and ensure that
any changes to valuation methodologies are justified.
Level 3 assets include fixed maturity securities priced
principally through independent non-binding broker quotations or
market standard valuation methodologies using inputs that are
not market observable or cannot be derived principally from or
corroborated by observable market data. Level 3 consists of
less liquid fixed maturity securities with very limited trading
activity or where less price transparency exists around the
inputs to the valuation methodologies including: U.S. and
foreign corporate securities — including below
investment grade private placements; RMBS; CMBS; and
ABS — including all of those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of non-redeemable preferred stock
and common stock of companies that are privately held or
companies for which there has been very limited trading activity
or where less price transparency exists around the inputs to the
valuation. See Note 5 of the Notes to the Consolidated
Financial Statements for the estimated fair values of these
assets by hierarchy level.
Prices provided by independent pricing services and independent
non-binding broker quotations can vary widely even for the same
security.
48
The determination of estimated fair values by management in the
absence of quoted market prices is based on: (i) valuation
methodologies; (ii) securities we deem to be comparable;
and (iii) assumptions deemed appropriate given the
circumstances. The fair value estimates are made at a specific
point in time, based on available market information and
judgments about financial instruments, including estimates of
the timing and amounts of expected future cash flows and the
credit standing of the issuer or counterparty. Factors
considered in estimating fair value include: coupon rate,
maturity, estimated duration, call provisions, sinking fund
requirements, credit rating, industry sector of the issuer, and
quoted market prices of comparable securities. The use of
different methodologies and assumptions may have a material
effect on the estimated fair value amounts.
During periods of market disruption including periods of
significantly rising or high interest rates, rapidly widening
credit spreads or illiquidity, it may be difficult to value
certain of our securities, for example
sub-prime
mortgage-backed securities, mortgage-backed securities where the
underlying loans are Alt-A and CMBS, if trading becomes less
frequent
and/or
market data becomes less observable. In times of financial
market disruption, certain asset classes that were in active
markets with significant observable data may become illiquid. In
such cases, more securities may fall to Level 3 and thus
require more subjectivity and management judgment. As such,
valuations may include inputs and assumptions that are less
observable or require greater estimation, as well as valuation
methods which are more sophisticated or require greater
estimation thereby resulting in estimated fair values which may
be greater or less than the amount at which the investments may
be ultimately sold. Further, rapidly changing and unprecedented
credit and equity market conditions could materially impact the
valuation of securities as reported within our consolidated
financial statements and the
period-to-period
changes in estimated fair value could vary significantly.
Decreases in value may have a material adverse effect on our
results of operations or financial condition.
If Our
Business Does Not Perform Well, We May Be Required to Recognize
an Impairment of Our Goodwill or Other Long-Lived Assets or to
Establish a Valuation Allowance Against the Deferred Income Tax
Asset, Which Could Adversely Affect Our Results of Operations or
Financial Condition
Goodwill represents the excess of the amounts we paid to acquire
subsidiaries and other businesses over the estimated fair value
of their net assets at the date of acquisition. We test goodwill
at least annually for impairment. Impairment testing is
performed based upon estimates of the estimated fair value of
the “reporting unit” to which the goodwill relates.
The reporting unit is the operating segment or a business one
level below that operating segment if discrete financial
information is prepared and regularly reviewed by management at
that level. The estimated fair value of the reporting unit is
impacted by the performance of the business. The performance of
our businesses may be adversely impacted by prolonged market
declines. If it is determined that the goodwill has been
impaired, we must write down the goodwill by the amount of the
impairment, with a corresponding charge to net income. Such
writedowns could have a material adverse effect on our results
of operations or financial position. See
“ Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Summary of Critical Accounting Estimates —
Goodwill.”
Long-lived assets, including assets such as real estate, also
require impairment testing to determine whether changes in
circumstances indicate that MetLife will be unable to recover
the carrying amount of the asset group through future operations
of that asset group or market conditions that will impact the
estimated fair value of those assets. Such writedowns could have
a material adverse effect on our results of operations or
financial position.
Deferred income tax represents the tax effect of the differences
between the book and tax basis of assets and liabilities.
Deferred tax assets are assessed periodically by management to
determine if they are realizable. Factors in management’s
determination include the performance of the business including
the ability to generate future taxable income. If based on
available information, it is more likely than not that the
deferred income tax asset will not be realized then a valuation
allowance must be established with a corresponding charge to net
income. Such charges could have a material adverse effect on our
results of operations or financial position.
Further or continued deterioration of financial market
conditions could result in a decrease in the expected future
earnings of our reporting units, which could lead to an
impairment of some or all of the goodwill associated with them
in future periods. Such deterioration could also result in the
impairment of long-lived assets and the establishment of a
valuation allowance on our deferred income tax assets.
49
If Our
Business Does Not Perform Well or if Actual Experience Versus
Estimates Used in Valuing and Amortizing DAC and VOBA Vary
Significantly, We May Be Required to Accelerate the Amortization
and/or Impair the DAC and VOBA Which Could Adversely Affect Our
Results of Operations or Financial Condition
We incur significant costs in connection with acquiring new and
renewal business. Those costs that vary with and are primarily
related to the production of new and renewal business are
deferred and referred to as DAC. The recovery of DAC is
dependent upon the future profitability of the related business.
The amount of future profit or margin is dependent principally
on investment returns in excess of the amounts credited to
policyholders, mortality, morbidity, persistency, interest
crediting rates, dividends paid to policyholders, expenses to
administer the business, creditworthiness of reinsurance
counterparties and certain economic variables, such as
inflation. Of these factors, we anticipate that investment
returns are most likely to impact the rate of amortization of
such costs. The aforementioned factors enter into
management’s estimates of gross profits or margins, which
generally are used to amortize such costs. If the estimates of
gross profits or margins were overstated, then the amortization
of such costs would be accelerated in the period the actual
experience is known and would result in a charge to income.
Significant or sustained equity market declines could result in
an acceleration of amortization of the DAC related to variable
annuity and variable universal life contracts, resulting in a
charge to income. Such adjustments could have a material adverse
effect on our results of operations or financial condition.
VOBA reflects the estimated fair value of in-force contracts in
a life insurance company acquisition and represents the portion
of the purchase price that is allocated to the value of the
right to receive future cash flows from the insurance and
annuity contracts in-force at the acquisition date. VOBA is
based on actuarially determined projections. Actual experience
may vary from the projections. Revisions to estimates result in
changes to the amounts expensed in the reporting period in which
the revisions are made and could result in an impairment and a
charge to income. Also, as VOBA is amortized similarly to DAC,
an acceleration of the amortization of VOBA would occur if the
estimates of gross profits or margins were overstated.
Accordingly, the amortization of such costs would be accelerated
in the period in which the actual experience is known and would
result in a charge to net income. Significant or sustained
equity market declines could result in an acceleration of
amortization of the VOBA related to variable annuity and
variable universal life contracts, resulting in a charge to
income. Such adjustments could have a material adverse effect on
our results of operations or financial condition.
See “ Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Summary of Critical Accounting Estimates — Deferred
Policy Acquisition Costs and Value of Business Acquired”
for further consideration of DAC and VOBA .
Changes
in Accounting Standards Issued by the Financial Accounting
Standards Board or Other Standard-Setting Bodies May Adversely
Affect Our Financial Statements
Our financial statements are subject to the application of GAAP,
which is periodically revised
and/or
expanded. Accordingly, from time to time we are required to
adopt new or revised accounting standards issued by recognized
authoritative bodies, including the Financial Accounting
Standards Board. Market conditions have prompted accounting
standard setters to expose new guidance which further interprets
or seeks to revise accounting pronouncements related to
financial instruments, structures or transactions, as well as to
issue new standards expanding disclosures. The impact of
accounting pronouncements that have been issued but not yet
implemented is disclosed in our annual and quarterly reports on
Form 10-K
and
Form 10-Q.
An assessment of proposed standards is not provided as such
proposals are subject to change through the exposure process
and, therefore, the effects on our financial statements cannot
be meaningfully assessed. It is possible that future accounting
standards we are required to adopt could change the current
accounting treatment that we apply to our consolidated financial
statements and that such changes could have a material adverse
effect on our financial condition and results of operations.
50
Changes
in Our Discount Rate, Expected Rate of Return and Expected
Compensation Increase Assumptions for Our Pension and Other
Postretirement Benefit Plans May Result in Increased Expenses
and Reduce Our Profitability
We determine our pension and other postretirement benefit plan
costs based on our best estimates of future plan experience.
These assumptions are reviewed regularly and include discount
rates, expected rates of return on plan assets and expected
increases in compensation levels and expected medical inflation.
Changes in these assumptions may result in increased expenses
and reduce our profitability. See Note 17 of the Notes to
the Consolidated Financial Statements for details on how changes
in these assumptions would affect plan costs.
Guarantees
Within Certain of Our Variable Annuity Guarantee Benefits that
Protect Policyholders Against Significant Downturns in Equity
Markets May Increase the Volatility of Our Results Related to
the Inclusion of an Own Credit Adjustment in the Estimated Fair
Value of the Liability for These Guaranteed
Benefits
In determining the valuation of certain variable annuity
guarantee benefit liabilities that are carried at estimated fair
value, we must consider our own credit standing, which is not
hedged. A decrease in our own credit spread could cause the
value of these liabilities to increase, resulting in a reduction
to net income. An increase in our own credit spread could cause
the value of these liabilities to decrease, resulting in an
increase to net income. Because this credit adjustment is
determined, at least in part, by taking into consideration
publicly available information relating to our publicly-traded
debt, the overall condition of fixed income markets may impact
this adjustment. The credit premium implied in our
publicly-traded debt, instruments may not always necessarily
reflect our actual credit rating or our claims paying ability.
Recently, the fixed income markets have experienced a period of
extreme volatility which has impacted market liquidity and
credit spreads. An increase in credit default swap spreads has
at times been even more pronounced than in the fixed income cash
markets. In a broad based market downturn, an increase in our
own credit spread could result in net income being relatively
flat when a deterioration in other market inputs required for
the estimate of fair value would otherwise result in a
significant reduction in net income. The inclusion of our own
credit standing in this case has the effect of muting the actual
net income losses recognized. In subsequent periods, if our
credit spreads improve relative to the overall market, we could
have a reduction of net income in an overall improving market.
Guarantees
Within Certain of Our Products that Protect Policyholders
Against Significant Downturns in Equity Markets May Decrease Our
Earnings, Increase the Volatility of Our Results if Hedging or
Risk Management Strategies Prove Ineffective, Result in Higher
Hedging Costs and Expose Us to Increased Counterparty
Risk
Certain of our variable annuity products include guaranteed
benefits. These include guaranteed death benefits, guaranteed
withdrawal benefits, lifetime withdrawal guarantees, guaranteed
minimum accumulation benefits, and guaranteed minimum income
benefits. Periods of significant and sustained downturns in
equity markets, increased equity volatility, or reduced interest
rates could result in an increase in the valuation of the future
policy benefit or policyholder account balance liabilities
associated with such products, resulting in a reduction to net
income. We use reinsurance in combination with derivative
instruments to mitigate the liability exposure and the
volatility of net income associated with these liabilities, and
while we believe that these and other actions have mitigated the
risks related to these benefits, we remain liable for the
guaranteed benefits in the event that reinsurers or derivative
counterparties are unable or unwilling to pay. In addition, we
are subject to the risk that hedging and other management
procedures prove ineffective or that unanticipated policyholder
behavior or mortality, combined with adverse market events,
produces economic losses beyond the scope of the risk management
techniques employed. These, individually or collectively, may
have a material adverse effect on net income, financial
condition or liquidity. We are also subject to the risk that the
cost of hedging these guaranteed minimum benefits increases,
resulting in a reduction to net income.
51
We May
Need to Fund Deficiencies in Our Closed Block; Assets
Allocated to the Closed Block Benefit Only the Holders of Closed
Block Policies
MLIC’s plan of reorganization, as amended (the
“Plan”), required that we establish and operate an
accounting mechanism, known as a closed block, to ensure that
the reasonable dividend expectations of policyholders who own
certain individual insurance policies of MLIC are met. See
Note 10 of the Notes to the Consolidated Financial
Statements. We allocated assets to the closed block in an amount
that will produce cash flows which, together with anticipated
revenue from the policies included in the closed block, are
reasonably expected to be sufficient to support obligations and
liabilities relating to these policies, including, but not
limited to, provisions for the payment of claims and certain
expenses and tax, and to provide for the continuation of the
policyholder dividend scales in effect for 1999, if the
experience underlying such scales continues, and for appropriate
adjustments in such scales if the experience changes. We cannot
provide assurance that the closed block assets, the cash flows
generated by the closed block assets and the anticipated revenue
from the policies included in the closed block will be
sufficient to provide for the benefits guaranteed under these
policies. If they are not sufficient, we must fund the
shortfall. Even if they are sufficient, we may choose, for
competitive reasons, to support policyholder dividend payments
with our general account funds.
The closed block assets, the cash flows generated by the closed
block assets and the anticipated revenue from the policies in
the closed block will benefit only the holders of those
policies. In addition, to the extent that these amounts are
greater than the amounts estimated at the time the closed block
was funded, dividends payable in respect of the policies
included in the closed block may be greater than they would be
in the absence of a closed block. Any excess earnings will be
available for distribution over time only to closed block
policyholders.
Litigation
and Regulatory Investigations Are Increasingly Common in Our
Businesses and May Result in Significant Financial Losses and
Harm to Our Reputation
We face a significant risk of litigation and regulatory
investigations and actions in the ordinary course of operating
our businesses, including the risk of class action lawsuits. Our
pending legal and regulatory actions include proceedings
specific to us and others generally applicable to business
practices in the industries in which we operate. In connection
with our insurance operations, plaintiffs’ lawyers may
bring or are bringing class actions and individual suits
alleging, among other things, issues relating to sales or
underwriting practices, claims payments and procedures, product
design, disclosure, administration, denial or delay of benefits
and breaches of fiduciary or other duties to customers.
Plaintiffs in class action and other lawsuits against us may
seek very large or indeterminate amounts, including punitive and
treble damages, and the damages claimed and the amount of any
probable and estimable liability, if any, may remain unknown for
substantial periods of time. See Note 16 of the Notes to
the Consolidated Financial Statements.
Due to the vagaries of litigation, the outcome of a litigation
matter and the amount or range of potential loss at particular
points in time may be inherently impossible to ascertain with
any degree of certainty. Inherent uncertainties can include how
fact finders will view individually and in their totality
documentary evidence, the credibility and effectiveness of
witnesses’ testimony, and how trial and appellate courts
will apply the law in the context of the pleadings or evidence
presented, whether by motion practice, or at trial or on appeal.
Disposition valuations are also subject to the uncertainty of
how opposing parties and their counsel will themselves view the
relevant evidence and applicable law.
On a quarterly and annual basis, we review relevant information
with respect to litigation and contingencies to be reflected in
our consolidated financial statements. The review includes
senior legal and financial personnel. Unless stated elsewhere
herein, estimates of possible losses or ranges of loss for
particular matters cannot in the ordinary course be made with a
reasonable degree of certainty. Liabilities are established when
it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. Liabilities have been
established for a number of matters noted in Note 16 of the
Notes to the Consolidated Financial Statements. It is possible
that some of the matters could require us to pay damages or make
other expenditures or establish accruals in amounts that could
not be estimated at December 31, 2009.
52
MLIC and its affiliates are currently defendants in numerous
lawsuits including class actions and individual suits, alleging
improper marketing or sales of individual life insurance
policies, annuities, mutual funds or other products.
In addition, MLIC is a defendant in a large number of lawsuits
seeking compensatory and punitive damages for personal injuries
allegedly caused by exposure to asbestos or asbestos-containing
products. These lawsuits principally have focused on allegations
with respect to certain research, publication and other
activities of one or more of MLIC’s employees during the
period from the 1920’s through approximately the
1950’s and have alleged that MLIC learned or should have
learned of certain health risks posed by asbestos and, among
other things, improperly publicized or failed to disclose those
health risks. Additional litigation relating to these matters
may be commenced in the future. The ability of MLIC to estimate
its ultimate asbestos exposure is subject to considerable
uncertainty, and the conditions impacting its liability can be
dynamic and subject to change. The availability of reliable data
is limited and it is difficult to predict with any certainty the
numerous variables that can affect liability estimates,
including the number of future claims, the cost to resolve
claims, the disease mix and severity of disease in pending and
future claims, the impact of the number of new claims filed in a
particular jurisdiction and variations in the law in the
jurisdictions in which claims are filed, the possible impact of
tort reform efforts, the willingness of courts to allow
plaintiffs to pursue claims against MLIC when exposure took
place after the dangers of asbestos exposure were well known,
and the impact of any possible future adverse verdicts and their
amounts. The number of asbestos cases that may be brought or the
aggregate amount of any liability that MLIC may incur, and the
total amount paid in settlements in any given year are uncertain
and may vary significantly from year to year. Accordingly, it is
reasonably possible that our total exposure to asbestos claims
may be materially greater than the liability recorded by us in
our consolidated financial statements and that future charges to
income may be necessary. The potential future charges could be
material in the particular quarterly or annual periods in which
they are recorded.
We are also subject to various regulatory inquiries, such as
information requests, subpoenas and books and record
examinations, from state and federal regulators and other
authorities. A substantial legal liability or a significant
regulatory action against us could have a material adverse
effect on our business, financial condition and results of
operations. Moreover, even if we ultimately prevail in the
litigation, regulatory action or investigation, we could suffer
significant reputational harm, which could have a material
adverse effect on our business, financial condition and results
of operations, including our ability to attract new customers,
retain our current customers and recruit and retain employees.
Regulatory inquiries and litigation may cause volatility in the
price of stocks of companies in our industry.
We cannot give assurance that current claims, litigation,
unasserted claims probable of assertion, investigations and
other proceedings against us will not have a material adverse
effect on our business, financial condition or results of
operations. It is also possible that related or unrelated
claims, litigation, unasserted claims probable of assertion,
investigations and proceedings may be commenced in the future,
and we could become subject to further investigations and have
lawsuits filed or enforcement actions initiated against us. In
addition, increased regulatory scrutiny and any resulting
investigations or proceedings could result in new legal actions
and precedents and industry-wide regulations that could
adversely affect our business, financial condition and results
of operations.
Proposals
to Regulate Compensation, if Implemented, Could Hinder or
Prevent Us From Attracting and Retaining Management and Other
Employees with the Talent and Experience to Manage and Conduct
Our Business Effectively
Congress is considering the possibility of regulating the
compensation that financial institutions may provide to their
executive officers and other employees. In addition, the Federal
Reserve Board and the FDIC have proposed guidelines on incentive
compensation that, if adopted, may apply to or impact MetLife as
a bank holding company. These restrictions could hinder or
prevent us from attracting and retaining management and other
employees with the talent and experience to manage and conduct
our business effectively. They could also limit our tax
deductions for certain compensation paid to executive employees
in excess of specified amounts. We may also be subject to
requirements and restrictions on our business if we participate
in some of the programs established in whole or in part under
EESA.
53
Changes
in U.S. Federal and State Securities Laws and Regulations May
Affect Our Operations and Our Profitability
Federal and state securities laws and regulations apply to
insurance products that are also “securities,”
including variable annuity contracts and variable life insurance
policies. As a result, some of MetLife, Inc.’s subsidiaries
and their activities in offering and selling variable insurance
contracts and policies are subject to extensive regulation under
these securities laws. These subsidiaries issue variable annuity
contracts and variable life insurance policies through separate
accounts that are registered with the SEC as investment
companies under the Investment Company Act. Each registered
separate account is generally divided into
sub-accounts,
each of which invests in an underlying mutual fund which is
itself a registered investment company under the Investment
Company Act. In addition, the variable annuity contracts and
variable life insurance policies issued by the separate accounts
are registered with the SEC under the Securities Act. Other
subsidiaries are registered with the SEC as broker-dealers under
the Exchange Act, and are members of, and subject to, regulation
by FINRA. Further, some of our subsidiaries are registered as
investment advisers with the SEC under the Investment Advisers
Act of 1940, and are also registered as investment advisers in
various states, as applicable.
Federal and state securities laws and regulations are primarily
intended to ensure the integrity of the financial markets and to
protect investors in the securities markets, as well as protect
investment advisory or brokerage clients. These laws and
regulations generally grant regulatory agencies broad rulemaking
and enforcement powers, including the power to limit or restrict
the conduct of business for failure to comply with the
securities laws and regulations. Changes to these laws or
regulations that restrict the conduct of our business could have
a material adverse effect on our financial condition and results
of operations. In particular, changes in the regulations
governing the registration and distribution of variable
insurance products, such as changes in the regulatory standards
for suitability of variable annuity contracts or variable life
insurance policies, or changes in the standard of care which
sales representatives owe to their customers with respect to the
sale of variable insurance products, could have such a material
adverse effect.
Changes
in Tax Laws, Tax Regulations, or Interpretations of Such Laws or
Regulations Could Increase Our Corporate Taxes; Changes in Tax
Laws Could Make Some of Our Products Less Attractive to
Consumers
Changes in tax laws, Treasury and other regulations promulgated
thereunder, or interpretations of such laws or regulations could
increase our corporate taxes. The Obama Administration has
proposed corporate tax changes. Changes in corporate tax rates
could affect the value of deferred tax assets and deferred tax
liabilities. Furthermore, the value of deferred tax assets could
be impacted by future earnings levels.
Changes in tax laws could make some of our products less
attractive to consumers. A shift away from life insurance and
annuity contracts and other tax-deferred products would reduce
our income from sales of these products, as well as the assets
upon which we earn investment income. The Obama Administration
has proposed certain changes to individual income tax rates and
rules applicable to certain policies.
We cannot predict whether any tax legislation impacting
corporate taxes or insurance products will be enacted, what the
specific terms of any such legislation will be or whether, if at
all, any legislation would have a material adverse effect on our
financial condition and results of operations.
We May
be Unable to Attract and Retain Sales Representatives for Our
Products
We must attract and retain productive sales representatives to
sell our insurance, annuities and investment products. Strong
competition exists among insurers for sales representatives with
demonstrated ability. In addition, there is competition for
representatives with other types of financial services firms,
such as independent broker-dealers. We compete with other
insurers for sales representatives primarily on the basis of our
financial position, support services and compensation and
product features. We continue to undertake several initiatives
to grow our career agency force while continuing to enhance the
efficiency and production of our existing sales force. We cannot
provide assurance that these initiatives will succeed in
attracting and retaining new agents. Sales of individual
insurance, annuities and investment products and our results of
operations and financial condition could be
54
materially adversely affected if we are unsuccessful in
attracting and retaining agents. See “Business —
Competition.”
MetLife,
Inc.’s Board of Directors May Control the Outcome of
Stockholder Votes on Many Matters Due to the Voting Provisions
of the MetLife Policyholder Trust
Under the Plan, we established the MetLife Policyholder Trust
(the “Trust”) to hold the shares of MetLife, Inc.
common stock allocated to eligible policyholders not receiving
cash or policy credits under the plan. At February 22,
2010, 231,759,896 shares, or 28.3%, of the outstanding
shares of MetLife, Inc. common stock, are held in the Trust.
Because of the number of shares held in the Trust and the voting
provisions of the Trust, the Trust may affect the outcome of
matters brought to a stockholder vote.
Except on votes regarding certain fundamental corporate actions
described below, the trustee will vote all of the shares of
common stock held in the Trust in accordance with the
recommendations given by MetLife, Inc.’s Board of Directors
to its stockholders or, if the board gives no such
recommendations, as directed by the board. As a result of the
voting provisions of the Trust, the Board of Directors may be
able to control votes on matters submitted to a vote of
stockholders, excluding those fundamental corporate actions, so
long as the Trust holds a substantial number of shares of common
stock.
If the vote relates to fundamental corporate actions specified
in the Trust, the trustee will solicit instructions from the
Trust beneficiaries and vote all shares held in the Trust in
proportion to the instructions it receives. These actions
include:
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•
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an election or removal of directors in which a stockholder has
properly nominated one or more candidates in opposition to a
nominee or nominees of MetLife, Inc.’s Board of Directors
or a vote on a stockholder’s proposal to oppose a board
nominee for director, remove a director for cause or fill a
vacancy caused by the removal of a director by stockholders,
subject to certain conditions;
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•
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a merger or consolidation, a sale, lease or exchange of all or
substantially all of the assets, or a recapitalization or
dissolution, of MetLife, Inc., in each case requiring a vote of
stockholders under applicable Delaware law;
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•
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any transaction that would result in an exchange or conversion
of shares of common stock held by the Trust for cash, securities
or other property; and
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•
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any proposal requiring MetLife, Inc.’s Board of Directors
to amend or redeem the rights under the stockholder rights plan,
other than a proposal with respect to which we have received
advice of nationally-recognized legal counsel to the effect that
the proposal is not a proper subject for stockholder action
under Delaware law.
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If a vote concerns any of these fundamental corporate actions,
the trustee will vote all of the shares of common stock held by
the Trust in proportion to the instructions it received, which
will give disproportionate weight to the instructions actually
given by Trust beneficiaries.
State
Laws, Federal Laws, Our Certificate of Incorporation and By-Laws
and Our Stockholder Rights Plan May Delay, Deter or Prevent
Takeovers and Business Combinations that Stockholders Might
Consider in Their Best Interests
State laws and our certificate of incorporation and by-laws may
delay, deter or prevent a takeover attempt that stockholders
might consider in their best interests. For instance, they may
prevent stockholders from receiving the benefit from any premium
over the market price of MetLife, Inc.’s common stock
offered by a bidder in a takeover context. Even in the absence
of a takeover attempt, the existence of these provisions may
adversely affect the prevailing market price of MetLife,
Inc.’s common stock if they are viewed as discouraging
takeover attempts in the future.
Any person seeking to acquire a controlling interest in us would
face various regulatory obstacles which may delay, deter or
prevent a takeover attempt that stockholders of MetLife, Inc.
might consider in their best interests. First, the insurance
laws and regulations of the various states in which MetLife,
Inc.’s insurance subsidiaries are
55
organized may delay or impede a business combination involving
us. State insurance laws prohibit an entity from acquiring
control of an insurance company without the prior approval of
the domestic insurance regulator. Under most states’
statutes, an entity is presumed to have control of an insurance
company if it owns, directly or indirectly, 10% or more of the
voting stock of that insurance company or its parent company. We
are also subject to banking regulations, and may in the future
become subject to additional regulations. The Obama
Administration and Congress have made various proposals that
could restrict or impede consolidation, mergers and acquisitions
by systemically significant firms
and/or bank
holding companies. In addition, the Investment Company Act would
require approval by the contract owners of our variable
contracts in order to effectuate a change of control of any
affiliated investment adviser to a mutual fund underlying our
variable contracts. Finally, FINRA approval would be necessary
for a change of control of any FINRA registered broker-dealer
that is a direct or indirect subsidiary of MetLife, Inc.
In addition, Section 203 of the Delaware General
Corporation Law may affect the ability of an “interested
stockholder” to engage in certain business combinations,
including mergers, consolidations or acquisitions of additional
shares, for a period of three years following the time that the
stockholder becomes an “interested stockholder.” An
“interested stockholder” is defined to include persons
owning, directly or indirectly, 15% or more of the outstanding
voting stock of a corporation.
MetLife, Inc.’s certificate of incorporation and by-laws
also contain provisions that may delay, deter or prevent a
takeover attempt that stockholders might consider in their best
interests. These provisions may adversely affect prevailing
market prices for MetLife, Inc.’s common stock and include:
classification of MetLife, Inc.’s Board of Directors into
three classes; a prohibition on the calling of special meetings
by stockholders; advance notice procedures for the nomination of
candidates to the Board of Directors and stockholder proposals
to be considered at stockholder meetings; and supermajority
voting requirements for the amendment of certain provisions of
the certificate of incorporation and by-laws.
The stockholder rights plan, which was adopted by MetLife,
Inc.’s Board of Directors in September 1999, might also
have anti-takeover effects. The provisions of the rights plan
might render an unsolicited takeover more difficult or less
likely to occur or might prevent such a takeover, even though
such takeover may offer MetLife, Inc.’s stockholders the
opportunity to sell their stock at a price above the prevailing
market price and may be favored by a majority of MetLife,
Inc.’s stockholders. The rights plan is scheduled to expire
at the close of business on April 4, 2010, and the Board of
Directors does not currently intend to renew it.
The
Continued Threat of Terrorism and Ongoing Military Actions May
Adversely Affect the Level of Claim Losses We Incur and the
Value of Our Investment Portfolio
The continued threat of terrorism, both within the United States
and abroad, ongoing military and other actions and heightened
security measures in response to these types of threats may
cause significant volatility in global financial markets and
result in loss of life, property damage, additional disruptions
to commerce and reduced economic activity. Some of the assets in
our investment portfolio may be adversely affected by declines
in the credit and equity markets and reduced economic activity
caused by the continued threat of terrorism. We cannot predict
whether, and the extent to which, companies in which we maintain
investments may suffer losses as a result of financial,
commercial or economic disruptions, or how any such disruptions
might affect the ability of those companies to pay interest or
principal on their securities or mortgage loans. The continued
threat of terrorism also could result in increased reinsurance
prices and reduced insurance coverage and potentially cause us
to retain more risk than we otherwise would retain if we were
able to obtain reinsurance at lower prices. Terrorist actions
also could disrupt our operations centers in the United States
or abroad. In addition, the occurrence of terrorist actions
could result in higher claims under our insurance policies than
anticipated. See “— Difficult Conditions in the
Global Capital Markets and the Economy Generally May Materially
Adversely Affect Our Business and Results of Operations and
These Conditions May Not Improve in the Near Future.”
56
The
Occurrence of Events Unanticipated In Our Disaster Recovery
Systems and Management Continuity Planning Could Impair Our
Ability to Conduct Business Effectively
In the event of a disaster such as a natural catastrophe, an
epidemic, an industrial accident, a blackout, a computer virus,
a terrorist attack or war, unanticipated problems with our
disaster recovery systems could have a material adverse impact
on our ability to conduct business and on our results of
operations and financial position, particularly if those
problems affect our computer-based data processing,
transmission, storage and retrieval systems and destroy valuable
data. We depend heavily upon computer systems to provide
reliable service. Despite our implementation of a variety of
security measures, our computer systems could be subject to
physical and electronic break-ins, and similar disruptions from
unauthorized tampering. In addition, in the event that a
significant number of our managers were unavailable in the event
of a disaster, our ability to effectively conduct business could
be severely compromised. These interruptions also may interfere
with our suppliers’ ability to provide goods and services
and our employees’ ability to perform their job
responsibilities.
Our
Associates May Take Excessive Risks Which Could Negatively
Affect Our Financial Condition and Business
As an insurance enterprise, we are in the business of being paid
to accept certain risks. The associates who conduct our
business, including executive officers and other members of
management, sales managers, investment professionals, product
managers, sales agents, and other associates, do so in part by
making decisions and choices that involve exposing us to risk.
These include decisions such as setting underwriting guidelines
and standards, product design and pricing, determining what
assets to purchase for investment and when to sell them, which
business opportunities to pursue, and other decisions. Although
we endeavor, in the design and implementation of our
compensation programs and practices, to avoid giving our
associates incentives to take excessive risks, associates may
take such risks regardless of the structure of our compensation
programs and practices. Similarly, although we employ controls
and procedures designed to monitor associates’ business
decisions and prevent us from taking excessive risks, there can
be no assurance that these controls and procedures are or may be
effective. If our associates take excessive risks, the impact of
those risks could have a material adverse effect on our
financial condition or business operations.
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Item 1B.
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Unresolved
Staff Comments
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MetLife has no unresolved comments from the SEC staff regarding
its periodic or current reports under the Exchange Act.
In 2006, we signed a lease for 410,000 rentable square feet
on 12 floors in an office building in Manhattan, New York. The
term of that lease commenced during 2008 and continues for
21 years. In August 2009, we subleased 32,000 rentable
square feet of that space to a subtenant, which has met our
standards of review with respect to creditworthiness, and we
currently have approximately 68,000 rentable square feet of
the 410,000 rentable square feet available for sublease. We
moved certain operations from our Long Island City, New York
facility, to the Manhattan space in late 2008, but continue to
maintain an on-going presence in Long Island City. Our lease in
Long Island City covers 686,000 rentable square feet, under
a long-term lease arrangement. In connection with the move of
certain operations to Manhattan, in late 2008, we subleased
80,000 rentable square feet to two subtenants, each of
which has met our standards of review with respect to
creditworthiness. Additionally, we currently have
180,000 rentable square feet available for sublease in our
Long Island City location. As a result of this movement of
operations, and current market conditions, the Company incurred
a lease impairment charge of $52 million and
$38 million, for the years ended December 31, 2009 and
2008, respectively.
In connection with the 2005 sale of the 200 Park Avenue
property, we have retained rights to existing signage and are
leasing space for associates in the property for 20 years
with optional renewal periods through 2205.
We continue to own 15 other buildings in the United States that
we use in the operation of our business. These buildings contain
4.2 million rentable square feet and are located in the
following states: Connecticut, Florida, Illinois, Missouri, New
Jersey, New York, Ohio, Oklahoma, Pennsylvania and Rhode Island.
Our computer center in
57
Rensselaer, New York is not owned in fee but rather is occupied
pursuant to a long-term ground lease. We lease space in 755
other locations throughout the United States, and these leased
facilities consist of 8.8 million rentable square feet.
Approximately 53% of these leases are occupied as sales offices
for the U.S. Business Operations segment. The balance of
space is utilized for MetLife Bank and other corporate functions
supporting business activities. We also own 7 properties outside
the United States, comprising 247,000 rentable square feet
including a 192,000 square foot condominium unit in Mexico
that we use in the operation of our business. We lease
3.3 million rentable square feet in various locations
outside the United States. We believe that these properties are
suitable and adequate for our current and anticipated business
operations.
We arrange for property and casualty coverage on our properties,
taking into consideration our risk exposures and the cost and
availability of commercial coverages, including deductible loss
levels. In connection with the renewal of those coverages, we
have arranged $700 million of property insurance, including
coverage for terrorism, on our real estate portfolio through
May 15, 2010, its renewal date.
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Item 3.
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Legal
Proceedings
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See Note 16 of the Notes to the Consolidated Financial
Statements.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matter was submitted to a vote of security holders during the
fourth quarter of 2009.
58
Part II
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Item 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Issuer
Common Equity
MetLife, Inc.’s common stock, par value $0.01 per share,
began trading on the NYSE under the symbol “MET” on
April 5, 2000.
The following table presents high and low closing prices for the
common stock on the NYSE for the periods indicated:
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2009
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1st Quarter
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2nd Quarter
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3rd Quarter
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4th Quarter
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Common Stock Price
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High
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$
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35.97
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$
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35.50
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$
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40.83
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$
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38.35
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Low
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$
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12.10
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$
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23.43
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$
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26.90
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$
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33.22
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2008
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1st Quarter
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2nd Quarter
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3rd Quarter
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4th Quarter
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Common Stock Price
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High
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$
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61.52
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$
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62.88
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$
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63.00
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$
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48.15
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Low
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$
|
54.62
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$
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52.77
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$
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43.75
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$
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16.48
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At February 22, 2010, there were 89,069 stockholders of
record of common stock.
The table below presents dividend declaration, record and
payment dates, as well as per share and aggregate dividend
amounts, for the common stock:
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Dividend
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Declaration Date
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Record Date
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Payment Date
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Per Share
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Aggregate
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(In millions,
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except per share data)
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October 29, 2009
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November 9, 2009
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December 14, 2009
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$
|
0.74
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$
|
610
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October 28, 2008
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November 10, 2008
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December 15, 2008
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$
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0.74
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$
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592
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Future common stock dividend decisions will be determined by the
Company’s Board of Directors after taking into
consideration factors such as our current earnings, expected
medium-term and long-term earnings, financial condition,
regulatory capital position, and applicable governmental
regulations and policies. Furthermore, the payment of dividends
and other distributions to the Company by its insurance
subsidiaries is regulated by insurance laws and regulations. See
“Business — Regulation — Insurance
Regulation,” “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Liquidity and Capital
Resources — The Holding Company — Liquidity
and Capital Sources — Dividends from
Subsidiaries” and Note 18 of the Notes to the
Consolidated Financial Statements.
59
Issuer
Purchases of Equity Securities
Purchases of common stock made by or on behalf of the Company or
its affiliates during the quarter ended December 31, 2009
are set forth below:
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(c) Total Number
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(d) Maximum Number
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of Shares
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(or Approximate
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Purchased as Part
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Dollar Value) of
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(a) Total Number
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of Publicly
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Shares that May Yet
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of Shares
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(b) Average Price
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Announced Plans
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Be Purchased Under the
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Period
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Purchased (1)
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Paid per Share
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or Programs
|
|
Plans or Programs (2)
|
|
|
|
October 1- October 31, 2009
|
|
|
15,000
|
|
|
$
|
38.41
|
|
|
|
—
|
|
|
$
|
1,260,735,127
|
|
|
November 1- November 30, 2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,260,735,127
|
|
|
December 1- December 31, 2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,260,735,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,000
|
|
|
$
|
38.41
|
|
|
|
—
|
|
|
$
|
1,260,735,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On October 31, 2009, separate account affiliates of the
Company purchased 15,000 shares of common stock on the open
market in nondiscretionary transactions to rebalance index
funds. Except as disclosed above, there were no shares of common
stock which were repurchased by the Company. |
| |
|
(2) |
|
At December 31, 2009, the Company had $1,261 million
remaining under its common stock repurchase program
authorizations. In April 2008, the Company’s Board of
Directors authorized an additional $1 billion common stock
repurchase program, which will begin after the completion of the
January 2008 $1 billion common stock repurchase program, of
which $261 million remained outstanding at
December 31, 2009. Under these authorizations, the Company
may purchase its common stock from the MetLife Policyholder
Trust, in the open market (including pursuant to the terms of a
pre-set trading plan meeting the requirements of
Rule 10b5-1
under the Exchange Act) and in privately negotiated transactions. |
See also “Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
Liquidity and Capital Resources — The Holding
Company — Liquidity and Capital Uses — Share
Repurchases” for further information relating to common
stock repurchases.
60
|
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data has been derived from the
Company’s audited consolidated financial statements. The
statement of operations data for the years ended
December 31, 2009, 2008 and 2007, and the balance sheet
data at December 31, 2009 and 2008 have been derived from
the Company’s audited financial statements included
elsewhere herein. The statement of operations data for the years
ended December 31, 2006 and 2005, and the balance sheet
data at December 31, 2007, 2006 and 2005 have been derived
from the Company’s audited financial statements not
included herein. The selected financial data set forth below
should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and the consolidated financial statements and
related notes included elsewhere herein.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In millions)
|
|
|
|
|
Statement of Operations Data (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
26,460
|
|
|
$
|
25,914
|
|
|
$
|
22,970
|
|
|
$
|
22,052
|
|
|
$
|
20,979
|
|
|
Universal life and investment-type product policy fees
|
|
|
5,203
|
|
|
|
5,381
|
|
|
|
5,238
|
|
|
|
4,711
|
|
|
|
3,775
|
|
|
Net investment income
|
|
|
14,838
|
|
|
|
16,291
|
|
|
|
18,057
|
|
|
|
16,241
|
|
|
|
14,058
|
|
|
Other revenues
|
|
|
2,329
|
|
|
|
1,586
|
|
|
|
1,465
|
|
|
|
1,301
|
|
|
|
1,221
|
|
|
Net investment gains (losses)
|
|
|
(7,772
|
)
|
|
|
1,812
|
|
|
|
(578
|
)
|
|
|
(1,382
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
41,058
|
|
|
|
50,984
|
|
|
|
47,152
|
|
|
|
42,923
|
|
|
|
39,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
28,336
|
|
|
|
27,437
|
|
|
|
23,783
|
|
|
|
22,869
|
|
|
|
22,236
|
|
|
Interest credited to policyholder account balances
|
|
|
4,849
|
|
|
|
4,788
|
|
|
|
5,461
|
|
|
|
4,899
|
|
|
|
3,650
|
|
|
Policyholder dividends
|
|
|
1,650
|
|
|
|
1,751
|
|
|
|
1,723
|
|
|
|
1,698
|
|
|
|
1,678
|
|
|
Other expenses
|
|
|
10,556
|
|
|
|
11,947
|
|
|
|
10,405
|
|
|
|
9,514
|
|
|
|
8,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
45,391
|
|
|
|
45,923
|
|
|
|
41,372
|
|
|
|
38,980
|
|
|
|
35,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(4,333
|
)
|
|
|
5,061
|
|
|
|
5,780
|
|
|
|
3,943
|
|
|
|
4,088
|
|
|
Provision for income tax expense (benefit)
|
|
|
(2,015
|
)
|
|
|
1,580
|
|
|
|
1,675
|
|
|
|
1,027
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(2,318
|
)
|
|
|
3,481
|
|
|
|
4,105
|
|
|
|
2,916
|
|
|
|
2,932
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
40
|
|
|
|
(203
|
)
|
|
|
360
|
|
|
|
3,524
|
|
|
|
1,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,278
|
)
|
|
|
3,278
|
|
|
|
4,465
|
|
|
|
6,440
|
|
|
|
4,811
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(32
|
)
|
|
|
69
|
|
|
|
148
|
|
|
|
147
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
(2,246
|
)
|
|
|
3,209
|
|
|
|
4,317
|
|
|
|
6,293
|
|
|
|
4,714
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
137
|
|
|
|
134
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(2,368
|
)
|
|
$
|
3,084
|
|
|
$
|
4,180
|
|
|
$
|
6,159
|
|
|
$
|
4,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance Sheet Data (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General account assets
|
|
$
|
390,273
|
|
|
$
|
380,839
|
|
|
$
|
399,007
|
|
|
$
|
383,758
|
|
|
$
|
354,857
|
|
|
Separate account assets
|
|
|
149,041
|
|
|
|
120,839
|
|
|
|
160,142
|
|
|
|
144,349
|
|
|
|
127,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
539,314
|
|
|
$
|
501,678
|
|
|
$
|
559,149
|
|
|
$
|
528,107
|
|
|
$
|
482,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder liabilities (2)
|
|
$
|
283,759
|
|
|
$
|
282,261
|
|
|
$
|
261,442
|
|
|
$
|
252,099
|
|
|
$
|
243,834
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
24,196
|
|
|
|
31,059
|
|
|
|
44,136
|
|
|
|
45,846
|
|
|
|
34,515
|
|
|
Bank deposits
|
|
|
10,211
|
|
|
|
6,884
|
|
|
|
4,534
|
|
|
|
4,638
|
|
|
|
4,339
|
|
|
Short-term debt
|
|
|
912
|
|
|
|
2,659
|
|
|
|
667
|
|
|
|
1,449
|
|
|
|
1,414
|
|
|
Long-term debt
|
|
|
13,220
|
|
|
|
9,667
|
|
|
|
9,100
|
|
|
|
8,822
|
|
|
|
9,088
|
|
|
Collateral financing arrangements
|
|
|
5,297
|
|
|
|
5,192
|
|
|
|
4,882
|
|
|
|
—
|
|
|
|
—
|
|
|
Junior subordinated debt securities
|
|
|
3,191
|
|
|
|
3,758
|
|
|
|
4,075
|
|
|
|
3,381
|
|
|
|
2,134
|
|
|
Other
|
|
|
15,989
|
|
|
|
15,374
|
|
|
|
33,186
|
|
|
|
32,277
|
|
|
|
29,141
|
|
|
Separate account liabilities
|
|
|
149,041
|
|
|
|
120,839
|
|
|
|
160,142
|
|
|
|
144,349
|
|
|
|
127,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
505,816
|
|
|
|
477,693
|
|
|
|
522,164
|
|
|
|
492,861
|
|
|
|
452,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MetLife, Inc.’s stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, at par value
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Common stock, at par value
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
Additional paid-in capital
|
|
|
16,859
|
|
|
|
15,811
|
|
|
|
17,098
|
|
|
|
17,454
|
|
|
|
17,274
|
|
|
Retained earnings
|
|
|
19,501
|
|
|
|
22,403
|
|
|
|
19,884
|
|
|
|
16,574
|
|
|
|
10,865
|
|
|
Treasury stock, at cost
|
|
|
(190
|
)
|
|
|
(236
|
)
|
|
|
(2,890
|
)
|
|
|
(1,357
|
)
|
|
|
(959
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
(3,058
|
)
|
|
|
(14,253
|
)
|
|
|
1,078
|
|
|
|
1,118
|
|
|
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MetLife, Inc.’s stockholders’ equity
|
|
|
33,121
|
|
|
|
23,734
|
|
|
|
35,179
|
|
|
|
33,798
|
|
|
|
29,101
|
|
|
Noncontrolling interests
|
|
|
377
|
|
|
|
251
|
|
|
|
1,806
|
|
|
|
1,448
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
33,498
|
|
|
|
23,985
|
|
|
|
36,985
|
|
|
|
35,246
|
|
|
|
30,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
539,314
|
|
|
$
|
501,678
|
|
|
$
|
559,149
|
|
|
$
|
528,107
|
|
|
$
|
482,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
(In millions, except per share data)
|
|
|
|
Other Data (1), (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(2,368)
|
|
$
|
3,084
|
|
$
|
4,180
|
|
$
|
6,159
|
|
$
|
4,651
|
|
|
|
|
Return on MetLife, Inc.’s common equity
|
|
|
(9.0)%
|
|
|
11.2%
|
|
|
12.9%
|
|
|
20.9%
|
|
|
18.6%
|
|
|
|
|
Return on MetLife, Inc.’s common equity, excluding
accumulated other comprehensive income (loss)
|
|
|
(6.8)%
|
|
|
9.1%
|
|
|
13.3%
|
|
|
22.1%
|
|
|
20.7%
|
|
|
|
|
EPS Data (1), (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Available to MetLife,
Inc.’s Common Shareholders Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.94)
|
|
$
|
4.60
|
|
$
|
5.32
|
|
$
|
3.64
|
|
$
|
3.85
|
|
|
|
|
Diluted
|
|
$
|
(2.94)
|
|
$
|
4.54
|
|
$
|
5.20
|
|
$
|
3.60
|
|
$
|
3.81
|
|
|
|
|
Income (Loss) from Discontinued Operations Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
$
|
(0.41)
|
|
$
|
0.30
|
|
$
|
4.45
|
|
$
|
2.36
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
$
|
(0.40)
|
|
$
|
0.28
|
|
$
|
4.39
|
|
$
|
2.35
|
|
|
|
|
Net Income (Loss) Available to MetLife, Inc.’s Common
Shareholders Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.89)
|
|
$
|
4.19
|
|
$
|
5.62
|
|
$
|
8.09
|
|
$
|
6.21
|
|
|
|
|
Diluted
|
|
$
|
(2.89)
|
|
$
|
4.14
|
|
$
|
5.48
|
|
$
|
7.99
|
|
$
|
6.16
|
|
|
|
|
Dividends Declared Per Common Share
|
|
$
|
0.74
|
|
$
|
0.74
|
|
$
|
0.74
|
|
$
|
0.59
|
|
$
|
0.52
|
|
|
|
|
|
|
|
(1) |
|
On July 1, 2005, the Company completed the acquisition of
The Travelers Insurance Company, excluding certain assets, most
significantly, Primerica, from Citigroup Inc.
(“Citigroup”), and substantially all of
Citigroup’s international insurance businesses. The 2005
selected financial data includes total revenues and total
expenses of $966 million and $577 million,
respectively, from the date of the acquisition. |
| |
|
(2) |
|
Policyholder liabilities include future policy benefits,
policyholder account balances, other policyholder funds,
policyholder dividends payable and the policyholder dividend
obligation. |
| |
|
(3) |
|
Return on common equity is defined as net income (loss)
available to MetLife, Inc.’s common shareholders divided by
average common stockholders’ equity. |
| |
|
(4) |
|
For the year ended December 31, 2009, shares related to the
exercise or issuance of stock-based awards have been excluded
from the calculation of diluted earnings per common share as
these shares are anti-dilutive. |
Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
For purposes of this discussion, “MetLife” or the
“Company” refers to MetLife, Inc., a Delaware
corporation incorporated in 1999 (the “Holding
Company”), and its subsidiaries, including Metropolitan
Life Insurance Company (“MLIC”). Following this
summary is a discussion addressing the consolidated results of
operations and financial condition of the Company for the
periods indicated. This discussion should be read in conjunction
with “Note Regarding Forward-Looking Statements,”
“Risk Factors,” “Selected Financial Data”
and the Company’s consolidated financial statements
included elsewhere herein.
This Management’s Discussion and Analysis of Financial
Condition and Results of Operations may contain or incorporate
by reference information that includes or is based upon
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements give expectations or forecasts of future events.
These statements can be identified by the fact that they do not
relate strictly to historical or current facts. They use words
such as “anticipate,” “estimate,”
“expect,” “project,” “intend,”
“plan,” “believe” and other words and terms
of similar meaning in connection with a discussion of future
operating or financial performance. In particular, these include
statements relating to future actions, prospective services or
products, future performance
63
or results of current and anticipated services or products,
sales efforts, expenses, the outcome of contingencies such as
legal proceedings, trends in operations and financial results.
Any or all forward-looking statements may turn out to be wrong.
Actual results could differ materially from those expressed or
implied in the forward-looking statements. See “Note
Regarding Forward-Looking Statements.”
The following discussion includes references to our performance
measures operating earnings and operating earnings available to
common shareholders, that are not based on generally accepted
accounting principles in the United States of America
(“GAAP”). Operating earnings is the measure of segment
profit or loss we use to evaluate segment performance and
allocate resources and, consistent with GAAP accounting guidance
for segment reporting, is our measure of segment performance.
Operating earnings is also a measure by which our senior
management’s and many other employees’ performance is
evaluated for the purposes of determining their compensation
under applicable compensation plans. Operating earnings is
defined as operating revenues less operating expenses, net of
income tax. Operating earnings available to common shareholders,
which is used to evaluate the performance of Banking,
Corporate & Other, as well as MetLife is defined as
operating earnings less preferred stock dividends.
Operating revenues is defined as GAAP revenues (i) less net
investment gains (losses), (ii) less amortization of
unearned revenue related to net investment gains (losses),
(iii) plus scheduled periodic settlement payments on
derivative instruments that are hedges of investments but do not
qualify for hedge accounting treatment, (iv) plus income
from discontinued real estate operations, and (v) plus, for
operating joint ventures reported under the equity method of
accounting, the aforementioned adjustments and those identified
in the definition of operating expenses, net of income tax, if
applicable to these joint ventures.
Operating expenses is defined as GAAP expenses (i) less
changes in experience-rated contractholder liabilities due to
asset value fluctuations, (ii) less costs related to
business combinations (since January 1, 2009) and
noncontrolling interests, (iii) less amortization of DAC
and VOBA and changes in the policyholder dividend obligation
related to net investment gains (losses), and (iv) plus
scheduled periodic settlement payments on derivative instruments
that are hedges of policyholder account balances but do not
qualify for hedge accounting treatment.
We believe the presentation of operating earnings and operating
earnings available to common shareholders as we measure it for
management purposes enhances the understanding of our
performance by highlighting the results of operations and the
underlying profitability drivers of our businesses. Operating
earnings and operating earnings available to common shareholders
should not be viewed as substitutes for GAAP income (loss) from
continuing operations, net of income tax. Reconciliations of
operating earnings and operating earnings available to common
shareholders to GAAP income (loss) from continuing operations,
net of income tax, the most directly comparable GAAP measure,
are included in “— Consolidated Results of
Operations.”
Executive
Summary
MetLife is a leading provider of insurance, employee benefits
and financial services with operations throughout the United
States and the Latin America, Asia Pacific and Europe, Middle
East and India (“EMEI”) regions. Through its
subsidiaries, MetLife offers life insurance, annuities, auto and
homeowners insurance, retail banking and other financial
services to individuals, as well as group insurance and
retirement & savings products and services to
corporations and other institutions. MetLife is organized into
five operating segments: Insurance Products, Retirement
Products, Corporate Benefit Funding and Auto & Home
(collectively, “U.S. Business”) and
International. In addition, the Company reports certain of its
results of operations in Banking, Corporate & Other,
which is comprised of MetLife Bank and other business activities.
The U.S. and global financial markets experienced
extraordinary dislocations during late 2008 through early 2009,
with the U.S. economy entering a recession in January 2008.
The economic crisis and the resulting recession have had an
adverse effect on our financial results, as well as the
financial services industry. Most economists believe the
recession ended in the third quarter of 2009 when positive
growth returned and now expect positive growth to continue
through 2010. We have experienced an increase in market share
and sales in some of our businesses from a flight to quality in
the industry. In addition, the recovering global financial
markets contributed to the improvement in net investment income
and sales in most of our international regions. These positive
impacts were outweighed by the adverse effects on our net
investment income and the demand for certain of our products.
64
For a discussion of how the financial and economic environment
has impacted our 2009 results, capital and liquidity, and
expected 2010 performance, see “— Results of
Operations,” “— Liquidity and Capital
Resources” and “— Consolidated Company
Outlook.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(2,318
|
)
|
|
$
|
3,481
|
|
|
$
|
4,105
|
|
|
Less: Net investment gains (losses)
|
|
|
(7,772
|
)
|
|
|
1,812
|
|
|
|
(578
|
)
|
|
Less: Other adjustments to continuing operations
|
|
|
284
|
|
|
|
(662
|
)
|
|
|
(317
|
)
|
|
Less: Provision for income tax (expense) benefit
|
|
|
2,683
|
|
|
|
(488
|
)
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
2,487
|
|
|
|
2,819
|
|
|
|
4,707
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
2,365
|
|
|
$
|
2,694
|
|
|
$
|
4,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 compared with the Year
Ended December 31, 2008
Unless otherwise stated, all amounts are net of income tax.
During the year ended December 31, 2009, MetLife’s
income (loss) from continuing operations, net of income tax,
decreased $5.8 billion to a loss of $2.3 billion from
income of $3.5 billion in the comparable 2008 period. The
year over year change is predominantly due to a
$5.2 billion unfavorable change in net investment gains
(losses) to losses of $4.6 billion, net of related
adjustments, in 2009 from gains of $644 million, net of
related adjustments, in 2008. In addition, operating earnings
available to common shareholders decreased by $329 million
to $2.4 billion in 2009 from $2.7 billion in 2008.
The unfavorable change in net investment gains (losses) of
$5.2 billion, net of related adjustments, was primarily
driven by losses on freestanding derivatives, partially offset
by gains on embedded derivatives, primarily associated with
variable annuity minimum benefit guarantees, and lower losses on
fixed maturity securities.
The positive impacts of business growth and favorable mortality
in several of our businesses were more than offset by a decline
in net investment income, resulting in a decrease in operating
earnings of $329 million. The decrease in net investment
income caused significant declines in the operating earnings of
many of our businesses, especially the interest spread
businesses. Also contributing to the decline in operating
earnings was an increase in net guaranteed annuity benefit costs
and a charge related to our closed block of business, a specific
group of participating life policies that were segregated in
connection with the demutualization of MLIC. The favorable
impact of Operational Excellence, our enterprise-wide cost
reduction and revenue enhancement initiative, was more than
offset by higher pension and postretirement benefit costs,
driving the increase in other expenses. The declines in
operating earnings were partially offset by a change in
amortization related to DAC, deferred sales inducement
(“DSI”), and unearned revenue.
Year
Ended December 31, 2008 compared with the Year Ended
December 31, 2007
Unless otherwise stated, all amounts are net of income tax.
During the year ended December 31, 2008, MetLife’s
income (loss) from continuing operations, net of income tax,
decreased $624 million to $3.5 billion from
$4.1 billion in the comparable 2007 period. The year over
year change was predominantly due to a $1.9 billion
decrease in operating earnings available to common shareholders.
Partially offsetting this decline was a $1.1 billion
favorable change in net investment gains (losses) to gains of
$644 million, net of related adjustments, in 2008 from
losses of $438 million, net of related adjustments, in 2007.
Beginning in the third quarter of 2008, there was unprecedented
disruption and dislocation in the global financial markets that
caused extreme volatility in the equity, credit and real estate
markets. This adversely impacted both net investment income as
yields decreased and net investment gains (losses) as there was
an increase in impairments and credit-related losses.
65
We responded to the extraordinary market conditions by
increasing levels of cash, cash equivalents, short-term
investments and high quality, lower yielding fixed maturity
securities particularly in two operating segments: Corporate
Benefit Funding and Retirement Products, as well as in Banking,
Corporate & Other. We decreased fixed maturity
security holdings to increase our liquidity position.
The favorable change of $1.1 billion in net investment
gains (losses), net of related adjustments, was driven by
increased gains on freestanding derivatives, partially offset by
increased losses on embedded derivatives primarily associated
with variable annuity minimum benefit guarantees, and increased
impairment losses on fixed maturity securities and equity
securities.
The unprecedented disruption and dislocation in the global
financial markets resulted in decreased yields on our investment
portfolio and, in response to the market conditions, we
increased our asset allocation to lower yielding, more liquid
investments, both of which contributed to a decline in net
investment income and, consequently, operating earnings
available to common shareholders. The market environment’s
negative impact on investment results was partially offset by
growth in average invested assets calculated excluding
unrealized gains and losses. In addition, the volatile market
environment also resulted in declines in our separate account
balances. Such declines required us to increase DAC
amortization, negatively affecting operating earnings available
to common shareholders. The declines in the separate account
balances also resulted in lower policy fees and other revenues.
Operating earnings available to common shareholders for the year
ended December 31, 2008 were also lower as a result of
higher catastrophe losses and unfavorable mortality in various
products. Higher earnings from our dental business and from our
businesses in the Latin America and Asia Pacific regions
partially offset the aforementioned items.
Consolidated
Company Outlook
In 2009, the general economic conditions of the marketplace,
particularly in the early part of the year, continued to be
volatile and negatively impacted the results of the Company. In
2010, we expect meaningful earnings recovery for the Company,
driven primarily by the following:
|
|
|
| |
•
|
Continued growth in premiums, fees & other revenues
|
|
|
|
| |
•
|
We expect top-line growth in 2010 of approximately 6% over 2009.
We expect this growth will be driven by:
|
|
|
|
| |
•
|
Higher fees earned on separate accounts, as the full impact of
the recovery in the equity market is felt, thereby increasing
the value of those separate accounts;
|
| |
| |
•
|
Increased sales in the pension closeout business, both in the
United States and the United Kingdom, as the demand for these
products rebounds from the lower levels seen in 2009;
|
| |
| |
•
|
Increases in our International segment, as a result of ongoing
investments and improvements in the various distribution and
service operations throughout the regions; and
|
| |
| |
•
|
Modest growth in Insurance products. Our growth continues to be
impacted by the current higher levels of unemployment and it is
possible that certain customers may further reduce or eliminate
coverages in response to the financial pressures they are
experiencing.
|
|
|
|
| |
•
|
Offsetting these growth areas, MetLife Bank’s premiums,
fees & other revenues are expected to decline from the
2009 level, which benefited from the large number of mortgage
refinancings in that year.
|
|
|
|
| |
•
|
Higher returns on the investment portfolio
|
Despite expectations that the real estate market will remain
challenging in 2010, higher returns on the investment portfolio
are expected across all segments. We believe returns on
alternative investment classes will improve and expect to
reinvest cash and U.S. Treasuries into higher yielding
asset classes.
|
|
|
| |
•
|
Improvement in net investment gains (losses)
|
Although difficult to predict, net investment gains (losses) on
our invested asset portfolio are expected to show significant
improvement as the financial markets stabilize across asset
classes, returning to a more normalized level from the large
losses encountered in 2009. More difficult to predict is the
impact of
66
potential changes in fair value of derivatives instruments as
even relatively small movements in market variables, including
interest rates, equity levels and volatility, can have a large
impact on derivatives fair values. Additionally, changes in
MetLife’s credit spread, may have a material impact on net
investment gains (losses) as it is required to be included in
the valuation of certain embedded derivatives.
|
|
|
| |
•
|
Reduced volatility in guarantee-related liabilities
|
Certain annuity and life benefit guarantees are tied to market
performance, which when markets are depressed, may require us to
establish additional liabilities, even though these guarantees
are significantly hedged. In line with the assumptions discussed
above, we expect a significant reduction in the volatility of
these items in 2010 compared to 2009.
|
|
|
| |
•
|
Focus on disciplined underwriting
|
We do not expect any significant changes to the underlying
trends that drive underwriting results and we anticipate solid
results in 2010. While we did begin to see the negative impact
of the economy on non-medical health experience in 2009, we
expect to see improvement in our results in 2010 as the economy
continues to improve. Pricing actions taken in 2009 in our
dental business will help mitigate the impact of elevated claim
utilization, experienced as a result of the challenging economic
conditions and higher unemployment.
|
|
|
| |
•
|
Focus on expense management
|
Our continued focus on expense control throughout the Company,
as well the continuing impact of specific initiatives such as
Operational Excellence (our enterprise-wide cost reduction and
revenue enhancement initiative), should contribute to increased
profitability. With continued improvement in the financial
markets, we also expect that the Company’s pension-related
expenses will return to a more normal level in 2010.
Industry
Trends
The Company’s segments continue to be influenced by a
continuing unstable financial and economic environment that
affects the industry.
Financial and Economic Environment. Our
results of operations are materially affected by conditions in
the global capital markets and the economy, generally, both in
the United States and elsewhere around the world. The global
economy and markets are now recovering from a period of
significant stress that began in the second half of 2007 and
substantially increased through the first quarter of 2009. This
disruption adversely affected the financial services industry,
in particular. The U.S. economy entered a recession in
January 2008 and most economists believe this recession ended in
the third quarter of 2009 when positive growth returned. Most
economists now expect positive growth to continue through 2010.
Throughout 2008 and continuing in 2009, Congress, the Federal
Reserve Bank of New York, the U.S. Treasury and other
agencies of the Federal government took a number of increasingly
aggressive actions (in addition to continuing a series of
interest rate reductions that began in the second half of
2007) intended to provide liquidity to financial
institutions and markets, to avert a loss of investor confidence
in particular troubled institutions, to prevent or contain the
spread of the financial crisis and to spur economic growth. How
and to whom these governmental institutions distribute amounts
available under the governmental programs could have the effect
of supporting some aspects of the financial services industry
more than others or provide advantages to some of our
competitors. Governments in many of the foreign markets in which
MetLife operates have also responded to address market
imbalances and have taken meaningful steps intended to restore
market confidence. As market conditions have stabilized, some of
these programs have been terminated or allowed to expire. We
cannot predict whether or when the U.S. or foreign
governments will establish additional governmental programs or
terminate or permit other programs to expire or the impact any
additional measures, existing programs or termination or
expiration of programs will have on the financial markets,
whether on the levels of volatility currently being experienced,
the levels of lending by financial institutions, the prices
buyers are willing to pay for financial assets or otherwise. See
“Business — Regulation — Governmental
Responses to Extraordinary Market Conditions.”
The economic crisis and the resulting recession have had and
will continue to have an adverse effect on the financial results
of companies in the financial services industry, including
MetLife. The declining financial markets and economic conditions
have negatively impacted our investment income, our net
investment gains (losses), and
67
the demand for and the cost and profitability of certain of our
products, including variable annuities and guarantee benefits.
See ‘‘— Results of Operations” and
“— Liquidity and Capital Resources.”
Demographics. In the coming decade, a key
driver shaping the actions of the life insurance industry will
be the rising income protection, wealth accumulation and needs
of the retiring Baby Boomers. As a result of increasing
longevity, retirees will need to accumulate sufficient savings
to finance retirements that may span 30 or more years. Helping
the Baby Boomers to accumulate assets for retirement and
subsequently to convert these assets into retirement income
represents an opportunity for the life insurance industry.
Life insurers are well positioned to address the Baby
Boomers’ rapidly increasing need for savings tools and for
income protection. We believe that, among life insurers, those
with strong brands, high financial strength ratings and broad
distribution, are best positioned to capitalize on the
opportunity to offer income protection products to Baby Boomers.
Moreover, the life insurance industry’s products and the
needs they are designed to address are complex. We believe that
individuals approaching retirement age will need to seek
information to plan for and manage their retirements and that,
in the workplace, as employees take greater responsibility for
their benefit options and retirement planning, they will need
information about their possible individual needs. One of the
challenges for the life insurance industry will be the delivery
of this information in a cost effective manner.
Competitive Pressures. The life insurance
industry remains highly competitive. The product development and
product life-cycles have shortened in many product segments,
leading to more intense competition with respect to product
features. Larger companies have the ability to invest in brand
equity, product development, technology and risk management,
which are among the fundamentals for sustained profitable growth
in the life insurance industry. In addition, several of the
industry’s products can be quite homogeneous and subject to
intense price competition. Sufficient scale, financial strength
and financial flexibility are becoming prerequisites for
sustainable growth in the life insurance industry. Larger market
participants tend to have the capacity to invest in additional
distribution capability and the information technology needed to
offer the superior customer service demanded by an increasingly
sophisticated industry client base. We believe that the
turbulence in financial markets that began in the latter half of
2008, its impact on the capital position of many competitors,
and subsequent actions by regulators and rating agencies have
highlighted financial strength as the most significant
differentiator from the perspective of customers and certain
distributors. In addition, the financial market turbulence and
the economic recession have led many companies in our industry
to re-examine the pricing and features of the products they
offer and may lead to consolidation in the life insurance
industry.
Regulatory Changes. The life insurance
industry is regulated at the state level, with some products and
services also subject to federal regulation. As life insurers
introduce new and often more complex products, regulators refine
capital requirements and introduce new reserving standards for
the life insurance industry. Regulations recently adopted or
currently under review can potentially impact the statutory
reserve and capital requirements of the industry. In addition,
regulators have undertaken market and sales practices reviews of
several markets or products, including equity-indexed annuities,
variable annuities and group products. The regulation of the
financial services industry has received renewed scrutiny as a
result of the disruptions in the financial markets in 2008 and
2009. Significant regulatory reforms have been proposed and
these or other reforms could be implemented. We cannot predict
whether any such reforms will be adopted, the form they will
take or their effect upon us. We also cannot predict how the
various government responses to the recent financial and
economic difficulties will affect the financial services and
insurance industries or the standing of particular companies,
including our Company, within those industries. See “Risk
Factors — Our Insurance and Banking Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth” and “Risk
Factors — Changes in U.S. Federal and State
Securities Laws and Regulations May Affect Our Operations and
Our Profitability.”
Pension Plans. On August 17, 2006,
President Bush signed the Pension Protection Act of 2006
(“PPA”) into law. The PPA is a comprehensive reform of
defined benefit and defined contribution plan rules. The
provisions of the PPA may, over time, have a significant impact
on demand for pension, retirement savings, and lifestyle
protection products in both the institutional and retail
markets. While the impact of the PPA is generally expected to be
positive over time, these changes may have adverse short-term
effects on our business as plan sponsors may react to these
changes in a variety of ways as the new rules and related
regulations begin to take effect. In response to the current
financial and economic
68
environment, President Bush signed into the law the Worker,
Retiree and Employer Recovery Act (the “Employer Recovery
Act”) in December 2008. This Act is intended to, among
other things, ease the transition of certain funding
requirements of the PPA for defined benefit plans. In addition,
legislation that would provide further relief for defined
benefit plans is under consideration. The financial and economic
environment and the enactment of the Employer Recovery Act, as
well as additional funding relief provisions that may be enacted
into law, may delay the timing or change the nature of qualified
plan sponsor actions and, in turn, affect our business.
Summary
of Critical Accounting Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”) requires management to adopt
accounting policies and make estimates and assumptions that
affect amounts reported in the consolidated financial
statements. The most critical estimates include those used in
determining:
|
|
|
| |
(i)
|
the estimated fair value of investments in the absence of quoted
market values;
|
| |
| |
(ii)
|
investment impairments;
|
| |
| |
(iii)
|
the recognition of income on certain investment entities and the
application of the consolidation rules to certain investments;
|
| |
| |
(iv)
|
the estimated fair value of and accounting for freestanding
derivatives and the existence and estimated fair value of
embedded derivatives requiring bifurcation;
|
| |
| |
(v)
|
the capitalization and amortization of DAC and the establishment
and amortization of VOBA;
|
| |
| |
(vi)
|
the measurement of goodwill and related impairment, if any;
|
| |
| |
(vii)
|
the liability for future policyholder benefits and the
accounting for reinsurance contracts;
|
| |
| |
(viii)
|
accounting for income taxes and the valuation of deferred tax
assets;
|
| |
| |
(ix)
|
accounting for employee benefit plans; and
|
| |
| |
(x)
|
the liability for litigation and regulatory matters.
|
In applying the Company’s accounting policies, we make
subjective and complex judgments that frequently require
estimates about matters that are inherently uncertain. Many of
these policies, estimates and related judgments are common in
the insurance and financial services industries; others are
specific to the Company’s businesses and operations. Actual
results could differ from these estimates.
Fair
Value
The Company defines fair value as the price that would be
received to sell an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. In many cases, the exit
price and the transaction (or entry) price will be the same at
initial recognition. However, in certain cases, the transaction
price may not represent fair value. The fair value of a
liability is based on the amount that would be paid to transfer
a liability to a third-party with the same credit standing. It
requires that fair value be a market-based measurement in which
the fair value is determined based on a hypothetical transaction
at the measurement date, considered from the perspective of a
market participant. When quoted prices are not used to determine
fair value, the Company considers three broad valuation
techniques: (i) the market approach, (ii) the income
approach, and (iii) the cost approach. The Company
determines the most appropriate valuation technique to use,
given what is being measured and the availability of sufficient
inputs. The Company prioritizes the inputs to fair valuation
techniques and allows for the use of unobservable inputs to the
extent that observable inputs are not available. The Company
categorizes its assets and liabilities measured at estimated
fair value into a three-level hierarchy, based on the priority
of the inputs to the respective valuation technique. The fair
value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or
69
liability’s classification within the fair value hierarchy
is based on the lowest level of input to its valuation. The
input levels are as follows:
|
|
|
| |
Level 1
|
Unadjusted quoted prices in active markets for identical assets
or liabilities. The Company defines active markets based on
average trading volume for equity securities. The size of the
bid/ask spread is used as an indicator of market activity for
fixed maturity securities.
|
| |
| |
Level 2
|
Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
|
| |
| |
Level 3
|
Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entity’s own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of estimated
fair value requires significant management judgment or
estimation.
|
Prior to January 1, 2009, the measurement and disclosures
of fair value based on exit price excluded certain items such as
nonfinancial assets and nonfinancial liabilities initially
measured at estimated fair value in a business combination,
reporting units measured at estimated fair value in the first
step of a goodwill impairment test and indefinite-lived
intangible assets measured at estimated fair value for
impairment assessment.
Estimated
Fair Value of Investments
The Company’s investments in fixed maturity and equity
securities, investments in trading securities, certain
short-term investments, most mortgage loans
held-for-sale,
and mortgage servicing rights (“MSRs”) are reported at
their estimated fair value. In determining the estimated fair
value of these investments, various methodologies, assumptions
and inputs are utilized, as described further below.
When available, the estimated fair value of securities is based
on quoted prices in active markets that are readily and
regularly obtainable. Generally, these are the most liquid of
the Company’s securities holdings and valuation of these
securities does not involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs to these market standard valuation methodologies include,
but are not limited to: interest rates, credit standing of the
issuer or counterparty, industry sector of the issuer, coupon
rate, call provisions, sinking fund requirements, maturity,
estimated duration and management’s assumptions regarding
liquidity and estimated future cash flows. Accordingly, the
estimated fair values are based on available market information
and management’s judgments about financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active, liquid
markets, quoted prices in markets that are not active and
observable yields and spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity.
70
Even though unobservable, these inputs are based on assumptions
deemed appropriate given the circumstances and consistent with
what other market participants would use when pricing such
securities.
The estimated fair value of residential mortgage loans
held-for-sale
are determined based on observable pricing of residential
mortgage loans
held-for-sale
with similar characteristics, or observable pricing for
securities backed by similar types of loans, adjusted to convert
the securities prices to loan prices. Generally, quoted market
prices are not available. When observable pricing for similar
loans or securities that are backed by similar loans are not
available, the estimated fair values of residential mortgage
loans
held-for-sale
are determined using independent broker quotations, which is
intended to approximate the amounts that would be received from
third parties. Certain other mortgage loans have also been
designated as
held-for-sale
which are recorded at the lower of amortized cost or estimated
fair value less expected disposition costs determined on an
individual loan basis. For these loans, estimated fair value is
determined using independent broker quotations or, when the loan
is in foreclosure or otherwise determined to be collateral
dependent, the estimated fair value of the underlying collateral
estimated using internal models.
MSRs, which are recorded in other invested assets, are measured
at estimated fair value and are either acquired or are generated
from the sale of originated residential mortgage loans where the
servicing rights are retained by the Company. The estimated fair
value of MSRs is principally determined through the use of
internal discounted cash flow models which utilize various
assumptions as to discount rates, loan-prepayments, and
servicing costs. The use of different valuation assumptions and
inputs, as well as assumptions relating to the collection of
expected cash flows may have a material effect on the estimated
fair values of MSRs.
Financial markets are susceptible to severe events evidenced by
rapid depreciation in asset values accompanied by a reduction in
asset liquidity. The Company’s ability to sell securities,
or the price ultimately realized for these securities, depends
upon the demand and liquidity in the market and increases the
use of judgment in determining the estimated fair value of
certain securities.
Investment
Impairments
One of the significant estimates related to
available-for-sale
securities is the evaluation of investments for impairments. As
described more fully in Note 1 of the Notes to the
Consolidated Financial Statements, effective April 1, 2009,
the Company adopted new
other-than-temporary
impairments guidance that amends the methodology for determining
for fixed maturity securities whether an
other-than-temporary
impairment exists, and for certain fixed maturity securities,
changes how the amount of the
other-than-temporary
loss that is charged to earnings is determined. There was no
change in the
other-than-temporary
impairment (“OTTI”) methodology for equity securities.
The discussion presented below incorporates the new OTTI
guidance adopted April 1, 2009.
The assessment of whether impairments have occurred is based on
our
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Company’s review of its fixed
maturity and equity securities for impairments includes an
analysis of the total gross unrealized losses by three
categories of securities: (i) securities where the
estimated fair value had declined and remained below cost or
amortized cost by less than 20%; (ii) securities where the
estimated fair value had declined and remained below cost or
amortized cost by 20% or more for less than six months; and
(iii) securities where the estimated fair value had
declined and remained below cost or amortized cost by 20% or
more for six months or greater. An extended and severe
unrealized loss position on a fixed maturity security may not
have any impact on the ability of the issuer to service all
scheduled interest and principal payments and the Company’s
evaluation of recoverability of all contractual cash flows or
the ability to recover an amount at least equal to its amortized
cost based on the present value of the expected future cash
flows to be collected. In contrast, for certain equity
securities, greater weight and consideration are given by the
Company to a decline in estimated fair value and the likelihood
such estimated fair value decline will recover.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-term recovery. Inherent
in our evaluation of the security are assumptions and estimates
about the operations of the
71
issuer and its future earnings potential. Considerations used by
the Company in the impairment evaluation process include, but
are not limited to:
|
|
|
| |
(i)
|
the length of time and the extent to which the estimated fair
value has been below cost or amortized cost;
|
| |
| |
(ii)
|
the potential for impairments of securities when the issuer is
experiencing significant financial difficulties;
|
| |
| |
(iii)
|
the potential for impairments in an entire industry sector or
sub-sector;
|
| |
| |
(iv)
|
the potential for impairments in certain economically depressed
geographic locations;
|
| |
| |
(v)
|
the potential for impairments of securities where the issuer,
series of issuers or industry has suffered a catastrophic type
of loss or has exhausted natural resources;
|
| |
| |
(vi)
|
with respect to fixed maturity securities, whether the Company
has the intent to sell or will more likely than not be required
to sell a particular security before recovery of the decline in
estimated fair value below cost or amortized cost;
|
| |
| |
(vii)
|
with respect to equity securities, whether the Company’s
ability and intent to hold the security for a period of time
sufficient to allow for the recovery of its value to an amount
equal to or greater than cost;
|
| |
| |
(viii)
|
unfavorable changes in forecasted cash flows on mortgage-backed
and asset-backed securities; and
|
| |
| |
(ix)
|
other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
|
The cost of fixed maturity and equity securities is adjusted for
the credit loss component of OTTI in the period in which the
determination is made. When an OTTI of a fixed maturity security
has occurred, the amount of the OTTI recognized in earnings
depends on whether the Company intends to sell the security or
more likely than not will be required to sell the security
before recovery of its amortized cost basis. If the fixed
maturity security meets either of these two criteria, the OTTI
recognized in earnings is equal to the entire difference between
the security’s amortized cost basis and its estimated fair
value at the impairment measurement date. For
other-than-temporary
impairments of fixed maturity securities that do not meet either
of these two criteria, the net amount recognized in earnings is
equal to the difference between the amortized cost of the fixed
maturity security and the present value of projected future cash
flows to be collected from this security. Any difference between
the estimated fair value and the present value of the expected
future cash flows of the security at the impairment measurement
date is recorded in other comprehensive income (loss). For
equity securities, the carrying value of the equity security is
impaired to its estimated fair value, with a corresponding
charge to earnings. The Company does not change the revised cost
basis for subsequent recoveries in value.
The determination of the amount of allowances and impairments on
other invested asset classes is highly subjective and is based
upon the Company’s periodic evaluation and assessment of
known and inherent risks associated with the respective asset
class. Such evaluations and assessments are revised as
conditions change and new information becomes available.
Recognition
of Income on Certain Investment Entities
The recognition of income on certain investments (e.g.
loan-backed securities, including mortgage-backed and
asset-backed securities, certain structured investment
transactions, trading securities, etc.) is dependent upon market
conditions, which could result in prepayments and changes in
amounts to be earned.
Application
of the Consolidation Rules to Certain Investments
The Company has invested in certain structured transactions that
are variable interest entities (“VIEs”). These
structured transactions include reinsurance trusts, asset-backed
securitizations, hybrid securities, joint ventures, limited
partnerships and limited liability companies. The Company is
required to consolidate those VIEs for which it is deemed to be
the primary beneficiary. The accounting rules for the
determination of when an entity is a VIE and when to consolidate
a VIE are complex. The determination of the VIE’s primary
beneficiary requires an evaluation
72
of the contractual rights and obligations associated with each
party involved in the entity, an estimate of the entity’s
expected losses and expected residual returns and the allocation
of such estimates to each party involved in the entity. The
primary beneficiary is defined as the entity that will absorb a
majority of a VIE’s expected losses, receive a majority of
a VIE’s expected residual returns if no single entity
absorbs a majority of expected losses, or both.
When assessing the expected losses to determine the primary
beneficiary for structured investment products such as
asset-backed securitizations and collateralized debt
obligations, the Company uses historical default probabilities
based on the credit rating of each issuer and other inputs
including maturity dates, industry classifications and
geographic location. Using computational algorithms, the
analysis simulates default scenarios resulting in a range of
expected losses and the probability associated with each
occurrence. For other investment structures such as hybrid
securities, joint ventures, limited partnerships and limited
liability companies, the Company takes into consideration the
design of the VIE and generally uses a qualitative approach to
determine if it is the primary beneficiary. This approach
includes an analysis of all contractual and implied rights and
obligations held by all parties including profit and loss
allocations, repayment or residual value guarantees, put and
call options and other derivative instruments. If the primary
beneficiary of a VIE can not be identified using this
qualitative approach, the Company calculates the expected losses
and expected residual returns of the VIE using a
probability-weighted cash flow model. The use of different
methodologies, assumptions and inputs in the determination of
the primary beneficiary could have a material effect on the
amounts presented within the consolidated financial statements.
Derivative
Financial Instruments
The Company enters into freestanding derivative transactions
including swaps, forwards, futures and option contracts to
manage various risks relating to its ongoing business
operations. To a lesser extent, the Company uses credit
derivatives, such as credit default swaps, to synthetically
replicate investment risks and returns which are not readily
available in the cash market.
The estimated fair value of derivatives is determined through
the use of quoted market prices for exchange-traded derivatives
and financial forwards to sell certain to be announced
securities or through the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair value, when
quoted market values are not available, is based on market
standard valuation methodologies and inputs that are assumed to
be consistent with what other market participants would use when
pricing the instruments. Derivative valuations can be affected
by changes in interest rates, foreign currency exchange rates,
financial indices, credit spreads, default risk (including the
counterparties to the contract), volatility, liquidity and
changes in estimates and assumptions used in the pricing models.
See Note 5 of the Notes to the Consolidated Financial
Statements for additional details on significant inputs into the
over-the-counter
derivative pricing models and credit risk adjustment.
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. If it was
determined that hedge accounting designations were not
appropriately applied, reported net income could be materially
affected. 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 that
previously reported. Assessments of hedge effectiveness and
measurements of ineffectiveness of hedging relationships are
also subject to interpretations and estimations and different
interpretations or estimates may have a material effect on the
amount reported in net income.
Embedded
Derivatives
The Company issues certain variable annuity products with
guaranteed minimum benefits. These include guaranteed minimum
withdrawal benefits (“GMWB”), guaranteed minimum
accumulation benefits (“GMAB”), and certain guaranteed
minimum income benefits (“GMIB”). GMWB, GMAB and
certain GMIB are embedded derivatives, which are measured at
estimated fair value separately from the host variable annuity
product, with changes in estimated fair value reported in net
investment gains (losses).
73
The estimated fair values for these embedded derivatives are
determined based on the present value of projected future
benefits minus the present value of projected future fees. The
projections of future benefits and future fees require capital
market and actuarial assumptions including expectations
concerning policyholder behavior. A risk neutral valuation
methodology is used under which the cash flows from the
guarantees are projected under multiple capital market scenarios
using observable risk free rates. Beginning in 2008, the
valuation of these embedded derivatives includes an adjustment
for the Company’s own credit and risk margins for
non-capital market inputs. The Company’s own credit
adjustment is determined taking into consideration publicly
available information relating to the Company’s debt, as
well as its claims paying ability. Risk margins are established
to capture the non-capital market risks of the instrument which
represent the additional compensation a market participant would
require to assume the risks related to the uncertainties of such
actuarial assumptions as annuitization, premium persistency,
partial withdrawal and surrenders. The establishment of risk
margins requires the use of significant management judgment.
These guarantees may be more costly than expected in volatile or
declining equity markets. Market conditions including, but not
limited to, changes in interest rates, equity indices, market
volatility and foreign currency exchange rates; changes in the
Company’s own credit standing; and variations in actuarial
assumptions regarding policyholder behavior, and risk margins
related to non-capital market inputs may result in significant
fluctuations in the estimated fair value of the guarantees that
could materially affect net income.
The Company ceded the risk associated with certain of the GMIB
and GMAB described in the preceding paragraphs. The value of the
embedded derivatives on the ceded risk is determined using a
methodology consistent with that described previously for the
guarantees directly written by the Company.
The estimated fair value of the embedded equity and bond indexed
derivatives contained in certain funding agreements is
determined using market standard swap valuation models and
observable market inputs, including an adjustment for the
Company’s own credit that takes into consideration publicly
available information relating to the Company’s debt, as
well as its claims paying ability. Changes in equity and bond
indices, interest rates and the Company’s credit standing
may result in significant fluctuations in estimated the fair
value of these embedded derivatives that could materially affect
net income.
The accounting for embedded derivatives is complex and
interpretations of the primary accounting standards continue to
evolve in practice. If interpretations change, there is a risk
that features previously not bifurcated may require bifurcation
and reporting at estimated fair value in the consolidated
financial statements and respective changes in estimated fair
value could materially affect net income.
Deferred
Policy Acquisition Costs and Value of Business
Acquired
The Company incurs significant costs in connection with
acquiring new and renewal insurance business. Costs that vary
with and relate to the production of new business are deferred
as DAC. Such costs consist principally of commissions and agency
and policy issuance expenses. VOBA is an intangible asset that
represents the present value of future profits embedded in
acquired insurance annuity and investment — type
contracts. VOBA is based on actuarially determined projections,
by each block of business, of future policy and contract
charges, premiums, mortality and morbidity, separate account
performance, surrenders, operating expenses, investment returns
and other factors. Actual experience on the purchased business
may vary from these projections. The recovery of DAC and VOBA is
dependent upon the future profitability of the related business.
DAC and VOBA are aggregated in the financial statements for
reporting purposes.
Note 1 of the Notes to the Consolidated Financial
Statements describes the Company’s accounting policy
relating to DAC and VOBA amortization for various types of
contracts.
Separate account rates of return on variable universal life
contracts and variable deferred annuity contracts affect
in-force account balances on such contracts each reporting
period which can result in significant fluctuations in
amortization of DAC and VOBA. The Company’s practice to
determine the impact of gross profits resulting from returns on
separate accounts assumes that long-term appreciation in equity
markets is not changed by short-term market fluctuations, but is
only changed when sustained interim deviations are expected. The
Company monitors these changes and only changes the assumption
when its long-term expectation changes. The effect of an
increase/
74
(decrease) by 100 basis points in the assumed future rate
of return is reasonably likely to result in a
decrease/(increase) in the DAC and VOBA amortization of
approximately $140 million with an offset to the
Company’s unearned revenue liability of approximately
$20 million for this factor.
The Company also reviews periodically other long-term
assumptions underlying the projections of estimated gross
margins and profits. These include investment returns,
policyholder dividend scales, interest crediting rates,
mortality, persistency, and expenses to administer business. We
annually update assumptions used in the calculation of estimated
gross margins and profits which may have significantly changed.
If the update of assumptions causes expected future gross
margins and profits to increase, DAC and VOBA amortization will
decrease, resulting in a current period increase to earnings.
The opposite result occurs when the assumption update causes
expected future gross margins and profits to decrease.
Over the last several years, the Company’s most significant
assumption updates resulting in a change to expected future
gross margins and profits and the amortization of DAC and VOBA
have been updated due to revisions to expected future investment
returns, expenses, in-force or persistency assumptions and
policyholder dividends on contracts included within the
Insurance Products and Retirement Products segments. During
2009, the amount of net investment gains (losses), as well as
the level of separate account balances also resulted in
significant changes to expected future gross margins and profits
impacting amortization of DAC and VOBA. The Company expects
these assumptions to be the ones most reasonably likely to cause
significant changes in the future. Changes in these assumptions
can be offsetting and the Company is unable to predict their
movement or offsetting impact over time.
Note 6 of the Notes to the Consolidated Financial
Statements provides a rollforward of DAC and VOBA for the
Company for each of the years ended December 31, 2009, 2008
and 2007, as well as a breakdown of DAC and VOBA by segment and
reporting unit at December 31, 2009 and 2008.
At December 31, 2009 and 2008, DAC and VOBA for the Company
was $19.3 billion and $20.1 billion, respectively. A
substantial portion, approximately 84%, of the Company’s
DAC and VOBA was associated with the Insurance Products and
Retirement Products segments at December 31, 2009. At
December 31, 2009 and 2008, DAC and VOBA for these segments
was $16.1 billion and $17.4 billion, respectively.
Amortization of DAC and VOBA associated with the
variable & universal life and the annuities contracts
within the Insurance Products and Retirement Products segments
are significantly impacted by movements in equity markets. The
following chart illustrates the effect on DAC and VOBA within
the Company’s U.S. Business of changing each of the
respective assumptions, as well as updating estimated gross
margins or profits with actual gross margins or profits during
the years ended December 31, 2009, 2008 and 2007. Increases
(decreases) in DAC and VOBA balances, as presented below, result
in a corresponding decrease (increase) in amortization.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Investment return
|
|
$
|
141
|
|
|
$
|
70
|
|
|
$
|
(34
|
)
|
|
Separate account balances
|
|
|
(32
|
)
|
|
|
(708
|
)
|
|
|
8
|
|
|
Net investment gain (loss) related
|
|
|
712
|
|
|
|
(521
|
)
|
|
|
126
|
|
|
Expense
|
|
|
60
|
|
|
|
61
|
|
|
|
(53
|
)
|
|
In-force/Persistency
|
|
|
(87
|
)
|
|
|
(159
|
)
|
|
|
1
|
|
|
Policyholder dividends and other
|
|
|
174
|
|
|
|
(30
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
968
|
|
|
$
|
(1,287
|
)
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to 2008, fluctuations in the amounts presented in the
table above arose principally from normal assumption reviews
during the period.
75
The following represents significant items contributing to the
changes to DAC and VOBA amortization in 2009:
|
|
|
| |
•
|
Actual gross profits decreased as a result of increased
investment losses from the portfolios associated with the
hedging of guaranteed insurance obligations on variable
annuities, resulting in a decrease of DAC and VOBA amortization
of $141 million.
|
| |
| |
•
|
Changes in net investment gains (losses) resulted in the
following changes in DAC and VOBA amortization:
|
|
|
|
| |
–
|
Actual gross profits increased as a result of a decrease in
liabilities associated with guarantee obligations on variable
annuities, resulting in an increase of DAC and VOBA amortization
of $995 million, excluding the impact from the
Company’s own credit and risk margins, which are described
below. This increase in actual gross profits was partially
offset by freestanding derivative losses associated with the
hedging of such guarantee obligations, which resulted in a
decrease in DAC and VOBA amortization of $636 million.
|
| |
| |
–
|
The narrowing of the Company’s own credit spreads increased
the valuation of guarantee liabilities, decreased actual gross
profits and decreased DAC and VOBA amortization by
$607 million. This was partially offset by lower risk
margins which decreased the guarantee liability valuations,
increased actual gross profits and increased DAC and VOBA
amortization by $20 million.
|
| |
| |
–
|
The remainder of the impact of net investment gains (losses),
which decreased DAC amortization by $484 million, was
primarily attributable to current period investment activities.
|
|
|
|
| |
•
|
Included in policyholder dividends and other was a decrease in
amortization of $90 million as a result of changes to long
term assumptions. The remainder of the decrease was due to
various immaterial items.
|
The following represent significant items contributing to the
changes to DAC and VOBA amortization in 2008:
|
|
|
| |
•
|
The decrease in equity markets during the year significantly
lowered separate account balances which lead to a significant
reduction in expected future gross profits on variable universal
life contracts and variable deferred annuity contracts resulting
in an increase of $708 million in DAC and VOBA amortization.
|
| |
| |
•
|
Changes in net investment gains (losses) resulted in the
following changes in DAC and VOBA amortization:
|
|
|
|
| |
–
|
Actual gross profits decreased as a result of an increase in
liabilities associated with guarantee obligations on variable
annuities resulting in a reduction of DAC and VOBA amortization
of $1,047 million. This decrease in actual gross profits
was mitigated by freestanding derivative gains associated with
the hedging of such guarantee obligations which resulted in an
increase in actual gross profits and an increase in DAC and VOBA
amortization of $625 million.
|
| |
| |
–
|
The widening of the Company’s own credit spreads decreased
the valuation of guarantee liabilities, increased actual gross
profits and increased DAC and VOBA amortization by
$739 million. This was partially offset by higher risk
margins which increased the guarantee liability valuations,
decreased actual gross profits and decreased DAC and VOBA
amortization by $100 million.
|
| |
| |
–
|
Reductions in both actual and expected cumulative earnings of
the closed block resulting from recent experience in the closed
block combined with changes in expected dividend scales resulted
in an increase in closed block DAC amortization of
$195 million, $175 million of which was related to net
investment gains (losses).
|
| |
| |
–
|
The remainder of the impact of net investment gains (losses),
which increased DAC amortization by $129 million, was
attributable to numerous immaterial items.
|
|
|
|
| |
•
|
Increases in amortization in 2008 resulting from changes in
assumptions related to in-force/persistency of $159 million
were driven by higher than anticipated mortality and lower than
anticipated premium persistency during 2008.
|
The Company’s DAC and VOBA balance is also impacted by
unrealized investment gains (losses) and the amount of
amortization which would have been recognized if such gains and
losses had been recognized. The significant decrease in
unrealized investment losses decreased the DAC and VOBA balance
by $2.8 billion in 2009
76
whereas increases in unrealized investment losses increased the
DAC and VOBA balance by $3.4 billion in 2008. Notes 3
and 6 of the Notes to the Consolidated Financial Statements
include the DAC and VOBA offset to unrealized investment losses.
Goodwill
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Goodwill is not amortized but is tested for
impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an
interim test. We perform our annual goodwill impairment testing
during the third quarter of each year based upon data as of the
close of the second quarter.
Impairment testing is performed using the fair value approach,
which requires the use of estimates and judgment, at the
“reporting unit” level. A reporting unit is the
operating segment or a business one level below the operating
segment, if discrete financial information is prepared and
regularly reviewed by management at that level. For purposes of
goodwill impairment testing, a significant portion of goodwill
within Banking, Corporate & Other is allocated to
reporting units within our business segments.
For purposes of goodwill impairment testing, if the carrying
value of a reporting unit exceeds its estimated fair value,
there might be an indication of impairment. In such instances,
the implied fair value of the goodwill is determined in the same
manner as the amount of goodwill would be determined in a
business acquisition. The excess of the carrying value of
goodwill over the implied fair value of goodwill is recognized
as an impairment and recorded as a charge against net income.
In performing our goodwill impairment tests, when we believe
meaningful comparable market data are available, the estimated
fair values of the reporting units are determined using a market
multiple approach. When relevant comparables are not available,
we use a discounted cash flow model. For reporting units which
are particularly sensitive to market assumptions, such as the
retirement products and individual life reporting units, we may
corroborate our estimated fair values by using additional
valuation methodologies.
The key inputs, judgments and assumptions necessary in
determining estimated fair value include projected operating
earnings, current book value (with and without accumulated other
comprehensive income), the level of economic capital required to
support the mix of business, long term growth rates, comparative
market multiples, the account value of in-force business,
projections of new and renewal business, as well as margins on
such business, the level of interest rates, credit spreads,
equity market levels, and the discount rate we believe
appropriate to the risk associated with the respective reporting
unit. The estimated fair value of the retirement products and
individual life reporting units are particularly sensitive to
the equity market levels.
When testing goodwill for impairment, we also consider our
market capitalization in relation to our book value. We believe
that our current market capitalization supports the value of the
underlying reporting units.
We apply significant judgment when determining the estimated
fair value of our reporting units and when assessing the
relationship of market capitalization to the estimated fair
value of our reporting units and their book value. The valuation
methodologies utilized are subject to key judgments and
assumptions that are sensitive to change. Estimates of fair
value are inherently uncertain and represent only
management’s reasonable expectation regarding future
developments. These estimates and the judgments and assumptions
upon which the estimates are based will, in all likelihood,
differ in some respects from actual future results. Declines in
the estimated fair value of our reporting units could result in
goodwill impairments in future periods which could materially
adversely affect our results of operations or financial position.
During our 2009 impairment tests of goodwill, we concluded that
the fair values of all reporting units were in excess of their
carrying values and, therefore, goodwill was not impaired.
However, we continue to evaluate current market conditions that
may affect the estimated fair value of our reporting units to
assess whether any goodwill impairment exists. Deteriorating or
adverse market conditions for certain reporting units may have a
significant impact on the estimated fair value of these
reporting units and could result in future impairments of
goodwill. See Note 7 of the Notes to the Consolidated
Financial Statements for further consideration of goodwill
impairment testing during 2009.
77
Liability
for Future Policy Benefits
The Company establishes liabilities for amounts payable under
insurance policies, including traditional life insurance,
traditional annuities and non-medical health insurance.
Generally, amounts are payable over an extended period of time
and related liabilities are calculated as the present value of
future expected benefits to be paid reduced by the present value
of future expected premiums. Such liabilities are established
based on methods and underlying assumptions in accordance with
GAAP and applicable actuarial standards. Principal assumptions
used in the establishment of liabilities for future policy
benefits are mortality, morbidity, policy lapse, renewal,
retirement, disability incidence, disability terminations,
investment returns, inflation, expenses and other contingent
events as appropriate to the respective product type. These
assumptions are established at the time the policy is issued and
are intended to estimate the experience for the period the
policy benefits are payable. Utilizing these assumptions,
liabilities are established on a block of business basis. If
experience is less favorable than assumptions, additional
liabilities may be required, resulting in a charge to
policyholder benefits and claims.
Future policy benefit liabilities for disabled lives are
estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and
interest.
Liabilities for unpaid claims and claim expenses for property
and casualty insurance are included in future policyholder
benefits and represent the amount estimated for claims that have
been reported but not settled and claims incurred but not
reported. Other policyholder funds include claims that have been
reported but not settled and claims incurred but not reported on
life and non-medical health insurance. Liabilities for unpaid
claims are estimated based upon the Company’s historical
experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends and risk
management programs, reduced for anticipated salvage and
subrogation. The effects of changes in such estimated
liabilities are included in the results of operations in the
period in which the changes occur.
Future policy benefit liabilities for minimum death and income
benefit guarantees relating to certain annuity contracts and
secondary and paid-up guarantees relating to certain life
policies are based on estimates of the expected value of
benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period
based on total expected assessments. Liabilities for universal
and variable life secondary guarantees and
paid-up
guarantees are determined by estimating the expected value of
death benefits payable when the account balance is projected to
be zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. The
assumptions used in estimating these liabilities are consistent
with those used for amortizing DAC, and are thus subject to the
same variability and risk. The assumptions of investment
performance and volatility for variable products are consistent
with historical S&P experience.
The Company periodically reviews its estimates of actuarial
liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and
the assumptions used in pricing of these policies and guarantees
and in the establishment of the related liabilities result in
variances in profit and could result in losses. The effects of
changes in such estimated liabilities are included in the
results of operations in the period in which the changes occur.
Reinsurance
The Company enters into reinsurance agreements primarily as a
purchaser of reinsurance for its various insurance products and
also as a provider of reinsurance for some insurance products
issued by third parties. Accounting for reinsurance requires
extensive use of assumptions and estimates, particularly related
to the future performance of the underlying business and the
potential impact of counterparty credit risks. The Company
periodically reviews actual and anticipated experience compared
to the aforementioned assumptions used to establish assets and
liabilities relating to ceded and assumed reinsurance and
evaluates the financial strength of counterparties to its
reinsurance agreements using criteria similar to that evaluated
in the security impairment process discussed previously.
Additionally, for each of its reinsurance agreements, the
Company determines if the agreement provides indemnification
against loss or liability relating to insurance risk, in
accordance with applicable accounting standards. The Company
reviews all contractual features, particularly those that may
limit the amount of insurance risk to which the reinsurer is
subject or features that delay the timely reimbursement of
claims. If the
78
Company determines that a reinsurance agreement does not expose
the reinsurer to a reasonable possibility of a significant loss
from insurance risk, the Company records the agreement using the
deposit method of accounting.
Income
Taxes
Income taxes represent the net amount of income taxes that the
Company expects to pay to or receive from various taxing
jurisdictions in connection with its operations. The Company
provides for federal, state and foreign income taxes currently
payable, as well as those deferred due to temporary differences
between the financial reporting and tax bases of assets and
liabilities. The Company’s accounting for income taxes
represents management’s best estimate of various events and
transactions.
Deferred tax assets and liabilities resulting from temporary
differences between the financial reporting and tax bases of
assets and liabilities are measured at the balance sheet date
using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse. 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.
Valuation allowances are established when management determines,
based on available information, that it is more likely than not
that deferred income tax assets will not be realized. Factors in
management’s determination consider the performance of the
business including the ability to generate capital gains.
Significant judgment is required in determining whether
valuation allowances should be established, as well as the
amount of such allowances. When making such determination,
consideration is given to, among other things, the following:
|
|
|
| |
(i)
|
future taxable income exclusive of reversing temporary
differences and carryforwards;
|
| |
| |
(ii)
|
future reversals of existing taxable temporary differences;
|
| |
| |
(iii)
|
taxable income in prior carryback years; and
|
| |
| |
(iv)
|
tax planning strategies.
|
The Company determines whether it is more likely than not that a
tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit is
recorded in the financial statements. A tax position is measured
at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement. The
Company may be required to change its provision for income taxes
when the ultimate deductibility of certain items is challenged
by taxing authorities or when estimates used in determining
valuation allowances on deferred tax assets significantly
change, or when receipt of new information indicates the need
for adjustment in valuation allowances. Additionally, future
events, such as changes in tax laws, tax regulations, or
interpretations of such laws or regulations, could have an
impact on the provision for income tax and the effective tax
rate. Any such changes could significantly affect the amounts
reported in the consolidated financial statements in the year
these changes occur.
Employee
Benefit Plans
Certain subsidiaries of the Holding Company (the
“Subsidiaries”) sponsor
and/or
administer pension and other postretirement benefit plans
covering employees who meet specified eligibility requirements.
The obligations and expenses associated with these plans require
an extensive use of assumptions such as the discount rate,
expected rate of return on plan assets, rate of future
compensation increases, healthcare cost trend rates, as well as
assumptions regarding participant demographics such as rate and
age of retirements, withdrawal rates and mortality. In
consultation with our external consulting actuarial firm, we
determine these assumptions based upon a variety of factors such
as historical performance of the plan and its assets, currently
available market and industry data, and expected benefit payout
streams. The assumptions used may differ materially from actual
results due to, among other factors, changing market and
economic conditions and changes in participant demographics.
These differences may have a significant effect on the
Company’s consolidated financial statements and liquidity.
79
Litigation
Contingencies
The Company is a party to a number of legal actions and is
involved in a number of regulatory investigations. Given the
inherent unpredictability of these matters, it is difficult to
estimate the impact on the Company’s financial position.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. Liabilities related to certain lawsuits, including
the Company’s asbestos-related liability, are especially
difficult to estimate due to the limitation of available data
and uncertainty regarding numerous variables that can affect
liability estimates. The data and variables that impact the
assumptions used to estimate the Company’s asbestos-related
liability include the number of future claims, the cost to
resolve claims, the disease mix and severity of disease in
pending and future claims, the impact of the number of new
claims filed in a particular jurisdiction and variations in the
law in the jurisdictions in which claims are filed, the possible
impact of tort reform efforts, the willingness of courts to
allow plaintiffs to pursue claims against the Company when
exposure to asbestos took place after the dangers of asbestos
exposure were well known, and the impact of any possible future
adverse verdicts and their amounts. On a quarterly and annual
basis, the Company reviews relevant information with respect to
liabilities for litigation, regulatory investigations and
litigation-related contingencies to be reflected in the
Company’s consolidated financial statements. It is possible
that an adverse outcome in certain of the Company’s
litigation and regulatory investigations, including
asbestos-related cases, or the use of different assumptions in
the determination of amounts recorded could have a material
effect upon the Company’s consolidated net income or cash
flows in particular quarterly or annual periods.
Economic
Capital
Economic capital is an internally developed risk capital model,
the purpose of which is to measure the risk in the business and
to provide a basis upon which capital is deployed. The economic
capital model accounts for the unique and specific nature of the
risks inherent in MetLife’s businesses. As a part of the
economic capital process, a portion of net investment income is
credited to the segments based on the level of allocated equity.
This is in contrast to the standardized regulatory risk-based
capital (“RBC”) formula, which is not as refined in
its risk calculations with respect to the nuances of the
Company’s businesses.
Acquisitions
and Dispositions
See Note 2 of the Notes to the Consolidated Financial
Statements.
Recent
Developments
On February 2, 2010, MetLife announced that it is in discussions
with American International Group, Inc. about acquiring its
subsidiary, American Life Insurance Company, an international
life insurance company. These discussions are ongoing. No
agreement has been reached and there are no assurances that an
agreement will be reached.
Consolidated
Results of Operations
Year
Ended December 31, 2009 compared with the Year Ended
December 31, 2008
Unfavorable market conditions continued through 2009, providing
a challenging business environment. The largest and most
significant impact continued to be on our investment portfolio
as declining yields resulted in lower net investment income.
Market sensitive expenses were also negatively impacted by the
market conditions as evidenced by an increase in pension and
postretirement benefit costs. Higher levels of unemployment
continued to impact certain group businesses as a decrease in
covered payrolls reduced growth. Our auto and homeowners
business was impacted by a declining housing market, the
deterioration of the new auto sales market and the continuation
of credit availability issues, all of which contributed to a
decrease in insured exposures. Despite the challenging business
environment, revenue growth remained solid in the majority of
our businesses. A flight to quality during the year contributed
to an improvement in sales in both our domestic fixed and
variable annuity products. We also saw an increase in market
share, especially in the structured settlement business, where
we experienced an increase of 53% in premiums. An improvement in
the global financial markets contributed to a recovery of sales
in most of our international regions and resulted in improved
investment performance in some
80
regions during the second half of 2009. We also benefited
domestically from a strong residential mortgage refinance market
and healthy growth in the reverse mortgage arena.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
26,460
|
|
|
$
|
25,914
|
|
|
$
|
546
|
|
|
|
2.1
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
5,203
|
|
|
|
5,381
|
|
|
|
(178
|
)
|
|
|
(3.3
|
)%
|
|
Net investment income
|
|
|
14,838
|
|
|
|
16,291
|
|
|
|
(1,453
|
)
|
|
|
(8.9
|
)%
|
|
Other revenues
|
|
|
2,329
|
|
|
|
1,586
|
|
|
|
743
|
|
|
|
46.8
|
%
|
|
Net investment gains (losses)
|
|
|
(7,772
|
)
|
|
|
1,812
|
|
|
|
(9,584
|
)
|
|
|
(528.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
41,058
|
|
|
|
50,984
|
|
|
|
(9,926
|
)
|
|
|
(19.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
29,986
|
|
|
|
29,188
|
|
|
|
798
|
|
|
|
2.7
|
%
|
|
Interest credited to policyholder account balances
|
|
|
4,849
|
|
|
|
4,788
|
|
|
|
61
|
|
|
|
1.3
|
%
|
|
Interest credited to bank deposits
|
|
|
163
|
|
|
|
166
|
|
|
|
(3
|
)
|
|
|
(1.8
|
)%
|
|
Capitalization of DAC
|
|
|
(3,019
|
)
|
|
|
(3,092
|
)
|
|
|
73
|
|
|
|
2.4
|
%
|
|
Amortization of DAC and VOBA
|
|
|
1,307
|
|
|
|
3,489
|
|
|
|
(2,182
|
)
|
|
|
(62.5
|
)%
|
|
Interest expense
|
|
|
1,044
|
|
|
|
1,051
|
|
|
|
(7
|
)
|
|
|
(0.7
|
)%
|
|
Other expenses
|
|
|
11,061
|
|
|
|
10,333
|
|
|
|
728
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
45,391
|
|
|
|
45,923
|
|
|
|
(532
|
)
|
|
|
(1.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(4,333
|
)
|
|
|
5,061
|
|
|
|
(9,394
|
)
|
|
|
(185.6
|
)%
|
|
Provision for income tax expense (benefit)
|
|
|
(2,015
|
)
|
|
|
1,580
|
|
|
|
(3,595
|
)
|
|
|
(227.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(2,318
|
)
|
|
|
3,481
|
|
|
|
(5,799
|
)
|
|
|
(166.6
|
)%
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
40
|
|
|
|
(203
|
)
|
|
|
243
|
|
|
|
119.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,278
|
)
|
|
|
3,278
|
|
|
|
(5,556
|
)
|
|
|
(169.5
|
)%
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(32
|
)
|
|
|
69
|
|
|
|
(101
|
)
|
|
|
(146.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
(2,246
|
)
|
|
|
3,209
|
|
|
|
(5,455
|
)
|
|
|
(170.0
|
)%
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
(3
|
)
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(2,368
|
)
|
|
$
|
3,084
|
|
|
$
|
(5,452
|
)
|
|
|
(176.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts are net of income tax.
During the year ended December 31, 2009, MetLife’s
income (loss) from continuing operations, net of income tax
decreased $5.8 billion to a loss of $2.3 billion from
income of $3.5 billion in the comparable 2008 period. The
year over year change is predominantly due to a
$5.2 billion unfavorable change in net investment gains
(losses) to losses of $4.6 billion, net of related
adjustments, in 2009 from gains of $644 million, net of
related adjustments, in 2008.
81
We manage our investment portfolio using disciplined
Asset/Liability Management principles, focusing on cash flow and
duration to support our current and future liabilities. Our
intent is to match the timing and amount of liability cash
outflows with invested assets that have cash inflows of
comparable timing and amount, while optimizing, net of income
tax, risk-adjusted net investment income and risk-adjusted total
return. Our investment portfolio is heavily weighted toward
fixed income investments, with over 80% of our portfolio
invested in fixed maturity securities and mortgage loans. These
securities and loans have varying maturities and other
characteristics which cause them to be generally well suited for
matching the cash flow and duration of insurance liabilities.
Other invested asset classes including, but not limited to
equity securities, other limited partnership interests and real
estate and real estate joint ventures provide additional
diversification and opportunity for long term yield enhancement
in addition to supporting the cash flow and duration objectives
of our investment portfolio. We also use derivatives as an
integral part of our management of the investment portfolio to
hedge certain risks, including changes in interest rates,
foreign currencies, credit spreads and equity market levels.
Additional considerations for our investment portfolio include
current and expected market conditions and expectations for
changes within our unique mix of products and business segments.
The composition of the investment portfolio of each business
segment is tailored to the unique characteristics of its
insurance liabilities, causing certain portfolios to be shorter
in duration and others to be longer in duration. Accordingly,
certain portfolios are more heavily weighted in fixed maturity
securities, or certain
sub-sectors
of fixed maturity securities, than other portfolios.
Investments are purchased to support our insurance liabilities
and not to generate net investment gains and losses. However,
net investment gains and losses are generated and can change
significantly from period to period, due to changes in external
influences including movements in interest rates, foreign
currencies and credit spreads, counterparty specific factors
such as financial performance, credit rating and collateral
valuation, and internal factors such as portfolio rebalancing
that can generate gains and losses. As an investor in the fixed
income, equity security, mortgage loan and certain other
invested asset classes, we are exposed to the above stated
risks, which can lead to both impairments and credit-related
losses.
The unfavorable variance in net investment gains (losses) of
$5.2 billion, net of related adjustments, was primarily
driven by losses on freestanding derivatives, partially offset
by gains on embedded derivatives associated with variable
annuity minimum benefit guarantees, and decreased losses on
fixed maturity securities. The negative change in freestanding
derivatives, from gains in the prior year to losses in the
current year, was primarily attributable to the effect of rising
interest rates on certain interest rate sensitive derivatives
that are economic hedges of certain invested assets and
insurance liabilities; weakening U.S. Dollar on certain
foreign currency sensitive derivatives, and equity market and
interest rate derivatives that are economic hedges of embedded
derivatives. Losses on embedded derivatives decreased from
losses to gains and were driven primarily by rising interest
rates and improving equity market performance. The gains were
net of losses attributable to a narrowing of the Company’s
own credit spread. Losses on the freestanding derivatives
hedging these embedded derivatives risks substantially offset
the change in the liabilities attributable to market factors,
excluding the adjustment for the change in the Company’s
own credit spread, which is not hedged. The decrease in losses
on fixed maturity securities is primarily attributable to lower
net losses on sales of fixed maturity securities, partially
offset by increased impairments due to the current financial
market conditions, although this trend lessened in the latter
part of 2009.
As more fully described in the discussion of performance
measures above, operating earnings is the measure of segment
profit or loss we use to evaluate performance and allocate
resources. Consistent with GAAP accounting guidance for segment
reporting, it is our measure of performance, as reported below.
Operating earnings is not determined in accordance with GAAP and
should not be viewed as a substitute for GAAP income (loss) from
continuing operations, net of income tax. We believe that the
presentation of operating earnings enhances the understanding of
our performance by highlighting the results of operations and
the underlying profitability drivers of the business. Operating
earnings available to common shareholders decreased by
$329 million to $2.4 billion in 2009 from
$2.7 billion in 2008.
82
Reconciliation
of income (loss) from continuing operations, net of income tax,
to operating earnings available to common shareholders
Year
Ended December 31, 2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(418
|
)
|
|
$
|
(367
|
)
|
|
$
|
(841
|
)
|
|
$
|
321
|
|
|
$
|
(280
|
)
|
|
$
|
(733
|
)
|
|
$
|
(2,318
|
)
|
|
Less: Net investment gains (losses)
|
|
|
(2,258
|
)
|
|
|
(1,606
|
)
|
|
|
(2,260
|
)
|
|
|
(2
|
)
|
|
|
(903
|
)
|
|
|
(743
|
)
|
|
|
(7,772
|
)
|
|
Less: Other adjustments to continuing operations
|
|
|
(139
|
)
|
|
|
522
|
|
|
|
123
|
|
|
|
—
|
|
|
|
(206
|
)
|
|
|
(16
|
)
|
|
|
284
|
|
|
Less: Provision for income tax (expense) benefit
|
|
|
837
|
|
|
|
380
|
|
|
|
745
|
|
|
|
1
|
|
|
|
366
|
|
|
|
354
|
|
|
|
2,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,142
|
|
|
$
|
337
|
|
|
$
|
551
|
|
|
$
|
322
|
|
|
$
|
463
|
|
|
|
(328
|
)
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(450
|
)
|
|
$
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
2,195
|
|
|
$
|
382
|
|
|
$
|
(97
|
)
|
|
$
|
275
|
|
|
$
|
553
|
|
|
$
|
173
|
|
|
$
|
3,481
|
|
|
Less: Net investment gains (losses)
|
|
|
1,558
|
|
|
|
901
|
|
|
|
(1,629
|
)
|
|
|
(134
|
)
|
|
|
169
|
|
|
|
947
|
|
|
|
1,812
|
|
|
Less: Other adjustments to continuing operations
|
|
|
(193
|
)
|
|
|
(612
|
)
|
|
|
74
|
|
|
|
—
|
|
|
|
52
|
|
|
|
17
|
|
|
|
(662
|
)
|
|
Less: Provision for income tax (expense) benefit
|
|
|
(480
|
)
|
|
|
(100
|
)
|
|
|
545
|
|
|
|
46
|
|
|
|
(147
|
)
|
|
|
(352
|
)
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,310
|
|
|
$
|
193
|
|
|
$
|
913
|
|
|
$
|
363
|
|
|
$
|
479
|
|
|
|
(439
|
)
|
|
|
2,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(564
|
)
|
|
$
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
Year
Ended December 31, 2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
23,483
|
|
|
$
|
3,543
|
|
|
$
|
5,669
|
|
|
$
|
3,113
|
|
|
$
|
4,383
|
|
|
$
|
867
|
|
|
$
|
41,058
|
|
|
Less: Net investment gains (losses)
|
|
|
(2,258
|
)
|
|
|
(1,606
|
)
|
|
|
(2,260
|
)
|
|
|
(2
|
)
|
|
|
(903
|
)
|
|
|
(743
|
)
|
|
|
(7,772
|
)
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27
|
)
|
|
Less: Other adjustments to revenues
|
|
|
(74
|
)
|
|
|
(217
|
)
|
|
|
187
|
|
|
|
—
|
|
|
|
(169
|
)
|
|
|
22
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
25,842
|
|
|
$
|
5,366
|
|
|
$
|
7,742
|
|
|
$
|
3,115
|
|
|
$
|
5,455
|
|
|
$
|
1,588
|
|
|
$
|
49,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
24,165
|
|
|
$
|
4,108
|
|
|
$
|
6,982
|
|
|
$
|
2,697
|
|
|
$
|
4,868
|
|
|
$
|
2,571
|
|
|
$
|
45,391
|
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
39
|
|
|
|
(739
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(700
|
)
|
|
Less: Other adjustments to expenses
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
64
|
|
|
|
—
|
|
|
|
37
|
|
|
|
38
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
24,127
|
|
|
$
|
4,847
|
|
|
$
|
6,918
|
|
|
$
|
2,697
|
|
|
$
|
4,831
|
|
|
$
|
2,533
|
|
|
$
|
45,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
26,754
|
|
|
$
|
5,630
|
|
|
$
|
7,559
|
|
|
$
|
3,061
|
|
|
$
|
6,001
|
|
|
$
|
1,979
|
|
|
$
|
50,984
|
|
|
Less: Net investment gains (losses)
|
|
|
1,558
|
|
|
|
901
|
|
|
|
(1,629
|
)
|
|
|
(134
|
)
|
|
|
169
|
|
|
|
947
|
|
|
|
1,812
|
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
Less: Other adjustments to revenues
|
|
|
(1
|
)
|
|
|
(35
|
)
|
|
|
45
|
|
|
|
—
|
|
|
|
69
|
|
|
|
13
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
25,179
|
|
|
$
|
4,764
|
|
|
$
|
9,143
|
|
|
$
|
3,195
|
|
|
$
|
5,763
|
|
|
$
|
1,019
|
|
|
$
|
49,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
23,418
|
|
|
$
|
5,049
|
|
|
$
|
7,735
|
|
|
$
|
2,728
|
|
|
$
|
5,044
|
|
|
$
|
1,949
|
|
|
$
|
45,923
|
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
262
|
|
|
|
577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
839
|
|
|
Less: Other adjustments to expenses
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
—
|
|
|
|
17
|
|
|
|
(4
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
23,208
|
|
|
$
|
4,472
|
|
|
$
|
7,764
|
|
|
$
|
2,728
|
|
|
$
|
5,027
|
|
|
$
|
1,953
|
|
|
$
|
45,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The volatile market conditions that began in 2008 and continued
into 2009 impacted several key components of our operating
earnings available to common shareholders including net
investment income, hedging costs, and certain market sensitive
expenses. The markets also positively impacted our operating
earnings available to common shareholders as conditions began to
improve during 2009, resulting in lower DAC and DSI amortization.
A $722 million decline in net investment income was the
result of decreasing yields, including the effects of our higher
quality, more liquid, but lower yielding investment position in
response to the extraordinary market conditions. The impact of
declining yields caused a $1.6 billion decrease in net
investment income, which was partially offset by an increase of
$846 million due to growth in average invested assets
calculated excluding unrealized gains and losses. The decrease
in yields resulted from the disruption and dislocation in the
global financial markets experienced in 2008, which continued,
but moderated, in 2009. The adverse yield impact was
concentrated in the following four invested asset classes:
|
|
|
| |
•
|
Fixed maturity securities — primarily due to lower
yields on floating rate securities from declines in short-term
interest rates and an increased allocation to lower yielding,
higher quality, U.S. Treasury, agency and
|
84
|
|
|
| |
|
government guaranteed securities, to increase liquidity in
response to the extraordinary market conditions, as well as
decreased income on our securities lending program, primarily
due to the smaller size of the program in the current year.
These adverse impacts were offset slightly as conditions
improved late in 2009 and we began to reallocate our portfolio
to higher-yielding assets;
|
|
|
|
| |
•
|
Real estate joint ventures — primarily due to
declining property valuations on certain investment funds that
carry their real estate at estimated fair value and operating
losses incurred on properties that were developed for sale by
development joint ventures;
|
| |
•
|
Cash, cash equivalents and short-term investments —
primarily due to declines in short-term interest rates; and
|
| |
•
|
Mortgage loans — primarily due to lower prepayments on
commercial mortgage loans and lower yields on variable rate
loans reflecting declines in short-term interest rates.
|
Equity markets experienced some recovery in 2009, which led to
improved yields on other limited partnership interests. As many
of our products are interest spread-based, the lower net
investment income was significantly offset by lower interest
credited expense on our investment and insurance products.
The financial market conditions also resulted in a
$348 million increase in net guaranteed annuity benefit
costs in our Retirement Products segment, as increased hedging
losses were only partially offset by lower guaranteed benefit
costs.
The key driver of the increase in other expenses stemmed from
the impact of market conditions on certain expenses, primarily
pension and postretirement benefit costs, reinsurance expenses
and letter of credit fees. These increases coupled with higher
variable costs, such as commissions and premium taxes, some of
which have been capitalized, more than offset the favorable
impact of lower information technology, travel, professional
services and advertising expenses, which include the impact of
our Operational Excellence initiative.
The market improvement which began in the second quarter of 2009
was a key factor in the determination of our expected future
gross profits, the increase of which triggered a decrease in DAC
and DSI amortization, most significantly in the Retirement
Products segment. The increase in our expected future gross
profits stemmed primarily from an increase in the market value
of our separate account balances, which is attributable, in
part, to the improving financial markets. Our Insurance Products
segment benefited, in the current year, from an increase in
amortization of unearned revenue, primarily as a result of our
annual review of assumptions that are used in the determination
of the amount of amortization recognized. These collective
changes in amortization resulted in a $720 million benefit,
partially offsetting the declines in operating earnings
available to common shareholders discussed above.
A portion of the decline in operating earnings available to
common shareholders was caused by a $200 million reduction
in the results of our closed block of business, a specific group
of participating life policies that were segregated in
connection with the demutualization of MLIC. Until early 2009,
the operating earnings of the closed block did not have a full
impact on operating earnings as the operating earnings or loss
was partially offset by a change in the policyholder dividend
obligation, a liability established at the time of
demutualization. However, in early 2009 the policyholder
dividend obligation was depleted and, as a result, the total
operating earnings or loss related to the closed block for the
year ended December 31, 2009 was, and in the future may be
a component of operating earnings.
Business growth, from the majority of our businesses, along with
net favorable mortality experience, had a positive impact on
operating earnings available to common shareholders. These
impacts were somewhat dampened by higher benefit utilization in
our dental business and mixed claim activity in our Auto &
Home segment. In addition, our forward and reverse residential
mortgage platform acquisitions in late 2008 benefited Banking,
Corporate & Other’s 2009 results.
85
Insurance
Products
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
17,168
|
|
|
$
|
16,402
|
|
|
$
|
766
|
|
|
|
4.7
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
2,281
|
|
|
|
2,171
|
|
|
|
110
|
|
|
|
5.1
|
%
|
|
Net investment income
|
|
|
5,614
|
|
|
|
5,787
|
|
|
|
(173
|
)
|
|
|
(3.0
|
)%
|
|
Other revenues
|
|
|
779
|
|
|
|
819
|
|
|
|
(40
|
)
|
|
|
(4.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
25,842
|
|
|
|
25,179
|
|
|
|
663
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
19,111
|
|
|
|
18,183
|
|
|
|
928
|
|
|
|
5.1
|
%
|
|
Interest credited to policyholder account balances
|
|
|
952
|
|
|
|
930
|
|
|
|
22
|
|
|
|
2.4
|
%
|
|
Capitalization of DAC
|
|
|
(873
|
)
|
|
|
(849
|
)
|
|
|
(24
|
)
|
|
|
(2.8
|
)%
|
|
Amortization of DAC and VOBA
|
|
|
725
|
|
|
|
743
|
|
|
|
(18
|
)
|
|
|
(2.4
|
)%
|
|
Interest expense
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
20.0
|
%
|
|
Other expenses
|
|
|
4,206
|
|
|
|
4,196
|
|
|
|
10
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
24,127
|
|
|
|
23,208
|
|
|
|
919
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
573
|
|
|
|
661
|
|
|
|
(88
|
)
|
|
|
(13.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,142
|
|
|
$
|
1,310
|
|
|
$
|
(168
|
)
|
|
|
(12.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfavorable market conditions, which continued through 2009,
provided a challenging business environment for our Insurance
Products segment. This resulted in lower net investment income
and an increase in market sensitive expenses, primarily pension
and postretirement benefit costs. We also experienced higher
utilization of dental benefits along with a lower number of
recoveries in our disability business. Higher levels of
unemployment continued to impact certain group businesses as a
decrease in covered payrolls reduced growth. However, revenue
growth remained solid in all of our businesses. Revenue growth
in our dental and individual life businesses reflected strong
sales and renewals.
The significant components of the $168 million decline in
operating earnings were the aforementioned decline in net
investment income, especially in the closed block business,
partially offset by an increase in the amortization of unearned
revenue, the impact of a reduction in dividends to certain
policyholders and favorable mortality in the individual life
business.
Until early 2009, the earnings of the closed block did not have
a full impact on operating earnings as the earnings or loss was
partially offset by a change in the policyholder dividend
obligation. However, in early 2009 the policyholder dividend
obligation was depleted and, as a result, the total operating
earnings or loss related to the closed block for the year ended
December 31, 2009 was, and in the future may be, a
component of operating earnings. This resulted in a
$200 million decline in operating earnings in 2009.
The decrease in net investment income of $112 million was
primarily due to a $317 million decrease from lower yields,
partially offset by a $205 million increase from growth in
average invested assets. Yields were adversely impacted by the
severe downturn in the global financial markets, which primarily
impacted other invested assets, real estate joint ventures and
fixed maturity securities. In addition, income from our
securities lending program decreased primarily due to the
smaller size of the program in 2009. The growth in the average
invested asset base was primarily from an increase in net flows
from our individual life, non-medical health, and group life
businesses. The moderate recovery in equity markets in 2009 led
to improved yields on other limited partnership interests, which
partially offset the overall reduction in yields. To manage the
needs of our intermediate to longer-term liabilities, our
portfolio consists primarily of investment grade corporate fixed
maturity securities, structured finance securities (comprised of
mortgage and asset-backed securities), mortgage loans, and
U.S. Treasury, agency and government guaranteed fixed
maturity securities and, to a lesser extent, certain other
invested asset classes
86
including real estate joint ventures and other invested assets
to provide additional diversification and opportunity for
long-term yield enhancement.
Other expenses were essentially flat despite an increase of
$137 million from the impact of market conditions on
certain expenses, primarily pension and postretirement benefit
costs. This increase was partially offset by a decrease of
$85 million, predominantly from declines in information
technology, travel, and professional services, including the
positive impact of our Operational Excellence initiative. A
further reduction of expenses was achieved through a decrease in
variable expenses, such as commissions and premium taxes of
$46 million, a portion of which is offset by DAC
capitalization.
The aforementioned declines in operating earnings were partially
offset by the favorable impact of a $63 million decrease in
policyholder dividends in the traditional life business, the
result of a dividend scale reduction in the fourth quarter of
2009. In addition, favorable mortality in the individual life
business was partially offset by higher benefit utilization in
the dental business during 2009, reflecting the negative
employment trends in the marketplace. The net impact of these
two items benefited operating earnings by $36 million. The
2009 results were also favorably impacted by our review of
assumptions used to determine estimated gross profits and
margins, which in turn are factors in determining the
amortization for DAC and unearned revenue. This review resulted
in an unlocking event related to unearned revenue and, coupled
with the impact from the prior year’s review, generated an
increase in operating earnings of $82 million. This
increase was recorded in universal life and investment-type
product policy fees. Partially offsetting these increases was
the impact of lower separate account balances, which resulted in
lower fee income of $25 million.
DAC amortization reflects lower current year amortization of
$108 million, stemming from the impact of the improvement
in the financial markets in 2009, which increased our expected
future gross profits, as well as lower current year gross
margins in the closed block. This decrease was partially offset
by the net impact of refinements in both the prior and current
years of $98 million, the majority of which was recorded in
the prior year as a result of the 2008 review of certain DAC
related assumptions.
Retirement
Products
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
623
|
|
|
$
|
361
|
|
|
$
|
262
|
|
|
|
72.6
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
1,712
|
|
|
|
1,870
|
|
|
|
(158
|
)
|
|
|
(8.4
|
)%
|
|
Net investment income
|
|
|
2,859
|
|
|
|
2,365
|
|
|
|
494
|
|
|
|
20.9
|
%
|
|
Other revenues
|
|
|
172
|
|
|
|
168
|
|
|
|
4
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
5,366
|
|
|
|
4,764
|
|
|
|
602
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,398
|
|
|
|
692
|
|
|
|
706
|
|
|
|
102.0
|
%
|
|
Interest credited to policyholder account balances
|
|
|
1,687
|
|
|
|
1,337
|
|
|
|
350
|
|
|
|
26.2
|
%
|
|
Capitalization of DAC
|
|
|
(1,067
|
)
|
|
|
(980
|
)
|
|
|
(87
|
)
|
|
|
(8.9
|
)%
|
|
Amortization of DAC and VOBA
|
|
|
424
|
|
|
|
1,356
|
|
|
|
(932
|
)
|
|
|
(68.7
|
)%
|
|
Interest expense
|
|
|
—
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100.0
|
)%
|
|
Other expenses
|
|
|
2,405
|
|
|
|
2,065
|
|
|
|
340
|
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,847
|
|
|
|
4,472
|
|
|
|
375
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
182
|
|
|
|
99
|
|
|
|
83
|
|
|
|
83.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
337
|
|
|
$
|
193
|
|
|
$
|
144
|
|
|
|
74.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, Retirement Products benefited from a flight to quality,
which contributed to a 10% improvement in combined sales of our
fixed and variable products and a 28% reduction in surrenders
and withdrawals. Our variable
87
annuity sales have out paced the industry, increasing our market
share. Fixed annuity sales benefited from enhanced marketing on
our income annuity with life contingency products, which
increased our premium revenues by $262 million, or 73%,
before income taxes. In the annuity business, the movement in
premiums is almost entirely offset by the related change in
policyholder benefits, as the insurance liability that we
establish at the time we assume the risk under these contracts
is typically equivalent to the premium earned less the amount of
acquisition expenses. Our average policyholder account balances
grew by $7.2 billion in 2009, primarily due to an increase
in sales of fixed annuity products and more customers electing
the fixed option on variable annuity sales. This has a favorable
impact on earnings by increasing net investment income, which is
somewhat offset by higher interest credited expense. Unfavorable
market conditions resulted in poor investment performance, which
outweighed the impact of higher variable annuity sales on our
separate account balances causing the average separate account
balance to remain lower than the previous year. This resulted in
lower policy fees and other revenues which are based on daily
asset balances in the policyholder separate accounts.
The improvement in the financial markets was the primary driver
of the $144 million increase in operating earnings, with
the largest impact resulting in a decrease in DAC, VOBA and DSI
amortization of $655 million. The 2008 results reflected
increased, or accelerated, amortization primarily stemming from
a decline in the market value of our separate account balances.
A factor that determines the amount of amortization is expected
future earnings, which in the annuity business are derived, in
part, from fees earned on separate account balances. The market
value of our separate account balances declined significantly in
2008, resulting in a decrease in the expected future gross
profits, triggering an acceleration of amortization in 2008.
Beginning in the second quarter of 2009, the market conditions
began to improve and the market value of our separate account
balances began to increase, resulting in an increase in the
expected future gross profits and a corresponding lower level of
amortization in 2009.
Also contributing to the increase in operating earnings was an
increase in net investment income of $321 million, which
was primarily due to a $343 million increase from growth in
average invested assets, partially offset by a $22 million
decrease in yields. The increase in average invested assets was
due to increased cash flows from the sales of fixed annuity
products and more customers electing the fixed option on
variable annuity sales, which were reinvested primarily in fixed
maturity securities, other invested assets and mortgage loans.
Yields were adversely impacted by the severe downturn in the
global financial markets which primarily impacted real estate
joint ventures, fixed maturity securities and cash, cash
equivalents and short-term investments. The moderate improvement
in the equity markets in 2009 led to an increase in yields on
other limited partnership interests and certain other invested
assets, which partially offset the overall reduction in yields.
To manage the needs of our intermediate to longer-term
liabilities, our portfolio consists primarily of investment
grade corporate fixed maturity securities, structured finance
securities, mortgage loans and U.S. Treasury, agency and
government guaranteed fixed maturity securities and, to a lesser
extent, certain other invested asset classes, including real
estate joint ventures in order to provide additional
diversification and opportunity for long-term yield enhancement.
As is typically the case with fixed annuity products, higher net
investment income was somewhat offset by higher interest
credited expense. Growth in our fixed annuity policyholder
account balances increased interest credited expense by
$177 million in 2009 and higher average crediting rates on
fixed annuities increased interest credited expense by
$37 million.
Operating earnings were negatively impacted by $348 million
of operating losses related to the hedging programs for variable
annuity minimum death and income benefit guarantees, which are
not embedded derivatives, partially offset by a decrease in the
liability established for these variable annuity guarantees. The
various hedging strategies in place to offset the risk
associated with these variable annuity guarantee benefits were
more sensitive to market movements than the liability for the
guaranteed benefit. Market volatility, improvements in the
equity markets, and higher interest rates produced operating
losses on these hedging strategies in the current year. Our
hedging strategies, which are a key part of our risk management,
performed as anticipated. The decrease in annuity guarantee
benefit liabilities was due to the improvement in the equity
markets, higher interest rates and the annual unlocking of
future market expectations.
Other expenses increased by $221 million primarily due to
an increase of $122 million from the impact of market
conditions on certain expenses. These expenses are largely
comprised of reinsurance costs, pension and postretirement
benefit expenses, and letter of credit fees. In addition,
variable expenses, such as commissions and premium taxes,
increased $76 million, the majority of which have been
offset by DAC capitalization. The positive
88
impact of our Operational Excellence initiative was reflected in
lower information technology, travel, professional services and
advertising expenses, but was more than offset by increases
largely due to business growth.
Finally, policy fees and other revenues decreased by
$100 million, mainly due to lower average separate account
balances in the current year versus prior year.
Corporate
Benefit Funding
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2,561
|
|
|
$
|
2,683
|
|
|
$
|
(122
|
)
|
|
|
(4.5
|
)%
|
|
Universal life and investment-type product policy fees
|
|
|
176
|
|
|
|
227
|
|
|
|
(51
|
)
|
|
|
(22.5
|
)%
|
|
Net investment income
|
|
|
4,766
|
|
|
|
5,874
|
|
|
|
(1,108
|
)
|
|
|
(18.9
|
)%
|
|
Other revenues
|
|
|
239
|
|
|
|
359
|
|
|
|
(120
|
)
|
|
|
(33.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
7,742
|
|
|
|
9,143
|
|
|
|
(1,401
|
)
|
|
|
(15.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,797
|
|
|
|
4,977
|
|
|
|
(180
|
)
|
|
|
(3.6
|
)%
|
|
Interest credited to policyholder account balances
|
|
|
1,633
|
|
|
|
2,298
|
|
|
|
(665
|
)
|
|
|
(28.9
|
)%
|
|
Capitalization of DAC
|
|
|
(14
|
)
|
|
|
(18
|
)
|
|
|
4
|
|
|
|
22.2
|
%
|
|
Amortization of DAC and VOBA
|
|
|
15
|
|
|
|
29
|
|
|
|
(14
|
)
|
|
|
(48.3
|
)%
|
|
Interest expense
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
50.0
|
%
|
|
Other expenses
|
|
|
484
|
|
|
|
476
|
|
|
|
8
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,918
|
|
|
|
7,764
|
|
|
|
(846
|
)
|
|
|
(10.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
273
|
|
|
|
466
|
|
|
|
(193
|
)
|
|
|
(41.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
551
|
|
|
$
|
913
|
|
|
$
|
(362
|
)
|
|
|
(39.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Benefit Funding benefited in certain markets in 2009
as a flight to quality helped drive our increase in market
share, especially in the structured settlement business, where
we experienced a 53% increase in premiums. Our pension closeout
business in the United Kingdom continues to expand and
experienced premium growth during 2009 of almost
$400 million, or 105% before income taxes. However, this
growth was more than offset by a decline in our domestic pension
closeout business driven by unfavorable market conditions and
regulatory changes. A combination of poor equity returns and
lower interest rates have contributed to pension plans being
under funded, which reduces our customers’ flexibility to
engage in transactions such as pension closeouts. Our
customers’ plans funded status may be affected by a variety
of factors, including the ongoing phased implementation of the
Pensions Protection Act of 2006. For each of these businesses,
the movement in premiums is almost entirely offset by the
related change in policyholder benefits. The insurance liability
that is established at the time we assume the risk under these
contracts is typically equivalent to the premium earned.
Market conditions also contributed to a lower demand for several
of our investment-type products. The decrease in sales of these
investment-type products is not necessarily evident in our
results of operations as the transactions related to these
products are recorded through the balance sheet. Our funding
agreement products, primarily the London
Inter-Bank
Offer Rate (“LIBOR”) based contracts, experienced the
most significant impact from the volatile market conditions. As
companies seek greater liquidity, investment managers are
refraining from repurchasing the contracts when they mature and
are opting for more liquid investments. In addition, unfavorable
market conditions continued to impact the demand for global
guaranteed interest contracts, a type of funding agreement.
Policyholder account balances for our investment-type products
were down by approximately $10 billion during 2009, as
issuances were more than offset by scheduled maturities.
However, due to the timing of issuances
89
and maturities, the average policyholder account balances and
liabilities increased from 2008 to 2009. The impact of the
decrease in policyholder account balances resulted in lower net
investment income, which was somewhat offset by lower interest
credited expense.
The primary driver of the $362 million decrease in
operating earnings was lower net investment income of
$720 million reflecting a $732 million decrease from
lower yields and a $12 million increase due to growth in
average invested assets. Yields were adversely impacted by the
severe downturn in the global financial markets which impacted
real estate joint ventures, fixed maturity securities, other
invested assets and mortgage loans. In addition, income from our
securities lending program decreased, primarily due to the
smaller size of the program during the year. To manage the needs
of our longer-term liabilities, our portfolio consists primarily
of investment grade corporate fixed maturity securities,
mortgage loans, U.S. Treasury, agency and government
guaranteed securities and, to a lesser extent, certain other
invested asset classes including real estate joint ventures in
order to provide additional diversification and opportunity for
long-term yield enhancement. For our shorter-term obligations,
we invest primarily in structured finance securities, mortgage
loans and investment grade corporate fixed maturity securities.
The yields on these investments have moved consistent with the
underlying market indices, primarily LIBOR and Treasury, on
which they are based. The growth in the average invested asset
base is consistent with the increase in the average policyholder
account balances and liabilities.
As many of our products are interest spread-based, the lower net
investment income was somewhat offset by lower net interest
credited expense of $382 million. The decrease in interest
credited expense is attributed to $438 million from lower
crediting rates. Crediting rates have moved consistent with the
underlying market indices, primarily LIBOR, on which they are
based. The increase in the average policyholder account balances
resulted in a $56 million increase in interest credited
expense.
The year over year decline in operating earnings was also due in
part to lower other revenues as the prior year benefited by
$44 million in fees for the cancellation of a bank owned
life insurance stable value wrap policy combined with the
surrender of a global guaranteed interest contract. In addition,
a refinement to a reinsurance recoverable in the small business
record keeping line of business in the latter part of 2009 also
contributed $20 million to the decrease in operating
earnings.
Current year results benefited from favorable liability
refinements as compared to unfavorable liability refinements in
2008, as well as improved mortality experience in the current
year, all in the pension closeouts business. These items
improved 2009 operating earnings by approximately
$90 million. Other products generated mortality gains or
losses; however, the net change did not have a material impact
on our year over year results.
Although our other expenses only increased marginally and are
not a significant driver of the decrease in operating earnings,
the general themes associated with the increase are consistent
with those factors discussed above in the discussion of our
consolidated results of operations. Market conditions triggered
an increase in our pension and postretirement benefit expenses
of $27 million. In addition, variable expenses, such as
commissions and premium taxes, have increased $8 million.
These increases were partially offset by a decrease of
$30 million, primarily in information technology, travel
and professional services expenses, all of which were largely
due to our Operational Excellence initiative.
90
Auto &
Home
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2,902
|
|
|
$
|
2,971
|
|
|
$
|
(69
|
)
|
|
|
(2.3
|
)%
|
|
Net investment income
|
|
|
180
|
|
|
|
186
|
|
|
|
(6
|
)
|
|
|
(3.2
|
)%
|
|
Other revenues
|
|
|
33
|
|
|
|
38
|
|
|
|
(5
|
)
|
|
|
(13.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
3,115
|
|
|
|
3,195
|
|
|
|
(80
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,932
|
|
|
|
1,924
|
|
|
|
8
|
|
|
|
0.4
|
%
|
|
Capitalization of DAC
|
|
|
(435
|
)
|
|
|
(444
|
)
|
|
|
9
|
|
|
|
2.0
|
%
|
|
Amortization of DAC and VOBA
|
|
|
436
|
|
|
|
454
|
|
|
|
(18
|
)
|
|
|
(4.0
|
)%
|
|
Other expenses
|
|
|
764
|
|
|
|
794
|
|
|
|
(30
|
)
|
|
|
(3.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,697
|
|
|
|
2,728
|
|
|
|
(31
|
)
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
96
|
|
|
|
104
|
|
|
|
(8
|
)
|
|
|
(7.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
322
|
|
|
$
|
363
|
|
|
$
|
(41
|
)
|
|
|
(11.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto & Home was negatively impacted in 2009 by a
declining housing market, the deterioration of the new auto
sales market and the continuation of credit availability issues,
all of which contributed to a decrease in insured exposures in
2009. Average premiums per policy increased slightly for our
homeowners’ policies but decreased for auto policies,
primarily as a result of a business shift in insured exposures
by state. In particular, we experienced a large decrease in
earned exposures in Massachusetts, whose market was impacted by
a regulatory change, which resulted in a marked increase in
competition.
A return to more normal weather conditions in 2009 resulted in
fewer, and less severe, catastrophe events than in 2008. This
was more than offset by an increase in both non-catastrophe
claim frequencies and non-catastrophe claim severities in 2009.
Mixed claim experience and the impact of lower exposures were
the primary drivers of the $41 million decrease in
operating earnings. While we had a $90 million decrease in
catastrophe related losses compared to the prior year, we also
recorded $68 million less of a benefit in 2009 from
favorable development of prior year non-catastrophe losses.
Current year claim costs rose primarily as a result of a
$29 million increase in claim frequency from both our auto
and homeowners products. In addition, we had a $15 million
net increase in claim severity, stemming from higher severity in
our auto line of business that was partially offset by lower
severity in our homeowners line of business. In 2009, we
experienced a decline in insured exposures, which contributed
approximately $16 million to the decrease in operating
earnings. While this decrease in exposures had a positive impact
on the amount of claims, it was more than offset by the negative
impact on premiums. The decrease in exposures is largely
attributable to slightly higher non-renewal rates, partially
offset by greater sales of new policies. Also contributing to
the decline in earnings was a decrease of $9 million in the
average premium per policy, which is primarily due to a shift in
earned exposures to lower average premium states and an increase
of $10 million in loss adjustment expenses, primarily
related to a decrease in unallocated loss adjusting expense
liabilities at the end of 2008.
The impact of the items discussed above can be seen in the
unfavorable change in the combined ratio, excluding
catastrophes, to 88.9% in 2009 from 83.1% in 2008 and the
unfavorable change in the combined ratio, including
catastrophes, to 92.3% in 2009 from 91.2% in 2008.
A $25 million decrease in other expenses, including the net
change in DAC, partially offset the declines in operating
earnings discussed above. This improvement resulted from
decreases in sales related expenses and from minor fluctuations
in a number of expense categories, a portion of which is due to
our Operational Excellence initiative.
91
Also contributing to the decrease in operating earnings was a
decline in net investment income of $4 million which was
primarily due to a $9 million decrease from a decline in
average invested assets, partially offset by an increase of
$5 million due to improved yields.
International
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,187
|
|
|
$
|
3,470
|
|
|
$
|
(283
|
)
|
|
|
(8.2
|
)%
|
|
Universal life and investment-type product policy fees
|
|
|
1,061
|
|
|
|
1,095
|
|
|
|
(34
|
)
|
|
|
(3.1
|
)%
|
|
Net investment income
|
|
|
1,193
|
|
|
|
1,180
|
|
|
|
13
|
|
|
|
1.1
|
%
|
|
Other revenues
|
|
|
14
|
|
|
|
18
|
|
|
|
(4
|
)
|
|
|
(22.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
5,455
|
|
|
|
5,763
|
|
|
|
(308
|
)
|
|
|
(5.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
2,660
|
|
|
|
3,185
|
|
|
|
(525
|
)
|
|
|
(16.5
|
)%
|
|
Interest credited to policyholder account balances
|
|
|
581
|
|
|
|
171
|
|
|
|
410
|
|
|
|
239.8
|
%
|
|
Capitalization of DAC
|
|
|
(630
|
)
|
|
|
(798
|
)
|
|
|
168
|
|
|
|
21.1
|
%
|
|
Amortization of DAC and VOBA
|
|
|
415
|
|
|
|
381
|
|
|
|
34
|
|
|
|
8.9
|
%
|
|
Interest expense
|
|
|
8
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
(11.1
|
)%
|
|
Other expenses
|
|
|
1,797
|
|
|
|
2,079
|
|
|
|
(282
|
)
|
|
|
(13.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,831
|
|
|
|
5,027
|
|
|
|
(196
|
)
|
|
|
(3.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
161
|
|
|
|
257
|
|
|
|
(96
|
)
|
|
|
(37.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
463
|
|
|
$
|
479
|
|
|
$
|
(16
|
)
|
|
|
(3.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An improvement in the global financial markets has contributed
to a recovery of sales in the majority of our International
regions and has resulted in improved investment performance in
some regions during the second half of 2009. Sales in our Asia
Pacific region are down primarily from a decrease in variable
annuity sales in Japan, primarily as a result of pricing actions
we took during the latter half of 2009. This decline was
somewhat offset by growth in South Korea’s fixed annuities
product and an increase of variable universal life sales, which
are indications that markets are beginning to recover. We
experienced growth in the pension, group life, and medical
businesses of our Latin America region, specifically in Mexico.
Our EMEI region continues to have strong growth in the European
variable annuity business. As we continue to focus on our
business in India, we have made significant investments in our
distribution capabilities.
The reduction in operating earnings includes the adverse impact
of changes in foreign currency exchange rates in 2009 as the
U.S. Dollar strengthened against the various foreign currencies.
This decreased operating earnings by $99 million in 2009
relative to 2008. Excluding the impact of changes in foreign
currency exchange rates, operating earnings increased
$83 million, or 22%, from the prior year. This increase was
primarily driven by higher operating earnings of
$184 million in our Asia Pacific region, while operating
earnings from our Latin America and EMEI regions decreased by
$83 million and $18 million, respectively.
Asia Pacific Region. Improving financial
market conditions was the primary driver of the increase in
operating earnings. Net investment income in the region
increased by $422 million due to an increase of
$278 million from improved yields on our investment
portfolio, $111 million from the change in results of
operating joint ventures, and $33 million from an increase
in average invested assets. The increase in yields was primarily
due to higher income of $277 million on the trading
securities portfolio, stemming from equity markets experiencing
some recovery in 2009. As our trading securities portfolio backs
unit-linked policyholder liabilities, this increase in income
was entirely offset by a corresponding increase in interest
credited expense. The income of the Japan joint venture improved
by $103 million due to favorable investment results and
lower amortization of
92
DAC and VOBA. The decrease in DAC and VOBA amortization was
primarily due to an increase in the market value of the joint
venture’s separate account balances, which is directly tied
to the improving financial markets. A factor that determines the
amount of DAC and VOBA amortization is expected future fees
earned on separate account balances. Since the market value of
separate account balances have increased, it is expected that
future earnings on this block of business will be higher than
previously anticipated. As a result, the amortization of DAC and
VOBA was less in the current year.
Operating earnings in this region also benefited from higher
surrender charges of $16 million. Difficult economic
conditions in Korea during the first half of the year resulted
in a higher level of surrenders. Growth in our Japan reinsurance
business and an increase in reinsurance rates contributed
$21 million to the increase in operating earnings. In
addition, the favorable impact of a reduction in the liability
for our variable annuity guarantees contributed $22 million
to operating earnings. The change in the liability was primarily
due to an increase in separate account balances in the Japan
joint venture. These liabilities are accrued over the life of
the contract in proportion to actual and future expected policy
assessments based on the level of guaranteed minimum benefits
generated using multiple scenarios of separate account returns.
The scenarios use best estimate assumptions consistent with
those used to amortize DAC. Because separate account balances
have had positive returns relative to the prior year, current
estimates of future benefits are lower than that previously
projected which resulted in a decrease in this liability in the
current period. Partially offsetting these increases, higher DAC
amortization of $49 million resulted from business growth
and favorable investment results.
Latin America Region. The decrease in
operating earnings was primarily driven by lower net investment
income. Net investment income decreased by $297 million due
to a decrease of $383 million from lower yields, partially
offset by an increase of $86 million due to an increase in
average invested assets. The decrease in yields was due, in
part, to the impact of changes in assumptions for measuring the
effects of inflation on certain inflation-indexed fixed maturity
securities. This decrease was partially offset by a reduction of
$221 million in the related insurance liability primarily
due to lower inflation. The increase in net investment income
attributable to an increase in average invested assets was
primarily due to business growth and, as such, was largely
offset by increases in policyholder benefits and interest
credited expense.
Higher claim experience in Mexico resulted in a $45 million
decline in operating earnings. The nationalization and reform of
the pension business in Argentina impacted both the current year
and prior year earnings, resulting in a net $36 million
decline in operating earnings. In addition, operating earnings
decreased due to a net income tax increase of $8 million in
Mexico, resulting from a change in assumption regarding the
repatriation of earnings, partially offset by the favorable
impact of a lower effective tax rate in 2009.
Partially offsetting these decreases in operating earnings was
the combination of growth in Mexico’s individual and
institutional businesses and higher premium rates in its
institutional business, which increased operating earnings by
$51 million. Pesification in Argentina impacted both the
current year and prior year earnings, resulting in a net
$73 million increase in operating earnings. This benefit
was largely due to a reassessment of our approach in managing
existing and potential future claims related to certain social
security pension annuity contract holders in Argentina resulting
in a liability release. Lower expenses of $8 million
resulted primarily from the impact of operational efficiencies
achieved through our Operational Excellence initiative.
EMEI Region. The impact of foreign currency
transaction gains and a tax benefit, both of which occurred in
the prior year, contributed $12 million to the decline in
operating earnings. Our investment of $9 million in our
distribution capability and growth initiatives in 2009 also
reduced operating earnings. There was an increase in net
investment income of $76 million, which was due to an
increase of $65 million from an improvement in yields and
$11 million from an increase in average invested assets.
The increase in yields was primarily due to favorable results on
the trading securities portfolio, stemming from the equity
markets experiencing some recovery in 2009. As our trading
portfolio backs unit-linked policyholder liabilities, the
trading portfolio results were entirely offset by a
corresponding increase in interest credited expense. The
increase in net investment income attributable to an increase in
average invested assets was primarily due to business growth and
was largely offset by increases in policyholder benefits and
interest credited expense, also due to business growth.
93
Banking,
Corporate & Other
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
19
|
|
|
$
|
27
|
|
|
$
|
(8
|
)
|
|
|
(29.6
|
)%
|
|
Net investment income
|
|
|
477
|
|
|
|
808
|
|
|
|
(331
|
)
|
|
|
(41.0
|
)%
|
|
Other revenues
|
|
|
1,092
|
|
|
|
184
|
|
|
|
908
|
|
|
|
493.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,588
|
|
|
|
1,019
|
|
|
|
569
|
|
|
|
55.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4
|
|
|
|
46
|
|
|
|
(42
|
)
|
|
|
(91.3
|
)%
|
|
Interest credited to policyholder account balances
|
|
|
—
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
(100.0
|
)%
|
|
Interest credited to bank deposits
|
|
|
163
|
|
|
|
166
|
|
|
|
(3
|
)
|
|
|
(1.8
|
)%
|
|
Capitalization of DAC
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
(100.0
|
)%
|
|
Amortization of DAC and VOBA
|
|
|
3
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
(40.0
|
)%
|
|
Interest expense
|
|
|
1,027
|
|
|
|
1,033
|
|
|
|
(6
|
)
|
|
|
(0.6
|
)%
|
|
Other expenses
|
|
|
1,336
|
|
|
|
699
|
|
|
|
637
|
|
|
|
91.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,533
|
|
|
|
1,953
|
|
|
|
580
|
|
|
|
29.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(617
|
)
|
|
|
(495
|
)
|
|
|
(122
|
)
|
|
|
(24.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
(328
|
)
|
|
|
(439
|
)
|
|
|
111
|
|
|
|
25.3
|
%
|
|
Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
(3
|
)
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
(450
|
)
|
|
$
|
(564
|
)
|
|
$
|
114
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking, Corporate & Other recognized the full year
impact of our forward and reverse residential mortgage platform
acquisitions, a strong residential mortgage refinance market,
healthy growth in the reverse mortgage arena, and a favorable
interest spread environment. Our forward and reverse residential
mortgage production of $37.4 billion in 2009 is up 484%
compared to 2008 production. The increase in mortgage production
drove higher investments in residential mortgage loans
held-for-sale
and mortgage servicing rights. At December 31, 2009, our
residential mortgage loans servicing portfolio was
$64.1 billion comprised of agency (FNMA, FHLMC, and GNMA)
portfolios. Transaction and time deposits, which provide a
relatively stable source of funding and liquidity and are used
to fund loans and fixed income securities purchases, grew 48% in
2009 to $10.2 billion. Borrowings decreased 10% in 2009 to
$2.4 billion. During 2009, we participated in the Federal
Reserve Bank of New York Term Auction Facility, which provided
short term liquidity with low funding costs.
In response to the economic crisis and unusual financial market
events that occurred in 2008 and continued into 2009, we decided
to utilize excess debt capacity. The Holding Company completed
three debt issuances in 2009. The Holding Company issued
$397 million of floating rate senior notes in March 2009,
$1.3 billion of senior notes in May 2009, and
$500 million of junior subordinated debt securities in July
2009. In February 2009, in connection with the initial
settlement of the stock purchase contracts issued as part of the
common equity units sold in June 2005, the Holding Company
issued common stock for $1.0 billion. The proceeds from
these equity and debt issuances were used for general corporate
purposes and have resulted in increased investments and cash and
cash equivalents held within Banking, Corporate &
Other.
Operating earnings available to common shareholders improved by
$114 million, of which $254 million was due to MetLife
Bank and its acquisitions of a residential mortgage origination
and servicing business and a reverse mortgage business, both
during 2008. Excluding the impact of MetLife Bank, our operating
earnings available to common shareholders decreased
$140 million, primarily due to lower net investment income,
partially offset by the impact of a lower effective tax rate.
The lower effective tax rate provided an increased benefit of
$139 million from the prior year. This benefit was the
result of a partial settlement of certain prior year tax audit
issues and increased utilization of tax preferenced investments,
which provide tax credits and deductions.
94
Excluding a $68 million increase from MetLife Bank, net
investment income decreased $283 million, which was
primarily due a decrease of $287 million due to lower
yields, partially offset by an increase of $4 million due
to an increase in average invested assets. Consistent with the
consolidated results of operations discussion above, yields were
adversely impacted by the severe downturn in the global
financial markets, which primarily impacted fixed maturity
securities and real estate joint ventures. The increased average
invested asset base was due to cash flows from debt issuances
during 2009. Our investments primarily include structured
finance securities, investment grade corporate fixed maturity
securities, U.S. Treasury, agency and government guaranteed
fixed maturity securities and mortgage loans. In addition, our
investment portfolio includes the excess capital not allocated
to the segments. Accordingly, it includes a higher allocation to
certain other invested asset classes to provide additional
diversification and opportunity for long-term yield enhancement
including leveraged leases, other limited partnership interests,
real estate, real estate joint ventures and equity securities.
After excluding the impact of a $394 million increase from
MetLife Bank, other expenses increased by $20 million.
Deferred compensation costs, which are tied to equity market
performance, were higher due to a significant market rebound. We
also had an increase in costs associated with the implementation
of our Operational Excellence initiative. These increases were
partially offset by lower postemployment related costs and
corporate-related expenses, specifically legal costs. Legal
costs were lower largely due to the prior year commutation of
asbestos policies. In addition, interest expense declined
slightly as a result of rate reductions on variable rate
collateral financing arrangements offset by debt issuances in
2009 and 2008.
Consolidated
Results of Operations
Year
Ended December 31, 2008 compared with the Year Ended
December 31, 2007
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
25,914
|
|
|
$
|
22,970
|
|
|
$
|
2,944
|
|
|
|
12.8
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
5,381
|
|
|
|
5,238
|
|
|
|
143
|
|
|
|
2.7
|
%
|
|
Net investment income
|
|
|
16,291
|
|
|
|
18,057
|
|
|
|
(1,766
|
)
|
|
|
(9.8
|
)%
|
|
Other revenues
|
|
|
1,586
|
|
|
|
1,465
|
|
|
|
121
|
|
|
|
8.3
|
%
|
|
Net investment gains (losses)
|
|
|
1,812
|
|
|
|
(578
|
)
|
|
|
2,390
|
|
|
|
413.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
50,984
|
|
|
|
47,152
|
|
|
|
3,832
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
29,188
|
|
|
|
25,506
|
|
|
|
3,682
|
|
|
|
14.4
|
%
|
|
Interest credited to policyholder account balances
|
|
|
4,788
|
|
|
|
5,461
|
|
|
|
(673
|
)
|
|
|
(12.3
|
)%
|
|
Interest credited to bank deposits
|
|
|
166
|
|
|
|
200
|
|
|
|
(34
|
)
|
|
|
(17.0
|
)%
|
|
Capitalization of DAC
|
|
|
(3,092
|
)
|
|
|
(3,064
|
)
|
|
|
(28
|
)
|
|
|
(0.9
|
)%
|
|
Amortization of DAC and VOBA
|
|
|
3,489
|
|
|
|
2,250
|
|
|
|
1,239
|
|
|
|
55.1
|
%
|
|
Interest expense
|
|
|
1,051
|
|
|
|
897
|
|
|
|
154
|
|
|
|
17.2
|
%
|
|
Other expenses
|
|
|
10,333
|
|
|
|
10,122
|
|
|
|
211
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
45,923
|
|
|
|
41,372
|
|
|
|
4,551
|
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
5,061
|
|
|
|
5,780
|
|
|
|
(719
|
)
|
|
|
(12.4
|
)%
|
|
Provision for income tax expense (benefit)
|
|
|
1,580
|
|
|
|
1,675
|
|
|
|
(95
|
)
|
|
|
(5.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
3,481
|
|
|
|
4,105
|
|
|
|
(624
|
)
|
|
|
(15.2
|
)%
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
(203
|
)
|
|
|
360
|
|
|
|
(563
|
)
|
|
|
(156.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,278
|
|
|
|
4,465
|
|
|
|
(1,187
|
)
|
|
|
(26.6
|
)%
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
69
|
|
|
|
148
|
|
|
|
(79
|
)
|
|
|
(53.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
3,209
|
|
|
|
4,317
|
|
|
|
(1,108
|
)
|
|
|
(25.7
|
)%
|
|
Less: Preferred stock dividends
|
|
|
125
|
|
|
|
137
|
|
|
|
(12
|
)
|
|
|
(8.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
3,084
|
|
|
$
|
4,180
|
|
|
$
|
(1,096
|
)
|
|
|
(26.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
Unless otherwise stated, all amounts are net of income tax.
During the year ended December 31, 2008, MetLife’s
income (loss) from continuing operations, net of income tax,
decreased $624 million to $3.5 billion from
$4.1 billion in the comparable 2007 period. The year over
year change was predominantly due to a $1.9 billion
decrease in operating earnings available to common shareholders.
Partially offsetting this decline was a $1.1 billion
favorable change in net investment gains (losses) to gains of
$644 million, net of related adjustments, in 2008 from
losses of $438 million, net of related adjustments, in 2007.
Beginning in the third quarter of 2008, there was unprecedented
disruption and dislocation in the global financial markets that
caused extreme volatility in the equity, credit and real estate
markets. This adversely impacted net investment income as market
yields decreased and portfolio yields decreased from an
increased allocation to lower yielding, more liquid investments.
The adverse impact on net investment gains (losses) from
increased impairments and credit-related realized losses was
more than offset by favorable market value changes in derivative
instruments.
The increase in net investment gains of $1.1 billion, net
of related adjustments, was primarily driven by increased gains
on freestanding derivatives, partially offset by increased
losses on embedded derivatives primarily associated with
variable annuity minimum benefit guarantees, and increased
impairment losses on fixed maturity securities and equity
securities. The increased gains on freestanding derivatives were
from certain interest sensitive derivatives that are economic
hedges of certain invested assets and liabilities; gains from
foreign currency derivatives primarily due to the
U.S. Dollar strengthening; and gains from equity and
interest rate derivatives that are economic hedges of embedded
derivatives. Losses on embedded derivatives increased and were
driven by declining interest rates and poor equity market
performance, and were net of gains attributable to a widening in
the Company’s own credit spread. The gains on freestanding
derivatives hedging these embedded derivative risks
substantially offset the change in the liabilities attributable
to market factors, excluding the adjustment for the change in
the Company’s own credit spread, which is not hedged. The
increased impairment losses on fixed maturity and equity
securities were primarily associated with financial services
industry holdings due to the stress in the global financial
markets, as well as other credit-related impairments due to the
lack of intent to hold or uncertainty on intent to hold certain
securities until recovery of market value declines.
96
Operating earnings available to common shareholders decreased by
$1.9 billion to $2.7 billion in 2008 from
$4.6 billion in 2007.
Reconciliation
of income (loss) from continuing operations, net of income tax,
to operating earnings available to common shareholders
Year
Ended December 31, 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
2,195
|
|
|
$
|
382
|
|
|
$
|
(97
|
)
|
|
$
|
275
|
|
|
$
|
553
|
|
|
$
|
173
|
|
|
$
|
3,481
|
|
|
Less: Net investment gains (losses)
|
|
|
1,558
|
|
|
|
901
|
|
|
|
(1,629
|
)
|
|
|
(134
|
)
|
|
|
169
|
|
|
|
947
|
|
|
|
1,812
|
|
|
Less: Other adjustments to continuing operations
|
|
|
(193
|
)
|
|
|
(612
|
)
|
|
|
74
|
|
|
|
—
|
|
|
|
52
|
|
|
|
17
|
|
|
|
(662
|
)
|
|
Less: Provision for income tax (expense) benefit
|
|
|
(480
|
)
|
|
|
(100
|
)
|
|
|
545
|
|
|
|
46
|
|
|
|
(147
|
)
|
|
|
(352
|
)
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,310
|
|
|
$
|
193
|
|
|
$
|
913
|
|
|
$
|
363
|
|
|
$
|
479
|
|
|
|
(439
|
)
|
|
|
2,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(564
|
)
|
|
$
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,177
|
|
|
$
|
935
|
|
|
$
|
675
|
|
|
$
|
436
|
|
|
$
|
621
|
|
|
$
|
261
|
|
|
$
|
4,105
|
|
|
Less: Net investment gains (losses)
|
|
|
(121
|
)
|
|
|
104
|
|
|
|
(677
|
)
|
|
|
15
|
|
|
|
56
|
|
|
|
45
|
|
|
|
(578
|
)
|
|
Less: Other adjustments to continuing operations
|
|
|
(176
|
)
|
|
|
(32
|
)
|
|
|
(156
|
)
|
|
|
—
|
|
|
|
32
|
|
|
|
15
|
|
|
|
(317
|
)
|
|
Less: Provision for income tax (expense) benefit
|
|
|
100
|
|
|
|
(26
|
)
|
|
|
298
|
|
|
|
(5
|
)
|
|
|
(35
|
)
|
|
|
(39
|
)
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,374
|
|
|
$
|
889
|
|
|
$
|
1,210
|
|
|
$
|
426
|
|
|
$
|
568
|
|
|
|
240
|
|
|
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103
|
|
|
$
|
4,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
Year
Ended December 31, 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Total revenues
|
|
$
|
26,754
|
|
|
$
|
5,630
|
|
|
$
|
7,559
|
|
|
$
|
3,061
|
|
|
$
|
6,001
|
|
|
$
|
1,979
|
|
|
$
|
50,984
|
|
|
Less: Net investment gains (losses)
|
|
|
1,558
|
|
|
|
901
|
|
|
|
(1,629
|
)
|
|
|
(134
|
)
|
|
|
169
|
|
|
|
947
|
|
|
|
1,812
|
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
Less: Other adjustments to revenues
|
|
|
(1
|
)
|
|
|
(35
|
)
|
|
|
45
|
|
|
|
—
|
|
|
|
69
|
|
|
|
13
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
25,179
|
|
|
$
|
4,764
|
|
|
$
|
9,143
|
|
|
$
|
3,195
|
|
|
$
|
5,763
|
|
|
$
|
1,019
|
|
|
$
|
49,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
23,418
|
|
|
$
|
5,049
|
|
|
$
|
7,735
|
|
|
$
|
2,728
|
|
|
$
|
5,044
|
|
|
$
|
1,949
|
|
|
$
|
45,923
|
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
262
|
|
|
|
577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
839
|
|
|
Less: Other adjustments to expenses
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
—
|
|
|
|
17
|
|
|
|
(4
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
23,208
|
|
|
$
|
4,472
|
|
|
$
|
7,764
|
|
|
$
|
2,728
|
|
|
$
|
5,027
|
|
|
$
|
1,953
|
|
|
$
|
45,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
24,005
|
|
|
$
|
5,338
|
|
|
$
|
7,600
|
|
|
$
|
3,220
|
|
|
$
|
5,418
|
|
|
$
|
1,571
|
|
|
$
|
47,152
|
|
|
Less: Net investment gains (losses)
|
|
|
(121
|
)
|
|
|
104
|
|
|
|
(677
|
)
|
|
|
15
|
|
|
|
56
|
|
|
|
45
|
|
|
|
(578
|
)
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
Less: Other adjustments to revenues
|
|
|
(81
|
)
|
|
|
(31
|
)
|
|
|
(148
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
(271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
24,219
|
|
|
$
|
5,265
|
|
|
$
|
8,425
|
|
|
$
|
3,205
|
|
|
$
|
5,364
|
|
|
$
|
1,535
|
|
|
$
|
48,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
22,214
|
|
|
$
|
3,908
|
|
|
$
|
6,592
|
|
|
$
|
2,640
|
|
|
$
|
4,590
|
|
|
$
|
1,428
|
|
|
$
|
41,372
|
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
62
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84
|
|
|
Less: Other adjustments to expenses
|
|
|
21
|
|
|
|
(21
|
)
|
|
|
8
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
(24
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
22,131
|
|
|
$
|
3,907
|
|
|
$
|
6,584
|
|
|
$
|
2,640
|
|
|
$
|
4,624
|
|
|
$
|
1,452
|
|
|
$
|
41,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unprecedented disruption and dislocation in the global financial
markets caused extreme volatility in the equity, credit and real
estate markets during 2008. Consequently, we experienced
decreasing yields on our investment portfolio and, in response
to the extraordinary market conditions, we increased our
allocation to lower yielding, more liquid investments, causing a
$1.4 billion decline in net investment income. This decline
was
98
partially offset by growth in average invested assets calculated
excluding unrealized gains and losses. The adverse yield impact
was concentrated in the following four invested asset classes:
|
|
|
| |
•
|
Other limited partnership interests — primarily due to
the lack of liquidity and credit in the financial markets, as
well as unprecedented investor redemptions in an environment
with steep declines in the public equity and debt markets;
|
| |
•
|
Cash, cash equivalents and short-term investments —
primarily due to declines in short-term interest rates;
|
| |
•
|
Fixed maturity securities — primarily due to lower
yields on floating rate securities due to declines in short-term
interest rates and an increased allocation to lower yielding,
higher quality, U.S. government and agency securities, to
increase liquidity in response to the extraordinary market
conditions; and
|
| |
•
|
Real estate joint ventures — primarily due to
declining property valuations on certain investment funds that
carry their real estate at estimated fair value and operating
losses incurred on properties that were developed for sale by
real estate development joint ventures.
|
As many of our products are interest spread-based, the lower net
investment income was significantly offset by lower interest
credited expense on our investment and insurance products. In
addition to its impact on net investment income, the volatile
market environment also negatively impacted operating earnings
through an increase in DAC amortization, most significantly in
the Retirement Products segment. The acceleration of
amortization stemmed primarily as a result of the decline in the
market value of our separate account balances, which is directly
tied to the financial markets. Lower separate account balances
also resulted in a decrease in policy fees and other revenues.
Unfavorable mortality experience in the group and individual
life businesses and unfavorable claims experience in the
non-medical health and other business reduced operating earnings
in our Insurance Products segment. Also contributing to the
decrease in operating earnings available to common shareholders
was the impact of significant weather-related catastrophe
losses, which were somewhat offset by lower non-catastrophe
losses in our Auto & Home segment. Lastly, the
implementation of our Operational Excellence initiative resulted
in higher postemployment costs in Banking, Corporate &
Other.
Higher earnings from our dental business as well as from our
businesses in the Latin America and Asia Pacific regions
partially offset the unfavorable impacts discussed above. In
addition, our banking acquisitions in 2008, discussed under
“Acquisitions and Dispositions,” improved operating
earnings available to common shareholders in Banking,
Corporate & Other.
99
Insurance
Products
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
16,402
|
|
|
$
|
15,269
|
|
|
$
|
1,133
|
|
|
|
7.4
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
2,171
|
|
|
|
2,061
|
|
|
|
110
|
|
|
|
5.3
|
%
|
|
Net investment income
|
|
|
5,787
|
|
|
|
6,079
|
|
|
|
(292
|
)
|
|
|
(4.8
|
)%
|
|
Other revenues
|
|
|
819
|
|
|
|
810
|
|
|
|
9
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
25,179
|
|
|
|
24,219
|
|
|
|
960
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
18,183
|
|
|
|
17,001
|
|
|
|
1,182
|
|
|
|
7.0
|
%
|
|
Interest credited to policyholder account balances
|
|
|
930
|
|
|
|
1,037
|
|
|
|
(107
|
)
|
|
|
(10.3
|
)%
|
|
Capitalization of DAC
|
|
|
(849
|
)
|
|
|
(885
|
)
|
|
|
36
|
|
|
|
4.1
|
%
|
|
Amortization of DAC and VOBA
|
|
|
743
|
|
|
|
727
|
|
|
|
16
|
|
|
|
2.2
|
%
|
|
Interest expense
|
|
|
5
|
|
|
|
10
|
|
|
|
(5
|
)
|
|
|
(50.0
|
)%
|
|
Other expenses
|
|
|
4,196
|
|
|
|
4,241
|
|
|
|
(45
|
)
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
23,208
|
|
|
|
22,131
|
|
|
|
1,077
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
661
|
|
|
|
714
|
|
|
|
(53
|
)
|
|
|
(7.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,310
|
|
|
$
|
1,374
|
|
|
$
|
(64
|
)
|
|
|
(4.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extreme volatility in the equity, credit and real estate markets
resulted in decreasing yields on our investment portfolio
causing net investment income to decline by $190 million
despite growth in average invested assets. The market
environment had its most significant impact on other limited
partnership interests, real estate joint ventures and fixed
maturity securities. Net investment income from the general
account portion of investment-type products, including variable
universal life, group life and certain non-medical health
products decreased by $135 million, while other businesses,
including traditional life, decreased by $55 million.
As many of our products are interest spread-based, the lower net
investment income was significantly offset by lower interest
credited expense on our investment and insurance products,
reducing its impact on operating earnings which declined
$64 million compared to 2007. Also contributing to the
decline in operating earnings was unfavorable mortality
experience in the group and individual life businesses,
unfavorable claims experience in the non-medical health business
and the resulting impact of the decline in the financial markets
on separate account balances. Such decreases were partially
offset by higher earnings in the dental and group term life
businesses, including the favorable impact on the year over year
variance of the adoption of new accounting guidance for DAC on
internal replacements of insurance contracts in the prior year.
100
Retirement
Products
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
361
|
|
|
$
|
339
|
|
|
$
|
22
|
|
|
|
6.5
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
1,870
|
|
|
|
2,005
|
|
|
|
(135
|
)
|
|
|
(6.7
|
)%
|
|
Net investment income
|
|
|
2,365
|
|
|
|
2,740
|
|
|
|
(375
|
)
|
|
|
(13.7
|
)%
|
|
Other revenues
|
|
|
168
|
|
|
|
181
|
|
|
|
(13
|
)
|
|
|
(7.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
4,764
|
|
|
|
5,265
|
|
|
|
(501
|
)
|
|
|
(9.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
692
|
|
|
|
605
|
|
|
|
87
|
|
|
|
14.4
|
%
|
|
Interest credited to policyholder account balances
|
|
|
1,337
|
|
|
|
1,321
|
|
|
|
16
|
|
|
|
1.2
|
%
|
|
Capitalization of DAC
|
|
|
(980
|
)
|
|
|
(932
|
)
|
|
|
(48
|
)
|
|
|
(5.2
|
)%
|
|
Amortization of DAC and VOBA
|
|
|
1,356
|
|
|
|
822
|
|
|
|
534
|
|
|
|
65.0
|
%
|
|
Interest expense
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33.3
|
)%
|
|
Other expenses
|
|
|
2,065
|
|
|
|
2,088
|
|
|
|
(23
|
)
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,472
|
|
|
|
3,907
|
|
|
|
565
|
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
99
|
|
|
|
469
|
|
|
|
(370
|
)
|
|
|
(78.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
193
|
|
|
$
|
889
|
|
|
$
|
(696
|
)
|
|
|
(78.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unprecedented disruption and dislocation in the global
financial markets that began in the third quarter of 2008
negatively impacted many aspects of our business resulting in a
$696 million decrease in operating earnings, despite new
sales and deposits which continue to grow consistent with
expectations.
The largest impact resulting from the challenging market
conditions was an increase in DAC and DSI amortization of
$385 million. The acceleration of amortization resulted
primarily from the decline in the market value of our separate
account balances, which is directly tied to the financial
markets. A factor that determines the amount of amortization is
expected future earnings, which in this annuity business are
derived, in part, from fees earned on separate account balances.
In 2008, projection of separate account fees were reduced and as
a result, we recognized more amortization in the current period.
The lower market value of our separate account balances also
resulted in a $96 million decrease in policy fees and other
revenues. Policy fees from variable investment-type products are
typically calculated as a percentage of the daily asset balance
in the policyholder accounts. The value of these assets can
fluctuate depending on performance of the equity markets.
Also contributing to the decrease in operating earnings was a
decline in net investment income of $244 million, which was
primarily due to decreasing yields on our investment portfolio
and an increased allocation to lower yielding more liquid
investments in response to the extraordinary market conditions.
Yields were adversely impacted by the severe downturn in the
global financial markets which impacted other limited
partnership interests, and cash, cash equivalents and short-term
investments.
Partially offsetting the market-related declines was
$15 million of lower expenses. A decrease in non-deferrable
volume related expenses was partially offset by the impact of
revisions to certain pension and postretirement liabilities in
2008. The increase in the pension and postretirement liabilities
was the result of a decline in the value of the assets
supporting the liabilities. The decline in the asset value is
also a direct impact of the volatile market conditions.
101
Corporate
Benefit Funding
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2,683
|
|
|
$
|
1,265
|
|
|
$
|
1,418
|
|
|
|
112.1
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
227
|
|
|
|
189
|
|
|
|
38
|
|
|
|
20.1
|
%
|
|
Net investment income
|
|
|
5,874
|
|
|
|
6,636
|
|
|
|
(762
|
)
|
|
|
(11.5
|
)%
|
|
Other revenues
|
|
|
359
|
|
|
|
335
|
|
|
|
24
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
9,143
|
|
|
|
8,425
|
|
|
|
718
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,977
|
|
|
|
3,365
|
|
|
|
1,612
|
|
|
|
47.9
|
%
|
|
Interest credited to policyholder account balances
|
|
|
2,298
|
|
|
|
2,723
|
|
|
|
(425
|
)
|
|
|
(15.6
|
)%
|
|
Capitalization of DAC
|
|
|
(18
|
)
|
|
|
(25
|
)
|
|
|
7
|
|
|
|
28.0
|
%
|
|
Amortization of DAC and VOBA
|
|
|
29
|
|
|
|
38
|
|
|
|
(9
|
)
|
|
|
(23.7
|
)%
|
|
Interest expense
|
|
|
2
|
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
(66.7
|
)%
|
|
Other expenses
|
|
|
476
|
|
|
|
477
|
|
|
|
(1
|
)
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,764
|
|
|
|
6,584
|
|
|
|
1,180
|
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
466
|
|
|
|
631
|
|
|
|
(165
|
)
|
|
|
(26.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
913
|
|
|
$
|
1,210
|
|
|
$
|
(297
|
)
|
|
|
(24.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreasing yields on our other limited partnership interests,
real estate joint ventures and fixed maturity securities caused
by the severe downturn in the global financial markets resulted
in a $495 million decrease in net investment income, and
was the primary reason for the $297 million decline in
operating earnings.
As many of our products are interest spread-based, the lower net
investment income was somewhat offset by lower interest credited
expense on our investment-type contracts of $276 million.
In addition, a charge of $75 million related to a liability
refinement in the pension closeout business and an increase in
interest credited on future policyholder benefits, which is
consistent with an aging block of business, contributed to the
decline in operating earnings. Such declines were partially
offset by fees earned of $28 million on the surrender of a
global funding agreement contract in 2008.
102
Auto &
Home
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2,971
|
|
|
$
|
2,966
|
|
|
$
|
5
|
|
|
|
0.2
|
%
|
|
Net investment income
|
|
|
186
|
|
|
|
196
|
|
|
|
(10
|
)
|
|
|
(5.1
|
)%
|
|
Other revenues
|
|
|
38
|
|
|
|
43
|
|
|
|
(5
|
)
|
|
|
(11.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
3,195
|
|
|
|
3,205
|
|
|
|
(10
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,924
|
|
|
|
1,811
|
|
|
|
113
|
|
|
|
6.2
|
%
|
|
Capitalization of DAC
|
|
|
(444
|
)
|
|
|
(471
|
)
|
|
|
27
|
|
|
|
5.7
|
%
|
|
Amortization of DAC and VOBA
|
|
|
454
|
|
|
|
468
|
|
|
|
(14
|
)
|
|
|
(3.0
|
)%
|
|
Other expenses
|
|
|
794
|
|
|
|
832
|
|
|
|
(38
|
)
|
|
|
(4.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,728
|
|
|
|
2,640
|
|
|
|
88
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
104
|
|
|
|
139
|
|
|
|
(35
|
)
|
|
|
(25.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
363
|
|
|
$
|
426
|
|
|
$
|
(63
|
)
|
|
|
(14.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant weather-related catastrophe losses in the second and
third quarters of 2008 were the primary cause for the
$63 million decline in operating earnings and resulted in
an unfavorable change in the combined ratio, including
catastrophes, to 91.2% in 2008 from 88.4% in 2007. Such losses
were partially offset by a decrease in non-catastrophe losses
due to lower severities in the auto line of business, offset
somewhat by higher frequencies in the homeowners line of
business, which is reflected in the favorable change in the
combined ratio, excluding catastrophes, to 83.1% in 2008 from
86.3% in 2007.
In addition, net investment income decreased by $7 million
primarily due to decreasing yields, partially offset by growth
in average invested assets. Yields were adversely impacted by
the severe downturn in the global financial markets which
impacted other limited partnership interests and fixed maturity
securities.
Finally, earned premiums were impacted by a modest increase in
exposures, a decrease in the cost of reinsurance, and a decline
in average earned premium per policy.
103
International
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,470
|
|
|
$
|
3,096
|
|
|
$
|
374
|
|
|
|
12.1
|
%
|
|
Universal life and investment-type product policy fees
|
|
|
1,095
|
|
|
|
995
|
|
|
|
100
|
|
|
|
10.1
|
%
|
|
Net investment income
|
|
|
1,180
|
|
|
|
1,249
|
|
|
|
(69
|
)
|
|
|
(5.5
|
)%
|
|
Other revenues
|
|
|
18
|
|
|
|
24
|
|
|
|
(6
|
)
|
|
|
(25.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
5,763
|
|
|
|
5,364
|
|
|
|
399
|
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
3,185
|
|
|
|
2,521
|
|
|
|
664
|
|
|
|
26.3
|
%
|
|
Interest credited to policyholder account balances
|
|
|
171
|
|
|
|
354
|
|
|
|
(183
|
)
|
|
|
(51.7
|
)%
|
|
Capitalization of DAC
|
|
|
(798
|
)
|
|
|
(743
|
)
|
|
|
(55
|
)
|
|
|
(7.4
|
)%
|
|
Amortization of DAC and VOBA
|
|
|
381
|
|
|
|
309
|
|
|
|
72
|
|
|
|
23.3
|
%
|
|
Interest expense
|
|
|
9
|
|
|
|
3
|
|
|
|
6
|
|
|
|
200.0
|
%
|
|
Other expenses
|
|
|
2,079
|
|
|
|
2,180
|
|
|
|
(101
|
)
|
|
|
(4.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,027
|
|
|
|
4,624
|
|
|
|
403
|
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
257
|
|
|
|
172
|
|
|
|
85
|
|
|
|
49.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
479
|
|
|
$
|
568
|
|
|
$
|
(89
|
)
|
|
|
(15.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reduction in operating earnings includes the adverse impact
of changes in foreign currency exchange rates, which decreased
operating earnings by $11 million relative to 2007.
Excluding the impact of changes in foreign currency exchange
rates, operating earnings decreased by $78 million, or 14%,
from the comparable 2007 period. This decrease was primarily
driven by difficult financial market conditions in Japan, which
adversely impacted investment results and increased DAC
amortization relative to the prior year, as well as the impact
of pension reform in Argentina in 2007 and the nationalization
of this business in 2008, which favorably impacted the prior
year results relative to the current year. Partially offsetting
these decreases, the International segment benefited from the
favorable impact of higher inflation rates on inflation-indexed
investments in Chile, as well as business growth in the Latin
America and Asia Pacific regions.
104
Banking,
Corporate & Other
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
27
|
|
|
$
|
35
|
|
|
$
|
(8
|
)
|
|
|
(22.9
|
)%
|
|
Net investment income
|
|
|
808
|
|
|
|
1,428
|
|
|
|
(620
|
)
|
|
|
(43.4
|
)%
|
|
Other revenues
|
|
|
184
|
|
|
|
72
|
|
|
|
112
|
|
|
|
155.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,019
|
|
|
|
1,535
|
|
|
|
(516
|
)
|
|
|
(33.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
46
|
|
|
|
46
|
|
|
|
—
|
|
|
|
—
|
%
|
|
Interest credited to policyholder account balances
|
|
|
7
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
%
|
|
Interest credited to bank deposits
|
|
|
166
|
|
|
|
200
|
|
|
|
(34
|
)
|
|
|
(17.0
|
)%
|
|
Capitalization of DAC
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
|
5
|
|
|
|
62.5
|
%
|
|
Amortization of DAC and VOBA
|
|
|
5
|
|
|
|
11
|
|
|
|
(6
|
)
|
|
|
(54.5
|
)%
|
|
Interest expense
|
|
|
1,033
|
|
|
|
875
|
|
|
|
158
|
|
|
|
18.1
|
%
|
|
Other expenses
|
|
|
699
|
|
|
|
328
|
|
|
|
371
|
|
|
|
113.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,953
|
|
|
|
1,452
|
|
|
|
501
|
|
|
|
34.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(495
|
)
|
|
|
(157
|
)
|
|
|
(338
|
)
|
|
|
(215.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
(439
|
)
|
|
|
240
|
|
|
|
(679
|
)
|
|
|
(282.9
|
)%
|
|
Preferred stock dividends
|
|
|
125
|
|
|
|
137
|
|
|
|
(12
|
)
|
|
|
(8.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
(564
|
)
|
|
$
|
103
|
|
|
$
|
(667
|
)
|
|
|
(647.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the extraordinary market conditions that began in
late 2008, we experienced decreasing yields on our other limited
partnership interests and cash, cash equivalents and short-term
investments. The decreased yields resulted in a
$403 million decrease in investment results, despite the
positive impact of a higher asset base resulting from the
investment of a portion of the proceeds from debt issuances in
2008 and late 2007. These lower investment results were the
primary driver of the $667 million decline in operating
earnings available to common shareholders as compared to 2007.
Increases in interest expense, corporate expenses and legal
costs also contributed to the decline in operating earnings
(loss). Higher interest expense was the result of the various
debt issuances in 2008 and late 2007. The implementation of our
Operational Excellence initiative resulted in higher
postemployment related costs. In addition, corporate support
expenses, including incentive compensation, rent, advertising,
and information technology costs, were higher than in 2007.
Lastly, legal costs were higher due primarily to the commutation
of three asbestos-related excess insurance policies. The
increases in these corporate expenses were partially offset by a
reduction in deferred compensation costs.
Banking results improved operating earnings by $21 million
primarily due to the acquisitions made by MetLife Bank in 2008.
See Note 2 of the Notes to the Consolidated Financial Statements.
Effects
of Inflation
The Company does not believe that inflation has had a material
effect on its consolidated results of operations, except insofar
as inflation may affect interest rates.
105
Inflation in the United States has remained contained and been
in a general downtrend for an extended period. However, in light
of recent and ongoing aggressive fiscal and monetary stimulus
measures by the U.S. federal government and foreign
governments, it is possible that inflation could increase in the
future. An increase in inflation could affect our business in
several ways. During inflationary periods, the value of fixed
income investments falls which could increase realized and
unrealized losses. Inflation also increases expenses for labor
and other materials, potentially putting pressure on
profitability if such costs can not be passed through in our
product prices. Inflation could also lead to increased costs for
losses and loss adjustment expenses in our Auto & Home
business, which could require us to adjust our pricing to
reflect our expectations for future inflation. If actual
inflation exceeds the expectations we use in pricing our
policies, the profitability of our Auto & Home
business would be adversely affected. Prolonged and elevated
inflation could adversely affect the financial markets and the
economy generally, and dispelling it may require governments to
pursue a restrictive fiscal and monetary policy, which could
constrain overall economic activity, inhibit revenue growth and
reduce the number of attractive investment opportunities.
Investments
Investment Risks. The Company’s primary
investment objective is to optimize, net of income tax,
risk-adjusted investment income and risk-adjusted total return
while ensuring that assets and liabilities are managed on a cash
flow and duration basis. The Company is exposed to four primary
sources of investment risk:
|
|
|
| |
•
|
credit risk, relating to the uncertainty associated with the
continued ability of a given obligor to make timely payments of
principal and interest;
|
| |
| |
•
|
interest rate risk, relating to the market price and cash flow
variability associated with changes in market interest rates;
|
| |
| |
•
|
liquidity risk, relating to the diminished ability to sell
certain investments in times of strained market
conditions; and
|
| |
| |
•
|
market valuation risk, relating to the variability in the
estimated fair value of investments associated with changes in
market factors such as credit spreads.
|
The Company manages risk through in-house fundamental analysis
of the underlying obligors, issuers, transaction structures and
real estate properties. The Company also manages credit risk,
market valuation risk and liquidity risk through industry and
issuer diversification and asset allocation. For real estate and
agricultural assets, the Company manages credit risk and market
valuation risk through geographic, property type and product
type diversification and asset allocation. The Company manages
interest rate risk as part of its asset and liability management
strategies; product design, such as the use of market value
adjustment features and surrender charges; and proactive
monitoring and management of certain non-guaranteed elements of
its products, such as the resetting of credited interest and
dividend rates for policies that permit such adjustments. The
Company also uses certain derivative instruments in the
management of credit and interest rate risks.
Current Environment. Precipitated by housing
sector weakness and severe market dislocations, the
U.S. economy entered its worst post-war recession in
January 2008. Most economists believe this recession ended
in third quarter 2009 when positive growth returned. Most
economists now expect positive growth to continue through 2010.
However, the expected recovery is weaker than normal, and the
unemployment rate is expected to remain high for some time.
Although the disruption in the global financial markets has
moderated, not all global financial markets are functioning
normally, and many remain reliant upon government intervention
and liquidity.
As a result of this unprecedented disruption and market
dislocation, we have experienced both volatility in the
valuation of certain investments and decreased liquidity in
certain asset classes. Securities that are less liquid are more
difficult to value and have fewer opportunities for disposal.
Even some of our very high quality assets have been more
illiquid for periods of time as a result of the recent
challenging market conditions. These market conditions had also
led to an increase in unrealized losses on fixed maturity and
equity securities in recent quarters, particularly for
residential and commercial mortgage-backed, asset-backed and
corporate fixed maturity securities and within the
Company’s financial services industry fixed maturity and
equity securities holdings. During 2009,
106
unrealized losses on fixed maturity and equity securities
decreased from improving market conditions, including narrowing
of credit spreads reflecting an improvement in liquidity.
Investment
Outlook
Although we anticipate that the volatility in the equity, credit
and real estate markets will moderate slightly in 2010, it could
continue to impact net investment income and the related yields
on private equity funds, hedge funds and real estate joint
ventures, included within our other limited partnership
interests and real estate and real estate joint venture
portfolios. Further, in light of the current market conditions,
liquidity will be reinvested in a prudent manner and invested
according to our ALM discipline in appropriate assets over time.
Until the additional liquidity is reinvested, the Company will
have a slightly higher than normal level of short-term
liquidity. Net investment income may be adversely affected if
the reinvestment process occurs over an extended period of time
due to challenging market conditions or asset availability.
107
Composition
of Investment Portfolio and Investment Portfolio
Results
The following table illustrates the investment income, net
investment gains (losses), annualized yields on average ending
assets and ending carrying value for each of the asset classes
within the Company’s investment portfolio, as well as net
investment income for the portfolio as a whole:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
(In millions)
|
|
|
|
Fixed Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.77
|
%
|
|
|
6.40
|
%
|
|
|
6.42
|
%
|
|
Investment income (2)
|
|
$
|
11,899
|
|
|
$
|
12,403
|
|
|
$
|
12,425
|
|
|
Investment (losses)
|
|
$
|
(1,663
|
)
|
|
$
|
(1,953
|
)
|
|
$
|
(615
|
)
|
|
Ending carrying value (2)
|
|
$
|
230,026
|
|
|
$
|
189,197
|
|
|
$
|
233,115
|
|
|
Mortgage Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.38
|
%
|
|
|
6.08
|
%
|
|
|
6.56
|
%
|
|
Investment income (3)
|
|
$
|
2,735
|
|
|
$
|
2,774
|
|
|
$
|
2,648
|
|
|
Investment gains (losses)
|
|
$
|
(442
|
)
|
|
$
|
(136
|
)
|
|
$
|
3
|
|
|
Ending carrying value
|
|
$
|
50,909
|
|
|
$
|
51,364
|
|
|
$
|
46,154
|
|
|
Real Estate and Real Estate Joint Ventures (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
(7.47
|
)%
|
|
|
2.98
|
%
|
|
|
10.29
|
%
|
|
Investment income (losses)
|
|
$
|
(541
|
)
|
|
$
|
217
|
|
|
$
|
607
|
|
|
Investment gains (losses)
|
|
$
|
(156
|
)
|
|
$
|
(9
|
)
|
|
$
|
59
|
|
|
Ending carrying value
|
|
$
|
6,896
|
|
|
$
|
7,586
|
|
|
$
|
6,767
|
|
|
Policy Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
6.54
|
%
|
|
|
6.22
|
%
|
|
|
6.21
|
%
|
|
Investment income
|
|
$
|
648
|
|
|
$
|
601
|
|
|
$
|
572
|
|
|
Ending carrying value
|
|
$
|
10,061
|
|
|
$
|
9,802
|
|
|
$
|
9,326
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.12
|
%
|
|
|
5.25
|
%
|
|
|
5.14
|
%
|
|
Investment income
|
|
$
|
175
|
|
|
$
|
249
|
|
|
$
|
244
|
|
|
Investment gains (losses)
|
|
$
|
(399
|
)
|
|
$
|
(253
|
)
|
|
$
|
164
|
|
|
Ending carrying value
|
|
$
|
3,084
|
|
|
$
|
3,197
|
|
|
$
|
5,911
|
|
|
Other Limited Partnership Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
3.22
|
%
|
|
|
(2.77
|
)%
|
|
|
27.09
|
%
|
|
Investment income (losses)
|
|
$
|
173
|
|
|
$
|
(170
|
)
|
|
$
|
1,309
|
|
|
Investment gains (losses)
|
|
$
|
(356
|
)
|
|
$
|
(140
|
)
|
|
$
|
16
|
|
|
Ending carrying value
|
|
$
|
5,508
|
|
|
$
|
6,039
|
|
|
$
|
6,155
|
|
|
Cash and Short-Term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
0.44
|
%
|
|
|
1.62
|
%
|
|
|
4.91
|
%
|
|
Investment income
|
|
$
|
94
|
|
|
$
|
307
|
|
|
$
|
424
|
|
|
Investment gains
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
Ending carrying value
|
|
$
|
18,486
|
|
|
$
|
38,085
|
|
|
$
|
12,505
|
|
|
Other Invested Assets (4), (5), (6), (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
339
|
|
|
$
|
279
|
|
|
$
|
526
|
|
|
Investment gains (losses)
|
|
$
|
(4,994
|
)
|
|
$
|
4,363
|
|
|
$
|
(474
|
)
|
|
Ending carrying value
|
|
$
|
12,709
|
|
|
$
|
17,248
|
|
|
$
|
8,076
|
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income yield (1)
|
|
|
4.90
|
%
|
|
|
5.68
|
%
|
|
|
6.88
|
%
|
|
Investment fees and expenses yield
|
|
|
(0.14
|
)
|
|
|
(0.16
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income Yield
|
|
|
4.76
|
%
|
|
|
5.52
|
%
|
|
|
6.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income
|
|
$
|
15,522
|
|
|
$
|
16,660
|
|
|
$
|
18,755
|
|
|
Investment fees and expenses
|
|
|
(433
|
)
|
|
|
(460
|
)
|
|
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income (4)
|
|
$
|
15,089
|
|
|
$
|
16,200
|
|
|
$
|
18,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Carrying Value
|
|
$
|
337,679
|
|
|
$
|
322,518
|
|
|
$
|
328,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
1,549
|
|
|
$
|
2,579
|
|
|
$
|
1,386
|
|
|
Gross investment losses (6)
|
|
|
(1,842
|
)
|
|
|
(2,084
|
)
|
|
|
(1,710
|
)
|
|
Writedowns (6)
|
|
|
(2,845
|
)
|
|
|
(2,042
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
(3,138
|
)
|
|
$
|
(1,547
|
)
|
|
$
|
(464
|
)
|
|
Derivatives not qualifying for hedge accounting (4), (6), (7)
|
|
|
(4,866
|
)
|
|
|
3,422
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses) (4)
|
|
$
|
(8,004
|
)
|
|
$
|
1,875
|
|
|
$
|
(844
|
)
|
|
Investment gains (losses) income tax benefit (provision)
|
|
|
2,876
|
|
|
|
(733
|
)
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses), Net of Income Tax
|
|
$
|
(5,128
|
)
|
|
$
|
1,142
|
|
|
$
|
(564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
(1) |
|
Yields are based on average of quarterly average asset carrying
values, excluding recognized and unrealized investment gains
(losses), and for yield calculation purposes, average of
quarterly ending assets exclude collateral received from
counterparties associated with the Company’s securities
lending program. |
| |
|
(2) |
|
Fixed maturity securities include $2,384 million,
$946 million and $779 million at estimated fair value
related to trading securities at December 31, 2009, 2008
and 2007, respectively. Fixed maturity securities include
$400 million, ($193) million and $50 million of
investment income related to trading securities for the years
ended December 31, 2009, 2008 and 2007, respectively. |
| |
|
(3) |
|
Investment income from mortgage loans includes prepayment fees. |
| |
|
(4) |
|
Net investment income and net investment gains (losses)
presented in this yield table vary from the amounts presented in
the GAAP consolidated statement of operations due to certain
reclassifications made between net investment income and net
investment gains (losses) as presented below. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Net investment income — per yield table above
|
|
$
|
15,089
|
|
|
$
|
16,200
|
|
|
$
|
18,328
|
|
|
Real estate discontinued operations
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
(18
|
)
|
|
Scheduled periodic settlement payments on derivative instruments
not qualifying for hedge accounting
|
|
|
(88
|
)
|
|
|
(5
|
)
|
|
|
(253
|
)
|
|
Hedged embedded derivatives related to certain variable
annuities with guarantees of consolidated entities and operating
joint ventures
|
|
|
(156
|
)
|
|
|
105
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income — per consolidated statement of
operations
|
|
$
|
14,838
|
|
|
$
|
16,291
|
|
|
$
|
18,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment gains (losses) — per yield table above
|
|
$
|
(8,004
|
)
|
|
$
|
1,875
|
|
|
$
|
(844
|
)
|
|
Real estate discontinued operations
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(13
|
)
|
|
Scheduled periodic settlement payments on derivative instruments
not qualifying for hedge accounting
|
|
|
88
|
|
|
|
5
|
|
|
|
253
|
|
|
Interest credited to policyholder account balances —
scheduled periodic settlement payments on derivative instruments
not qualifying for hedge accounting
|
|
|
(4
|
)
|
|
|
45
|
|
|
|
26
|
|
|
Hedged embedded derivatives related to certain variable
annuities with guarantees of consolidated entities and operating
joint ventures
|
|
|
156
|
|
|
|
(105
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses) — per consolidated
statement of operations
|
|
$
|
(7,772
|
)
|
|
$
|
1,812
|
|
|
$
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
Other invested assets were principally comprised of freestanding
derivatives with positive estimated fair values and leveraged
leases. Freestanding derivatives with negative estimated fair
values were included within other liabilities. As yield is not
considered a meaningful measure of performance for other
invested assets it has been excluded from the yield table. |
| |
|
(6) |
|
The components of investment gains (losses) for the
year-to-date
ended December 31, 2008, are shown net of a realized gain
under purchased credit default swaps that offsets losses
incurred on certain fixed maturity securities. |
| |
|
(7) |
|
Derivatives not qualifying for hedge accounting is comprised of
amounts for freestanding derivatives of ($6,624) million,
$6,072 million and ($59) million; and embedded
derivatives of $1,758 million, ($2,650) million and
($321) million for the years ended December 31, 2009,
2008 and 2007, respectively. |
See “— Consolidated Results of
Operations — Year Ended December 31, 2009
compared with the Year Ended December 31, 2008 and Year
Ended December 31, 2008 compared with the Year Ended
December 31, 2007,” for an analysis of the period over
period changes in net investment income and net investment gains
(losses).
109
Fixed
Maturity and Equity Securities
Available-for-Sale
Fixed maturity securities, which consisted principally of
publicly-traded and privately placed fixed maturity securities,
were $227.6 billion and $188.3 billion, or 67% and 58%
of total cash and invested assets at estimated fair value, at
December 31, 2009 and 2008, respectively. Publicly-traded
fixed maturity securities represented $191.4 billion and
$156.7 billion, or 84% and 83% of total fixed maturity
securities at estimated fair value, at December 31, 2009
and 2008, respectively. Privately placed fixed maturity
securities represented $36.2 billion and
$31.6 billion, or 16% and 17% of total fixed maturity
securities at estimated fair value, at December 31, 2009
and 2008, respectively.
Equity securities, which consisted principally of
publicly-traded and privately-held common and preferred stocks,
including certain perpetual hybrid securities and mutual fund
interests, were $3.1 billion and $3.2 billion, or 0.9%
and 1.0% of total cash and invested assets at estimated fair
value, at December 31, 2009 and 2008, respectively.
Publicly-traded equity securities represented $2.1 billion
and $2.1 billion, or 68% and 66% of total equity securities
at estimated fair value, at December 31, 2009 and 2008,
respectively. Privately-held equity securities represented
$1.0 billion and $1.1 billion, or 32% and 34% of total
equity securities at estimated fair value, at December 31,
2009 and 2008, respectively.
Valuation of Securities. We are responsible
for the determination of estimated fair value. The estimated
fair value of publicly-traded fixed maturity, equity and trading
securities, as well as short-term securities is determined by
management after considering one of three primary sources of
information: quoted market prices in active markets, independent
pricing services, or independent broker quotations. The number
of quotes obtained varies by instrument and depends on the
liquidity of the particular instrument. Generally, we obtain
prices from multiple pricing services to cover all asset classes
and obtain multiple prices for certain securities, but
ultimately utilize the price with the highest placement in the
fair value hierarchy. Independent pricing services that value
these instruments use market standard valuation methodologies
based on inputs that are market observable or can be derived
principally from or corroborated by observable market data. Such
observable inputs include benchmarking prices for similar assets
in active, liquid markets, quoted prices in markets that are not
active and observable yields and spreads in the market. The
market standard valuation methodologies utilized include:
discounted cash flow methodologies, matrix pricing or similar
techniques. The assumptions and inputs in applying these market
standard valuation methodologies include, but are not limited
to, interest rates, credit standing of the issuer or
counterparty, industry sector of the issuer, coupon rate, call
provisions, sinking fund requirements, maturity, estimated
duration, and management’s assumptions regarding liquidity
and estimated future cash flows. When a price is not available
in the active market or through an independent pricing service,
management will value the security primarily using independent
non-binding broker quotations. Independent non-binding broker
quotations utilize inputs that are not market observable or
cannot be derived principally from or corroborated by observable
market data.
Senior management, independent of the trading and investing
functions, is responsible for the oversight of control systems
and valuation policies, including reviewing and approving new
transaction types and markets, for ensuring that observable
market prices and market-based parameters are used for
valuation, wherever possible, and for determining that
judgmental valuation adjustments, if any, are based upon
established policies and are applied consistently over time. We
review our valuation methodologies on an ongoing basis and
ensure that any changes to valuation methodologies are
justified. We gain assurance on the overall reasonableness and
consistent application of input assumptions, valuation
methodologies and compliance with accounting standards for fair
value determination through various controls designed to ensure
that the financial assets and financial liabilities are
appropriately valued and represent an exit price. The control
systems and procedures include, but are not limited to, analysis
of portfolio returns to corresponding benchmark returns,
comparing a sample of executed prices of securities sold to the
fair value estimates, comparing fair value estimates to
management’s knowledge of the current market, reviewing the
bid/ask spreads to assess activity and ongoing confirmation that
independent pricing services use, wherever possible,
market-based parameters for valuation. We determine the
observability of inputs used in estimated fair values received
from independent pricing services or brokers by assessing
whether these inputs can be corroborated by observable market
data. The Company also follows a formal process to challenge any
prices received from independent pricing services that are not
considered representative of estimated fair value. If we
conclude that prices received from independent pricing services
are not reflective of market activity or representative of
estimated fair value, we will seek independent non-binding
broker quotes or use an internally
110
developed valuation to override these prices. Such overrides are
classified as Level 3. Despite the credit events prevalent
in the current markets, including market dislocation, volatility
in valuation of certain investments, and reduced levels of
liquidity over the past few quarters, our internally developed
valuations of current estimated fair value, which reflect our
estimates of liquidity and non- performance risks, compared with
pricing received from the independent pricing services, did not
produce material differences for the vast majority of our fixed
maturity securities portfolio. Our estimates of liquidity and
non-performance risks are generally based on available market
evidence and on what other market participants would use. In the
absence of such evidence, management’s best estimate is
used. As a result, we generally continued to use the price
provided by the independent pricing service under our normal
pricing protocol and pricing overrides were not material. The
Company uses the results of this analysis for classifying the
estimated fair value of these instruments in Level 1, 2 or
3. For example, we will review the estimated fair values
received to determine whether corroborating evidence (i.e.,
similar observable positions and actual trades) will support a
Level 2 classification in the fair value hierarchy.
Security prices which cannot be corroborated due to relatively
less pricing transparency and diminished liquidity will be
classified as Level 3. Even some of our very high quality
invested assets have been more illiquid for periods of time as a
result of the current market conditions.
For privately placed fixed maturity securities, the Company
determines the estimated fair value generally through matrix
pricing or discounted cash flow techniques. The discounted cash
flow valuations rely upon the estimated future cash flows of the
security, credit spreads of comparable public securities and
secondary transactions, as well as taking account of, among
other factors, the credit quality of the issuer and the reduced
liquidity associated with privately placed debt securities.
The Company has reviewed the significance and observability of
inputs used in the valuation methodologies to determine the
appropriate fair value hierarchy level for each of its
securities. Based on the results of this review and investment
class analyses, each instrument is categorized as Level 1,
2 or 3 based on the priority of the inputs to the respective
valuation methodologies. While prices for certain
U.S. Treasury, agency and government guaranteed fixed
maturity securities, certain foreign government fixed maturity
securities, exchange-traded common stock and certain short-term
money market securities have been classified into Level 1
because of high volumes of trading activity and narrow bid/ask
spreads, most securities valued by independent pricing services
have been classified into Level 2 because the significant
inputs used in pricing these securities are market observable or
can be corroborated using market observable information. Most
investment grade privately placed fixed maturity securities have
been classified within Level 2, while most below investment
grade or distressed privately placed fixed maturity securities
have been classified within Level 3. Where estimated fair
values are determined by independent pricing services or by
independent non-binding broker quotations that utilize inputs
that are not market observable or cannot be derived principally
from or corroborated by observable market data, these
instruments have been classified as Level 3. Use of
independent non-binding broker quotations generally indicates
there is a lack of liquidity or the general lack of transparency
in the process to develop these price estimates causing them to
be considered Level 3.
Effective April 1, 2009, the Company adopted new accounting
guidance that clarified existing guidance regarding
(1) estimating the estimated fair value of an asset or
liability if there was a significant decrease in the volume and
level of trading activity for these assets or liabilities and
(2) identifying transactions that are not orderly. The
Company’s valuation policies as described above and in
“— Summary of Critical Accounting
Estimates — Estimated Fair Values of Investments”
already incorporated the key concepts from this additional
guidance, accordingly, this guidance results in no material
changes in our valuation policies. At April 1, 2009 and at
each subsequent quarterly period in 2009, we evaluated the
markets that our fixed maturity and equity securities trade in
and in our judgment, despite the increased illiquidity discussed
above, believe none of these fixed maturity and equity
securities trading markets should be characterized as distressed
and disorderly. We will continue to re-evaluate and monitor such
fixed maturity and equity securities trading markets on an
ongoing basis.
111
Fair Value Hierarchy. Fixed maturity
securities and equity securities measured at estimated fair
value on a recurring basis and their corresponding fair value
pricing sources and fair value hierarchy are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Securities
|
|
|
|
|
(In millions)
|
|
|
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
$
|
11,257
|
|
|
|
5.0
|
%
|
|
$
|
490
|
|
|
|
15.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
171,217
|
|
|
|
75.2
|
|
|
|
394
|
|
|
|
12.8
|
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
27,978
|
|
|
|
12.3
|
|
|
|
960
|
|
|
|
31.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant other observable inputs (Level 2)
|
|
|
199,195
|
|
|
|
87.5
|
|
|
|
1,354
|
|
|
|
43.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
7,336
|
|
|
|
3.2
|
|
|
|
909
|
|
|
|
29.5
|
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
7,089
|
|
|
|
3.1
|
|
|
|
254
|
|
|
|
8.2
|
|
|
Independent broker quotations
|
|
|
2,765
|
|
|
|
1.2
|
|
|
|
77
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
17,190
|
|
|
|
7.5
|
|
|
|
1,240
|
|
|
|
40.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
227,642
|
|
|
|
100.0
|
%
|
|
$
|
3,084
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Estimated
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
—
|
|
|
$
|
65,493
|
|
|
$
|
6,694
|
|
|
$
|
72,187
|
|
|
Residential mortgage-backed securities (“RMBS”)
|
|
|
—
|
|
|
|
42,180
|
|
|
|
1,840
|
|
|
|
44,020
|
|
|
Foreign corporate securities
|
|
|
—
|
|
|
|
32,738
|
|
|
|
5,292
|
|
|
|
38,030
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
10,951
|
|
|
|
14,459
|
|
|
|
37
|
|
|
|
25,447
|
|
|
Commercial mortgage-backed securities (“CMBS”)
|
|
|
—
|
|
|
|
15,483
|
|
|
|
139
|
|
|
|
15,622
|
|
|
Asset-backed securities (“ABS”)
|
|
|
—
|
|
|
|
10,450
|
|
|
|
2,712
|
|
|
|
13,162
|
|
|
Foreign government securities
|
|
|
306
|
|
|
|
11,240
|
|
|
|
401
|
|
|
|
11,947
|
|
|
State and political subdivision securities
|
|
|
—
|
|
|
|
7,139
|
|
|
|
69
|
|
|
|
7,208
|
|
|
Other fixed maturity securities
|
|
|
—
|
|
|
|
13
|
|
|
|
6
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
11,257
|
|
|
$
|
199,195
|
|
|
$
|
17,190
|
|
|
$
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
490
|
|
|
$
|
995
|
|
|
$
|
136
|
|
|
$
|
1,621
|
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
359
|
|
|
|
1,104
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
490
|
|
|
$
|
1,354
|
|
|
$
|
1,240
|
|
|
$
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of fair value pricing sources for and
significant changes in Level 3 securities at
December 31, 2009 are as follows:
|
|
|
| |
•
|
The majority of the Level 3 fixed maturity and equity
securities (89.7%, as presented above) were concentrated in four
sectors: U.S. and foreign corporate securities, ABS and
RMBS.
|
112
|
|
|
| |
•
|
Level 3 fixed maturity securities are priced principally
through independent broker quotations or market standard
valuation methodologies using inputs that are not market
observable or cannot be derived principally from or corroborated
by observable market data. Level 3 fixed maturity
securities consists of less liquid fixed maturity securities
with very limited trading activity or where less price
transparency exists around the inputs to the valuation
methodologies including newly issued agency-backed RMBS yet to
be priced by independent sources, below investment grade private
placements and less liquid investment grade corporate securities
(included in U.S. and foreign corporate securities) and
less liquid ABS including securities supported by
sub-prime
mortgage loans (included in ABS).
|
| |
| |
•
|
During the year ended December 31, 2009, Level 3 fixed
maturity securities decreased by $218 million, or 1.3%.
Favorable estimated fair value changes recognized in other
comprehensive income (loss) were partially offset by transfers
out primarily concentrated in foreign corporate securities and
to a lesser extent net sales and settlements in excess of
purchases and realized and unrealized losses included in
earnings. The increase in estimated fair value in fixed maturity
securities was concentrated in U.S. and foreign corporate
securities and ABS (including RMBS backed by
sub-prime
mortgage loans) due to improving market conditions including the
narrowing of credit spreads reflecting an improvement in
liquidity, offset slightly by the effect of rising interest
rates on such securities. The transfers out of Level 3 are
described in the discussion following the rollforward table
below. Net sales and settlements in excess of purchases of fixed
maturity securities were concentrated in U.S. and foreign
corporate securities. The realized and unrealized losses
included in earnings were primarily due to OTTI credit losses,
including OTTI credit losses on perpetual hybrid securities
included in U.S. and foreign corporate securities.
|
A rollforward of the fair value measurements for fixed maturity
securities and equity securities measured at estimated fair
value on a recurring basis using significant unobservable
(Level 3) inputs for the year ended December 31,
2009 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of year
|
|
$
|
17,408
|
|
|
$
|
1,379
|
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(924
|
)
|
|
|
(359
|
)
|
|
Other comprehensive income (loss)
|
|
|
3,252
|
|
|
|
492
|
|
|
Purchases, sales, issuances and settlements
|
|
|
(1,003
|
)
|
|
|
(231
|
)
|
|
Transfers in and/or out of Level 3
|
|
|
(1,543
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
17,190
|
|
|
$
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
An analysis of transfers in
and/or out
of Level 3 for the year ended December 31, 2009 is as
follows:
|
|
|
| |
•
|
Total gains and losses in earnings and other comprehensive
income (loss) are calculated assuming transfers in or out of
Level 3 occurred at the beginning of the period. Items
transferred in and out for the same period are excluded from the
rollforward.
|
| |
| |
•
|
Total gains and losses for fixed maturity securities included in
earnings of ($241) million and other comprehensive income
(loss) of $169 million respectively, were incurred for
transfers subsequent to their transfer to Level 3, for the
year ended December 31, 2009.
|
| |
| |
•
|
Net transfers in
and/or out
of Level 3 for fixed maturity securities were
($1,543) million for the year ended December 31, 2009,
and was comprised of transfers in of $3,490 million and
transfers out of ($5,033) million, respectively.
|
113
Overall, transfers in
and/or out
of Level 3 are attributable to a change in the
observability of inputs. During the year ended December 31,
2009, fixed maturity securities transfers out of Level 3 of
$5,033 million resulted primarily from increased
transparency of both new issuances that subsequent to issuance
and establishment of trading activity, became priced by pricing
services and existing issuances that, over time, the Company was
able to corroborate pricing received from independent pricing
services with observable inputs, primarily for U.S. and
foreign corporate securities. During the year ended
December 31, 2009, fixed maturity securities transfers into
Level 3 of $3,490 million resulted primarily from
current market conditions characterized by a lack of trading
activity, decreased liquidity, fixed maturity securities going
into default and credit ratings downgrades (e.g., from
investment grade to below investment grade). These current
market conditions have resulted in decreased transparency of
valuations and an increased use of broker quotations and
unobservable inputs to determine estimated fair value
principally for U.S. and foreign corporate securities.
See “— Summary of Critical Accounting
Estimates — Estimated Fair Value of Investments”
for further information on the estimates and assumptions that
affect the amounts reported above.
Fixed Maturity Securities Credit Quality —
Ratings. The Securities Valuation Office of the
NAIC evaluates the fixed maturity security investments of
insurers for regulatory reporting and capital assessment
purposes and assigns securities to one of six credit quality
categories called “NAIC designations.” The NAIC
ratings are generally similar to the rating agency designations
of the NRSRO for marketable fixed maturity securities. NAIC
ratings 1 and 2 include fixed maturity securities generally
considered investment grade (i.e. rated “Baa3” or
better by Moody’s or rated “BBB” or better by
S&P and Fitch), by such rating organizations. NAIC ratings
3 through 6 include fixed maturity securities generally
considered below investment grade (i.e. rated “Ba1” or
lower by Moody’s, or rated “BB+” or lower by
S&P and Fitch), by such rating organizations.
The NAIC adopted a revised rating methodology for non-agency
RMBS that became effective December 31, 2009. The
NAIC’s objective with the revised rating methodology for
non-agency RMBS was to increase the accuracy in assessing
expected losses, and to use the improved assessment to determine
a more appropriate capital requirement for non-agency RMBS. The
revised methodology reduces regulatory reliance on rating
agencies and allows for greater regulatory input into the
assumptions used to estimate expected losses from non-agency
RMBS.
The following three tables present information about the
Company’s fixed maturity securities holdings by credit
quality ratings. Amounts presented for non-agency RMBS,
including RMBS backed by sub-prime mortgage loans reported
within ABS, held by the Company’s domestic insurance
subsidiaries at December 31, 2009 are based on final
ratings from the revised NAIC rating methodology which became
effective December 31, 2009. Comparisons between NAIC
ratings and rating agency designations are published by the
NAIC. The rating agency designations were based on availability
of applicable ratings from those rating agencies on the NAIC
acceptable rating organizations list. If no rating is available
from a rating agency, then an internally developed rating is
used.
114
The following table presents the Company’s total fixed
maturity securities by NRSRO designation and the equivalent
ratings of the NAIC, as well as the percentage, based on
estimated fair value, that each designation is comprised of at
December 31, 2009 and 2008, with the exception of
non-agency RMBS held by the Company’s domestic insurance
subsidiaries at December 31, 2009, which are presented as
described above:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
|
NAIC
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of
|
|
|
Rating
|
|
Rating Agency Designation
|
|
Cost
|
|
|
Value
|
|
|
Total
|
|
|
Cost
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
1
|
|
Aaa/Aa/A
|
|
$
|
151,391
|
|
|
$
|
151,136
|
|
|
|
66.4
|
%
|
|
$
|
146,796
|
|
|
$
|
137,125
|
|
|
|
72.9
|
%
|
|
2
|
|
Baa
|
|
|
55,508
|
|
|
|
56,305
|
|
|
|
24.7
|
|
|
|
45,253
|
|
|
|
38,761
|
|
|
|
20.6
|
|
|
3
|
|
Ba
|
|
|
13,184
|
|
|
|
12,003
|
|
|
|
5.3
|
|
|
|
10,258
|
|
|
|
7,796
|
|
|
|
4.1
|
|
|
4
|
|
B
|
|
|
7,474
|
|
|
|
6,461
|
|
|
|
2.9
|
|
|
|
5,915
|
|
|
|
3,779
|
|
|
|
2.0
|
|
|
5
|
|
Caa and lower
|
|
|
1,809
|
|
|
|
1,425
|
|
|
|
0.6
|
|
|
|
1,192
|
|
|
|
715
|
|
|
|
0.4
|
|
|
6
|
|
In or near default
|
|
|
343
|
|
|
|
312
|
|
|
|
0.1
|
|
|
|
94
|
|
|
|
75
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
229,709
|
|
|
$
|
227,642
|
|
|
|
100.0
|
%
|
|
$
|
209,508
|
|
|
$
|
188,251
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the Company’s total fixed
maturity securities, based on estimated fair value, by sector
classification and by NRSRO designation and the equivalent
ratings of the NAIC, that each designation is comprised of at
December 31, 2009 and 2008, with the exception of
non-agency RMBS held by the Company’s domestic insurance
subsidiaries at December 31, 2009, which are presented as
described above.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities — by Sector & Credit
Quality Rating at December 31, 2009
|
|
|
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Total
|
|
NAIC Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and
|
|
|
In or Near
|
|
|
Estimated
|
|
|
Rating Agency Designation
|
|
Aaa/Aa/A
|
|
|
Baa
|
|
|
Ba
|
|
|
B
|
|
|
Lower
|
|
|
Default
|
|
|
Fair Value
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. corporate securities
|
|
$
|
31,848
|
|
|
$
|
30,266
|
|
|
$
|
6,319
|
|
|
$
|
2,965
|
|
|
$
|
616
|
|
|
$
|
173
|
|
|
$
|
72,187
|
|
|
RMBS
|
|
|
38,464
|
|
|
|
1,563
|
|
|
|
2,260
|
|
|
|
1,391
|
|
|
|
339
|
|
|
|
3
|
|
|
|
44,020
|
|
|
Foreign corporate securities
|
|
|
16,678
|
|
|
|
17,393
|
|
|
|
2,067
|
|
|
|
1,530
|
|
|
|
281
|
|
|
|
81
|
|
|
|
38,030
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
25,447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,447
|
|
|
CMBS
|
|
|
15,000
|
|
|
|
434
|
|
|
|
152
|
|
|
|
22
|
|
|
|
14
|
|
|
|
—
|
|
|
|
15,622
|
|
|
ABS
|
|
|
11,573
|
|
|
|
1,033
|
|
|
|
275
|
|
|
|
124
|
|
|
|
117
|
|
|
|
40
|
|
|
|
13,162
|
|
|
Foreign government securities
|
|
|
5,786
|
|
|
|
4,841
|
|
|
|
890
|
|
|
|
415
|
|
|
|
—
|
|
|
|
15
|
|
|
|
11,947
|
|
|
State and political subdivision securities
|
|
|
6,337
|
|
|
|
765
|
|
|
|
40
|
|
|
|
8
|
|
|
|
58
|
|
|
|
—
|
|
|
|
7,208
|
|
|
Other fixed maturity securities
|
|
|
3
|
|
|
|
10
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
151,136
|
|
|
$
|
56,305
|
|
|
$
|
12,003
|
|
|
$
|
6,461
|
|
|
$
|
1,425
|
|
|
$
|
312
|
|
|
$
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
66.4
|
%
|
|
|
24.7
|
%
|
|
|
5.3
|
%
|
|
|
2.9
|
%
|
|
|
0.6
|
%
|
|
|
0.1
|
%
|
|
|
100.0
|
%
|
115
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities — by Sector & Credit Quality Rating at December 31, 2008
|
|
|
NAIC Rating
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and
|
|
|
In or Near
|
|
|
Estimated
|
|
|
Rating Agency Designation
|
|
Aaa/Aa/A
|
|
|
Baa
|
|
|
Ba
|
|
|
B
|
|
|
Lower
|
|
|
Default
|
|
|
Fair Value
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. corporate securities
|
|
$
|
31,403
|
|
|
$
|
24,438
|
|
|
$
|
4,891
|
|
|
$
|
2,112
|
|
|
$
|
399
|
|
|
$
|
60
|
|
|
$
|
63,303
|
|
|
RMBS
|
|
|
34,512
|
|
|
|
638
|
|
|
|
695
|
|
|
|
103
|
|
|
|
80
|
|
|
|
—
|
|
|
|
36,028
|
|
|
Foreign corporate securities
|
|
|
15,936
|
|
|
|
11,039
|
|
|
|
1,357
|
|
|
|
1,184
|
|
|
|
148
|
|
|
|
15
|
|
|
|
29,679
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
21,310
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,310
|
|
|
MBS
|
|
|
12,486
|
|
|
|
81
|
|
|
|
59
|
|
|
|
7
|
|
|
|
11
|
|
|
|
—
|
|
|
|
12,644
|
|
|
ABS
|
|
|
9,393
|
|
|
|
1,037
|
|
|
|
35
|
|
|
|
16
|
|
|
|
42
|
|
|
|
—
|
|
|
|
10,523
|
|
|
Foreign government securities
|
|
|
8,030
|
|
|
|
1,049
|
|
|
|
713
|
|
|
|
357
|
|
|
|
4
|
|
|
|
—
|
|
|
|
10,153
|
|
|
State and political subdivision securities
|
|
|
4,002
|
|
|
|
479
|
|
|
|
46
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
4,557
|
|
|
Other fixed maturity securities
|
|
|
53
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
137,125
|
|
|
$
|
38,761
|
|
|
$
|
7,796
|
|
|
$
|
3,779
|
|
|
$
|
715
|
|
|
$
|
75
|
|
|
$
|
188,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
72.9
|
%
|
|
|
20.6
|
%
|
|
|
4.1
|
%
|
|
|
2.0
|
%
|
|
|
0.4
|
%
|
|
|
—
|
%
|
|
|
100.0
|
%
|
Fixed Maturity and Equity Securities
Available-for-Sale.
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Fixed Maturity and
Equity Securities
Available-for-Sale”
for tables summarizing the cost or amortized cost, gross
unrealized gains and losses, including noncredit loss component
of OTTI loss, and estimated fair value of fixed maturity and
equity securities on a sector basis, and selected information
about certain fixed maturity securities held by the Company that
were below investment grade or non-rated, non-income producing,
credit enhanced by financial guarantor insurers — by
sector, and the ratings of the financial guarantor insurers
providing the credit enhancement at December 31, 2009 and
2008.
Concentrations of Credit Risk (Equity
Securities). The Company is not exposed to any
significant concentrations of credit risk in its equity
securities portfolio of any single issuer greater than 10% of
the Company’s stockholders’ equity at
December 31, 2009 and 2008.
Concentrations of Credit Risk (Fixed Maturity
Securities) — Summary. See Note 3 of the
Notes to the Consolidated Financial Statements
“Investments— Fixed Maturity Securities
Available-for-Sale
Concentrations” for a summary of the concentrations of
credit risk related to fixed maturity securities holdings.
Corporate Fixed Maturity Securities. The
Company maintains a diversified portfolio of corporate fixed
maturity securities across industries and issuers. This
portfolio does not have an exposure to any single issuer in
excess of 1% of the total investments. See Note 3 of the
Notes to the Consolidated Financial Statements
“Investments — Fixed Maturity Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity Securities)
U.S. and Foreign Corporate Securities” for the
tables that present the major industry types that comprise the
corporate fixed maturity securities holdings, the largest
exposure to a single issuer and the combined holdings in the ten
issuers to which it had the largest exposure at
December 31, 2009 and 2008.
116
Structured Securities. The following table
presents the types and portion rated Aaa/AAA, and portion rated
NAIC 1 for RMBS and ABS backed by
sub-prime
mortgage loans, of structured securities the Company held at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
RMBS
|
|
$
|
44,020
|
|
|
|
60.5
|
%
|
|
$
|
36,028
|
|
|
|
60.8
|
%
|
|
CMBS
|
|
|
15,622
|
|
|
|
21.4
|
|
|
|
12,644
|
|
|
|
21.4
|
|
|
ABS
|
|
|
13,162
|
|
|
|
18.1
|
|
|
|
10,523
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total structured securities
|
|
$
|
72,804
|
|
|
|
100.0
|
%
|
|
$
|
59,195
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS rated Aaa/AAA (1)
|
|
$
|
35,626
|
|
|
|
80.9
|
%
|
|
$
|
33,265
|
|
|
|
92.3
|
%
|
|
RMBS rated NAIC 1 (2)
|
|
$
|
38,464
|
|
|
|
87.4
|
%
|
|
$
|
34,512
|
|
|
|
95.8
|
%
|
|
CMBS rated Aaa/AAA
|
|
$
|
13,355
|
|
|
|
85.5
|
%
|
|
$
|
11,778
|
|
|
|
93.2
|
%
|
|
ABS rated Aaa/AAA (1)
|
|
$
|
9,354
|
|
|
|
71.1
|
%
|
|
$
|
7,934
|
|
|
|
75.4
|
%
|
|
ABS rated NAIC 1 (2)
|
|
$
|
11,573
|
|
|
|
87.9
|
%
|
|
$
|
9,393
|
|
|
|
89.3
|
%
|
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised NAIC methodology which became effective
December 31, 2009. |
| |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS (and for
ABS — including RMBS backed by
sub-prime
mortgage loans) held by the Company’s domestic insurance
subsidiaries. Non-agency RMBS (and for ABS — including
RMBS backed by
sub-prime
mortgage loans) held by the Company’s domestic insurance
subsidiaries at December 31, 2009 are included based on
final ratings from the revised NAIC rating methodology which
became effective December 31, 2009, which may not
correspond to rating agency designations. |
RMBS. See Note 3 of the Notes to the
Consolidated Financial Statements “Investments —
Fixed Maturity and Equity Securities
Available-for-Sale —
Concentrations of Credit Risk (Fixed Maturity
Securities) — RMBS” for the tables that present
the Company’s RMBS holdings by security type and risk
profile at December 31, 2009 and 2008.
The majority of the Company’s RMBS were rated Aaa/AAA by
Moody’s, S&P or Fitch; and the majority were rated
NAIC 1 by the NAIC at December 31, 2009 and 2008, as
presented above. Effective December 31, 2009, the NAIC
adopted a revised rating methodology for non-agency RMBS based
on the NAIC’s estimate of expected losses from non-agency
RMBS. The majority of the Company’s agency RMBS were
guaranteed or otherwise supported by the FNMA, the FHLMC or the
GNMA. Non-agency RMBS includes prime and Alt-A RMBS. Prime
residential mortgage lending includes the origination of
residential mortgage loans to the most credit-worthy borrowers
with high quality credit profiles. Alt-A are a classification of
mortgage loans where the risk profile of the borrower falls
between prime and
sub-prime.
Sub-prime
mortgage lending is the origination of residential mortgage
loans to borrowers with weak credit profiles. During 2009, the
major rating agencies made significant revisions to their
methodologies and loss expectations for non-agency RMBS,
resulting in significant downgrades for both prime and Alt-A
RMBS, contributing to the decrease in the percentage of RMBS
with Aaa/AAA ratings at December 31, 2009 as compared to
December 31, 2008. Our analysis suggests that rating
agencies are applying essentially the same default methodology
to all Alt-A securities regardless of the underlying collateral.
The Company’s Alt-A securities portfolio has superior
structure to the overall Alt-A market. At December 31, 2009
and 2008, the Company’s Alt-A securities portfolio has no
exposure to option adjustable rate mortgages (“ARMs”)
and a minimal exposure to hybrid ARMs. The Company’s Alt-A
securities portfolio is comprised primarily of fixed rate
mortgages which have performed better than both option ARMs and
hybrid ARMs in the overall Alt-A market. Additionally, 90% and
83% at December 31, 2009 and 2008, respectively, of the
Company’s Alt-A securities portfolio has super senior
credit enhancement, which typically provides double the credit
enhancement of a standard Aaa/AAA rated fixed maturity security.
Based upon the analysis of the Company’s exposure to Alt-A
117
mortgage loans through its exposure to RMBS, the Company
continues to expect to receive payments in accordance with the
contractual terms of the securities that are considered
temporarily impaired. Any securities where the present value of
projected future cash flows expected to be collected is less
than amortized cost are impaired in accordance with our
impairment policy. See Note 3 of the Notes to the
Consolidated Financial Statements “Investments —
Fixed Maturity Securities
Available-for-Sale —
RMBS” for a table that presents the estimated fair value of
Alt-A securities held by the Company by vintage year, net
unrealized loss, portion of holdings rated Aa/AA or better by
Moody’s, S&P or Fitch, portion rated NAIC 1 by the
NAIC, and portion of holdings that are backed by fixed rate
collateral or hybrid ARMs at December 31, 2009 and 2008.
Vintage year refers to the year of origination and not to the
year of purchase.
CMBS. There have been disruptions in the CMBS
market due to market perceptions that default rates will
increase in part due to weakness in commercial real estate
market fundamentals and due in part to relaxed underwriting
standards by some originators of commercial mortgage loans
within the more recent vintage years (i.e., 2006 and later).
These factors have caused a pull-back in market liquidity,
increased credit spreads and repricing of risk, which has led to
higher levels of unrealized losses as compared to historical
levels. However, in 2009 market conditions improved, credit
spreads narrowed and unrealized losses decreased from 21% to 6%
of cost or amortized cost from December 31, 2008 to
December 31, 2009. Based upon the analysis of the
Company’s exposure to CMBS, the Company expects to receive
payments in accordance with the contractual terms of the
securities that are considered temporarily impaired. Any
securities where the present value of projected future cash
flows expected to be collected is less than amortized cost are
impaired in accordance with our impairment policy.
The Company’s holdings in CMBS were $15.6 billion and
$12.6 billion, at estimated fair value at December 31,
2009 and 2008, respectively. The cost or amortized cost and
estimated fair value, rating distribution by Moody’s,
S&P or Fitch, and holdings by vintage year of such
securities held by the Company at December 31, 2009 and
2008. The Company had no exposure to CMBS index securities and
its holdings of commercial real estate collateralized debt
obligations securities were $111 million and
$121 million of estimated fair value at December 31,
2009 and 2008, respectively. The weighted average credit
enhancement of the Company’s CMBS holdings was 28% and 26%,
at December 31, 2009 and 2008, respectively. This credit
enhancement percentage represents the current weighted average
estimated percentage of outstanding capital structure
subordinated to the Company’s investment holding that is
available to absorb losses before the security incurs the first
dollar of loss of principal. The credit protection does not
include any equity interest or property value in excess of
outstanding debt.
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Fixed Maturity
Securities
Available-for-Sale — CMBS”
for tables that present the Company’s holdings of CMBS by
rating agency designations and by vintage year at
December 31, 2009 and 2008.
ABS. The Company’s ABS are diversified
both by sector and by issuer. See Note 3 of the Notes to
the Consolidated Financial Statements
“Investments — Fixed Maturity Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) — ABS” for a table that presents the
Company’s ABS by collateral type, portion rated Aaa/AAA and
portion credit enhanced held by the Company at December 31,
2009 and 2008.
The slowing U.S. housing market, greater use of affordable
mortgage products and relaxed underwriting standards for some
originators of
sub-prime
loans have recently led to higher delinquency and loss rates,
especially within the 2006 and 2007 vintage years. Vintage year
refers to the year of origination and not to the year of
purchase. These factors have caused a pull-back in market
liquidity and repricing of risk, which has led to higher levels
of unrealized losses on securities backed by
sub-prime
mortgage loans as compared to historical levels. However, in
2009, market conditions improved, credit spreads narrowed and
unrealized losses decreased from 39% to 36% of cost or amortized
cost from December 31, 2008 to December 31, 2009.
Based upon the analysis of the Company’s
sub-prime
mortgage loans through its exposure to ABS, the Company expects
to receive payments in accordance with the contractual terms of
the securities that are considered temporarily impaired. Any
securities where the present value of projected future cash
flows expected to be collected is less than amortized cost are
impaired in accordance with our impairment policy.
118
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments— Fixed Maturity
Securities
Available-for-Sale —
ABS” for tables that present the Company’s holdings of
ABS supported by
sub-prime
mortgage loans by rating agency designations and by vintage year
at December 31, 2009 and 2008.
The Company had ABS supported by
sub-prime
mortgage loans with estimated fair values of $1,044 million
and $1,142 million, respectively, and unrealized losses of
$593 million and $730 million, respectively, at
December 31, 2009 and 2008, respectively. Approximately 63%
of this portfolio was rated Aa or better, of which 61% was in
vintage year 2005 and prior at December 31, 2009.
Approximately 82% of this portfolio was rated Aa or better, of
which 82% was in vintage year 2005 and prior at
December 31, 2008. These older vintages benefit from better
underwriting, improved enhancement levels and higher residential
property price appreciation. All of the $1,044 million and
$1,142 million of ABS supported by
sub-prime
mortgage loans were classified as Level 3 fixed maturity
securities at December 31, 2009 and 2008, respectively. The
NAIC rating distribution of the Company’s ABS supported by
sub-prime
mortgage loans at December 31, 2009 was as follows: 69%
NAIC 1, 4% NAIC 2 and 27% NAIC 3 through 6. The NAIC rating
distribution of the Company’s ABS supported by
sub-prime
mortgage loans at December 31, 2008 was as follows: 87%
NAIC 1, 12% NAIC 2 and 1% NAIC 3 through 6.
ABS also include collateralized debt obligations backed by
sub-prime
mortgage loans at an aggregate cost of $22 million with an
estimated fair value of $8 million at December 31,
2009 and an aggregate cost of $20 million with an estimated
fair value of $10 million at December 31, 2008.
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment” for a discussion of the regular evaluation of
available-for-sale
securities holdings in accordance with our impairment policy,
whereby we evaluate whether such investments are
other-than-temporarily
impaired, new OTTI guidance adopted in 2009 and factors
considered by security classification in the regular OTTI
evaluation.
See “— Summary of Critical Accounting
Estimates.”
Net
Unrealized Investment Gains (Losses)
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Net Unrealized
Investment Gains (Losses)” for the components of net
unrealized investment gains (losses), included in accumulated
other comprehensive loss and the changes in net unrealized
investment gains (losses) at December 31, 2009 and 2008 and
for the years ended December 31, 2009, 2008 and 2007,
respectively.
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive loss of $859 million,
includes $126 million related to the transition adjustment,
$939 million ($857 million, net of DAC) of noncredit
losses recognized in the year ended December 31, 2009 and
$206 million of subsequent increases in estimated fair
value during the year ended December 31, 2009 on such
securities for which a noncredit loss was previously recognized
in accumulated other comprehensive loss.
Aging
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments— Aging of Gross
Unrealized Loss and OTTI Loss for Fixed Maturity and Equity
Securities
Available-for-Sale”
for the tables that present the cost or amortized cost, gross
unrealized loss, including the portion of OTTI loss on fixed
maturity securities recognized in accumulated other
comprehensive loss at December 31, 2009, gross unrealized
loss as a percentage of cost or amortized cost and number of
securities for fixed maturity and equity securities where the
estimated fair value had declined and remained below cost or
amortized cost by less than 20%, or 20% or more at
December 31, 2009 and 2008.
119
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Concentration of Gross
Unrealized Loss and OTTI Loss for Fixed Maturity and Equity
Securities
Available-for-Sale”
for the tables that present the concentration by sector and
industry of the Company’s gross unrealized losses related
to its fixed maturity and equity securities, including the
portion of OTTI loss on fixed maturity securities recognized in
accumulated other comprehensive loss of $10.8 billion and
$29.8 billion at December 31, 2009 and 2008,
respectively.
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Company’s fixed maturity
and equity securities with a gross unrealized loss of greater
than $10 million, the number of securities, total gross
unrealized loss and percentage of total gross unrealized loss at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Fixed Maturity
|
|
Equity
|
|
Fixed Maturity
|
|
Equity
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
(In millions, except number of securities)
|
|
|
|
Number of securities
|
|
|
223
|
|
|
|
9
|
|
|
|
699
|
|
|
|
33
|
|
|
Total gross unrealized loss
|
|
$
|
4,465
|
|
|
$
|
132
|
|
|
$
|
14,485
|
|
|
$
|
699
|
|
|
Percentage of total gross unrealized loss
|
|
|
43
|
%
|
|
|
48
|
%
|
|
|
50
|
%
|
|
|
71
|
%
|
The fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$10.6 billion during the year ended December 31, 2009.
These securities were included in the Company’s OTTI review
process. Based upon the Company’s current evaluation of
these securities in accordance with its impairment policy, the
cause of the decline in, or improvement in, gross unrealized
losses for the year ended December 31, 2009 being primarily
attributable to improving market conditions, including narrowing
of credit spreads reflecting an improvement in liquidity and the
Company’s current intentions and assessments (as applicable
to the type of security) about holding, selling, and any
requirements to sell these securities, the Company has concluded
that these securities are not
other-than-temporarily
impaired.
In the Company’s impairment review process, the duration
and severity of an unrealized loss position for equity
securities is given greater weight and consideration than for
fixed maturity securities. An extended and severe unrealized
loss position on a fixed maturity security may not have any
impact on the ability of the issuer to service all scheduled
interest and principal payments and the Company’s
evaluation of recoverability of all contractual cash flows or
the ability to recover an amount at least equal to its amortized
cost based on the present value of the expected future cash
flows to be collected. In contrast, for an equity security,
greater weight and consideration is given by the Company to a
decline in market value and the likelihood such market value
decline will recover.
The following table presents certain information about the
Company’s equity securities
available-for-sale
with a gross unrealized loss of 20% or more at December 31,
2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Preferred Stock
|
|
|
|
|
|
|
|
All Types of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Equity
|
|
|
Non-Redeemable
|
|
|
Investment Grade
|
|
|
|
|
Securities
|
|
|
Preferred Stock
|
|
|
All Industries
|
|
|
Financial Services Industry
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Equity
|
|
|
Unrealized
|
|
|
Non-Redeemable
|
|
|
Unrealized
|
|
|
% of All
|
|
|
% A Rated or
|
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
Better
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
14
|
|
|
$
|
13
|
|
|
|
93
|
%
|
|
$
|
9
|
|
|
|
69
|
%
|
|
$
|
9
|
|
|
|
100
|
%
|
|
|
3
|
%
|
|
Six months or greater but less than twelve months
|
|
|
40
|
|
|
|
39
|
|
|
|
98
|
%
|
|
|
39
|
|
|
|
100
|
%
|
|
|
37
|
|
|
|
95
|
%
|
|
|
99
|
%
|
|
Twelve months or greater
|
|
|
138
|
|
|
|
138
|
|
|
|
100
|
%
|
|
|
138
|
|
|
|
100
|
%
|
|
|
136
|
|
|
|
99
|
%
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
192
|
|
|
$
|
190
|
|
|
|
99
|
%
|
|
$
|
186
|
|
|
|
98
|
%
|
|
$
|
182
|
|
|
|
98
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
In connection with the equity securities impairment review
process at December 31, 2009, the Company evaluated its
holdings in non-redeemable preferred stock, particularly those
of financial services companies. The Company considered several
factors including whether there has been any deterioration in
credit of the issuer and the likelihood of recovery in value of
non-redeemable preferred stock with a severe or an extended
unrealized loss. The Company also considered whether any
non-redeemable preferred stock with an unrealized loss,
regardless of credit rating, have deferred any dividend
payments. No such dividend payments were deferred.
With respect to common stock holdings, the Company considered
the duration and severity of the unrealized losses for
securities in an unrealized loss position of 20% or more and the
duration of unrealized losses for securities in an unrealized
loss position of 20% or less in an extended unrealized loss
position (i.e., 12 months or greater).
Future
other-than-temporary
impairments will depend primarily on economic fundamentals,
issuer performance (including changes in the present value of
future cash flows expected to be collected), changes in credit
rating, changes in collateral valuation, changes in interest
rates and changes in credit spreads. If economic fundamentals
and any of the above factors deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming quarters.
Net
Investment Gains (Losses) Including OTTI Losses Recognized in
Earnings
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements, effective April 1, 2009,
the Company adopted new guidance on the recognition and
presentation of OTTI that amends the methodology to determine
for fixed maturity securities whether an OTTI exists, and for
certain fixed maturity securities, changes how OTTI losses that
are charged to earnings are measured. There was no change in the
methodology for identification and measurement of OTTI losses
charged to earnings for impaired equity securities.
Proceeds from sales or disposals of fixed maturity and equity
securities and the components of fixed maturity and equity
securities net investment gains (losses) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Proceeds
|
|
$
|
38,972
|
|
|
$
|
62,495
|
|
|
$
|
78,001
|
|
|
$
|
950
|
|
|
$
|
2,107
|
|
|
$
|
1,112
|
|
|
$
|
39,922
|
|
|
$
|
64,602
|
|
|
$
|
79,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
947
|
|
|
|
858
|
|
|
|
554
|
|
|
|
134
|
|
|
|
440
|
|
|
|
226
|
|
|
|
1,081
|
|
|
|
1,298
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(1,110
|
)
|
|
|
(1,515
|
)
|
|
|
(1,091
|
)
|
|
|
(133
|
)
|
|
|
(263
|
)
|
|
|
(43
|
)
|
|
|
(1,243
|
)
|
|
|
(1,778
|
)
|
|
|
(1,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(1,137
|
)
|
|
|
(1,138
|
)
|
|
|
(58
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,137
|
)
|
|
|
(1,138
|
)
|
|
|
(58
|
)
|
|
Other (1)
|
|
|
(363
|
)
|
|
|
(158
|
)
|
|
|
(20
|
)
|
|
|
(400
|
)
|
|
|
(430
|
)
|
|
|
(19
|
)
|
|
|
(763
|
)
|
|
|
(588
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(1,500
|
)
|
|
|
(1,296
|
)
|
|
|
(78
|
)
|
|
|
(400
|
)
|
|
|
(430
|
)
|
|
|
(19
|
)
|
|
|
(1,900
|
)
|
|
|
(1,726
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(1,663
|
)
|
|
$
|
(1,953
|
)
|
|
$
|
(615
|
)
|
|
$
|
(399
|
)
|
|
$
|
(253
|
)
|
|
$
|
164
|
|
|
$
|
(2,062
|
)
|
|
$
|
(2,206
|
)
|
|
$
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on perpetual hybrid securities
classified within fixed maturity securities where the primary
reason for the impairment was the severity and/or the duration
of an unrealized loss position and fixed maturity securities
where there is an intent to sell or it is more likely than not
that the Company will be required to sell the security before
recovery of the decline in estimated fair value. |
Overview of Fixed Maturity and Equity Security OTTI Losses
Recognized in Earnings. Impairments of fixed
maturity and equity securities were $1.9 billion,
$1.7 billion and $97 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Impairments
of fixed maturity securities were $1.5 billion,
$1.3 billion and $78 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Impairments
of equity securities were $400 million, $430 million
and $19 million for the years ended December 31, 2009,
2008 and 2007, respectively.
121
The Company’s credit-related impairments of fixed maturity
securities were $1.1 billion, $1.1 billion and
$58 million for the years ended December 31, 2009,
2008 and 2007, respectively.
The Company’s three largest impairments totaled
$508 million, $528 million and $19 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
The Company records OTTI losses charged to earnings as
investment losses and adjusts the cost basis of the fixed
maturity and equity securities accordingly. The Company does not
change the revised cost basis for subsequent recoveries in value.
The Company sold or disposed of fixed maturity and equity
securities at a loss that had an estimated fair value of
$10.2 billion, $29.9 billion and $47.1 billion
for the years ended December 31, 2009, 2008 and 2007,
respectively. Gross losses excluding impairments for fixed
maturity and equity securities were $1.2 million,
$1.8 billion and $1.1 billion for the years ended
December 31, 2009, 2008 and 2007, respectively.
Explanations of changes in fixed maturity and equity securities
impairments are as follows:
|
|
|
| |
•
|
Year Ended December 31, 2009 compared to the Year Ended
December 31, 2008 — Overall OTTI losses
recognized in earnings on fixed maturity and equity securities
were $1.9 billion for the year ended December 31, 2009
as compared to $1.7 billion in the prior year. The stress
in the global financial markets that caused a significant
increase in impairments in 2008 as compared to 2007, continued
into 2009. Significant impairments were incurred in several
industry sectors in 2009, including the financial services
industry, but to a lesser degree in the financial services
industry sector than in 2008. In 2008 certain financial
institutions entered bankruptcy, entered FDIC receivership or
received significant government capital infusions causing 2008
financial services industry impairments to be higher than in
2009. Of the fixed maturity and equity securities impairments of
$1,900 million in 2009, $799 million were concentrated
in the Company’s financial services industry holdings and
were comprised of $459 million in impairments on fixed
maturity securities and $340 million in impairments on
equity securities, and the $799 million included
$623 million of perpetual hybrid securities, which were
comprised of $313 million on securities classified as fixed
maturity securities and $310 million on securities
classified as non-redeemable preferred stock. Overall
impairments in 2009 were higher due to increased fixed maturity
security impairments across several industry sectors as
presented in the tables below, which more than offset a
reduction in impairments in the financial services industry
sector. Impairments across these several industry sectors
increased in 2009 due to increased financial restructurings,
bankruptcy filings, ratings downgrades, collateral deterioration
or difficult operating environments of the issuers as a result
of the challenging economic environment. Impairments on
perpetual hybrid securities in 2009 were a result of
deterioration in the credit rating of the issuer to below
investment grade and due to a severe and extended unrealized
loss position.
|
| |
| |
•
|
Year Ended December 31, 2008 compared to the Year Ended
December 31, 2007 — Overall OTTI losses
recognized in earnings on fixed maturity and equity securities
were $1.7 billion for the year ended December 31, 2008
as compared to $97 million in the prior year. The
significant increase in impairments of fixed maturity and equity
securities in 2008 compared to 2007 was a result of the stress
in the global financial markets, particularly in the financial
services industry causing an increase in financial
restructurings, bankruptcy filings, ratings downgrades, or
difficult underlying operating environments for the issuers, as
well as an increase in the securities that the Company either
lacked the intent to hold, or due to extensive credit spread
widening, the Company was uncertain of its intent to hold
certain fixed maturity securities for a period of time
sufficient to allow for recovery of the market value decline. Of
the fixed maturity and equity securities impairments of
$1.7 billion in 2008, $1,014 million were concentrated
in the Company’s financial services industry securities
holdings and were comprised of $673 million in impairments
on fixed maturity securities and $341 million in
impairments on equity securities, and the $1,014 million
included impairments of $154 million of perpetual hybrid
securities, which were comprised of $64 million on
securities classified as fixed maturity securities and
$90 million on securities classified as non-redeemable
preferred stock. A substantial portion of the financial services
industry impairments were concentrated in the Company’s
holdings in three financial institutions that in 2008 entered
bankruptcy, entered FDIC receivership or received federal
government capital infusions - Lehman Brothers Holdings Inc.
(“Lehman”), Washington Mutual, Inc. (“Washington
Mutual”) and American International Group, Inc.
(“AIG”). Overall, impairments
|
122
|
|
|
| |
|
related to Lehman, Washington Mutual and AIG in 2008 were
$606 million comprised of $489 million for fixed
maturity securities and $117 million for equity securities.
These three counterparties account for a substantial portion,
$489 million, of the financial services industry fixed
maturity security impairments of $673 million; however, at
$117 million, they do not account for the majority of the
financial services industry equity security impairments of
$341 million. As a result of the Company’s equity
securities impairment review process, which included a review of
the duration and severity of the unrealized loss position of its
equity securities holdings, additional OTTI charges totaling
$313 million were recorded in 2008. These additional
impairments were principally related to impairments on financial
services industry preferred securities that had either been in
an unrealized loss position for an extended duration (i.e.,
12 months or more), or were in a severe unrealized loss
position. In the fourth quarter of 2008, the Company not only
considered the severity and duration of unrealized losses on its
preferred securities, but placed greater weight and emphasis on
whether there had been any credit deterioration in the issuer of
these holdings in accordance with new guidance. As result of the
economic environment as described above, fixed maturity and
equity securities impairments on the Company’s financial
services industry holdings and total impairments across all
industries sectors were higher in 2008 than 2007, as presented
in the tables below.
|
Fixed maturity security OTTI losses recognized in earnings
relates to the following sectors and industries:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. and foreign corporate securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
$
|
459
|
|
|
$
|
673
|
|
|
$
|
18
|
|
|
Communications
|
|
|
235
|
|
|
|
134
|
|
|
|
—
|
|
|
Consumer
|
|
|
211
|
|
|
|
107
|
|
|
|
—
|
|
|
Utility
|
|
|
89
|
|
|
|
5
|
|
|
|
1
|
|
|
Industrial
|
|
|
30
|
|
|
|
26
|
|
|
|
18
|
|
|
Other
|
|
|
26
|
|
|
|
185
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
1,050
|
|
|
|
1,130
|
|
|
|
65
|
|
|
RMBS
|
|
|
193
|
|
|
|
—
|
|
|
|
—
|
|
|
ABS
|
|
|
168
|
|
|
|
99
|
|
|
|
13
|
|
|
CMBS
|
|
|
88
|
|
|
|
65
|
|
|
|
—
|
|
|
Foreign government securities
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,500
|
|
|
$
|
1,296
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security OTTI losses recognized in earnings relates to
the following sectors and industries:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
333
|
|
|
$
|
319
|
|
|
$
|
1
|
|
|
Common stock
|
|
|
67
|
|
|
|
111
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
400
|
|
|
$
|
430
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
310
|
|
|
$
|
90
|
|
|
$
|
—
|
|
|
Common and remaining non-redeemable preferred stock
|
|
|
30
|
|
|
|
251
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial services industry
|
|
|
340
|
|
|
|
341
|
|
|
|
1
|
|
|
Other
|
|
|
60
|
|
|
|
89
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
400
|
|
|
$
|
430
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
Future Impairments. Future
other-than-temporary
impairments will depend primarily on economic fundamentals,
issuer performance, changes in credit ratings, changes in
collateral valuation, changes in interest rates and changes in
credit spreads. If economic fundamentals and other of the above
factors deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming periods. See also
“— Investments — Fixed Maturity and
Equity Securities
Available-for-Sale —
Net Unrealized Investment Gains (Losses).”
Credit
Loss Rollforward — Rollforward of the Cumulative
Credit Loss Component of OTTI Loss Recognized in Earnings on
Fixed Maturity Securities Still Held for Which a Portion of the
OTTI Loss was Recognized in Other Comprehensive
Loss
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Credit Loss
Rollforward — Rollforward of the Cumulative Credit
Loss Component of OTTI Loss Recognized in Earnings on Fixed
Maturity Securities Still Held for Which a Portion of the OTTI
Loss was Recognized in Other Comprehensive Loss” for the
table that presents a rollforward of the cumulative credit loss
component of OTTI loss recognized in earnings on fixed maturity
securities still held by the Company at December 31, 2009
for which a portion of the OTTI loss was recognized in other
comprehensive loss for the year ended December 31, 2009.
Securities
Lending
The Company participates in a securities lending program whereby
blocks of securities, which are included in fixed maturity
securities and short-term investments, are loaned to third
parties, primarily brokerage firms and commercial banks. The
Company generally obtains collateral in an amount equal to 102%
of the estimated fair value of the loaned securities, which is
obtained at the inception of a loan and maintained at a level
greater than or equal to 100% for the duration of the loan. In
limited instances, during the extraordinary market events
beginning in the fourth quarter of 2008 and through part of
2009, we accepted collateral less than 102% at the inception of
certain loans, but never less than 100%, of the estimated fair
value of such loaned securities. These loans involved
U.S. Government Treasury Bills which are considered to have
limited variation in their estimated fair value during the term
of the loan. Securities loaned under such transactions may be
sold or repledged by the transferee. The Company is liable to
return to its counterparties the cash collateral under its
control.
Elements of the securities lending program is presented in
Note 3 of the Notes to the Consolidated Financial
Statements under “— Investments — Securities
Lending.”
The estimated fair value of the securities related to the cash
collateral on open at December 31, 2009 has been reduced to
$3,193 million from $4,986 million at
December 31, 2008. Of the $3,193 million of estimated
fair value of the securities related to the cash collateral on
open at December 31, 2009, $3,012 million were
U.S. Treasury, agency and government guaranteed securities
which, if put to the Company, can be immediately sold to satisfy
the cash requirements. The remainder of the securities on loan,
related to the cash collateral aged less than thirty days to
ninety days or greater, was primarily U.S. Treasury,
agency, and government guaranteed securities, and very liquid
RMBS. The U.S. Treasury securities on loan are primarily
holdings of
on-the-run
U.S. Treasury securities, the most liquid
U.S. Treasury securities available. If these high quality
securities that are on loan are put back to the Company, the
proceeds from immediately selling these securities can be used
to satisfy the related cash requirements. The reinvestment
portfolio acquired with the cash collateral consisted
principally of fixed maturity securities (including RMBS, ABS,
U.S. corporate and foreign corporate securities). If the on
loan securities or the reinvestment portfolio become less
liquid, the Company has the liquidity resources of most of its
general account available to meet any potential cash demands
when securities are put back to the Company.
Security collateral on deposit from counterparties in connection
with the securities lending transactions may not be sold or
repledged, unless the counterparty is in default, and is not
reflected in the consolidated financial statements.
Invested
Assets on Deposit, Held in Trust and Pledged as
Collateral
The invested assets on deposit, invested assets held in trust
and invested assets pledged as collateral at December 31,
2009 and 2008 are presented in a table in Note 3 of the
Notes to the Consolidated Financial Statements
“— Investments — Invested Assets on
Deposit, Held in Trust and Pledged as Collateral.”
124
See also “— Investments — Securities
Lending” for the amount of the Company’s cash and
invested assets received from and due back to counterparties
pursuant to the securities lending program.
Trading
Securities
The Company has trading securities to support investment
strategies that involve the active and frequent purchase and
sale of securities, the execution of short sale agreements and
asset and liability matching strategies for certain insurance
products. Trading securities which consisted principally of
publicly-traded fixed maturity and equity securities, were
$2.4 billion and $0.9 billion, or 0.7% and 0.3% of
total cash and invested assets at estimated fair value, at
December 31, 2009 and 2008, respectively. See Note 3
of the Notes to the Consolidated Financial Statements
“Investments— Trading Securities” for tables
which present information about the trading securities, related
short sale agreement liabilities, investments pledged to secure
short sale agreement liabilities, net investment income and
changes in estimated fair value included in net investment
income at December 31, 2009 and 2008 and for the years
ended December 31, 2009, 2008 and 2007.
The trading securities and trading (short sale agreement)
liabilities, measured at estimated fair value on a recurring
basis and their corresponding fair value hierarchy, are
presented as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Trading Securities
|
|
|
Trading Liabilities
|
|
|
|
|
(In millions)
|
|
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
1,886
|
|
|
|
79
|
%
|
|
$
|
106
|
|
|
|
100
|
%
|
|
Significant other observable inputs (Level 2)
|
|
|
415
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
83
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
2,384
|
|
|
|
100
|
%
|
|
$
|
106
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A rollforward of the fair value measurements for trading
securities measured at estimated fair value on a recurring basis
using significant unobservable (Level 3) inputs for
the year ended December 31, 2009, is as follows:
| |
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31, 2009
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of year
|
|
$
|
175
|
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
Earnings
|
|
|
16
|
|
|
Purchases, sales, issuances and settlements
|
|
|
(108
|
)
|
|
Transfer in and/or out of Level 3
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
83
|
|
|
|
|
|
|
|
See “— Summary of Critical Accounting
Estimates” for further information on the estimates and
assumptions that affect the amounts reported above.
Mortgage
Loans
The Company’s mortgage loans are principally collateralized
by commercial, agricultural and residential properties, as well
as automobiles. The carrying value of mortgage loans was
$50.9 billion and $51.4 billion, or 15.1% and 15.9% of
total cash and invested assets at December 31, 2009 and
2008, respectively. See Note 3 of the Notes to the
Consolidated Financial Statements “Investments —
Mortgage Loans” for a table that presents the carrying
value by type of the Company’s mortgage loans
held-for-investment
of $48.2 billion and $49.4 billion at
December 31, 2009 and 2008, respectively, as well as the
components of the mortgage loans
held-for-sale
of $2.7 billion and $2.0 billion at December 31,
2009 and 2008, respectively.
Commercial Mortgage Loans by Geographic Region and Property
Type. The Company diversifies its commercial
mortgage loans by both geographic region and property type. See
Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Mortgage
Loans — Mortgage Loans by Geographic Region and
Property Type” for tables that present the distribution
across geographic regions and property types for commercial
mortgage loans
held-for-investment
at December 31, 2009 and 2008.
125
Mortgage Loan Credit Quality — Restructured,
Potentially Delinquent, Delinquent or Under
Foreclosure. The Company monitors its mortgage
loan investments on an ongoing basis, including reviewing loans
that are restructured, potentially delinquent, and delinquent or
under foreclosure. These loan classifications are consistent
with those used in industry practice.
The Company defines restructured mortgage loans as loans in
which the Company, for economic or legal reasons related to the
debtor’s financial difficulties, grants a concession to the
debtor that it would not otherwise consider. The Company defines
potentially delinquent loans as loans that, in management’s
opinion, have a high probability of becoming delinquent in the
near term. The Company defines delinquent mortgage loans,
consistent with industry practice, as loans in which two or more
interest or principal payments are past due. The Company defines
mortgage loans under foreclosure as loans in which foreclosure
proceedings have formally commenced.
The following table presents the amortized cost and valuation
allowance (amortized cost is carrying value before valuation
allowances) for commercial mortgage loans, agricultural mortgage
loans, and residential and consumer loans
held-for-investment
distributed by loan classification at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
|
|
Cost
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
Cost
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
|
|
(In millions)
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
35,066
|
|
|
|
99.7
|
%
|
|
$
|
548
|
|
|
|
1.6
|
%
|
|
|
$
|
36,192
|
|
|
|
100.0
|
%
|
|
$
|
232
|
|
|
|
0.6
|
%
|
|
|
Restructured
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
Potentially delinquent
|
|
|
102
|
|
|
|
0.3
|
|
|
|
41
|
|
|
|
40.2
|
%
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
Delinquent or under foreclosure
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,176
|
|
|
|
100.0
|
%
|
|
$
|
589
|
|
|
|
1.7
|
%
|
|
|
$
|
36,197
|
|
|
|
100.0
|
%
|
|
$
|
232
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
11,950
|
|
|
|
97.5
|
%
|
|
$
|
33
|
|
|
|
0.3
|
%
|
|
|
$
|
12,054
|
|
|
|
98.0
|
%
|
|
$
|
16
|
|
|
|
0.1
|
%
|
|
|
Restructured
|
|
|
36
|
|
|
|
0.3
|
|
|
|
10
|
|
|
|
27.8
|
%
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
Potentially delinquent
|
|
|
128
|
|
|
|
1.0
|
|
|
|
34
|
|
|
|
26.6
|
%
|
|
|
|
133
|
|
|
|
1.1
|
|
|
|
18
|
|
|
|
13.5
|
%
|
|
|
Delinquent or under foreclosure
|
|
|
141
|
|
|
|
1.2
|
|
|
|
38
|
|
|
|
27.0
|
%
|
|
|
|
107
|
|
|
|
0.9
|
|
|
|
27
|
|
|
|
25.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,255
|
|
|
|
100.0
|
%
|
|
$
|
115
|
|
|
|
0.9
|
%
|
|
|
$
|
12,295
|
|
|
|
100.0
|
%
|
|
$
|
61
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential and Consumer (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
1,389
|
|
|
|
94.4
|
%
|
|
$
|
16
|
|
|
|
1.2
|
%
|
|
|
$
|
1,116
|
|
|
|
95.8
|
%
|
|
$
|
11
|
|
|
|
1.0
|
%
|
|
|
Restructured
|
|
|
1
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
Potentially delinquent
|
|
|
10
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
17
|
|
|
|
1.5
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
Delinquent or under foreclosure
|
|
|
71
|
|
|
|
4.8
|
|
|
|
1
|
|
|
|
1.4
|
%
|
|
|
|
31
|
|
|
|
2.7
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,471
|
|
|
|
100.0
|
%
|
|
$
|
17
|
|
|
|
1.2
|
%
|
|
|
$
|
1,164
|
|
|
|
100.0
|
%
|
|
$
|
11
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company diversifies its agricultural mortgage loans
held-for-investment
by both geographic region and product type. Of the
$12,255 million of agricultural mortgage loans outstanding
at December 31, 2009, 54% were subject to rate resets prior
to maturity. A substantial portion of these loans has been
successfully renegotiated and remain outstanding to maturity. |
| |
|
(2) |
|
Residential and consumer loans consist of primarily residential
mortgage loans, home equity lines of credit, and automobile
loans
held-for-investment. |
Mortgage Loan Credit Quality — Monitoring
Process — Commercial and Agricultural
Loans. The Company reviews all commercial
mortgage loans on an ongoing basis. These reviews may include an
analysis of the property financial statements and rent roll,
lease rollover analysis, property inspections, market analysis,
126
estimated valuations of the underlying collateral,
loan-to-value
ratios, debt service coverage ratios, and tenant
creditworthiness. The monitoring process focuses on higher risk
loans, which include those that are classified as restructured,
potentially delinquent, delinquent or in foreclosure, as well as
loans with higher
loan-to-value
ratios and lower debt service coverage ratios. The monitoring
process for agricultural loans is generally similar, with a
focus on higher risk loans, including reviews of the portfolio
on a geographic and sector basis.
Loan-to-value
ratios and debt service coverage ratios are common measures in
the assessment of the quality of commercial mortgage loans.
Loan-to-value
ratios compare the amount of the loan to the estimated fair
value of the underlying collateral. A loan-to-value ratio
greater than 100% indicates that the loan amount is greater than
the collateral value. A
loan-to-value
ratio of less than 100% indicates an excess of collateral value
over the loan amount. The debt service coverage ratio compares a
property’s net operating income to amounts needed to
service the principal and interest due under the loan. For
commercial loans, at December 31, 2009, the average
loan-to-value
ratio was 68%, as compared to 58% at December 31, 2008, and
the average debt service coverage ratio was 2.2x, as compared to
1.8x at December 31, 2008. The values utilized in
calculating these ratios are developed in connection with our
review of the commercial loan portfolio, and are updated
routinely, including a periodic quality rating process and an
evaluation of the estimated fair value of the underlying
collateral.
Mortgage Loan Credit Quality — Monitoring
Process — Residential and Consumer
Loans. The Company has a conservative residential
and consumer loan portfolio and does not hold any option ARMs,
sub-prime,
low teaser rate, or loans with a
loan-to-value
ratio of 100% or more. Higher risk loans include those that are
classified as restructured, potentially delinquent, delinquent
or in foreclosure, as well as loans with higher
loan-to-value
ratios and interest-only loans. The Company’s investment in
residential junior lien loans and residential loans with a
loan-to-value
ratio of 80% or more was $76 million at December 31,
2009, and the majority of the higher
loan-to-value
loans have mortgage insurance coverage which reduces the
loan-to-value
ratio to less than 80%. Additionally, the Company’s
investment in traditional residential interest-only loans was
$323 million at December 31, 2009.
Mortgage Loans Valuation Allowances. Recent
economic events causing deteriorating market conditions, low
levels of liquidity and credit spread widening have all
adversely impacted the mortgage loan markets. As a result,
commercial real estate and residential and consumer loan market
fundamentals, and fundamentals in certain sectors of the
agricultural loan market, have weakened. The Company expects
continued pressure on these fundamentals, including but not
limited to declining rent growth, increased vacancies, rising
delinquencies and declining property values. These deteriorating
factors have been considered in the Company’s ongoing,
systematic and comprehensive review of the commercial,
agricultural and residential and consumer mortgage loan
portfolios, resulting in higher impairments and valuation
allowances for the year ended December 31, 2009 as compared
to the prior periods.
The Company’s valuation allowances are established both on
a loan specific basis for those loans considered impaired where
a property specific or market specific risk has been identified
that could likely result in a future loss, as well as for pools
of loans with similar risk characteristics where a property
specific or market specific risk has not been identified, but
for which the Company expects to incur a loss. Accordingly, a
valuation allowance is provided to absorb these estimated
probable credit losses. The Company records valuation allowances
and gains and losses from the sale of loans in net investment
gains (losses).
The Company records valuation allowances for loans considered to
be impaired when it is probable that, based upon current
information and events, the Company will be unable to collect
all amounts due under the contractual terms of the loan
agreement. Based on the facts and circumstances of the
individual loans being impaired, loan specific valuation
allowances are established for the excess carrying value of the
loan over either: (i) the present value of expected future
cash flows discounted at the loan’s original effective
interest rate; (ii) the estimated fair value of the
loan’s underlying collateral if the loan is in the process
of foreclosure or otherwise collateral dependent; or
(iii) the loan’s observable market price.
The Company also establishes valuation allowances for loan
losses for pools of loans with similar characteristics, such as
loans based on similar property types or loans with similar
loan-to-value
or similar debt service coverage ratio factors when, based on
past experience, it is probable that a credit event has occurred
and the amount of loss can be reasonably estimated.
127
The determination of the amount of, and additions to, valuation
allowances is based upon the Company’s periodic evaluation
and assessment of known and inherent risks associated with its
loan portfolios. Such evaluations and assessments are based upon
several factors, including the Company’s experience for
loan losses, defaults and loss severity, and loss expectations
for loans with similar risk characteristics. These evaluations
and assessments are revised as conditions change and new
information becomes available. We update our evaluations
regularly, which can cause the valuation allowances to increase
or decrease over time as such evaluations are revised, and such
changes in the valuation allowance are also recorded in net
investment gains (losses).
The following tables present the changes in valuation allowances
for commercial, agricultural and residential and consumer loans
held-for-investment
for the years ended December 31, 2009, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Agricultural
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, January 1, 2007
|
|
$
|
153
|
|
|
$
|
18
|
|
|
$
|
11
|
|
|
$
|
182
|
|
|
|
|
|
|
Additions
|
|
|
68
|
|
|
|
8
|
|
|
|
—
|
|
|
|
76
|
|
|
|
|
|
|
Deductions
|
|
|
(54
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
167
|
|
|
|
24
|
|
|
|
6
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
145
|
|
|
|
49
|
|
|
|
6
|
|
|
|
200
|
|
|
|
|
|
|
Deductions
|
|
|
(80
|
)
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
232
|
|
|
|
61
|
|
|
|
11
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
384
|
|
|
|
79
|
|
|
|
12
|
|
|
|
475
|
|
|
|
|
|
|
Deductions
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
(6
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
589
|
|
|
$
|
115
|
|
|
$
|
17
|
|
|
$
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Company’s valuation
allowances for loans by type of credit loss at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Specific credit losses
|
|
$
|
123
|
|
|
$
|
69
|
|
|
Non-specifically identified credit losses
|
|
|
598
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
Total valuation allowances
|
|
$
|
721
|
|
|
$
|
304
|
|
|
|
|
|
|
|
|
|
|
|
The Company held $210 million and $220 million in
mortgage loans which are carried at estimated fair value based
on the value of the underlying collateral or independent broker
quotations, if lower, of which $202 million and
$188 million relate to impaired mortgage loans
held-for-investment
and $8 million and $32 million to certain mortgage
loans
held-for-sale,
at December 31, 2009 and 2008, respectively. These impaired
mortgage loans were recorded at estimated fair value and
represent a nonrecurring fair value measurement. The estimated
fair value is categorized as Level 3. Included within net
investment gains (losses) for such impaired mortgage loans were
net impairments of $93 million and $79 million for the
years ended December 31, 2009 and 2008, respectively.
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments — Mortgage Loans”
for certain information about impaired loans, restructured
loans, loans 90 days past or more past due, and loans in
foreclosure at and for the years ended December 31, 2009,
2008 and 2007.
Real
Estate Holdings
The Company’s real estate holdings consist of commercial
properties located primarily in the United States. The carrying
value of the Company’s real estate, real estate joint
ventures and real estate
held-for-sale
was $6.9 billion and $7.6 billion, or 2.0% and 2.4%,
respectively, of total cash and invested assets at
December 31, 2009 and 2008, respectively.
128
See Note 3 of the Notes to the Consolidated Financial
Statements “Investments— Real Estate
Holdings” for a table that presents the carrying value of
the Company’s real estate holdings by type at
December 31, 2009 and 2008.
The Company diversifies its real estate holdings by both
geographic region and property type to reduce risk of
concentration. The Company’s real estate holdings are
primarily located in the United States. The Company’s real
estate holdings located in California, Florida, New York and
Texas were 23%, 13%, 11% and 10% at December 31, 2009. See
Note 3 of the Notes to the Consolidated Financial
Statements “Investments— Real Estate
Holdings” for a table that presents the property type
diversification at December 31, 2009 and 2008.
There were no impairments on real estate
held-for-sale
for the years ended December 31, 2009, 2008 and 2007,
respectively. The Company’s carrying value of real estate
held-for-sale
at both December 31, 2009 and 2008 has been reduced by
impairments recorded prior to 2007 of $1 million.
Impairments of real estate and real estate joint ventures
held-for-investment
were $160 million and $20 million for the years ended
December 31, 2009 and 2008, respectively. There were no
impairments of real estate and real estate joint ventures
held-for-investment
for the year ended December 31, 2007. The Company held
$93 million in cost basis real estate joint ventures which
were impaired based on the underlying real estate joint venture
financial statements at December 31, 2009. These real
estate joint ventures were recorded at estimated fair value and
represent a non-recurring fair value measurement. The estimated
fair value was categorized as Level 3. Impairments to
estimated fair value for such real estate joint ventures of
$83 million for the year ended December 31, 2009, were
recognized within net investment gains (losses) and are included
in the $160 million of impairments on real estate and real
estate joint ventures for the year ended December 31, 2009.
Other
Limited Partnership Interests
The carrying value of other limited partnership interests (which
primarily represent ownership interests in pooled investment
funds that principally make private equity investments in
companies in the United States and overseas) was
$5.5 billion and $6.0 billion, or 1.6% and 1.9% of
total cash and invested assets at December 31, 2009 and
2008, respectively. Included within other limited partnership
interests were $1.0 billion and $1.3 billion, at
December 31, 2009 and 2008 respectively, of investments in
hedge funds.
The Company held $561 million and $137 million of
impaired other limited partnership interests which are accounted
for using the cost basis at December 31, 2009 and 2008,
respectively. Impairments on cost basis limited partnership
interests are recognized at estimated fair value determined from
information provided in the financial statements of the
underlying other limited partnership interests in the period in
which the impairment is recognized. Consistent with equity
securities, greater weight and consideration is given in the
other limited partnership interests impairment review process,
to the severity and duration of unrealized losses on such other
limited partnership interests holdings. Impairments to estimated
fair value for such other limited partnership interests of
$354 million, $105 million and $4 million for the
years ended December 31, 2009, 2008 and 2007, respectively,
were recognized within net investment gains (losses). These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments.
Other
Invested Assets
The carrying value of other invested assets was
$12.7 billion and $17.2 billion, or 3.8% and 5.3% of
total cash and invested assets at December 31, 2009 and
2008, respectively. See Note 3 of the Notes to the
Consolidated Financial Statements “Investments —
Other Invested Assets” for a table that presents the
carrying value of the Company’s other invested assets by
type at December 31, 2009 and 2008, and related supporting
tables for leveraged leases and MSRs included within other
invested assets.
Short-term
Investments
The carrying value of short-term investments, which include
investments with remaining maturities of one year or less, but
greater than three months, at the time of acquisition was
$8.4 billion and $13.9 billion, or 2.5% and 4.3% of
total cash and invested assets at December 31, 2009 and
2008, respectively.
129
Variable
Interest Entities
See Note 3 of the Notes to the Consolidated Financial
Statements for the information concerning variable interest
entities.
Derivative
Financial Instruments
Derivatives. The Company is exposed to various
risks relating to its ongoing business operations, including
interest rate risk, foreign currency risk, credit risk, and
equity market risk. The Company uses a variety of strategies to
manage these risks, including the use of derivative instruments.
See Note 4 of the Notes to the Consolidated Financial
Statements for a comprehensive description of the nature of the
Company’s derivative instruments, including the strategies
for which derivatives are used in managing various risks.
See Note 4 of the Notes to Consolidated Financial
Statements for information about the notional amount, estimated
fair value, and primary underlying risk exposure of
Company’s derivative financial instruments, excluding
embedded derivatives held at December 31, 2009 and 2008.
Hedging. See Note 4 of the Notes to
Consolidated Financial Statements for information about:
|
|
|
| |
•
|
The notional amount and estimated fair value of derivatives and
non-derivative instruments designated as hedging instruments by
type of hedge designation at December 31, 2009 and 2008.
|
| |
| |
•
|
The notional amount and estimated fair value of derivatives that
are not designated or do not qualify as hedging instruments by
derivative type at December 31, 2009 and 2008.
|
| |
| |
•
|
The statement of operations effects of derivatives in cash flow,
fair value, or non-qualifying hedge relationships for the years
ended December 31, 2009, 2008, and 2007.
|
See “Quantitative and Qualitative Disclosures About Market
Risk — Management of Market Risk Exposures —
Hedging Activities” for more information about the
Company’s use of derivatives by major hedge program. See
“— Policyholder Liabilities — Variable
Annuity Guarantees” for information about the
Company’s use of derivatives to hedge variable annuity
guarantees.
Fair Value Hierarchy. Derivatives measured at
estimated fair value on a recurring basis and their
corresponding fair value hierarchy, are presented as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
(In millions)
|
|
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
103
|
|
|
|
2
|
%
|
|
$
|
51
|
|
|
|
1
|
%
|
|
Significant other observable inputs (Level 2)
|
|
|
5,600
|
|
|
|
91
|
|
|
|
3,990
|
|
|
|
97
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
430
|
|
|
|
7
|
|
|
|
74
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
6,133
|
|
|
|
100
|
%
|
|
$
|
4,115
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation of Level 3 derivatives involves the use of
significant unobservable inputs and generally requires a higher
degree of management judgment or estimation than the valuations
of Level 1 and Level 2 derivatives. Although
Level 3 inputs are based on assumptions deemed appropriate
given the circumstances and are assumed to be consistent with
what other market participants would use when pricing such
instruments, the use of different inputs or methodologies could
have a material effect on the estimated fair value of
Level 3 derivatives and could materially affect net income.
Derivatives categorized as Level 3 at December 31,
2009 include: interest rate forwards including interest rate
lock commitments with certain unobservable inputs, including
pull-through rates; equity variance swaps with unobservable
volatility inputs or that are priced via independent broker
quotations; foreign currency swaps which are cancelable and
priced through independent broker quotations; interest rate
swaps with maturities which extend beyond the observable portion
of the yield curve; credit default swaps based upon baskets of
credits having unobservable credit correlations, as well as
credit default swaps with maturities which extend beyond the
130
observable portion of the credit curves and credit default swaps
priced through independent broker quotes; foreign currency
forwards priced via independent broker quotations or with
liquidity adjustments; implied volatility swaps with
unobservable volatility inputs; equity options with unobservable
volatility inputs; interest rate caps and floors referencing
unobservable yield curves
and/or which
include liquidity and volatility adjustments; currency options
based upon baskets of currencies having unobservable currency
correlations; and credit forwards having unobservable repurchase
rates.
At December 31, 2009 and 2008, 5.5% and 2.7% of the net
derivative estimated fair value was priced via independent
broker quotations.
A rollforward of the fair value measurements for derivatives
measured at estimated fair value on a recurring basis using
significant unobservable (Level 3) inputs for the year
ended December 31, 2009 is as follows:
| |
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31, 2009
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
2,547
|
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
Earnings
|
|
|
(273
|
)
|
|
Other comprehensive income (loss)
|
|
|
(11
|
)
|
|
Purchases, sales, issuances and settlements
|
|
|
97
|
|
|
Transfer in and/or out of Level 3
|
|
|
(2,004
|
)
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
356
|
|
|
|
|
|
|
|
During the fourth quarter of 2009, the Company’s volatility
inputs for certain of its equity options changed from being
unobservable to observable, which resulted in the transfer of
these positions from level 3 to level 2. The
volatility inputs became observable because the Company began
utilizing a market data provider that constructs an implied
volatility surface sourced from transactions executed in the
marketplace. The value at the beginning of the year of the
options transferred was $2.0 billion, and the amount
recorded in earnings in connection with these options for the
year ended December 31, 2009 was a loss of
$762 million.
See “— Summary of Critical Accounting
Estimates — Derivative Financial Instruments” for
further information on the estimates and assumptions that affect
the amounts reported above.
Credit Risk. See Note 4 of the Notes to
Consolidated Financial Statements for information about how the
Company manages credit risk related to its freestanding
derivatives, including the use of master netting agreements and
collateral arrangements.
Credit Derivatives. See Note 4 of the
Notes to Consolidated Financial Statements for information about
the estimated fair value and maximum amount at risk related to
the Company’s written credit default swaps.
Embedded Derivatives. The embedded derivatives
measured at estimated fair value on a recurring basis and their
corresponding fair value hierarchy, are presented as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Net Embedded Derivatives Within
|
|
|
|
|
|
|
|
Asset Host Contracts
|
|
|
Liability Host Contracts
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
|
|
|
|
Significant other observable inputs (Level 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
76
|
|
|
|
100
|
|
|
|
1,531
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
76
|
|
|
|
100
|
%
|
|
$
|
1,505
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
A rollforward of the fair value measurements for net embedded
derivatives measured at estimated fair value on a recurring
basis using significant unobservable (Level 3) inputs
is as follows:
| |
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(2,929
|
)
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
Earnings
|
|
|
1,602
|
|
|
Other comprehensive income (loss)
|
|
|
15
|
|
|
Purchases, sales, issuances and settlements
|
|
|
(143
|
)
|
|
Transfer in and/or out of Level 3
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(1,455
|
)
|
|
|
|
|
|
|
The valuation of the Company’s guaranteed minimum benefits
includes an adjustment for the Company’s own credit. For
the years ended December 31, 2009 and 2008, the Company
recognized net investment gains (losses) of
($1,932) million and $2,994 million, respectively, in
connection with this adjustment.
See “ — Summary of Critical Accounting
Estimates — Embedded Derivatives” for further
information on the estimates and assumptions that affect the
amounts reported above.
Off-Balance
Sheet Arrangements
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business for the purpose of enhancing the
Company’s total return on its investment portfolio. The
amounts of these unfunded commitments were $4.1 billion and
$4.5 billion at December 31, 2009 and 2008,
respectively. The Company anticipates that these amounts will be
invested in partnerships over the next five years. There are no
other obligations or liabilities arising from such arrangements
that are reasonably likely to become material.
Mortgage
Loan Commitments
The Company has issued interest rate lock commitments on certain
residential mortgage loan applications totaling
$2.7 billion and $8.0 billion at December 31,
2009 and 2008, respectively. The Company intends to sell the
majority of these originated residential mortgage loans.
Interest rate lock commitments to fund mortgage loans that will
be
held-for-sale
are considered derivatives pursuant to the guidance on
derivatives and hedging, and their estimated fair value and
notional amounts are included within interest rate forwards.
The Company also commits to lend funds under certain other
mortgage loan commitments that will be
held-for-investment.
The amounts of these mortgage loan commitments were
$2.2 billion and $2.7 billion at December 31,
2009 and 2008, respectively.
The purpose of the Company’s loan program is to enhance the
Company’s total return on its investment portfolio. There
are no other obligations or liabilities arising from such
arrangements that are reasonably likely to become material.
Commitments
to Fund Bank Credit Facilities, Bridge Loans and Private
Corporate Bond Investments
The Company commits to lend funds under bank credit facilities,
bridge loans and private corporate bond investments. The amounts
of these unfunded commitments were $1.3 billion and
$1.0 billion at December 31, 2009 and 2008,
respectively. There are no other obligations or liabilities
arising from such arrangements that are reasonably likely to
become material.
Lease
Commitments
The Company, as lessee, has entered into various lease and
sublease agreements for office space, data processing and other
equipment. The Company’s commitments under such lease
agreements are included within the
132
contractual obligations table. See “— Liquidity
and Capital Resources — The Company —
Liquidity and Capital Uses — Contractual
Obligations.”
Credit
Facilities, Committed Facilities and Letters of
Credit
The Company maintains committed and unsecured credit facilities
and letters of credit with various financial institutions. See
“— Liquidity and Capital Resources —
The Company — Liquidity and Capital
Sources — Credit and Committed Facilities,” for
further descriptions of such arrangements.
Guarantees
In the normal course of its business, the Company has provided
certain indemnities, guarantees and commitments to third parties
pursuant to which it may be required to make payments now or in
the future. In the context of acquisition, disposition,
investment and other transactions, the Company has provided
indemnities and guarantees, including those related to tax,
environmental and other specific liabilities, and other
indemnities and guarantees that are triggered by, among other
things, breaches of representations, warranties or covenants
provided by the Company. In addition, in the normal course of
business, the Company provides indemnifications to
counterparties in contracts with triggers similar to the
foregoing, as well as for certain other liabilities, such as
third-party
lawsuits. These obligations are often subject to time
limitations that vary in duration, including contractual
limitations and those that arise by operation of law, such as
applicable statutes of limitation. In some cases, the maximum
potential obligation under the indemnities and guarantees is
subject to a contractual limitation ranging from less than
$1 million to $800 million, with a cumulative maximum
of $1.6 billion, while in other cases such limitations are
not specified or applicable. Since certain of these obligations
are not subject to limitations, we do not believe that it is
possible to determine the maximum potential amount that could
become due under these guarantees in the future. We believe that
it is unlikely the Company will have to make any material
payments under these indemnities, guarantees, or commitments.
In addition, the Company indemnifies its directors and officers
as provided in its charters and by-laws. Also, the Company
indemnifies its agents for liabilities incurred as a result of
their representation of the Company’s interests. Since
these indemnities are generally not subject to limitation with
respect to duration or amount, the Company does not believe that
it is possible to determine the maximum potential amount that
could become due under these indemnities in the future.
The Company has also guaranteed minimum investment returns on
certain international retirement funds in accordance with local
laws. Since these guarantees are not subject to limitation with
respect to duration or amount, the Company does not believe that
it is possible to determine the maximum potential amount that
could become due under these guarantees in the future.
During the year ended December 31, 2009, the Company
reduced $1 million of previously recorded liabilities
related to certain investment transactions. The Company’s
recorded liabilities were $5 million and $6 million at
December 31, 2009 and 2008, respectively, for indemnities,
guarantees and commitments.
In connection with synthetically created investment
transactions, the Company writes credit default swap obligations
that generally require payment of principal outstanding due in
exchange for the referenced credit obligation. If a credit
event, as defined by the contract, occurs the Company’s
maximum amount at risk, assuming the value of all referenced
credit obligations is zero, was $3.1 billion at
December 31, 2009. However, the Company believes that any
actual future losses will be significantly lower than this
amount. Additionally, the Company can terminate these contracts
at any time through cash settlement with the counterparty at an
amount equal to the then current estimated fair value of the
credit default swaps. At December 31, 2009, the Company
would have paid $37 million to terminate all of these
contracts.
Other
Commitments
MetLife Insurance Company of Connecticut is a member of the
Federal Home Loan Bank of Boston (the “FHLB of
Boston”) and holds $70 million of common stock of the
FHLB of Boston at both December 31, 2009 and 2008, which is
included in equity securities. MICC has also entered into
funding agreements with the FHLB of
133
Boston whereby MICC has issued such funding agreements in
exchange for cash and for which the FHLB of Boston has been
granted a blanket lien on certain MICC assets, including
residential mortgage-backed securities, to collateralize
MICC’s obligations under the funding agreements. MICC
maintains control over these pledged assets, and may use,
commingle, encumber or dispose of any portion of the collateral
as long as there is no event of default and the remaining
qualified collateral is sufficient to satisfy the collateral
maintenance level. Upon any event of default by MICC, the FHLB
of Boston’s recovery on the collateral is limited to the
amount of MICC’s liability to the FHLB of Boston. The
amount of the Company’s liability for funding agreements
with the FHLB of Boston was $326 million and
$526 million at December 31, 2009 and 2008,
respectively, which is included in policyholder account
balances. In addition, at December 31, 2008, MICC had
advances of $300 million from the FHLB of Boston with
original maturities of less than one year and therefore, such
advances are included in short-term debt. There were no such
advances at December 31, 2009. These advances and the
advances on these funding agreements are collateralized by
mortgage-backed securities with estimated fair values of
$419 million and $1,284 million at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009, 2008 and 2007, interest credited on the
funding agreements, which are included in interest credited to
policyholder account balances, was $6 million,
$15 million and $34 million, respectively.
Metropolitan Life Insurance Company is a member of the FHLB of
NY and holds $742 million and $830 million of common
stock of the FHLB of NY at December 31, 2009 and 2008,
respectively, which is included in equity securities. MLIC has
also entered into funding agreements with the FHLB of NY whereby
MLIC has issued such funding agreements in exchange for cash and
for which the FHLB of NY has been granted a lien on certain MLIC
assets, including residential mortgage-backed securities to
collateralize MLIC’s obligations under the funding
agreements. MLIC maintains control over these pledged assets,
and may use, commingle, encumber or dispose of any portion of
the collateral as long as there is no event of default and the
remaining qualified collateral is sufficient to satisfy the
collateral maintenance level. Upon any event of default by MLIC,
the FHLB of NY’s recovery on the collateral is limited to
the amount of MLIC’s liability to the FHLB of NY. The
amount of the Company’s liability for funding agreements
with the FHLB of NY was $13.7 billion and
$15.2 billion at December 31, 2009 and 2008,
respectively, which is included in policyholder account
balances. The advances on these agreements are collateralized by
mortgage-backed securities with estimated fair values of
$15.1 billion and $17.8 billion at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009, 2008 and 2007, interest credited on the
funding agreements, which are included in interest credited to
policyholder account balances, was $333 million,
$229 million and $94 million, respectively.
MetLife Bank is a member of the FHLB of NY and holds
$124 million and $89 million of common stock of the
FHLB of NY at December 31, 2009 and 2008, respectively,
which is included in equity securities. MetLife Bank has also
entered into repurchase agreements with the FHLB of NY whereby
MetLife Bank has issued repurchase agreements in exchange for
cash and for which the FHLB of NY has been granted a blanket
lien on certain of MetLife Bank’s residential mortgages,
mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities to
collateralize MetLife Bank’s obligations under the
repurchase agreements. MetLife Bank maintains control over these
pledged assets, and may use, commingle, encumber or dispose of
any portion of the collateral as long as there is no event of
default and the remaining qualified collateral is sufficient to
satisfy the collateral maintenance level. The repurchase
agreements and the related security agreement represented by
this blanket lien provide that upon any event of default by
MetLife Bank, the FHLB of NY’s recovery is limited to the
amount of MetLife Bank’s liability under the outstanding
repurchase agreements. The amount of MetLife Bank’s
liability for repurchase agreements entered into with the FHLB
of NY was $2.4 billion and $1.8 billion at
December 31, 2009 and 2008, respectively, which is included
in long-term debt and short-term debt depending upon the
original tenor of the advance. During the years ended
December 31, 2009, 2008 and 2007, MetLife Bank received
advances related to long-term borrowings totaling
$1.3 billion, $220 million and $390 million,
respectively, from the FHLB of NY. MetLife Bank made repayments
to the FHLB of NY of $497 million, $371 million and
$175 million related to long-term borrowings for the years
ended December 31, 2009, 2008 and 2007, respectively. The
advances on the repurchase agreements related to both long-term
and short-term debt were collateralized by residential
mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities with
estimated fair values of $5.5 billion and $3.1 billion
at December 31, 2009 and 2008, respectively.
134
Collateral
for Securities Lending
The Company has non-cash collateral for securities lending on
deposit from customers, which cannot be sold or repledged, and
which has not been recorded on its consolidated balance sheets.
The amount of this collateral was $6 million and
$279 million at December 31, 2009 and 2008,
respectively.
Insolvency
Assessments
See Note 16 of the Notes to the Consolidated Financial
Statements.
Policyholder
Liabilities
The Company establishes, and carries as liabilities, actuarially
determined amounts that are calculated to meet policy
obligations when a policy matures or is surrendered, an insured
dies or becomes disabled or upon the occurrence of other covered
events, or to provide for future annuity payments. Amounts for
actuarial liabilities are computed and reported in the
consolidated financial statements in conformity with GAAP. For
more details on Policyholder Liabilities see
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Summary of
Critical Accounting Estimates.” Also see Notes 1 and 8
of the Notes to the Consolidated Financial Statements for an
analysis of certain policyholder liabilities at
December 31, 2009 and 2008.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of actuarial
liabilities, the Company cannot precisely determine the amounts
that will ultimately be paid with respect to these actuarial
liabilities, and the ultimate amounts may vary from the
estimated amounts, particularly when payments may not occur
until well into the future.
However, we believe our actuarial liabilities for future
benefits are adequate to cover the ultimate benefits required to
be paid to policyholders. We periodically review our estimates
of actuarial liabilities for future benefits and compare them
with our actual experience. We revise estimates, to the extent
permitted or required under GAAP, if we determine that future
expected experience differs from assumptions used in the
development of actuarial liabilities.
The Company has experienced, and will likely in the future
experience, catastrophe losses and possibly acts of terrorism,
and turbulent financial markets that may have an adverse impact
on our business, results of operations, and financial condition.
Catastrophes can be caused by various events, including
pandemics, hurricanes, windstorms, earthquakes, hail, tornadoes,
explosions, severe winter weather (including snow, freezing
water, ice storms and blizzards), fires and man-made events such
as terrorist attacks. Due to their nature, we cannot predict the
incidence, timing, severity or amount of losses from
catastrophes and acts of terrorism, but we make broad use of
catastrophic and non-catastrophic reinsurance to manage risk
from these perils.
Future
Policy Benefits
The Company establishes liabilities for amounts payable under
insurance policies. Generally, amounts are payable over an
extended period of time and related liabilities are calculated
as the present value of expected future benefits to be paid,
reduced by the present value of expected future net premiums.
Such liabilities are established based on methods and underlying
assumptions in accordance with GAAP and applicable actuarial
standards. Principal assumptions used in the establishment of
liabilities for future policy benefits include mortality,
morbidity, policy lapse, renewal, retirement, investment
returns, inflation, expenses and other contingent events as
appropriate to the respective product type. These assumptions
are established at the time the policy is issued and are
intended to estimate the experience for the period the policy
benefits are payable. Utilizing these assumptions, liabilities
are established on a block of business basis. If experience is
less favorable than assumed and future losses are projected
under loss recognition testing, then additional liabilities may
be required, resulting in a charge to policyholder benefits and
claims.
Insurance Products. Future policy benefits are
comprised mainly of liabilities for disabled lives under
disability waiver of premium policy provisions, liabilities for
survivor income benefit insurance, long term care policies,
active life policies and premium stabilization and other
contingency liabilities held under participating life insurance
contracts. In order to manage risk, the Company has often
reinsured a portion of the mortality risk on new
135
individual life insurance policies. The reinsurance programs are
routinely evaluated and this may result in increases or
decreases to existing coverage. The Company entered into various
derivative positions, primarily interest rate swaps and
swaptions, to mitigate the risk that investment of premiums
received and reinvestment of maturing assets over the life of
the policy will be at rates below those assumed in the original
pricing of these contracts.
Retirement Products. Future policy benefits
are comprised mainly of liabilities for life-contingent income
annuities, supplemental contracts with and without life
contingencies, liabilities for Guaranteed Minimum Death Benefits
(“GMDBs”) included in certain annuity contracts, and a
certain portion of guaranteed living benefits. See
“— Variable Annuity Guarantees.”
Corporate Benefit Funding. Liabilities are
primarily related to structured settlement annuities. There is
no interest rate crediting flexibility on these liabilities. A
sustained low interest rate environment could negatively impact
earnings as a result. The Company has various derivative
positions, primarily interest rate floors and interest rate
swaps, to mitigate the risks associated with such a scenario.
Auto & Home. Future policy benefits
include liabilities for unpaid claims and claim expenses for
property and casualty insurance and represent the amount
estimated for claims that have been reported but not settled and
claims incurred but not reported. Liabilities for unpaid claims
are estimated based upon assumptions such as rates of claim
frequencies, levels of severities, inflation, judicial trends,
legislative changes or regulatory decisions. Assumptions are
based upon the Company’s historical experience and analyses
of historical development patterns of the relationship of loss
adjustment expenses to losses for each line of business, and
consider the effects of current developments, anticipated trends
and risk management programs, reduced for anticipated salvage
and subrogation.
International. Future policy benefits are held
primarily for immediate annuities in the Latin America region,
as well as for total return pass-thru provisions included in
certain universal life and savings products in Latin America,
and traditional life, endowment and annuity contracts sold in
various countries in the Asia Pacific region. They also include
certain liabilities for variable annuity guarantees of minimum
death benefits, and longevity guarantees sold in the Asia
Pacific region. Finally, in the EMEI region, they also include
unearned premium liabilities established for credit insurance
contracts covering death, disability and involuntary loss of
employment, as well as a small amount of traditional life and
endowment contracts. Factors impacting these liabilities include
sustained periods of lower yields than rates established at
issue, lower than expected asset reinvestment rates, asset
default and more rapid improvement of mortality levels than
anticipated for life contingent immediate annuities. The Company
mitigates its risks by implementing an asset/liability matching
policy and through the development of periodic experience
studies. See “— Variable Annuity Guarantees.”
Estimates for the liabilities for unpaid claims and claim
expenses are reset as actuarial indications change and these
changes in the liability are reflected in the current results of
operation as either favorable or unfavorable development of
prior year losses.
Banking, Corporate & Other. Future
policy benefits primarily include liabilities for quota-share
reinsurance agreements for certain long-term care and
workers’ compensation business written by MICC, a
subsidiary of the Company, prior to the acquisition of MICC.
These are run-off businesses that have been included within
Banking, Corporate & Other since the acquisition of
MICC.
Policyholder
Account Balances
Policyholder account balances are generally equal to the account
value, which includes accrued interest credited, but exclude the
impact of any applicable surrender charge that may be incurred
upon surrender.
Insurance Products. Policyholder account
balances are held for death benefit disbursement retained asset
accounts, universal life policies, the fixed account of variable
life insurance policies, specialized life insurance products for
benefit programs, general account universal life policies, and
the fixed account of variable life insurance policies.
Policyholder account balances are credited interest at a rate
set by the Company, which are influenced by current market
rates. The majority of the policyholder account balances have a
guaranteed minimum credited rate between 1.5% and 5.0%. A
sustained low interest rate environment could negatively impact
earnings
136
as a result of the minimum credited rate guarantees. The Company
has various derivative positions, primarily interest rate
floors, to partially mitigate the risks associated with such a
scenario.
Retirement Products. Policyholder account
balances are held for fixed deferred annuities and the fixed
account portion of variable annuities, for certain income
annuities, and for certain portions of guaranteed benefits.
Policyholder account balances are credited interest at a rate
set by the Company, which are influenced by current market
rates, and generally have a guaranteed minimum credited rate
between 1.5% and 4.0%. See “— Variable Annuity
Guarantees.”
Corporate Benefit Funding. Policyholder
account balances are comprised of funding agreements. Interest
crediting rates vary by type of contract, and can be fixed or
variable. Variable interest crediting rates are generally tied
to an external index, most commonly
1-month or
3-month
LIBOR. MetLife is exposed to interest rate risks, and foreign
exchange risk when guaranteeing payment of interest and return
of principal at the contractual maturity date. The Company may
invest in floating rate assets, or enter into floating rate
swaps, also tied to external indices, as well as caps to
mitigate the impact of changes in market interest rates. The
Company also mitigates its risks by implementing an
asset/liability matching policy and seeks to hedge all foreign
currency risk through the use of foreign currency hedges,
including cross currency swaps.
International. Policyholder account balances
are held largely for fixed income retirement and savings plans
in the Latin America region and to a lesser degree, amounts for
separate account type funds in certain countries in the Latin
America, Asia Pacific and EMEI regions that do not meet the
U.S. GAAP definition of separate accounts. Also included
are certain liabilities for retirement and savings products sold
in certain countries in the Asia Pacific region that generally
are sold with minimum credited rate guarantees. Liabilities for
guarantees on certain variable annuities in the Asia Pacific
region are established in accordance with derivatives and
hedging guidance and are also included within policyholder
account balances. These liabilities are generally impacted by
sustained periods of low interest rates, where there are
interest rate guarantees. The Company mitigates its risks by
implementing an asset/liability matching policy and by hedging
its variable annuity guarantees. See “— Variable
Annuity Guarantees.”
Variable
Annuity Guarantees
The Company issues certain variable annuity products with
guaranteed minimum benefits that provide the policyholder a
minimum return based on their initial deposit (i.e., the benefit
base) less withdrawals. In some cases the benefit base may be
increased by additional deposits, bonus amounts, accruals or
market value resets. These guarantees are accounted for as
insurance liabilities or as embedded derivatives depending on
how and when the benefit is paid. Specifically, a guarantee is
accounted for as an embedded derivative if a guarantee is paid
without requiring (i) the occurrence of specific insurable
event or (ii) the policyholder to annuitize. Alternatively,
a guarantee is accounted for as an insurance liability if the
guarantee is paid only upon either (i) the occurrence of a
specific insurable event or (ii) upon annuitization. In
certain cases, a guarantee may have elements of both an
insurance liability and an embedded derivative and in such cases
the guarantee is accounted for under a split of the two models.
The net amount at risk (“NAR”) for guarantees can
change significantly during periods of sizable and sustained
shifts in equity market performance, increased equity
volatility, or changes in interest rates. The NAR disclosed in
Note 8 of the Notes to the Consolidated Financial
Statements represents management’s estimate of the current
value of the benefits under these guarantees if they were all
exercised simultaneously at December 31, 2009 and 2008,
respectively. However, there are features, such as deferral
periods and benefits requiring annuitization or death, that
limit the amount of benefits that will be payable in the near
future. None of the GMIB guarantees are eligible for a
guaranteed annuitization prior to 2011.
Guarantees, including portions thereof, accounted for as
embedded derivatives, are recorded at estimated fair value and
included in policyholder account balances. Guarantees accounted
for as embedded derivatives include GMAB, the non
life-contingent portion of GMWB and the portion of certain GMIB
that do not require annuitization. For more detail on the
determination of estimated fair value, see Note 5 of the
Notes to the Consolidated Financial Statements.
137
The table below contains the carrying value for guarantees
included in policyholder account balances at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
Guaranteed minimum accumulation benefit
|
|
$
|
60
|
|
|
$
|
169
|
|
|
Guaranteed minimum withdrawal benefit
|
|
|
154
|
|
|
|
750
|
|
|
Guaranteed minimum income benefit
|
|
|
66
|
|
|
|
1,043
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
Guaranteed minimum accumulation benefit
|
|
|
195
|
|
|
|
271
|
|
|
Guaranteed minimum withdrawal benefit
|
|
|
1,025
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,500
|
|
|
$
|
3,134
|
|
|
|
|
|
|
|
|
|
|
|
Included in net investment gains (losses) for the year ended
December 31, 2009 and 2008 were gains (losses) of
$1.8 billion and ($2.7) billion, respectively, in
embedded derivatives related to the change in estimated fair
value of the above guarantees. The carrying amount of guarantees
accounted for at estimated fair value includes an adjustment for
the Company’s own credit. In connection with this
adjustment, gains (losses) of ($1.9) billion and
$3.0 billion are included in the gains (losses) of
$1.8 billion and ($2.7) billion in net investment
gains (losses) for the year ended December 31, 2009 and
2008, respectively.
The estimated fair value of guarantees accounted for as embedded
derivatives can change significantly during periods of sizable
and sustained shifts in equity market performance, equity
volatility, interest rates or foreign exchange rates.
Additionally, because the estimated fair value for guarantees
accounted for at estimated fair value includes an adjustment for
the Company’s own credit, a decrease in the Company’s
credit spreads could cause the value of these liabilities to
increase. Conversely, a widening of the Company’s credit
spreads could cause the value of these liabilities to decrease.
The Company uses derivative instruments to mitigate the
liability exposure, risk of loss and the volatility of net
income associated with these liabilities. The derivative
instruments used are primarily equity and treasury futures,
equity options and variance swaps, and interest rate swaps. The
change in valuation arising from the Company’s own credit
is not hedged.
The table below presents the estimated fair value of the
derivatives hedging guarantees accounted for as embedded
derivatives:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Primary Underlying
|
|
|
|
|
Notional
|
|
|
Estimated Fair Value
|
|
|
Notional
|
|
|
Estimated Fair Value
|
|
|
Risk Exposure
|
|
Derivative Type
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Interest rate
|
|
|
Interest rate swaps
|
|
|
$
|
8,847
|
|
|
$
|
194
|
|
|
$
|
275
|
|
|
$
|
5,572
|
|
|
$
|
632
|
|
|
$
|
7
|
|
|
|
|
|
Interest rate futures
|
|
|
|
4,997
|
|
|
|
5
|
|
|
|
4
|
|
|
|
9,264
|
|
|
|
36
|
|
|
|
56
|
|
|
Foreign currency
|
|
|
Foreign currency forwards
|
|
|
|
2,016
|
|
|
|
4
|
|
|
|
30
|
|
|
|
1,017
|
|
|
|
49
|
|
|
|
4
|
|
|
|
|
|
Currency options
|
|
|
|
327
|
|
|
|
14
|
|
|
|
—
|
|
|
|
582
|
|
|
|
68
|
|
|
|
—
|
|
|
Equity market
|
|
|
Equity futures
|
|
|
|
6,033
|
|
|
|
31
|
|
|
|
20
|
|
|
|
4,660
|
|
|
|
1
|
|
|
|
65
|
|
|
|
|
|
Equity options
|
|
|
|
26,661
|
|
|
|
1,596
|
|
|
|
1,018
|
|
|
|
4,842
|
|
|
|
1,997
|
|
|
|
—
|
|
|
|
|
|
Variance swaps
|
|
|
|
13,267
|
|
|
|
174
|
|
|
|
58
|
|
|
|
8,835
|
|
|
|
396
|
|
|
|
—
|
|
|
|
|
|
Total rate of return swaps
|
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
62,274
|
|
|
$
|
2,018
|
|
|
$
|
1,405
|
|
|
$
|
34,772
|
|
|
$
|
3,179
|
|
|
$
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net investment gains (losses) for the year ended
December 31, 2009 and 2008 were gains (losses) of
($3.7) billion and $3.4 billion related to the change
in estimated fair value of the above derivatives.
138
Guarantees, including portions thereof, have liabilities
established that are included in future policy benefits.
Guarantees accounted for in this manner include GMDBs, the
life-contingent portion of certain GMWB, and the portion of GMIB
that require annuitization. These liabilities are accrued over
the life of the contract in proportion to actual and future
expected policy assessments based on the level of guaranteed
minimum benefits generated using multiple scenarios of separate
account returns. The scenarios use best estimate assumptions
consistent with those used to amortize deferred acquisition
costs. When current estimates of future benefits exceed those
previously projected or when current estimates of future
assessments are lower than those previously projected,
liabilities will increase, resulting in a current period charge
to net income. The opposite result occurs when the current
estimates of future benefits are lower than that previously
projected or when current estimates of future assessments exceed
those previously projected. At each reporting period, the
Company updates the actual amount of business remaining
in-force, which impacts expected future assessments and the
projection of estimated future benefits resulting in a current
period charge or increase to earnings.
The table below contains the carrying value for guarantees
included in future policy benefits at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
Guaranteed minimum death benefit
|
|
$
|
137
|
|
|
$
|
204
|
|
|
Guaranteed minimum income benefit
|
|
|
394
|
|
|
|
403
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
Guaranteed minimum death benefit
|
|
|
23
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
554
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
|
Included in policyholder benefits and claims for the year ended
December 31, 2009 is a credit of $92 million and for
the year ended December 31, 2008 is a charge of
$498 million, related to the respective change in
liabilities for the above guarantees.
The carrying amount of guarantees accounted for as insurance
liabilities can change significantly during periods of sizable
and sustained shifts in equity market performance, increased
equity volatility, or changes in interest rates. The Company
uses reinsurance in combination with derivative instruments to
mitigate the liability exposure, risk of loss and the volatility
of net income associated with these liabilities. Derivative
instruments used are primarily equity futures, treasury futures
and interest rate swaps.
Included in policyholder benefits and claims associated with the
hedging of the guarantees in future policy benefits for the year
ended December 31, 2009 and 2008 were gains (losses) of
($114) million and $182 million, respectively, related
to reinsurance treaties containing embedded derivatives carried
at estimated fair value and gains (losses) of
($376) million and $331 million, respectively, related
to freestanding derivatives.
While the Company believes that the hedging strategies employed
for guarantees included in both policyholder account balances
and in future policy benefits, as well as other management
actions, have mitigated the risks related to these benefits, the
Company remains liable for the guaranteed benefits in the event
that reinsurers or derivative counterparties are unable or
unwilling to pay. Certain of the Company’s reinsurance
agreements and derivative positions are collateralized and
derivatives positions are subject to master netting agreements,
both of which, significantly reduces the exposure to
counterparty risk. In addition, the Company is subject to the
risk that hedging and other management procedures prove
ineffective or that unanticipated policyholder behavior or
mortality, combined with adverse market events, produces
economic losses beyond the scope of the risk management
techniques employed. Lastly, because the valuation of the
guarantees accounted for as embedded derivatives includes an
adjustment for the Company’s own credit that is not hedged,
changes in the Company’s own credit may result in
significant volatility in net income.
139
Other
Policyholder Funds
Other policyholder funds include policy and contract claims,
unearned revenue liabilities, premiums received in advance,
policyholder dividends due and unpaid, and policyholder
dividends left on deposit.
The liability for policy and contract claims generally relates
to incurred but not reported death, disability, long-term care
and dental claims, as well as claims that have been reported but
not yet settled. The liability for these claims is based on the
Company’s estimated ultimate cost of settling all claims.
The Company derives estimates for the development of incurred
but not reported claims principally from actuarial analyses of
historical patterns of claims and claims development for each
line of business. The methods used to determine these estimates
are continually reviewed. Adjustments resulting from this
continuous review process and differences between estimates and
payments for claims are recognized in policyholder benefits and
claims expense in the period in which the estimates are changed
or payments are made.
The unearned revenue liability relates to universal life-type
and investment-type products and represents policy charges for
services to be provided in future periods. The charges are
deferred as unearned revenue and amortized using the
product’s estimated gross profits and margins, similar to
deferred acquisition costs. Such amortization is recorded in
universal life and investment-type product policy fees.
Also included in other policyholder funds are policyholder
dividends due and unpaid on participating policies and
policyholder dividends left on deposit. Such liabilities are
presented at amounts contractually due to policyholders.
Policyholder
Dividends Payable
Policyholder dividends payable consists of liabilities related
to dividends payable in the following calendar year on
participating policies.
Liquidity
and Capital Resources
Overview
Beginning in September 2008, the global financial markets
experienced unprecedented disruption, adversely affecting the
business environment in general, as well as financial services
companies in particular. The U.S. economy entered a
recession in January 2008 and most economists believe this
recession ended in the third quarter of 2009 when positive
growth returned. Most economists now expect positive growth to
continue through 2010. Conditions in the financial markets have
materially improved, but financial institutions may have to pay
higher spreads over benchmark U.S. Treasury securities than
before the market disruption began. There is still some
uncertainty as to whether the stressed conditions that prevailed
during the market disruption could recur, which could affect the
Company’s ability to meet liquidity needs and obtain
capital.
Liquidity Management. Based upon the strength
of its franchise, diversification of its businesses and strong
financial fundamentals, we continue to believe that the Company
has ample liquidity to meet business requirements under current
market conditions and unlikely but reasonably possible stress
scenarios. The Company’s short-term liquidity position
(cash, and cash equivalents and short-term investments,
excluding cash collateral received under the Company’s
securities lending program that has been reinvested in cash,
cash equivalents, short-term investments and publicly-traded
securities and cash collateral received from counterparties in
connection with derivative instruments) was $11.7 billion
and $26.7 billion at December 31, 2009 and 2008,
respectively. This reduction in short-term liquidity reflects
the continued improvement in market conditions during the year
ended December 31, 2009. During 2009, the Company invested
a portion of its short-term liquidity position in longer term,
high quality, liquid asset types such as U.S. government
securities and agency residential mortgage-backed securities. We
continuously monitor and adjust our liquidity and capital plans
for the Holding Company and its subsidiaries in light of
changing needs and opportunities.
140
The
Company
Liquidity
Liquidity refers to a company’s ability to generate
adequate amounts of cash to meet its needs. Liquidity needs are
determined from a rolling
6-month
forecast by portfolio and are monitored daily. Asset mix and
maturities are adjusted based on the forecast. Cash flow testing
and stress testing provide additional perspectives on liquidity,
which include various scenarios of the potential risk of early
contractholder and policyholder withdrawal. We believe that the
Company has ample liquidity and capital resources to meet
business requirements under current market conditions and
unlikely but reasonably possible stress scenarios under current
market conditions. The Company includes provisions limiting
withdrawal rights on many of its products, including general
account institutional pension products (generally group
annuities, including funding agreements, and certain deposit
fund liabilities) sold to employee benefit plan sponsors.
Certain of these provisions prevent the customer from making
withdrawals prior to the maturity date of the product.
In the event of significant cash requirements beyond anticipated
liquidity needs, the Company has various alternatives available
depending on market conditions and the amount and timing of the
liquidity need. These options include cash flows from
operations, the sale of liquid assets, global funding sources
and various credit facilities.
Under certain stressful market and economic conditions,
liquidity may deteriorate broadly which could negatively impact
the Company. If the Company requires significant amounts of cash
on short notice in excess of anticipated cash requirements, the
Company may have difficulty selling investment assets in a
timely manner, be forced to sell them for less than the Company
otherwise would have been able to realize, or both. In addition,
in the event of such forced sale, accounting rules require the
recognition of a loss for certain securities in an unrealized
loss position and may require the impairment of other securities
based upon the Company’s ability to hold such securities,
which may negatively impact the Company’s financial
condition. A disruption in the financial markets could limit the
Company’s access to, or cost of, liquidity.
In extreme circumstances, all general account assets —
other than those which may have been pledged to a specific
purpose — within a statutory legal entity are
available to fund obligations of the general account within that
legal entity.
Capital
Capital reflects the financial strength of the Company and its
ability to generate strong cash flows at the operating
companies, borrow funds at competitive rates and raise
additional capital to meet operating and growth needs.
While the Company raised new capital from its debt issuances
during the difficult market conditions prevailing since the
second half of 2008 (see “— The
Company — Liquidity and Capital Sources —
Debt Issuances and Other Borrowings”), the increase in
credit spreads experienced since then has resulted in an
increase in the cost of such new capital. As a result of
reductions in interest rates, the Company’s interest
expense and dividends on floating rate securities have been
lower; however, the increase in the Company’s credit
spreads since the second half of 2008 has caused the
Company’s credit facility fees to increase.
The Company manages its capital structure to maintain a level of
capital needed for “AA” financial strength ratings.
However, we believe that the rating agencies have recently
heightened the level of scrutiny that they apply to life
insurance companies and are considering several other factors,
in addition to the level of capital, in assigning financial
strength ratings. The rating agencies may also adjust upward the
capital and other requirements employed in their models for
maintenance of certain ratings levels.
Statutory Capital and Dividends. Our insurance
subsidiaries have statutory surplus well above levels to meet
current regulatory requirements.
RBC requirements are used as minimum capital requirements by the
NAIC and the state insurance departments to identify companies
that merit regulatory action. RBC is based on a formula
calculated by applying factors to various asset, premium and
statutory reserve items. The formula takes into account the risk
characteristics of the
141
insurer, including asset risk, insurance risk, interest rate
risk and business risk and is calculated on an annual basis. The
formula is used as an early warning regulatory tool to identify
possible inadequately capitalized insurers for purposes of
initiating regulatory action, and not as a means to rank
insurers generally. These rules apply to each of the Holding
Company’s domestic insurance subsidiaries. State insurance
laws provide insurance regulators the authority to require
various actions by, or take various actions against, insurers
whose total adjusted capital does not meet or exceed certain RBC
levels. At the date of the most recent annual statutory
financial statements filed with insurance regulators, the total
adjusted capital of each of these subsidiaries was in excess of
each of those RBC levels.
The amount of dividends that our insurance subsidiaries can pay
to the Holding Company or other parent entities is constrained
by the amount of surplus we hold to maintain our ratings and
provide an additional margin for risk protection and invest in
our businesses. We proactively take actions to maintain capital
consistent with these ratings objectives, which may include
adjusting dividend amounts and deploying financial resources
from internal or external sources of capital. Certain of these
activities may require regulatory approval.
Rating Agencies. Rating agencies assign
insurer financial strength ratings to the Company’s
domestic life insurance subsidiaries and credit ratings to the
Holding Company and certain of its subsidiaries. The level and
composition of our regulatory capital at the subsidiary level
and equity capital of the Company are among the many factors
considered in determining the Company’s insurer financial
strength and credit ratings. Each agency has its own capital
adequacy evaluation methodology, and assessments are generally
based on a combination of factors. We believe that the rating
agencies have recently heightened the level of scrutiny that
they apply to insurance companies, and that they may increase
the frequency and scope of their credit reviews, may request
additional information from the companies that they rate, and
may adjust upward the capital and other requirements employed in
the rating agency models for maintenance of certain ratings
levels.
The Company’s financial strength ratings for its domestic
life insurance companies are “AA-/Aa3/AA-/A+” for
S&P, Moody’s, Fitch, and A.M. Best, respectively.
The Company’s long-term senior debt credit ratings are
“A-/A3/A-/a-”
for S&P, Moody’s, Fitch, and A.M. Best,
respectively. The Company’s ratings outlooks are
“CreditWatch negative/stable/stable/Under Review with
negative implications” for S&P, Moody’s, Fitch,
and A.M. Best, respectively. For further discussion, see
“Business — Company Ratings.”
A downgrade in the credit or financial strength (i.e.,
claims-paying) ratings of the Company or its subsidiaries would
likely impact the cost and availability of financing for the
Company and its subsidiaries and result in additional collateral
requirements or other required payments under certain
agreements, which are eligible to be satisfied in cash or by
posting securities held by the subsidiaries subject to the
agreements.
Liquidity
and Capital Sources
Cash Flows from Operations. The Company’s
principal cash inflows from its insurance activities come from
insurance premiums, annuity considerations and deposit funds. A
primary liquidity concern with respect to these cash inflows is
the risk of early contractholder and policyholder withdrawal.
See “— The Company — Liquidity and
Capital Uses — Contractual Obligations.”
Cash Flows from Investments. The
Company’s principal cash inflows from its investment
activities come from repayments of principal, proceeds from
maturities, sales of invested assets and net investment income.
The primary liquidity concerns with respect to these cash
inflows are the risk of default by debtors and market
volatility. The Company closely monitors and manages these risks
through its credit risk management process.
Liquid Assets. An integral part of the
Company’s liquidity management is the amount of liquid
assets it holds. Liquid assets include cash, cash equivalents,
short-term investments and publicly-traded securities,
excluding: (i) cash collateral received under the
Company’s securities lending program that has been
reinvested in cash, cash equivalents, short-term investments and
publicly-traded securities; (ii) cash collateral received
from counterparties in connection with derivative instruments;
(iii) cash, cash equivalents, short-term investments and
securities on deposit with regulatory agencies; and
(iv) securities held in trust in support of collateral
financing arrangements and pledged in support of debt and
funding agreements. At December 31, 2009 and 2008, the
Company had $139.2 billion and $141.7 billion in
liquid assets, respectively. For further discussion of
142
invested assets on deposit with regulatory agencies, held in
trust in support of collateral financing arrangements and
pledged in support of debt and funding agreements, see
“— Investments — Invested Assets on
Deposit, Held in Trust and Pledged as Collateral.”
Global Funding Sources. Liquidity is also
provided by a variety of short-term instruments, including
repurchase agreements and commercial paper. Capital is provided
by a variety of instruments, including medium- and long-term
debt, junior subordinated debt securities, capital securities
and equity securities. The diversity of the Company’s
funding sources, including funding that may be available through
certain economic stabilization programs established by various
government institutions, enhances flexibility, limits dependence
on any one source of funds and generally lowers the cost of
funds. The Company’s global funding sources include:
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The Holding Company and MetLife Funding, Inc. (“MetLife
Funding”) each have commercial paper programs supported by
our $2.85 billion general corporate credit facility.
MetLife Funding, a subsidiary of MLIC, serves as a centralized
finance unit for the Company. Pursuant to a support agreement,
MLIC has agreed to cause MetLife Funding to have a tangible net
worth of at least one dollar. At both December 31, 2009 and
2008, MetLife Funding had a tangible net worth of
$12 million. MetLife Funding raises cash from various
funding sources and uses the proceeds to extend loans, through
MetLife Credit Corp., another subsidiary of MLIC, to the Holding
Company, MLIC and other affiliates. MetLife Funding manages its
funding sources to enhance the financial flexibility and
liquidity of MLIC and other affiliated companies. At
December 31, 2009 and 2008, MetLife Funding had total
outstanding liabilities for its commercial paper program,
including accrued interest payable, of $319 million and
$414 million, respectively.
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The Federal Reserve Bank of New York’s Commercial Paper
Funding Facility (“CPFF”) was initiated in 2008 to
improve liquidity in short-term funding markets by increasing
the availability of term commercial paper funding to issuers and
by providing greater assurance to both issuers and investors
that firms will be able to rollover their maturing commercial
paper. MetLife Short Term Funding LLC, the issuer of commercial
paper under a program supported by funding agreements issued by
MLIC and MICC, was accepted in October 2008 for the CPFF and
could issue a maximum amount of $3.8 billion under the
CPFF. At December 31, 2009, MetLife Short Term Funding LLC
had no drawdown under its CPFF capacity, compared to
$1.65 billion at December 31, 2008. MetLife Funding
was accepted in November 2008 for the CPFF and could issue a
maximum amount of $1.0 billion under the CPFF. No drawdown
by MetLife Funding had taken place under this facility at both
December 31, 2009 and 2008. The CPFF program expired on
February 1, 2010.
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MetLife Bank is a depository institution that is approved to use
the Federal Reserve Bank of New York Discount Window borrowing
privileges and participate in the Federal Reserve Bank of New
York Term Auction Facility. To utilize these facilities, MetLife
Bank has pledged qualifying loans and investment securities to
the Federal Reserve Bank of New York as collateral. At
December 31, 2009, MetLife Bank had no liability for
advances from the Federal Reserve Bank of New York under
these facilities. At December 31, 2008 MetLife Bank’s
liability for advances from the Federal Reserve Bank of
New York under these facilities was $950 million, which is
included in short-term debt. See Note 11 of the Notes to
the Consolidated Financial Statements.
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As a member of the FHLB of NY, MetLife Bank has entered into
repurchase agreements with FHLB of NY on both short- and
long-term bases, with a total liability for repurchase
agreements with the FHLB of NY of $2.4 billion and
$1.8 billion at December 31, 2009 and 2008,
respectively. See Note 11 of the Notes to the Consolidated
Financial Statements.
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The Holding Company and MetLife Bank elected to continue to
participate in the debt guarantee component of the FDIC’s
Temporary Liquidity Guarantee Program (the “FDIC
Program”). On March 26, 2009, the Holding Company
issued $397 million of floating-rate senior notes due June
2012 under the FDIC Program, representing all of MetLife,
Inc.’s capacity under the FDIC Program. MetLife Bank let
its capacity to issue up to $178 million of guaranteed debt
under the FDIC Program expire unused when the program ended on
October 31, 2009.
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In addition, the Company had obligations under funding
agreements with the FHLB of NY of $13.7 billion and
$15.2 billion at December 31, 2009 and 2008,
respectively, for MLIC and with the FHLB of Boston of
$326 million and $526 million at December 31,
2009 and 2008, respectively, for MICC. The FHLB of
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Boston had also advanced $300 million to MICC at
December 31, 2008, which was included in short-term debt.
There were no such advances at December 31, 2009. See
Note 8 of the Notes to the Consolidated Financial
Statements.
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At December 31, 2009 and 2008, the Company had outstanding
$912 million and $2.7 billion in short-term debt,
respectively, and $13.2 billion and $9.7 billion in
long-term debt, respectively. At December 31, 2009 and
2008, the Company had outstanding $5.3 billion and
$5.2 billion in collateral financing arrangements,
respectively, and $3.2 billion and $3.8 billion in
junior subordinated debt, respectively. Short-term and long-term
debt includes the above-mentioned MetLife Bank funding from the
Federal Reserve Bank of New York and the FHLB of NY, as well as
the above-mentioned advances from the FHLB of Boston.
Debt Issuances and Other Borrowings. In July
2009, the Holding Company issued $500 million of junior
subordinated debt securities with a final maturity of August
2069. Interest is payable semi-annually at a fixed rate of
10.75% up to, but not including, August 1, 2039, the
scheduled redemption date. In the event the debt securities are
not redeemed on or before the scheduled redemption date,
interest will accrue at an annual rate of
3-month
LIBOR plus a margin equal to 7.548%, payable quarterly in
arrears. In connection with the offering, the Holding Company
incurred $5 million of issuance costs which have been
capitalized and included in other assets. These costs are being
amortized over the term of the securities. See Note 13 of
the Notes to the Consolidated Financial Statements for a
description of the terms of the junior subordinated debt
securities.
In May 2009, the Holding Company issued $1,250 million of
senior notes due June 1, 2016. The notes bear interest at a
fixed rate of 6.75%, payable semi-annually. In connection with
the offering, the Holding Company incurred $6 million of
issuance costs which have been capitalized and included in other
assets. These costs are being amortized over the term of the
notes.
In March 2009, the Holding Company issued $397 million of
senior notes due June 2012 under the FDIC Program. The notes
bear interest at a floating rate equal to
3-month
LIBOR, reset quarterly, plus 0.32%. In connection with the
offering, the Holding Company incurred $15 million of
issuance costs which have been capitalized and included in other
assets. These costs are being amortized over the term of the
notes.
In February 2009, the Holding Company remarketed its existing
$1,035 million 4.91% Series B junior subordinated debt
securities as 7.717% senior debt securities, Series B,
due 2019 payable semi-annually. In August 2008, the Holding
Company remarketed its existing $1,035 million 4.82%
Series A junior subordinated debt securities as
6.817% senior debt securities, Series A, due 2018
payable semi-annually. The Series A and Series B
junior subordinated debt securities were originally issued in
2005 in connection with the common equity units. See
“— The Company — Liquidity and Capital
Sources — Remarketing of Junior Subordinated Debt
Securities and Settlement of Stock Purchase Contracts.”
In April 2008, MetLife Capital Trust X, a VIE consolidated
by the Company, issued exchangeable surplus trust securities
(the “2008 Trust Securities”) with a face amount
of $750 million. Interest on the 2008 Trust Securities
or debt securities is payable semi-annually at a fixed rate of
9.25% up to, but not including, April 8, 2038, the
scheduled redemption date. In the event the 2008
Trust Securities or debt securities are not redeemed on or
before the scheduled redemption date, interest will accrue at an
annual rate of
3-month
LIBOR plus a margin equal to 5.540%, payable quarterly in
arrears. See Note 13 of the Notes to the Consolidated
Financial Statements for a description of the terms of the
junior subordinated debt securities.
In December 2007, MetLife Capital Trust IV, a VIE
consolidated by the Company, issued exchangeable surplus trust
securities (the “2007 Trust Securities”) with a
face amount of $700 million and a discount of
$6 million. Interest on the 2007 Trust Securities or
debt securities is payable semi-annually at a fixed rate of
7.875% up to, but not including, December 15, 2037, the
scheduled redemption date. In the event the 2007
Trust Securities or debt securities are not redeemed on or
before the scheduled redemption date, interest will accrue at an
annual rate of
3-month
LIBOR plus a margin equal to 3.96%, payable quarterly in
arrears. See Note 13 of the Notes to the Consolidated
Financial Statements for a description of the terms of the
junior subordinated debt securities.
144
Collateral Financing Arrangements. As
described more fully in Note 12 of the Notes to the
Consolidated Financial Statements:
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In December 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MetLife
Reinsurance Company of Charleston’s (“MRC”)
reinsurance of the closed block liabilities, entered into an
agreement with an unaffiliated financial institution that
referenced the $2.5 billion aggregate principal amount of
35-year
surplus notes issued by MRC. Under the agreement, the Holding
Company is entitled to the interest paid by MRC on the surplus
notes of
3-month
LIBOR plus 0.55% in exchange for the payment of
3-month
LIBOR plus 1.12%, payable quarterly on such amount as adjusted,
as described below.
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Under this agreement, the Holding Company may also be required
to pledge collateral or make payments to the unaffiliated
financial institution related to any decline in the estimated
fair value of the surplus notes. Any such payments would be
accounted for as a receivable and included in other assets on
the Company’s consolidated balance sheets and would not
reduce the principal amount outstanding of the surplus notes.
Such payments would, however, reduce the amount of interest
payments due from the Holding Company under the agreement. Any
payment received from the unaffiliated financial institution
would reduce the receivable by an amount equal to such payment
and would also increase the amount of interest payments due from
the Holding Company under the agreement. In addition, the
unaffiliated financial institution may be required to pledge
collateral to the Holding Company related to any increase in the
estimated fair value of the surplus notes. During 2008, the
Holding Company paid an aggregate of $800 million to the
unaffiliated financial institution relating to declines in the
estimated fair value of the surplus notes. The Holding Company
did not receive any payments from the unaffiliated financial
institution during 2008. During 2009, on a net basis, the
Holding Company received $375 million from the unaffiliated
financial institution related to changes in the estimated fair
value of the surplus notes. No payments were made or received by
the Holding Company during 2007. Since the closing of the
collateral financing arrangement in December 2007, on a net
basis, the Holding Company has paid $425 million to the
unaffiliated financial institution related to changes in the
estimated fair value of the surplus notes. In addition, at
December 31, 2008, the Company had pledged collateral with
an estimated fair value of $230 million to the unaffiliated
financial institution. At December 31, 2009, the Company
had no collateral pledged to the unaffiliated third-party in
connection with this agreement. The Holding Company may also be
required to make a payment to the unaffiliated financial
institution in connection with any early termination of this
agreement.
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In May 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MetLife
Reinsurance Company of South Carolina’s (“MRSC”)
reinsurance of universal life secondary guarantees, entered into
an agreement with an unaffiliated financial institution under
which the Holding Company is entitled to the return on the
investment portfolio held by trusts established in connection
with this collateral financing arrangement in exchange for the
payment of a stated rate of return to the unaffiliated financial
institution of
3-month
LIBOR plus 0.70%, payable quarterly. The collateral financing
agreement may be extended by agreement of the Holding Company
and the unaffiliated financial institution on each anniversary
of the closing. The Holding Company may also be required to make
payments to the unaffiliated financial institution, for deposit
into the trusts, related to any decline in the estimated fair
value of the assets held by the trusts, as well as amounts
outstanding upon maturity or early termination of the collateral
financing arrangement. During 2009 and 2008, the Holding Company
contributed $360 million and $320 million,
respectively, as a result of declines in the estimated fair
value of the assets in the trusts, and cumulatively, since May
2007, the Holding Company has contributed a total of
$680 million as a result of declines in the estimated fair
value of the assets in the trusts, all of which was deposited
into the trusts.
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In addition, the Holding Company may be required to pledge
collateral to the unaffiliated financial institution under this
agreement. At December 31, 2009 and 2008, the Holding
Company had pledged $80 million and $86 million under
the agreement, respectively.
Remarketing of Junior Subordinated Debt Securities and
Settlement of Stock Purchase Contracts. On
February 17, 2009, the Holding Company closed the
successful remarketing of the Series B portion of the
junior subordinated debt securities underlying the common equity
units. The Series B junior subordinated debt securities
145
were modified as permitted by their terms to be
7.717% senior debt securities, Series B, due
February 15, 2019. The Holding Company did not receive any
proceeds from the remarketing. Most common equity unit holders
chose to have their junior subordinated debt securities
remarketed and used the remarketing proceeds to settle their
payment obligations under the applicable stock purchase
contract. For those common equity unit holders that elected not
to participate in the remarketing and elected to use their own
cash to satisfy the payment obligations under the stock purchase
contract, the terms of the debt are the same as the remarketed
debt. The subsequent settlement of the stock purchase contracts
occurred on February 17, 2009, providing proceeds to the
Holding Company of $1,035 million in exchange for shares of
the Holding Company’s common stock. The Holding Company
delivered 24,343,154 shares of its newly issued common
stock to settle the stock purchase contracts.
On August 15, 2008, the Holding Company closed the
successful remarketing of the Series A portion of the
junior subordinated debt securities underlying the common equity
units. The Series A junior subordinated debt securities
were modified as permitted by their terms to be
6.817% senior debt securities, Series A, due
August 15, 2018. The Holding Company did not receive any
proceeds from the remarketing. Most common equity unit holders
chose to have their junior subordinated debt securities
remarketed and used the remarketing proceeds to settle their
payment obligations under the applicable stock purchase
contract. For those common equity unit holders that elected not
to participate in the remarketing and elected to use their own
cash to satisfy the payment obligations under the stock purchase
contract, the terms of the debt are the same as the remarketed
debt. The initial settlement of the stock purchase contracts
occurred on August 15, 2008, providing proceeds to the
Holding Company of $1,035 million in exchange for shares of
the Holding Company’s common stock. The Holding Company
delivered 20,244,549 shares of its common stock held in
treasury at a value of $1,064 million to settle the stock
purchase contracts.
Other. On March 2, 2009, the Company sold
Cova, the parent company of Texas Life, for $130 million in
cash consideration, excluding $1 million of transaction
costs. The proceeds of the transaction were paid to the Holding
Company.
Credit and Committed Facilities. The Company
maintains unsecured credit facilities and committed facilities,
which aggregated $3.2 billion and $12.8 billion,
respectively, at December 31, 2009. When drawn upon, these
facilities bear interest at varying rates in accordance with the
respective agreements.
The unsecured credit facilities are used for general corporate
purposes. At December 31, 2009, the Company had outstanding
$548 million in letters of credit and no drawdowns against
these facilities. Remaining unused commitments were
$2.6 billion at December 31, 2009.
The committed facilities are used for collateral for certain of
the Company’s affiliated reinsurance liabilities. At
December 31, 2009, the Company had outstanding
$4.7 billion in letters of credit and $2.8 billion in
aggregate drawdowns against these facilities. Remaining unused
commitments were $5.4 billion at December 31, 2009.
See Note 11 of the Notes to the Consolidated Financial
Statements for further discussion of these facilities.
We have no reason to believe that our lending counterparties are
unable to fulfill their respective contractual obligations under
these facilities. As commitments associated with letters of
credit and financing arrangements may expire unused, these
amounts do not necessarily reflect the Company’s actual
future cash funding requirements.
Covenants. Certain of the Company’s debt
instruments, credit facilities and committed facilities contain
various administrative, reporting, legal and financial
covenants. The Company believes it was in compliance with all
covenants at December 31, 2009 and 2008.
Common Stock. During the years ended
December 31, 2009, 2008 and 2007, 861,586 shares,
97,515,737 shares and 3,864,894 shares of common stock
were issued from treasury stock for $46 million,
$5,221 million and $172 million, respectively. During
the year ended December 31, 2008, 11,250,000 shares
were newly issued. There were no newly issued shares during 2007
and 2009.
On October 8, 2008, the Holding Company issued
86,250,000 shares of its common stock at a price of $26.50
per share for gross proceeds of $2.3 billion. Of these
shares issued, 75,000,000 shares were issued from treasury
stock, and 11,250,000 were newly issued shares.
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Preferred Stock. During the year ended
December 31, 2009, the Holding Company did not issue any
preferred stock. In December 2008, the Holding Company entered
into a replacement capital covenant (the “Replacement
Capital Covenant”) whereby the Company agreed for the
benefit of holders of one or more series of the Company’s
unsecured long-term indebtedness designated from time to time by
the Company in accordance with the terms of the Replacement
Capital Covenant (“Covered Debt”), that the Company
will not repay, redeem or purchase and will cause its
subsidiaries not to repay, redeem or purchase, on or before the
termination of the Replacement Capital Covenant on
December 31, 2018 (or earlier termination by agreement of
the holders of Covered Debt or when there is no longer any
outstanding series of unsecured long-term indebtedness which
qualifies for designation as “Covered Debt”), the
Floating Rate Non-Cumulative Preferred Stock, Series A, of
the Company or the 6.500% Non-Cumulative Preferred Stock,
Series B, of the Company, unless such repayment, redemption
or purchase is made from the proceeds of the issuance of certain
replacement capital securities and pursuant to the other terms
and conditions set forth in the Replacement Capital Covenant.
Liquidity
and Capital Uses
Debt Repayments. During the years ended
December 31, 2009, 2008 and 2007, MetLife Bank made
repayments of $497 million, $371 million and
$175 million, respectively, to the FHLB of NY related to
long-term borrowings. During the years ended December 31,
2009 and 2008, MetLife Bank made repayments related to
short-term borrowings of $26.4 billion and
$4.6 billion, respectively, to the FHLB of NY and
$21.2 billion and $650 million, respectively, to the
Federal Reserve Bank of New York. During the year ended
December 31, 2009, MICC made repayments of
$300 million to the FHLB of Boston related to short-term
borrowings.
Insurance Liabilities. The Company’s
principal cash outflows primarily relate to the liabilities
associated with its various life insurance, property and
casualty, annuity and group pension products, operating expenses
and income tax, as well as principal and interest on its
outstanding debt obligations. Liabilities arising from its
insurance activities primarily relate to benefit payments under
the aforementioned products, as well as payments for policy
surrenders, withdrawals and loans. For annuity or deposit type
products, surrender or lapse product behavior differs somewhat
by segment. In the Retirement Products segment, which includes
individual annuities, lapses and surrenders tend to occur in the
normal course of business. In the year ended December 31,
2009, both fixed and variable annuities in the Retirement
Products segment experienced positive net flows and a decline in
lapse rates. In the CBF segment, which includes pension
closeouts, bank owned life insurance, other fixed annuity
contracts, as well as funding agreements and other capital
market products (including funding agreements with the FHLB of
NY and the FHLB of Boston), most of the business has fixed
maturities or fairly predictable surrenders or withdrawals. With
regard to CBF liabilities that provide customers with limited
liquidity rights, at December 31, 2009 there were
$1.7 billion of funding agreements and other capital market
products that could be put back to the Company after a period of
notice. Of these liabilities, $1.6 billion were subject to
notice periods between 15 and 90 days. The remainder of the
balance was subject to notice periods between 6 and
13 months. An additional $480 million of CBF
liabilities were subject to credit ratings downgrade triggers
that permit early termination subject to a notice period of
90 days. See “— The Company —
Liquidity and Capital Uses — Contractual
Obligations.”
Dividends. The table below presents
declaration, record and payment dates, as well as per share and
aggregate dividend amounts, for the common stock:
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Dividend
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Declaration Date
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Record Date
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Payment Date
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Per Share
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Aggregate
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(In millions, except per share data)
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October 29, 2009
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November 9, 2009
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December 14, 2009
|
|
|
$
|
0.74
|
|
|
$
|
610
|
|
|
October 28, 2008
|
|
|
November 10, 2008
|
|
|
|
December 15, 2008
|
|
|
$
|
0.74
|
|
|
$
|
592
|
|
|
October 23, 2007
|
|
|
November 6, 2007
|
|
|
|
December 14, 2007
|
|
|
$
|
0.74
|
|
|
$
|
541
|
|
Future common stock dividend decisions will be determined by the
Holding Company’s Board of Directors after taking into
consideration factors such as the Company’s current
earnings, expected medium- and long-term earnings, financial
condition, regulatory capital position, and applicable
governmental regulations and policies. Furthermore, the payment
of dividends and other distributions to the Holding Company by
its insurance subsidiaries is regulated by insurance laws and
regulations.
147
Information on the declaration, record and payment dates, as
well as per share and aggregate dividend amounts, for the
Holding Company’s Floating Rate Non-Cumulative Preferred
Stock, Series A and 6.500% Non-Cumulative Preferred Stock,
Series B is as follows for the years ended
December 31, 2009, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
|
Series A
|
|
Series A
|
|
Series B
|
|
Series B
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Per Share
|
|
Aggregate
|
|
Per Share
|
|
Aggregate
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
|
|
November 16, 2009
|
|
November 30, 2009
|
|
December 15, 2009
|
|
$
|
0.2527777
|
|
|
$
|
7
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
|
August 17, 2009
|
|
August 31, 2009
|
|
September 15, 2009
|
|
$
|
0.2555555
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
May 15, 2009
|
|
May 31, 2009
|
|
June 15, 2009
|
|
$
|
0.2555555
|
|
|
|
7
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
March 5, 2009
|
|
February 28, 2009
|
|
March 16, 2009
|
|
$
|
0.2500000
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26
|
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 17, 2008
|
|
November 30, 2008
|
|
December 15, 2008
|
|
$
|
0.2527777
|
|
|
$
|
7
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
|
August 15, 2008
|
|
August 31, 2008
|
|
September 15, 2008
|
|
$
|
0.2555555
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
May 15, 2008
|
|
May 31, 2008
|
|
June 16, 2008
|
|
$
|
0.2555555
|
|
|
|
7
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
March 5, 2008
|
|
February 29, 2008
|
|
March 17, 2008
|
|
$
|
0.3785745
|
|
|
|
9
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29
|
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 15, 2007
|
|
November 30, 2007
|
|
December 17, 2007
|
|
$
|
0.4230476
|
|
|
$
|
11
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
|
August 15, 2007
|
|
August 31, 2007
|
|
September 17, 2007
|
|
$
|
0.4063333
|
|
|
|
10
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
May 15, 2007
|
|
May 31, 2007
|
|
June 15, 2007
|
|
$
|
0.4060062
|
|
|
|
10
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
March 5, 2007
|
|
February 28, 2007
|
|
March 15, 2007
|
|
$
|
0.3975000
|
|
|
|
10
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41
|
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchases. The table below presents
the common stock repurchase programs authorized by the
Company’s Board of Directors and the aggregate amount and
number of shares of MetLife, Inc.’s common stock purchased
pursuant to these authorizations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Amount
|
|
|
Repurchased
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2006
|
|
$
|
216
|
|
|
|
|
|
|
February 2007 and September 2007 additional authorizations
|
|
|
2,000
|
|
|
|
|
|
|
Accelerated share repurchases
|
|
|
(1,505
|
)
|
|
|
23,455,124
|
|
|
Open market repurchases
|
|
|
(200
|
)
|
|
|
3,171,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2007
|
|
|
511
|
|
|
|
|
|
|
January 2008 and April 2008 additional authorizations
|
|
|
2,000
|
|
|
|
|
|
|
Accelerated share repurchases
|
|
|
(1,162
|
)
|
|
|
19,716,418
|
|
|
Open market repurchases
|
|
|
(88
|
)
|
|
|
1,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2008
|
|
|
1,261
|
|
|
|
|
|
|
Additional authorizations
|
|
|
—
|
|
|
|
|
|
|
Accelerated share repurchases
|
|
|
—
|
|
|
|
|
|
|
Open market repurchases
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2009
|
|
$
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under these authorizations, the Holding Company may purchase its
common stock from the MetLife Policyholder Trust, in the open
market (including pursuant to the terms of a pre-set trading
plan meeting the requirements of
Rule 10b5-1
under the Exchange Act) and in privately negotiated
transactions. Future common stock repurchases will be dependent
upon several factors, including the Company’s capital
position, its financial strength and credit ratings, general
market conditions and the price of MetLife, Inc.’s common
stock. The Company does not intend to make any purchases under
the common stock repurchase program in 2010.
148
MetLife Bank. At December 31, 2009, the
Company held $2,728 million in residential mortgage loans
held-for-sale,
compared with $2,012 million at December 31, 2008, an
increase of $716 million. From time to time, MetLife Bank
has an increased cash need to fund mortgage loans that it
generally holds for a relatively short period before selling
them to one of the government-sponsored enterprises such as FNMA
or FHLMC. To meet these increased funding requirements, as well
as to increase overall liquidity, MetLife Bank takes advantage
of collateralized borrowing opportunities with the Federal
Reserve Bank of New York and the FHLB of NY. For further detail
on MetLife Bank’s use of these funding sources, see
“— The Company — Liquidity and Capital
Sources — Global Funding Sources.”
Investment and Other. Additional cash outflows
include those related to obligations of securities lending
activities, investments in real estate, limited partnerships and
joint ventures, as well as litigation-related liabilities. Also,
the Company pledges collateral to, and has collateral pledged to
it by, counterparties under the Company’s current
derivative transactions. With respect to derivative transactions
with credit ratings downgrade triggers, a two-notch downgrade
would have impacted the Company’s derivative collateral
requirements by $146 million at December 31, 2009. In
addition, the Company has pledged collateral and has had
collateral pledged to it, and may be required from time to time
to pledge additional collateral or be entitled to have
additional collateral pledged to it, in connection with
collateral financing arrangements related to the reinsurance of
closed block liabilities and universal life secondary guarantee
liabilities. See “— The Company —
Liquidity and Capital Sources — Collateral Financing
Arrangements.”
Securities Lending. The Company participates
in a securities lending program whereby blocks of securities,
which are included in fixed maturity securities and short-term
investments, are loaned to third parties, primarily brokerage
firms and commercial banks, and the Company receives cash
collateral from the borrower, which must be returned to the
borrower when the loaned securities are returned to the Company.
Under the Company’s securities lending program, the Company
was liable for cash collateral under its control of
$21.5 billion and $23.3 billion at December 31,
2009 and 2008, respectively. Of these amounts, $3.3 billion
and $5.1 billion at December 31, 2009 and 2008,
respectively, were on open terms, meaning that the related
loaned security could be returned to the Company on the next
business day upon return of cash collateral. Of the
$3.2 billion of estimated fair value of the securities
related to the cash collateral on open terms at
December 31, 2009, $3.0 billion were
U.S. Treasury, agency and government guaranteed securities
which, if put to the Company, can be immediately sold to satisfy
the cash requirements. See
“— Investments — Securities
Lending” for further information.
Other. In September 2008, in connection with
the split-off of RGA as described in Note 2 of the Notes to
the Consolidated Financial Statements, the Company received from
MetLife stockholders 23,093,689 shares of MetLife
Inc.’s common stock with a market value of
$1,318 million and, in exchange, delivered
29,243,539 shares of RGA Class B common stock with a
net book value of $1,716 million resulting in a loss on
disposition, including transaction costs, of $458 million.
149
Contractual Obligations. The following table
summarizes the Company’s major contractual obligations at
December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year and
|
|
|
and Less
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
Less Than
|
|
|
Than Five
|
|
|
More Than
|
|
|
Contractual Obligations
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Years
|
|
|
Five Years
|
|
|
|
|
(In millions)
|
|
|
|
|
Future policy benefits
|
|
$
|
310,592
|
|
|
$
|
7,220
|
|
|
$
|
10,681
|
|
|
$
|
11,424
|
|
|
$
|
281,267
|
|
|
Policyholder account balances
|
|
|
198,087
|
|
|
|
22,764
|
|
|
|
30,586
|
|
|
|
24,536
|
|
|
|
120,201
|
|
|
Other policyholder liabilities
|
|
|
6,142
|
|
|
|
6,142
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
24,196
|
|
|
|
24,196
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Bank deposits
|
|
|
10,354
|
|
|
|
8,998
|
|
|
|
1,293
|
|
|
|
63
|
|
|
|
—
|
|
|
Short-term debt
|
|
|
912
|
|
|
|
912
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Long-term debt
|
|
|
21,138
|
|
|
|
1,155
|
|
|
|
4,214
|
|
|
|
2,312
|
|
|
|
13,457
|
|
|
Collateral financing arrangements
|
|
|
6,694
|
|
|
|
61
|
|
|
|
122
|
|
|
|
122
|
|
|
|
6,389
|
|
|
Junior subordinated debt securities
|
|
|
10,450
|
|
|
|
258
|
|
|
|
517
|
|
|
|
517
|
|
|
|
9,158
|
|
|
Commitments to lend funds
|
|
|
7,549
|
|
|
|
7,349
|
|
|
|
177
|
|
|
|
4
|
|
|
|
19
|
|
|
Operating leases
|
|
|
1,996
|
|
|
|
287
|
|
|
|
427
|
|
|
|
288
|
|
|
|
994
|
|
|
Other
|
|
|
11,788
|
|
|
|
11,374
|
|
|
|
6
|
|
|
|
6
|
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
609,898
|
|
|
$
|
90,716
|
|
|
$
|
48,023
|
|
|
$
|
39,272
|
|
|
$
|
431,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policyholder benefits — Future
policyholder benefits include liabilities related to traditional
whole life policies, term life policies, pension closeout and
other group annuity contracts, structured settlements, master
terminal funding agreements, single premium immediate annuities,
long-term disability policies, individual disability income
policies, LTC policies and property and casualty contracts.
Included within future policyholder benefits are contracts where
the Company is currently making payments and will continue to do
so until the occurrence of a specific event such as death, as
well as those where the timing of a portion of the payments has
been determined by the contract. Also included are contracts
where the Company is not currently making payments and will not
make payments until the occurrence of an insurable event, such
as death or illness, or where the occurrence of the payment
triggering event, such as a surrender of a policy or contract,
is outside the control of the Company. The Company has estimated
the timing of the cash flows related to these contracts based on
historical experience, as well as its expectation of future
payment patterns. |
| |
|
|
|
Liabilities related to accounting conventions, or which are not
contractually due, such as shadow liabilities, excess interest
reserves and property and casualty loss adjustment expenses, of
$498 million have been excluded from amounts presented in
the table above. |
| |
|
|
|
Amounts presented in the table above, excluding those related to
property and casualty contracts, represent the estimated cash
payments for benefits under such contracts including assumptions
related to the receipt of future premiums and assumptions
related to mortality, morbidity, policy lapse, renewal,
retirement, inflation, disability incidence, disability
terminations, policy loans and other contingent events as
appropriate to the respective product type. Payments for case
reserve liabilities and incurred but not reported liabilities
associated with property and casualty contracts of
$1.5 billion have been included using an estimate of the
ultimate amount to be settled under the policies based upon
historical payment patterns. The ultimate amount to be paid
under property and casualty contracts is not determined until
the Company reaches a settlement with the claimant, which may
vary significantly from the liability or contractual obligation
presented above especially as it relates to incurred but not
reported liabilities. All estimated cash payments presented in
the table above are undiscounted as to interest, net of
estimated future premiums on policies currently in-force and
gross of any reinsurance recoverable. The more than five years
category includes estimated payments due for periods extending
for more than 100 years from the present date. |
150
|
|
|
|
|
|
The sum of the estimated cash flows shown for all years in the
table of $310.6 billion exceeds the liability amount of
$135.9 billion included on the consolidated balance sheet
principally due to the time value of money, which accounts for
at least 80% of the difference, as well as differences in
assumptions, most significantly mortality, between the date the
liabilities were initially established and the current date. |
| |
|
|
|
For the majority of the Company’s insurance operations,
estimated contractual obligations for future policy benefits and
policyholder account balance liabilities as presented in the
table above are derived from the annual asset adequacy analysis
used to develop actuarial opinions of statutory reserve adequacy
for state regulatory purposes. These cash flows are materially
representative of the cash flows under generally accepted
accounting principles. (See “— Policyholder account
balances” below.) |
| |
|
|
|
Actual cash payments to policyholders may differ significantly
from the liabilities as presented in the consolidated balance
sheet and the estimated cash payments as presented in the table
above due to differences between actual experience and the
assumptions used in the establishment of these liabilities and
the estimation of these cash payments. |
| |
|
|
|
Policyholder account balances — Policyholder
account balances include liabilities related to conventional
guaranteed interest contracts, guaranteed interest contracts
associated with formal offering programs, funding agreements,
individual and group annuities, total control accounts,
individual and group universal life, variable universal life and
company-owned life insurance. |
| |
|
|
|
Included within policyholder account balances are contracts
where the amount and timing of the payment is essentially fixed
and determinable. These amounts relate to policies where the
Company is currently making payments and will continue to do so,
as well as those where the timing of the payments has been
determined by the contract. Other contracts involve payment
obligations where the timing of future payments is uncertain and
where the Company is not currently making payments and will not
make payments until the occurrence of an insurable event, such
as death, or where the occurrence of the payment triggering
event, such as a surrender of or partial withdrawal on a policy
or deposit contract, is outside the control of the Company. The
Company has estimated the timing of the cash flows related to
these contracts based on historical experience, as well as its
expectation of future payment patterns. |
| |
|
|
|
Excess interest reserves representing purchase accounting
adjustments of $565 million have been excluded from amounts
presented in the table above as they represent an accounting
convention and not a contractual obligation. |
| |
|
|
|
Amounts presented in the table above represent the estimated
cash payments to be made to policyholders undiscounted as to
interest and including assumptions related to the receipt of
future premiums and deposits; withdrawals, including unscheduled
or partial withdrawals; policy lapses; surrender charges;
annuitization; mortality; future interest credited; policy loans
and other contingent events as appropriate to the respective
product type. Such estimated cash payments are also presented
net of estimated future premiums on policies currently in-force
and gross of any reinsurance recoverable. For obligations
denominated in foreign currencies, cash payments have been
estimated using current spot rates. |
| |
|
|
|
The sum of the estimated cash flows shown for all years in the
table of $198.1 billion exceeds the liability amount of
$138.7 billion included on the consolidated balance sheet
principally due to the time value of money, which accounts for
at least 80% of the difference, as well as differences in
assumptions between the date the liabilities were initially
established and the current date. See the comments under
“— Future policyholder benefits” above regarding
the source and uncertainties associated with the estimation of
the contractual obligations related to future policyholder
benefits and policyholder account balances. |
| |
|
|
|
Other policyholder liabilities — Other
policyholder liabilities are comprised of other policyholder
funds, policyholder dividends payable and the policyholder
dividend obligation. Amounts included in the table above related
to these liabilities are as follows: |
| |
|
|
|
a. Other policyholder funds includes liabilities for
incurred but not reported claims and claims payable on group
term life, long-term disability, LTC and dental; policyholder
dividends left on deposit and policyholder dividends due and
unpaid related primarily to traditional life and group life and
health; and premiums received in advance. Liabilities related to
unearned revenue of $2.1 billion have been excluded from
the cash payments presented in the table above because they
reflect an accounting convention and not a contractual
obligation. With the exception of policyholder dividends left on
deposit, and those
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151
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items excluded as noted in the preceding sentence, the
contractual obligation presented in the table above related to
other policyholder funds is equal to the liability reflected in
the consolidated balance sheet. Such amounts are reported in the
less than one year category due to the short-term nature of the
liabilities. Contractual obligations on policyholder dividends
left on deposit are projected based on assumptions of
policyholder withdrawal activity. |
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b. Policyholder dividends payable consists of liabilities
related to dividends payable in the following calendar year on
participating policies. As such, the contractual obligation
related to policyholder dividends payable is presented in the
table above in the less than one year category at the amount of
the liability presented in the consolidated balance sheets.
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c. The nature of the policyholder dividend obligation is
described in Note 10 of the Notes to the Consolidated
Financial Statements. Because the exact timing and amount of the
ultimate policyholder dividend obligation is subject to
significant uncertainty and the amount of the policyholder
dividend obligation is based upon a long-term projection of the
performance of the closed block, we have reflected the
obligation at the amount of the liability, if any, presented in
the consolidated balance sheet in the more than five years
category. This was presented to reflect the long-duration of the
liability and the uncertainty of the ultimate cash payment.
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Bank deposits — Bank deposits of
$10.4 billion exceed the amount on the balance sheet of
$10.2 billion due to the inclusion of estimated interest
payments. Liquid deposits, including demand deposit accounts,
money market accounts and savings accounts, are assumed to
mature at carrying value within one year. Certificates of
deposit are assumed to pay all interest and principal at
maturity. |
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Short-term debt, long-term debt, collateral financing
arrangements and junior subordinated debt securities —
Amounts presented in the table above for short-term debt,
long-term debt, collateral financing arrangements and junior
subordinated debt securities differ from the balances presented
on the consolidated balance sheet as the amounts presented in
the table above do not include premiums or discounts upon
issuance or purchase accounting fair value adjustments. The
amounts presented above also include interest on such
obligations as described below. |
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Short-term debt consists of borrowings with original maturities
of less than one year carrying fixed interest rates. The
contractual obligation for short-term debt presented in the
table above represents the amounts due upon maturity plus the
related interest for the period from January 1, 2010
through maturity. |
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Long-term debt bears interest at fixed and variable interest
rates through their respective maturity dates. Interest on fixed
rate debt was computed using the stated rate on the obligations
through maturity. Interest on variable rate debt was computed
using prevailing rates at December 31, 2009 and, as such,
does not consider the impact of future rate movements. Long-term
debt also includes payments under capital lease obligations of
$4 million, $3 million, $0 and $28 million, in
the less than one year, one to three years, three to five years
and more than five years categories, respectively. |
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Collateral financing arrangements bear interest at fixed and
variable interest rates through their respective maturity dates.
Interest on fixed rate debt was computed using the stated rate
on the obligations through maturity. Interest on variable rate
debt was computed using prevailing rates at December 31,
2009 and, as such, does not consider the impact of future rate
movements. Pursuant to these collateral financing arrangements,
the Holding Company may be required to deliver cash or pledge
collateral to the respective unaffiliated financial
institutions. See “— The Company —
Liquidity and Capital Sources — Collateral Financing
Arrangements.” |
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Junior subordinated debt securities bear interest at fixed
interest rates through their respective redemption dates.
Interest was computed using the stated rates on the obligations
through the scheduled redemption dates as it is the
Company’s expectation that the debt will be redeemed at
that time. Inclusion of interest payments on junior subordinated
debt through the final maturity dates would increase the
contractual obligation by $4.1 billion. |
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Payables for collateral under securities loaned and other
transactions — The Company has accepted cash
collateral in connection with securities lending and derivative
transactions. As the securities lending transactions expire
within the next year or the timing of the return of the
collateral is uncertain, the return of the collateral has been
included in the less than one year category in the table above.
The Company also holds non-cash collateral, which is not
reflected as a liability in the consolidated balance sheet, of
$227 million at December 31, 2009. |
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Commitments to lend funds — The Company commits
to lend funds under mortgage loans, partnerships, bank credit
facilities, bridge loans and private corporate bond investments.
In the table above, the timing of the funding of mortgage loans
and private corporate bond investments is based on the
expiration date of the commitment. As it relates to commitments
to lend funds to partnerships and under bank credit facilities,
the Company anticipates that these amounts could be invested any
time over the next five years; however, as the timing of the
fulfillment of the obligation cannot be predicted, such
obligations are presented in the less than one year category in
the table above. Commitments to fund bridge loans are short-term
obligations and, as a result, are presented in the less than one
year category in the table above. See
“— Off-Balance Sheet Arrangements.” |
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Operating leases — As a lessee, the Company has
various operating leases, primarily for office space.
Contractual provisions exist that could increase or accelerate
those lease obligations presented, including various leases with
early buyouts
and/or
escalation clauses. However, the impact of any such transactions
would not be material to the Company’s financial position
or results of operations. See “— Off-Balance
Sheet Arrangements.” |
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Other — Includes other miscellaneous
contractual obligations of $15 million not included
elsewhere in the table above. Other liabilities presented in the
table above are principally comprised of amounts due under
reinsurance arrangements, payables related to securities
purchased but not yet settled, securities sold short, accrued
interest on debt obligations, estimated fair value of derivative
obligations, deferred compensation arrangements, guaranty
liabilities, the estimated fair value of forward stock purchase
contracts, as well as general accruals and accounts payable due
under contractual obligations. If the timing of any of the other
liabilities is sufficiently uncertain, the amounts are included
within the less than one year category. |
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The other liabilities presented in the table above differs from
the amount presented in the consolidated balance sheet by
$4.2 billion due primarily to the exclusion of items such
as legal liabilities, pension and postretirement benefit
obligations, taxes due other than income tax, unrecognized tax
benefits and related accrued interest, accrued severance and
employee incentive compensation and other liabilities such as
deferred gains and losses. Such items have been excluded from
the table above as they represent accounting conventions or are
not liabilities due under contractual obligations. |
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The net funded status of the Company’s pension and other
postretirement liabilities included within other liabilities has
been excluded from the amounts presented in the table above.
Rather, the amounts presented represent the discretionary
contributions of $150 million to be made by the Company to
our pension plan in 2010 and the discretionary contributions of
$119 million, based on the current year’s expected
gross benefit payments to participants, to be made by the
Company to the postretirement benefit plans during 2010.
Virtually all contributions to the pension and postretirement
benefit plans are made by the insurance subsidiaries of the
Holding Company with little impact on the Holding Company’s
cash flows. |
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Excluded from the table above are unrecognized tax benefits and
accrued interest of $773 million and $198 million,
respectively, for which the Company cannot reliably determine
the timing of payment. Current income tax payable is also
excluded from the table. |
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See also “— Off-Balance Sheet Arrangements.” |
Separate account liabilities are excluded from the table above.
Generally, the separate account owner, rather than the Company,
bears the investment risk of these funds. The separate account
assets are legally segregated and are not subject to the claims
that arise out of any other business of the Company. Net
deposits, net investment income and realized and unrealized
capital gains and losses on the separate accounts are fully
offset by corresponding amounts credited to contractholders
whose liability is reflected with the separate account
liabilities. Separate account liabilities are fully funded by
cash flows from the separate account assets and are set equal to
the estimated fair value of separate account assets.
The Company also enters into agreements to purchase goods and
services in the normal course of business; however, these
purchase obligations were not material to its consolidated
results of operations or financial position at December 31,
2009.
Additionally, the Company has agreements in place for services
it conducts, generally at cost, between subsidiaries relating to
insurance, reinsurance, loans, and capitalization. Intercompany
transactions have appropriately been eliminated in
consolidation. Intercompany transactions among insurance
subsidiaries and affiliates have been approved by the
appropriate departments of insurance as required.
153
Support Agreements. The Holding Company and
several of its subsidiaries (each, an “Obligor”) are
parties to various capital support commitments, guarantees and
contingent reinsurance agreements with certain subsidiaries of
the Holding Company and a corporation in which the Holding
Company owns 50% of the equity. Under these arrangements, each
Obligor, with respect to the applicable entity, has agreed to
cause such entity to meet specified capital and surplus levels,
has guaranteed certain contractual obligations or has agreed to
provide, upon the occurrence of certain contingencies,
reinsurance for such entity’s insurance liabilities. We
anticipate that in the event that these arrangements place
demands upon the Company, there will be sufficient liquidity and
capital to enable the Company to meet anticipated demands. See
“— The Holding Company — Liquidity and
Capital Uses — Support Agreements.”
Litigation. Putative or certified class action
litigation and other litigation, and claims and assessments
against the Company, in addition to those discussed elsewhere
herein and those otherwise provided for in the Company’s
consolidated financial statements, have arisen in the course of
the Company’s business, including, but not limited to, in
connection with its activities as an insurer, employer,
investor, investment advisor and taxpayer. Further, state
insurance regulatory authorities and other federal and state
authorities regularly make inquiries and conduct investigations
concerning the Company’s compliance with applicable
insurance and other laws and regulations.
It is not possible to predict or determine the ultimate outcome
of all pending investigations and legal proceedings or provide
reasonable ranges of potential losses except as noted elsewhere
herein in connection with specific matters. In some of the
matters referred to herein, very large
and/or
indeterminate amounts, including punitive and treble damages,
are sought. Although in light of these considerations, it is
possible that an adverse outcome in certain cases could have a
material adverse effect upon the Company’s financial
position, based on information currently known by the
Company’s management, in its opinion, the outcome of such
pending investigations and legal proceedings are not likely to
have such an effect. However, given the large
and/or
indeterminate amounts sought in certain of these matters and the
inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could, from time to time,
have a material adverse effect on the Company’s
consolidated net income or cash flows in particular quarterly or
annual periods.
Consolidated Cash Flows. Net cash provided by
operating activities was $3.8 billion for the year ended
December 31, 2009 as compared to $10.7 billion for the
year ended December 31, 2008. Accordingly, net cash
provided by operating activities decreased by $6.9 billion
for the year ended December 31, 2009 as compared to the
year ended December 31, 2008. Cash flows from operations
represent the net income (loss) adjusted for non-cash earnings
items and changes in operating assets and liabilities. Net loss
for the year ended December 31, 2009 was $2.3 billion
as compared to net income of $3.3 billion for the year
ended December 31, 2008. Accordingly, the decrease in
earnings of $5.6 billion accounted for most of the
$6.9 billion decrease in net cash provided by operating
activities for the year ended December 31, 2009 as compared
to the year ended December 31, 2008. Excluding the change
in earnings, the Company’s net cash provided by operating
activities was $6.1 billion for the year ended
December 31, 2009 compared with $7.4 billion for the
year ended December 31, 2008. The net cash generated from
operating activities is used to meet the Company’s
liquidity needs, such as debt and dividend payments, and
provides cash available for investing activities. Cash flows
from operations are affected by the timing of receipt of
premiums and other revenues, as well as the payment of the
Company’s insurance liabilities.
Net cash provided by operating activities increased by
$0.8 billion to $10.7 billion for the year ended
December 31, 2008 as compared to $9.9 billion for the
year ended December 31, 2007.
Net cash used in financing activities was $4.1 billion for
the year ended December 31, 2009 as compared to net cash
provided by financing activities of $6.2 billion for the
year ended December 31, 2008. Accordingly, net cash
provided by (used in) financing activities decreased by
$10.3 billion for the year ended December 31, 2009 as
compared to the year ended December 31, 2008. During 2009
and 2008, the Company reduced securities lending activities in
line with market conditions, which resulted in decreases in the
cash collateral received in connection with the securities
lending program of $1.6 billion and $20.0 billion for
the years ended December 31, 2009 and 2008, respectively.
The Company also experienced a $5.1 billion decrease in
cash collateral received under derivatives transactions for the
year ended December 31, 2009 compared to an increase of
$6.9 billion for the year ended December 31, 2008. The
cash collateral received under derivatives transactions is
invested in cash, cash equivalents and short-term investments.
Additionally, net cash flows from policyholder account balances
decreased
154
by $2.3 billion for the year ended December 31, 2009
compared to a net increase of $13.6 billion during the year
ended December 31, 2008, primarily as a result of
unfavorable market conditions for the issuance of funding
agreements and funding agreement-backed notes during most of the
period. During the year ended December 31, 2009, there was
a net issuance of long-term and junior subordinated debt of
$2.9 billion compared to a net issuance of
$667 million in the year ended December 31, 2008.
Finally, during the year ended December 31, 2009, the
Company had a net increase in cash from the issuance of common
stock of $1.0 billion as compared to a $2.0 billion
net increase during the year ended December 31, 2008.
Net cash provided by financing activities was $6.2 billion
and $3.9 billion for the years ended December 31, 2008
and 2007, respectively. Accordingly, net cash provided by
financing activities increased by $2.3 billion for the year
ended December 31, 2008 as compared to the prior year. In
2008 the Company reduced securities lending activities in line
with market conditions, which resulted in a decrease of
$20.0 billion in the cash collateral received in connection
with the securities lending program. Partially offsetting this
decrease was a net increase of $15.8 billion in
policyholder account balances, which primarily reflected the
Company’s increased level of funding agreements with the
FHLB of NY and with MetLife Short Term Funding LLC, an issuer of
commercial paper. The Company also experienced a
$6.9 billion increase in cash collateral received under
derivatives transactions, primarily as a result of the
improvement in estimated fair value of the derivatives. The cash
collateral received under derivatives transactions is invested
in cash, cash equivalents and short-term investments, which
partly explains the major increase in this category of liquid
assets. The Company increased short-term debt by
$2.0 billion in 2008 compared with a decrease of
$0.8 billion in 2007, which primarily reflected new
activity at MetLife Bank, which borrowed $1.0 billion from
the Federal Reserve Bank of New York under the Term Auction
Facility and entered into $0.7 billion of short-term
borrowing from the FHLB of NY in order to fund residential
mortgage origination operations acquired by the Company in 2008
and provide a cost effective substitute for cash collateral
received in connection with securities lending. In 2008 the net
cash paid related to collateral financing arrangements was
$0.5 billion resulting from payments made by the Holding
Company to an unaffiliated financial institution in connection
with the collateral financing arrangement associated with
MRC’s reinsurance of the closed block liabilities, which
compares to $4.9 billion of cash provided by collateral
financing arrangement transactions completed in 2007, as market
conditions in 2008 reduced the availability and attractiveness
of such financing. In 2008, there was a net issuance of
$0.7 billion of long-term debt and junior subordinated debt
securities, compared to a net issuance in 2007 of
$1.1 billion. Finally, in order to strengthen its capital
base, in 2008 the Company reduced its level of common stock
repurchase activity by $0.5 billion compared with 2007
repurchasing only $1.3 billion of common stock in 2008 as
compared to $1.8 billion in 2007, and issued
$3.3 billion of stock compared with no issuance in 2007.
The Company also paid dividends on the preferred stock and
common stock of $0.7 billion, which was comparable to the
dividends paid in 2007.
Net cash used in investing activities was $13.9 billion for
the year ended December 31, 2009, as compared to
$2.7 billion for the year ended December 31, 2008. The
net cash used in investing activities in the year ended
December 31, 2009 corresponded with a net decrease of
$14.1 billion in cash and cash equivalents in the same
period, reflecting the Company’s effort to redeploy the
elevated level of cash and cash equivalents accumulated at year
end 2008 in response to extraordinary market conditions. The net
cash used in investing activities in the year ended
December 31, 2009 was primarily composed of net purchases
of $19.5 billion of fixed maturity securities, partially
offset by a net reduction of $5.5 billion in short-term
investments. In the comparable 2008 period, there were net sales
of $15.4 billion of fixed maturity securities, offset by
net purchases of $4.0 billion in mortgage loans and net
purchases of short-term investments of $11.3 billion, while
cash and cash equivalents increased by $13.9 billion.
Net cash used in investing activities was $2.7 billion and
$10.6 billion for the years ended December 31, 2008
and 2007, respectively. Accordingly, net cash used in investing
activities decreased by $7.9 billion for the year ended
December 31, 2008 as compared to the prior year. The
Company reduced the level of cash available for investing
activities in 2008 in order to significantly increase cash and
cash equivalents as a liquidity cushion in response to the
deterioration in the financial markets in 2008. Cash and cash
equivalents increased $13.9 billion at December 31,
2008 compared to the prior year. The net decrease in the amount
of cash used in investing activities was primarily reflected in
a decrease in net purchases of fixed maturity and equity
securities of $15.8 billion and $2.4 billion,
respectively, as well as a decrease in the net purchases of real
estate and real estate joint ventures of $0.5 billion, a
decrease in other invested assets of $0.5 billion and a
decrease of $0.5 billion in the net origination of mortgage
loans. In addition, the 2007 period included the sale of MetLife
Australia’s annuities and pension businesses of
$0.7 billion. These decreases
155
in net cash used in investing activities were partially offset
by an increase in cash invested in short-term investments of
$11.3 billion due to a repositioning from other investment
classes due to volatile market conditions, an increase in net
purchases of other limited partnership interests of
$0.1 billion and an increase in policy loans of
$0.3 billion. In addition, the 2008 period includes an
increase of $0.4 billion of cash used to purchase
businesses and the decrease of $0.3 billion of cash held by
a subsidiary, which was split-off from the Company.
The
Holding Company
Capital
Restrictions and Limitations on Bank Holding Companies and
Financial Holding Companies. The Holding Company
and its insured depository institution subsidiary, MetLife Bank,
are subject to risk-based and leverage capital guidelines issued
by the federal banking regulatory agencies for banks and
financial holding companies. The federal banking regulatory
agencies are required by law to take specific prompt corrective
actions with respect to institutions that do not meet minimum
capital standards. At their most recently filed reports with the
federal banking regulatory agencies, the Holding Company and
MetLife Bank met the minimum capital standards as per federal
banking regulatory agencies with all of MetLife Bank’s
risk-based and leverage capital ratios meeting the federal
banking regulatory agencies “well capitalized”
standards and all of the Holding Company’s risk-based and
leverage capital ratios meeting the “adequately
capitalized” standards.
The following table contains the RBC ratios and the regulatory
requirements for MetLife, Inc., as a bank holding company, and
MetLife Bank:
MetLife,
Inc.
RBC Ratios — Bank Holding Company
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Regulatory
|
|
Regulatory
|
|
|
|
December 31,
|
|
Requirements
|
|
Requirements
|
|
|
|
2009
|
|
2008
|
|
Minimum
|
|
“Well Capitalized”
|
|
|
|
Total RBC Ratio
|
|
|
9.36
|
%
|
|
|
9.52
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
|
Tier 1 RBC Ratio
|
|
|
8.92
|
%
|
|
|
9.21
|
%
|
|
|
4.00
|
%
|
|
|
6.00
|
%
|
|
Tier 1 Leverage Ratio
|
|
|
5.40
|
%
|
|
|
5.77
|
%
|
|
|
4.00
|
%
|
|
|
n/a
|
|
MetLife
Bank
RBC Ratios — Bank
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|
Regulatory
|
|
Regulatory
|
|
|
|
December 31,
|
|
Requirements
|
|
Requirements
|
|
|
|
2009
|
|
2008
|
|
Minimum
|
|
“Well Capitalized”
|
|
|
|
Total RBC Ratio
|
|
|
13.41
|
%
|
|
|
12.32
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
|
Tier 1 RBC Ratio
|
|
|
12.16
|
%
|
|
|
11.72
|
%
|
|
|
4.00
|
%
|
|
|
6.00
|
%
|
|
Tier 1 Leverage Ratio
|
|
|
6.64
|
%
|
|
|
6.51
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
Liquidity
and Capital
Liquidity and capital are managed to preserve stable, reliable
and cost-effective sources of cash to meet all current and
future financial obligations and are provided by a variety of
sources, including a portfolio of liquid assets, a diversified
mix of short- and long-term funding sources from the wholesale
financial markets and the ability to borrow through committed
credit facilities. The Holding Company is an active participant
in the global financial markets through which it obtains a
significant amount of funding. These markets, which serve as
cost-effective sources of funds, are critical components of the
Holding Company’s liquidity and capital management.
Decisions to access these markets are based upon relative costs,
prospective views of balance sheet growth and a targeted
liquidity profile and capital structure. A disruption in the
financial markets could limit the Holding Company’s access
to liquidity.
The Holding Company’s ability to maintain regular access to
competitively priced wholesale funds is fostered by its current
high credit ratings from the major credit rating agencies. We
view our capital ratios, credit quality,
156
stable and diverse earnings streams, diversity of liquidity
sources and our liquidity monitoring procedures as critical to
retaining high credit ratings. See “— The
Company — Capital — Rating Agencies.”
Liquidity is monitored through the use of internal liquidity
risk metrics, including the composition and level of the liquid
asset portfolio, timing differences in short-term cash flow
obligations, access to the financial markets for capital and
debt transactions and exposure to contingent draws on the
Holding Company’s liquidity.
Liquidity
and Capital Sources
Dividends from Subsidiaries. The Holding
Company relies in part on dividends from its subsidiaries to
meet its cash requirements. The Holding Company’s insurance
subsidiaries are subject to regulatory restrictions on the
payment of dividends imposed by the regulators of their
respective domiciles. The dividend limitation for
U.S. insurance subsidiaries is generally based on the
surplus to policyholders at the immediately preceding calendar
year and statutory net gain from operations for the immediately
preceding calendar year. Statutory accounting practices, as
prescribed by insurance regulators of various states in which
the Company conducts business, differ in certain respects from
accounting principles used in financial statements prepared in
conformity with GAAP. The significant differences relate to the
treatment of DAC, certain deferred income tax, required
investment liabilities, statutory reserve calculation
assumptions, goodwill and surplus notes. Management of the
Holding Company cannot provide assurances that the Holding
Company’s insurance subsidiaries will have statutory
earnings to support payment of dividends to the Holding Company
in an amount sufficient to fund its cash requirements and pay
cash dividends and that the applicable insurance departments
will not disapprove any dividends that such insurance
subsidiaries must submit for approval. See Note 18 of the
Notes to the Consolidated Financial Statements.
The table below sets forth the dividends permitted to be paid by
the respective insurance subsidiary without insurance regulatory
approval and the respective dividends paid:
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|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Permitted
|
|
|
|
Permitted
|
|
|
|
Permitted
|
|
|
|
Permitted
|
|
|
|
w/o
|
|
|
|
w/o
|
|
|
|
w/o
|
|
|
|
w/o
|
|
Company
|
|
Approval (1)
|
|
Paid (2)
|
|
Approval (3)
|
|
Paid (2)
|
|
Approval (3)
|
|
Paid (2)
|
|
Approval (3)
|
|
|
|
(In millions)
|
|
|
|
Metropolitan Life Insurance Company
|
|
$
|
1,262
|
|
|
$
|
—
|
|
|
$
|
552
|
|
|
$
|
1,318
|
(4)
|
|
$
|
1,299
|
|
|
$
|
500
|
|
|
$
|
919
|
|
|
MetLife Insurance Company of Connecticut
|
|
$
|
659
|
|
|
$
|
—
|
|
|
$
|
714
|
|
|
$
|
500
|
|
|
$
|
1,026
|
|
|
$
|
690
|
(6)
|
|
$
|
690
|
|
|
Metropolitan Tower Life Insurance Company
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
277
|
(5)
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
104
|
|
|
Metropolitan Property and Casualty Insurance Company
|
|
$
|
—
|
|
|
$
|
300
|
|
|
$
|
9
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
400
|
|
|
$
|
16
|
|
|
|
|
|
(1) |
|
Reflects dividend amounts that may be paid during 2010 without
prior regulatory approval. However, if paid before a specified
date during 2010, some or all of such dividends may require
regulatory approval. |
| |
|
(2) |
|
Includes amounts paid including those requiring regulatory
approval. |
| |
|
(3) |
|
Reflects dividend amounts that could have been paid during the
relevant year without prior regulatory approval. |
| |
|
(4) |
|
Consists of shares of RGA stock distributed by Metropolitan Life
Insurance Company to the Holding Company as an in-kind dividend
of $1,318 million. |
| |
|
(5) |
|
Includes shares of an affiliate distributed to the Holding
Company as an in-kind dividend of $164 million. |
| |
|
(6) |
|
Includes a return of capital of $404 million as approved by
the applicable insurance department, of which $350 million
was paid to the Holding Company. |
In the fourth quarter of 2008, MICC declared and paid an
ordinary dividend of $500 million to the Holding Company.
In the third quarter of 2008, MLIC used its otherwise ordinary
dividend capacity through an in-kind dividend in conjunction
with the RGA split-off as approved by the New York Insurance
Commissioner.
157
In addition to the amounts presented in the table above, for the
years ended December 31, 2009 and 2008, cash dividends in
the amount of $215 million and $235 million,
respectively, were paid to the Holding Company. For the year
ended December 31, 2007, $190 million in dividends
were paid to the Holding Company, of which $176 million
were returns of capital.
Liquid Assets. An integral part of the Holding
Company’s liquidity management is the amount of liquid
assets it holds. Liquid assets include cash, cash equivalents,
short-term investments and publicly-traded securities. Liquid
assets exclude cash collateral received under the Company’s
securities lending program that has been reinvested in cash,
cash equivalents, short-term investments and publicly-traded
securities. At December 31, 2009 and 2008, the Holding
Company had $3.8 billion and $2.7 billion in liquid
assets, respectively. In addition, the Holding Company has
pledged collateral and has had collateral pledged to it, and may
be required from time to time to pledge additional collateral or
be entitled to have additional collateral pledged to it. At
December 31, 2009 and 2008, the Holding Company had pledged
$289 million and $820 million, respectively, of liquid
assets under collateral support agreements.
Global Funding Sources. Liquidity is also
provided by a variety of short-term instruments, including
commercial paper. Capital is provided by a variety of
instruments, including medium- and long-term debt, junior
subordinated debt securities, collateral financing arrangements,
capital securities and stockholders’ equity. The diversity
of the Holding Company’s funding sources enhances funding
flexibility and limits dependence on any one source of funds and
generally lowers the cost of funds. Other sources of the Holding
Company’s liquidity include programs for short-and
long-term borrowing, as needed.
We continuously monitor and adjust our liquidity and capital
plans for the Holding Company and its subsidiaries in light of
changing requirements and market conditions.
The following table summarizes the amounts outstanding under
various types of global funding sources available to the Holding
Company at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
Short-term debt
|
|
$
|
—
|
|
|
$
|
300
|
|
|
Long-term debt — unaffiliated
|
|
$
|
10,458
|
|
|
$
|
7,660
|
|
|
Long-term debt — affiliated
|
|
$
|
500
|
|
|
$
|
500
|
|
|
Collateral financing arrangements
|
|
$
|
2,797
|
|
|
$
|
2,692
|
|
|
Junior subordinated debt securities
|
|
$
|
1,748
|
|
|
$
|
2,315
|
|
In November 2007, the Holding Company filed a shelf registration
statement (the “2007 Registration Statement”) with the
SEC, which was automatically effective upon filing, in
accordance with SEC rules. SEC rules also allow for
pay-as-you-go fees and the ability to add securities by filing
automatically effective amendment for companies, such as the
Holding Company, which qualify as “Well-Known Seasoned
Issuers.” The 2007 Registration Statement registered an
unlimited amount of debt and equity securities and supersedes
the shelf registration statement that the Holding Company filed
in April 2005. The terms of any offering will be established at
the time of the offering.
Debt Issuances and Other Borrowings. For
information on debt issuances and other borrowings entered into
by the Holding Company, see “— The
Company — Liquidity and Capital Sources —
Debt Issuances and Other Borrowings.”
Collateral Financing Arrangements. For
information on collateral financing arrangements entered into by
the Holding Company, see “— The
Company — Liquidity and Capital Sources —
Collateral Financing Arrangements.”
158
The following table summarizes the Holding Company’s
outstanding senior notes series by maturity date, excluding any
premium or discount, at December 31, 2009:
| |
|
|
|
|
|
|
|
Maturity Date
|
|
Principal
|
|
Interest Rate
|
|
|
|
(In millions)
|
|
|
|
|
|
2011
|
|
$
|
750
|
|
|
6.13%
|
|
2012
|
|
$
|
400
|
|
|
5.38%
|
|
2012
|
|
$
|
397
|
|
|
3-month LIBOR + .032%
|
|
2013
|
|
$
|
500
|
|
|
5.00%
|
|
2014
|
|
$
|
350
|
|
|
5.50%
|
|
2015
|
|
$
|
1,000
|
|
|
5.00%
|
|
2016
|
|
$
|
1,250
|
|
|
6.75%
|
|
2018
|
|
$
|
1,035
|
|
|
6.82%
|
|
2019
|
|
$
|
1,035
|
|
|
7.72%
|
|
2020
|
|
$
|
646
|
|
|
5.25%
|
|
2024
|
|
$
|
565
|
|
|
5.38%
|
|
2032
|
|
$
|
600
|
|
|
6.50%
|
|
2033
|
|
$
|
200
|
|
|
5.88%
|
|
2034
|
|
$
|
750
|
|
|
6.38%
|
|
2035
|
|
$
|
1,000
|
|
|
5.70%
|
Credit and Committed Facilities. In 2007, the
Holding Company and MetLife Funding entered into a credit
agreement with various financial institutions. The proceeds of
this $2.85 billion unsecured credit facility, as amended in
2008, are available to be used for general corporate purposes,
as back-up
for their commercial paper programs and for the issuance of
letters of credit. At December 31, 2009, the Holding
Company had outstanding $548 million in letters of credit
and no drawdowns against this facility. Remaining unused
commitments were $2.3 billion at December 31, 2009.
The Holding Company maintains committed facilities with a
capacity of $1.8 billion. At December 31, 2009, the
Holding Company had outstanding $712 million in letters of
credit and no aggregate drawdowns against these facilities.
Remaining unused commitments were $1.1 billion at
December 31, 2009. In addition, the Holding Company is a
party to committed facilities of certain of its subsidiaries,
which aggregated $11.0 billion at December 31, 2009.
The committed facilities are used for collateral for certain of
the Company’s affiliated reinsurance liabilities.
For more information on Credit and Committed Facilities see
Note 11 of the Notes to the Consolidated Financial
Statements.
Covenants. Certain of the Holding
Company’s debt instruments, credit facilities and committed
facilities contain various administrative, reporting, legal and
financial covenants. The Holding Company believes it was in
compliance with all covenants at December 31, 2009 and 2008.
Common and Preferred Stock. For information on
Common Stock and Preferred Stock issued by the Holding Company,
see “— The Company — Liquidity and
Capital Sources — Common Stock” and
“— The Company — Liquidity and Capital
Sources — Preferred Stock.”
Liquidity
and Capital Uses
The primary uses of liquidity of the Holding Company include
debt service, cash dividends on common and preferred stock,
capital contributions to subsidiaries, payment of general
operating expenses, acquisitions and the repurchase of the
Holding Company’s common stock.
Affiliated Capital Transactions. During the
years ended December 31, 2009 and 2008, the Holding Company
invested an aggregate of $986 million and
$2.6 billion, respectively, in various subsidiaries.
159
The Holding Company lends funds, as necessary, to its
subsidiaries, some of which are regulated, to meet their capital
requirements. Such loans are included in loans to subsidiaries
and consisted of the following at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Subsidiaries
|
|
Interest Rate
|
|
Maturity Date
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Metropolitan Life Insurance Company
|
|
3-month LIBOR + 1.15%
|
|
December 31, 2009
|
|
$
|
—
|
|
|
$
|
700
|
|
|
Metropolitan Life Insurance Company
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
|
775
|
|
|
|
—
|
|
|
Metropolitan Life Insurance Company
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
|
300
|
|
|
|
—
|
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
December 15, 2032
|
|
|
400
|
|
|
|
400
|
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
January 15, 2033
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,575
|
|
|
$
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Repayments. None of the Holding
Company’s debt is due before December 2011, so there is no
near-term debt refinancing risk.
Support Agreements. The Holding Company is
party to various capital support commitments and guarantees with
certain of its subsidiaries and a corporation in which it owns
50% of the equity. Under these arrangements, the Holding Company
has agreed to cause each such entity to meet specified capital
and surplus levels or has guaranteed certain contractual
obligations.
In December 2009, the Holding Company, in connection with
MRV’s reinsurance of certain universal life and term life
insurance risks, committed to the Vermont Department of Banking,
Insurance, Securities and Health Care Administration to take
necessary action to cause the third protected cell of MRV to
maintain total adjusted capital equal to or greater than 200% of
such protected cell’s authorized control level RBC, as
defined in state insurance statutes. See “— The
Company — Liquidity and Capital Sources —
Credit and Committed Facilities” and Note 11 of the
Notes to the Consolidated Financial Statements.
In October 2007, the Holding Company, in connection with
MRV’s reinsurance of certain universal life and term life
insurance risks, committed to the Vermont Department of Banking,
Insurance, Securities and Health Care Administration to take
necessary action to cause each of the two initial protected
cells of MRV to maintain total adjusted capital equal to or
greater than 200% of such protected cell’s authorized
control level RBC, as defined in state insurance statutes.
See ‘‘— The Company — Liquidity
and Capital Sources — Credit and Committed
Facilities” and Note 11 of the Notes to the
Consolidated Financial Statements.
In December 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MRC’s
reinsurance of a portion of the liabilities associated with the
closed block, committed to the South Carolina Department of
Insurance to make capital contributions, if necessary, to MRC so
that MRC may at all times maintain its total adjusted capital at
a level of not less than 200% of the company action
level RBC, as defined in state insurance statutes as in
effect on the date of determination or December 31, 2007,
whichever calculation produces the greater capital requirement,
or as otherwise required by the South Carolina Department of
Insurance. See “— The Company —
Liquidity and Capital Sources — Debt Issuances and
Other Borrowings” and Note 12 of the Notes to the
Consolidated Financial Statements.
In May 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MRSC’s
reinsurance of universal life secondary guarantees, committed to
the South Carolina Department of Insurance to take necessary
action to cause MRSC to maintain total adjusted capital equal to
the greater of $250,000 or 100% of MRSC’s authorized
control level RBC, as defined in state insurance statutes.
See “— The Company — Liquidity and
Capital Sources — Debt Issuances and Other
Borrowings” and Note 12 of the Notes to the
Consolidated Financial Statements.
The Holding Company has net worth maintenance agreements with
two of its insurance subsidiaries, MetLife Investors Insurance
Company and First MetLife Investors Insurance Company. Under
these agreements, as subsequently amended, the Holding Company
agreed, without limitation as to the amount, to cause each of
these subsidiaries to have a minimum capital and surplus of
$10 million, total adjusted capital at a level not less
than
160
150% of the company action level RBC, as defined by state
insurance statutes, and liquidity necessary to enable it to meet
its current obligations on a timely basis.
The Holding Company entered into a net worth maintenance
agreement with Mitsui Sumitomo MetLife Insurance Company Limited
(“MSMIC”), an investment in Japan of which the Holding
Company owns 50% of the equity. Under the agreement, the Holding
Company agreed, without limitation as to amount, to cause MSMIC
to have the amount of capital and surplus necessary for MSMIC to
maintain a solvency ratio of at least 400%, as calculated in
accordance with the Insurance Business Law of Japan, and to make
such loans to MSMIC as may be necessary to ensure that MSMIC has
sufficient cash or other liquid assets to meet its payment
obligations as they fall due.
The Holding Company has guaranteed the obligations of its
subsidiary, Exeter Reassurance Company, Ltd., under a
reinsurance agreement with MSMIC, under which Exeter reinsures
variable annuity business written MSMIC.
Based on our analysis and comparison of our current and future
cash inflows from the dividends we receive from subsidiaries
that are permitted to be paid without prior insurance regulatory
approval, our asset portfolio and other cash flows and
anticipated access to the capital markets, we believe there will
be sufficient liquidity and capital to enable the Holding
Company to make payments on debt, make cash dividend payments on
its common and preferred stock, contribute capital to its
subsidiaries, pay all operating expenses and meet its cash needs.
Holding Company Cash Flows. Net cash used in
operating activities was $384 million for the year ended
December 31, 2009 compared to $1.2 billion of net cash
provided for the year ending December 31, 2008.
Accordingly, net cash provided by operating activities decreased
by $1.6 billion for the year ended December 31, 2009
as compared to the year ended December 31, 2008. The net
cash generated from operating activities is used to meet the
Holding Company’s liquidity needs, such as debt and
dividend payments, and provides cash available for investing
activities. Cash flows from operations represent net earnings
adjusted for non-cash charges and changes in operating assets
and liabilities. The 2009 and 2008 operating activities included
net income (loss), earnings from subsidiaries and changes in
current assets and liabilities.
Net cash provided by operating activities, primarily the result
of subsidiary dividends, was $1.2 billion for the years
ending December 31, 2008 and 2007.
Net cash provided by financing activities was $2.6 billion
and $50 million for the years ended December 31, 2009
and 2008, respectively. Accordingly, net cash provided by
financing activities increased by $2.5 billion for the year
ended December 31, 2009 compared to the year ended
December 31, 2008. During the year ended December 31,
2009, there were net issuances of $2.1 billion of long-term
and junior subordinated debt compared to no net issuances in the
comparable period of the prior year. Also, in order to
strengthen its capital base, during the year ended
December 31, 2009, the Holding Company did not repurchase
any of its common stock under its common stock repurchase
programs as compared to the Holding Company repurchasing
$1.3 billion of its common stock in the comparable period
of the prior year. In addition, the Holding Company issued
$1.0 billion of common stock during the year ended
December 31, 2009 compared with $3.3 billion of both
treasury and common stock issued during the year ended
December 31, 2008. Securities lending activity during the
year ended December 31, 2009 increased the Holding
Company’s cash flows by $84 million compared to a
decrease of $471 million in the comparable period of the
prior year. Net cash received from collateral financing
arrangements was $375 million during the year ended
December 31, 2009 compared to $800 million of net cash
paid under these agreements during the year ended
December 31, 2008. The Holding Company repaid
$300 million of short-term debt during the year ended
December 31, 2009, compared with net repayments of
$10 million during the year ended December 31, 2008.
Financing activity results relate to the Holding Company’s
debt and equity financing activities, as well as changes due to
the needs and obligations arising from securities lending and
collateral financing arrangements.
Net cash provided by financing activities was $50 million
for the year ended December 31, 2008 compared to
$2.9 billion of net cash used for the year ended
December 31, 2007. Accordingly, net cash provided by
financing activities increased by $2.9 billion for the year
ended December 31, 2008 compared to the prior year. In
2008, net cash paid relating to collateral financing
arrangements was $800 million resulting from payments made
by the
161
Holding Company to an unaffiliated financial institution, as
described in Note 12 of the Notes to the Consolidated
Financial Statements, compared to zero outflows for this purpose
in 2007. Finally, in order to strengthen its capital base, in
2008 the Holding Company reduced its level of common stock
repurchase activity by $500 million compared to the prior
year and issued $3.3 billion of common stock compared with
zero issuance in 2007.
Net cash used in investing activities was $2.2 billion and
$1.2 billion for the years ended December 31, 2009 and
2008, respectively. Accordingly, net cash used in investing
activities increased by $1.0 billion for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. Net purchases of fixed maturity
securities were $2.0 billion for the year ended
December 31, 2009, partially funded by net sales of
short-term investments of $772 million. By contrast, in the
year ended December 31, 2008, net sales of fixed maturity
securities were $1.0 billion, and net purchases of
short-term investments were $1.1 billion as the Holding
Company shifted to more liquid investments. The Holding Company
received $130 million for the sale of a subsidiary during
the year ended December 31, 2009 as compared to the use of
$202 million related to acquisitions during the year ended
December 31, 2008. The Holding Company also made capital
contributions of $876 million to subsidiaries (including
$360 million paid pursuant to a collateral financing
arrangement providing statutory reserve support for MRSC
associated with its intercompany reinsurance obligations, as
described in Note 12 of the Notes to the Consolidated
Financial Statements) during the year ended December 31,
2009, compared to $1.3 billion (including $320 million
paid pursuant to the collateral financing arrangement related to
MRSC) during the year ended December 31, 2008. There were
no repayments of loans made to subsidiaries in the year ended
December 31, 2009 compared to a repayment of
$400 million received in the year ended December 31,
2008. Investing activity results relate to the Holding
Company’s management of its capital and the capital of its
subsidiaries, as well as any business development opportunities.
Net cash used in investing activities was $1.2 billion for
the year ended December 31, 2008 compared to
$742 million provided for the year ended December 31,
2007. Accordingly, net cash provided by investing activities
decreased by $1.9 billion for the year ended
December 31, 2008 compared to the prior year primarily due
to increases in capital contributions to subsidiaries and
changes in short-term investments.
Adoption
of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial
Statements for discussion on the adoption of new accounting
pronouncements.
Future
Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial
Statements for discussion on the future adoption of new
accounting pronouncements.
Subsequent
Events
Dividends
On February 18, 2010, the Company’s Board of Directors
announced dividends of $0.2500000 per share, for a total of
$6 million, on its Series A preferred shares, and
$0.4062500 per share, for a total of $24 million, on its
Series B preferred shares, subject to the final
confirmation that it has met the financial tests specified in
the Series A and Series B preferred shares, which the
Company anticipates will be made on or about March 5, 2010,
the earliest date permitted in accordance with the terms of the
securities. Both dividends will be payable March 15, 2010
to shareholders of record as of February 28, 2010.
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Risk
Management
The Company must effectively manage, measure and monitor the
market risk associated with its assets and liabilities. It has
developed an integrated process for managing risk, which it
conducts through its Enterprise Risk Management Department,
Asset/Liability Management Unit, Treasury Department and
Investment Department along with the management of the business
segments. The Company has established and implemented
162
comprehensive policies and procedures at both the corporate and
business segment level to minimize the effects of potential
market volatility.
The Company regularly analyzes its exposure to interest rate,
equity market price and foreign currency exchange rate risks. As
a result of that analysis, the Company has determined that the
estimated fair value of certain assets and liabilities are
materially exposed to changes in interest rates, foreign
currency exchange rates and changes in the equity markets.
Enterprise Risk Management. MetLife has
established several financial and non-financial senior
management committees as part of its risk management process.
These committees manage capital and risk positions, approve
asset/liability management strategies and establish appropriate
corporate business standards.
MetLife also has a separate Enterprise Risk Management
Department, which is responsible for risk throughout MetLife and
reports to MetLife’s Chief Risk Officer. The Enterprise
Risk Management Department’s primary responsibilities
consist of:
|
|
|
| |
•
|
implementing a Board of Directors approved corporate risk
framework, which outlines the Company’s approach for
managing risk on an enterprise-wide basis;
|
| |
| |
•
|
developing policies and procedures for managing, measuring,
monitoring and controlling those risks identified in the
corporate risk framework;
|
| |
| |
•
|
establishing appropriate corporate risk tolerance levels;
|
| |
| |
•
|
deploying capital on an economic capital basis; and
|
| |
| |
•
|
reporting on a periodic basis to the Finance and Risk Policy
Committee of the Company’s Board of Directors, and with
respect to credit risk to the Investment Committee of the
Company’s Board of Directors and various financial and
non-financial senior management committees.
|
MetLife does not expect to make any material changes to its risk
management practices in 2010.
Asset/Liability Management
(“ALM”). The Company actively manages
its assets using an approach that balances quality,
diversification, asset/liability matching, liquidity,
concentration and investment return. The goals of the investment
process are to optimize, net of income tax, risk-adjusted
investment income and risk-adjusted total return while ensuring
that the assets and liabilities are reasonably managed on a cash
flow and duration basis. The asset/liability management process
is the shared responsibility of the Financial Risk Management
and Asset/Liability Management Unit, Enterprise Risk Management,
the Portfolio Management Unit, and the senior members of the
operating business segments and is governed by the ALM
Committee. The ALM Committee’s duties include reviewing and
approving target portfolios, establishing investment guidelines
and limits and providing oversight of the asset/liability
management process on a periodic basis. The directives of the
ALM Committee are carried out and monitored through ALM Working
Groups which are set up to manage by product type.
MetLife establishes target asset portfolios for each major
insurance product, which represent the investment strategies
used to profitably fund its liabilities within acceptable levels
of risk. These strategies are monitored through regular review
of portfolio metrics, such as effective duration, yield curve
sensitivity, convexity, liquidity, asset sector concentration
and credit quality by the ALM Working Groups. MetLife does not
expect to make any material changes to its asset/liability
management practices in 2010.
Market
Risk Exposures
The Company has exposure to market risk through its insurance
operations and investment activities. For purposes of this
disclosure, “market risk” is defined as the risk of
loss resulting from changes in interest rates, equity prices and
foreign currency exchange rates.
Interest Rates. The Company’s exposure to
interest rate changes results most significantly from its
holdings of fixed maturity securities, as well as its interest
rate sensitive liabilities. The fixed maturity securities
include U.S. and foreign government bonds, securities
issued by government agencies, corporate bonds and
mortgage-backed securities, all of which are mainly exposed to
changes in medium- and long-term interest rates. The interest
163
rate sensitive liabilities for purposes of this disclosure
include debt, policyholder account balances related to certain
investment type contracts, and net embedded derivatives on
variable annuities with guaranteed minimum benefits which have
the same type of interest rate exposure (medium- and long-term
interest rates) as fixed maturity securities. The Company
employs product design, pricing and asset/liability management
strategies to reduce the adverse effects of interest rate
movements. Product design and pricing strategies include the use
of surrender charges or restrictions on withdrawals in some
products and the ability to reset credited rates for certain
products. Asset/liability management strategies include the use
of derivatives and duration mismatch limits. See “Risk
Factors — Changes in Market Interest Rates May
Significantly Affect Our Profitability.”
Foreign Currency Exchange Rates. The
Company’s exposure to fluctuations in foreign currency
exchange rates against the U.S. Dollar results from its
holdings in
non-U.S. Dollar
denominated fixed maturity and equity securities, mortgage and
consumer loans, and certain liabilities, as well as through its
investments in foreign subsidiaries. The principal currencies
that create foreign currency exchange rate risk in the
Company’s investment portfolios are the Euro, and the
Canadian dollar. The principal currencies that create foreign
currency exchange risk in the Company’s liabilities are the
British pound, the Euro and the Swiss franc. Selectively, the
Company uses U.S. Dollar assets to support certain long
duration foreign currency liabilities. Through its investments
in foreign subsidiaries and joint ventures, the Company was
primarily exposed to the Mexican peso, the Japanese yen, the
South Korean won, the Canadian dollar, the British pound, the
Chilean peso, the Australian dollar, the Argentine peso and the
Hong Kong dollar. In addition to hedging with foreign currency
swaps, forwards and options, local surplus in some countries, is
held entirely or in part in U.S. Dollar assets which
further minimizes exposure to foreign currency exchange rate
fluctuation risk. The Company has matched much of its foreign
currency liabilities in its foreign subsidiaries with their
respective foreign currency assets, thereby reducing its risk to
foreign currency exchange rate fluctuation.
Equity Prices. The Company has exposure to
equity prices through certain liabilities that involve long-term
guarantees on equity performance such as net embedded
derivatives on variable annuities with guaranteed minimum
benefits, certain policyholder account balances along with
investments in equity securities. We manage this risk on an
integrated basis with other risks through our asset/liability
management strategies including the dynamic hedging of certain
variable annuity guarantee benefits. The Company also manages
equity price risk incurred in its investment portfolio through
the use of derivatives. Equity exposures associated with other
limited partnership interests are excluded from this section as
they are not considered financial instruments under generally
accepted accounting principles.
Management
of Market Risk Exposures
The Company uses a variety of strategies to manage interest
rate, foreign currency exchange rate and equity price risk,
including the use of derivative instruments.
Interest Rate Risk Management. To manage
interest rate risk, the Company analyzes interest rate risk
using various models, including multi-scenario cash flow
projection models that forecast cash flows of the liabilities
and their supporting investments, including derivative
instruments. These projections involve evaluating the potential
gain or loss on most of the Company’s in-force business
under various increasing and decreasing interest rate
environments. The New York State Insurance Department
regulations require that MetLife perform some of these analyses
annually as part of MetLife’s review of the sufficiency of
its regulatory reserves. For several of its legal entities, the
Company maintains segmented operating and surplus asset
portfolios for the purpose of asset/liability management and the
allocation of investment income to product lines. For each
segment, invested assets greater than or equal to the GAAP
liabilities less the DAC asset and any non-invested assets
allocated to the segment are maintained, with any excess swept
to the surplus segment. The operating segments may reflect
differences in legal entity, statutory line of business and any
product market characteristic which may drive a distinct
investment strategy with respect to duration, liquidity or
credit quality of the invested assets. Certain smaller entities
make use of unsegmented general accounts for which the
investment strategy reflects the aggregate characteristics of
liabilities in those entities. The Company measures relative
sensitivities of the value of its assets and liabilities to
changes in key assumptions utilizing Company models. These
models reflect specific product characteristics and include
assumptions based on current and anticipated experience
regarding lapse, mortality and interest crediting
164
rates. In addition, these models include asset cash flow
projections reflecting interest payments, sinking fund payments,
principal payments, bond calls, mortgage prepayments and
defaults.
Common industry metrics, such as duration and convexity, are
also used to measure the relative sensitivity of assets and
liability values to changes in interest rates. In computing the
duration of liabilities, consideration is given to all
policyholder guarantees and to how the Company intends to set
indeterminate policy elements such as interest credits or
dividends. Each asset portfolio has a duration target based on
the liability duration and the investment objectives of that
portfolio. Where a liability cash flow may exceed the maturity
of available assets, as is the case with certain retirement and
non-medical health products, the Company may support such
liabilities with equity investments, derivatives or curve
mismatch strategies.
Foreign Currency Exchange Rate Risk
Management. Foreign currency exchange rate risk
is assumed primarily in three ways: investments in foreign
subsidiaries, purchases of foreign currency denominated
investments in the investment portfolio and the sale of certain
insurance products.
|
|
|
| |
•
|
The Company’s Treasury Department is responsible for
managing the exposure to investments in foreign subsidiaries.
Limits to exposures are established and monitored by the
Treasury Department and managed by the Investment Department.
|
| |
| |
•
|
The Investment Department is responsible for managing the
exposure to foreign currency investments. Exposure limits to
unhedged foreign currency investments are incorporated into the
standing authorizations granted to management by the Board of
Directors and are reported to the Board of Directors on a
periodic basis.
|
| |
| |
•
|
The lines of business are responsible for establishing limits
and managing any foreign exchange rate exposure caused by the
sale or issuance of insurance products.
|
MetLife uses foreign currency swaps and forwards to hedge its
foreign currency denominated fixed income investments, its
equity exposure in subsidiaries and its foreign currency
exposures caused by the sale of insurance products.
Equity Price Risk Management. Equity price
risk incurred through the issuance of variable annuities is
managed by the Company’s Asset/Liability Management Unit in
partnership with the Investment Department. Equity price risk is
also incurred through its investment in equity securities and is
managed by its Investment Department. MetLife uses derivatives
to hedge its equity exposure both in certain liability
guarantees such as variable annuities with guaranteed minimum
benefit and equity securities. These derivatives include
exchange-traded equity futures, equity index options contracts
and equity variance swaps. The Company’s derivative hedges
performed effectively through the extreme movements in the
equity markets during the latter part of 2008. The Company also
employs reinsurance to manage these exposures.
Hedging Activities. MetLife uses derivative
contracts primarily to hedge a wide range of risks including
interest rate risk, foreign currency risk, and equity risk.
Derivative hedges are designed to reduce risk on an economic
basis while considering their impact on accounting results and
GAAP and Statutory capital. The construction of the
Company’s derivative hedge programs vary depending on the
type of risk being hedged. Some hedge programs are asset or
liability specific while others are portfolio hedges that reduce
risk related to a group of liabilities or assets. The
Company’s use of derivatives by major hedge programs is as
follows:
|
|
|
| |
•
|
Risks Related to Living Guarantee Benefits — The
Company uses a wide range of derivative contracts to hedge the
risk associated with variable annuity living guarantee benefits.
These hedges include equity and interest rate futures, interest
rate swaps, currency futures/forwards, equity indexed options
and interest rate option contracts and equity variance swaps.
|
| |
| |
•
|
Minimum Interest Rate Guarantees — For certain Company
liability contracts, the Company provides the contractholder a
guaranteed minimum interest rate. These contracts include
certain fixed annuities and other insurance liabilities. The
Company purchases interest rate floors to reduce risk associated
with these liability guarantees.
|
165
|
|
|
| |
•
|
Reinvestment Risk in Long Duration Liability
Contracts — Derivatives are used to hedge interest
rate risk related to certain long duration liability contracts,
such as long-term care. Hedges include zero coupon interest rate
swaps and swaptions.
|
| |
| |
•
|
Foreign Currency Risk — The Company uses currency
swaps and forwards to hedge foreign currency risk. These hedges
primarily swap foreign currency denominated bonds, investments
in foreign subsidiaries or equity exposures to US dollars.
|
| |
| |
•
|
General ALM Hedging Strategies — In the ordinary
course of managing the Company’s asset/liability risks, the
Company uses interest rate futures, interest rate swaps,
interest rate caps, interest rate floors and inflation swaps.
These hedges are designed to reduce interest rate risk or
inflation risk related to the existing assets or liabilities or
related to expected future cash flows.
|
Risk
Measurement: Sensitivity Analysis
The Company measures market risk related to its market sensitive
assets and liabilities based on changes in interest rates,
equity prices and foreign currency exchange rates utilizing a
sensitivity analysis. This analysis estimates the potential
changes in estimated fair value based on a hypothetical 10%
change (increase or decrease) in interest rates, equity market
prices and foreign currency exchange rates. The Company believes
that a 10% change (increase or decrease) in these market rates
and prices is reasonably possible in the near-term. In
performing the analysis summarized below, the Company used
market rates at December 31, 2009. The sensitivity analysis
separately calculates each of the Company’s market risk
exposures (interest rate, equity price and foreign currency
exchange rate) relating to its trading and non trading assets
and liabilities. The Company modeled the impact of changes in
market rates and prices on the estimated fair values of its
market sensitive assets and liabilities as follows:
|
|
|
| |
•
|
the net present values of its interest rate sensitive exposures
resulting from a 10% change (increase or decrease) in interest
rates;
|
| |
| |
•
|
the U.S. Dollar equivalent estimated fair values of the
Company’s foreign currency exposures due to a 10% change
(increase or decrease) in foreign currency exchange
rates; and
|
| |
| |
•
|
the estimated fair value of its equity positions due to a 10%
change (increase or decrease) in equity market prices.
|
The sensitivity analysis is an estimate and should not be viewed
as predictive of the Company’s future financial
performance. The Company cannot ensure that its actual losses in
any particular period will not exceed the amounts indicated in
the table below. Limitations related to this sensitivity
analysis include:
|
|
|
| |
•
|
the market risk information is limited by the assumptions and
parameters established in creating the related sensitivity
analysis, including the impact of prepayment rates on mortgages;
|
| |
| |
•
|
the derivatives that qualify as hedges, the impact on reported
earnings may be materially different from the change in market
values;
|
| |
| |
•
|
the analysis excludes other significant real estate holdings and
liabilities pursuant to insurance contracts; and
|
| |
| |
•
|
the model assumes that the composition of assets and liabilities
remains unchanged throughout the period.
|
Accordingly, the Company uses such models as tools and not as
substitutes for the experience and judgment of its management.
Based on its analysis of the impact of a 10% change (increase or
decrease) in market rates and prices, MetLife has determined
that such a change could have a material adverse effect on the
estimated fair value of certain assets and liabilities from
interest rate, foreign currency exchange rate and equity
exposures.
166
The table below illustrates the potential loss in estimated fair
value for each market risk exposure of the Company’s market
sensitive assets and liabilities at December 31, 2009:
| |
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
|
Non-trading:
|
|
|
|
|
|
Interest rate risk
|
|
$
|
4,050
|
|
|
Foreign currency exchange rate risk
|
|
$
|
798
|
|
|
Equity price risk
|
|
$
|
218
|
|
|
Trading:
|
|
|
|
|
|
Interest rate risk
|
|
$
|
7
|
|
|
Foreign currency exchange rate risk
|
|
$
|
93
|
|
167
Sensitivity Analysis: Interest Rates. The
table below provides additional detail regarding the potential
loss in fair value of the Company’s trading and non-trading
interest sensitive financial instruments at December 31,
2009 by type of asset or liability:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Yield
|
|
|
|
|
Amount
|
|
|
Value (3)
|
|
|
Curve
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
227,642
|
|
|
$
|
(4,761
|
)
|
|
Equity securities
|
|
|
|
|
|
|
3,084
|
|
|
|
—
|
|
|
Trading securities
|
|
|
|
|
|
|
2,384
|
|
|
|
(10
|
)
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
46,315
|
|
|
|
(201
|
)
|
|
Held-for-sale
|
|
|
|
|
|
|
2,728
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
49,043
|
|
|
|
(233
|
)
|
|
Policy loans
|
|
|
|
|
|
|
11,294
|
|
|
|
(201
|
)
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
|
127
|
|
|
|
—
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
|
1,581
|
|
|
|
—
|
|
|
Short-term investments
|
|
|
|
|
|
|
8,374
|
|
|
|
(1
|
)
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
878
|
|
|
|
85
|
|
|
Other
|
|
|
|
|
|
|
1,284
|
|
|
|
(7
|
)
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
10,112
|
|
|
|
—
|
|
|
Accrued investment income
|
|
|
|
|
|
|
3,173
|
|
|
|
—
|
|
|
Premiums and other receivables
|
|
|
|
|
|
|
3,532
|
|
|
|
(211
|
)
|
|
Other assets
|
|
|
|
|
|
|
440
|
|
|
|
(6
|
)
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
76
|
|
|
|
(17
|
)
|
|
Mortgage loan commitments
|
|
$
|
2,220
|
|
|
|
(48
|
)
|
|
|
1
|
|
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
1,263
|
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(5,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
96,735
|
|
|
$
|
786
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
24,196
|
|
|
|
—
|
|
|
Short-term debt
|
|
|
|
|
|
|
912
|
|
|
|
—
|
|
|
Long-term debt
|
|
|
|
|
|
|
13,831
|
|
|
|
339
|
|
|
Collateral financing arrangements
|
|
|
|
|
|
|
2,877
|
|
|
|
(8
|
)
|
|
Junior subordinated debt securities
|
|
|
|
|
|
|
3,167
|
|
|
|
152
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities
|
|
|
|
|
|
|
106
|
|
|
|
3
|
|
|
Other
|
|
|
|
|
|
|
1,788
|
|
|
|
—
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
1,505
|
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
38,152
|
|
|
$
|
315
|
|
|
$
|
(866
|
)
|
|
Interest rate floors
|
|
$
|
23,691
|
|
|
|
424
|
|
|
|
(48
|
)
|
|
Interest rate caps
|
|
$
|
28,409
|
|
|
|
283
|
|
|
|
86
|
|
|
Interest rate futures
|
|
$
|
7,563
|
|
|
|
(2
|
)
|
|
|
(29
|
)
|
|
Interest rate options
|
|
$
|
4,050
|
|
|
|
60
|
|
|
|
(33
|
)
|
|
Interest rate forwards
|
|
$
|
9,921
|
|
|
|
39
|
|
|
|
65
|
|
|
Synthetic GICs
|
|
$
|
4,352
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency swaps
|
|
$
|
16,879
|
|
|
|
122
|
|
|
|
(36
|
)
|
|
Foreign currency forwards
|
|
$
|
6,485
|
|
|
|
26
|
|
|
|
—
|
|
|
Currency options
|
|
$
|
822
|
|
|
|
18
|
|
|
|
—
|
|
|
Credit default swaps
|
|
$
|
6,723
|
|
|
|
(56
|
)
|
|
|
—
|
|
|
Credit forwards
|
|
$
|
220
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
Equity futures
|
|
$
|
7,405
|
|
|
|
23
|
|
|
|
—
|
|
|
Equity options
|
|
$
|
27,175
|
|
|
|
694
|
|
|
|
(64
|
)
|
|
Variance swaps
|
|
$
|
13,654
|
|
|
|
123
|
|
|
|
(11
|
)
|
|
Total rate of return swaps
|
|
$
|
376
|
|
|
|
(47
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(4,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
(1) |
|
Represents only those investments accounted for using the cost
method. |
| |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
| |
|
(3) |
|
Separate account assets and liabilities which are interest rate
sensitive are not included herein as any interest rate risk is
borne by the holder of the separate account. |
This quantitative measure of risk has decreased by
$642 million, or 14%, to $4,057 million at
December 31, 2009 from $4,699 million at
December 31, 2008. The decrease in interest rate risk
associated with the use of derivatives decreased by
$1,571 million. Also, a decrease in the net embedded
derivatives within liability host contracts primarily due to
first time inclusion of international net embedded derivatives
of $626 million decreased risk by $778 million.
Additionally, a change in long-term and junior subordinated debt
due to an improvement in credit spreads and new issuance of
debt, and an increase in the duration of the investment
portfolio, decreased risk by $318 million and
$193 million, respectively. This was partially offset by an
increase in interest rates across the long end of the swaps and
U.S. Treasury curves resulting in an increase in the
interest rate risk of $1,668 million. The increase in the
net base of liabilities and assets of $522 million also
increased interest rate risk which contributed to the offset.
The remainder of the fluctuation is attributable to numerous
immaterial items.
169
Sensitivity Analysis: Foreign Currency Exchange
Rates. The table below provides additional detail
regarding the potential loss in estimated fair value of the
Company’s portfolio due to a 10% change in foreign currency
exchange rates at December 31, 2009 by type of asset or
liability:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Foreign
|
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Exchange Rate
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
227,642
|
|
|
$
|
(2,060
|
)
|
|
Equity securities
|
|
|
|
|
|
|
3,084
|
|
|
|
(5
|
)
|
|
Trading securities
|
|
|
|
|
|
|
2,384
|
|
|
|
(93
|
)
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
46,315
|
|
|
|
(338
|
)
|
|
Held-for-sale
|
|
|
|
|
|
|
2,728
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
49,043
|
|
|
|
(338
|
)
|
|
Policy loans
|
|
|
|
|
|
|
11,294
|
|
|
|
(45
|
)
|
|
Short-term investments
|
|
|
|
|
|
|
8,374
|
|
|
|
(65
|
)
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
878
|
|
|
|
—
|
|
|
Other
|
|
|
|
|
|
|
1,284
|
|
|
|
(49
|
)
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
10,112
|
|
|
|
(100
|
)
|
|
Accrued investment income
|
|
|
|
|
|
|
3,173
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(2,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
96,735
|
|
|
$
|
1,275
|
|
|
Long-term debt
|
|
|
|
|
|
|
13,831
|
|
|
|
103
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
1,505
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
38,152
|
|
|
$
|
315
|
|
|
$
|
5
|
|
|
Interest rate floors
|
|
$
|
23,691
|
|
|
|
424
|
|
|
|
—
|
|
|
Interest rate caps
|
|
$
|
28,409
|
|
|
|
283
|
|
|
|
—
|
|
|
Interest rate futures
|
|
$
|
7,563
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
Interest rate options
|
|
$
|
4,050
|
|
|
|
60
|
|
|
|
—
|
|
|
Interest rate forwards
|
|
$
|
9,921
|
|
|
|
39
|
|
|
|
—
|
|
|
Synthetic GICs
|
|
$
|
4,352
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency swaps
|
|
$
|
16,879
|
|
|
|
122
|
|
|
|
215
|
|
|
Foreign currency forwards
|
|
$
|
6,485
|
|
|
|
26
|
|
|
|
220
|
|
|
Currency options
|
|
$
|
822
|
|
|
|
18
|
|
|
|
—
|
|
|
Credit default swaps
|
|
$
|
6,723
|
|
|
|
(56
|
)
|
|
|
—
|
|
|
Credit forwards
|
|
$
|
220
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
Equity futures
|
|
$
|
7,405
|
|
|
|
23
|
|
|
|
(1
|
)
|
|
Equity options
|
|
$
|
27,175
|
|
|
|
694
|
|
|
|
(61
|
)
|
|
Variance swaps
|
|
$
|
13,654
|
|
|
|
123
|
|
|
|
(2
|
)
|
|
Total rate of return swaps
|
|
$
|
376
|
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
estimated fair value of all financial instruments within this
financial statement caption not necessarily those solely subject
to foreign exchange risk. |
| |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
Foreign currency exchange rate risk increased by
$365 million, or 69%, to $891 million at
December 31, 2009 from $526 million at
December 31, 2008. This increase was due to an increase in
fixed maturities of $567 million due to higher net
exposures primarily to the Canadian dollar, the British pound
and the Euro. Partially offsetting this change was a decrease in
the foreign exposure related to the use of derivatives employed
by the Company of $273 million. The remainder of the
fluctuation is attributable to numerous immaterial items.
Sensitivity Analysis: Equity
Prices. The table below provides additional
detail regarding the potential loss in estimated fair value of
the Company’s portfolio due to a 10% change in equity at
December 31, 2009 by type of asset or liability:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in Equity
|
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Prices
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
3,084
|
|
|
$
|
337
|
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
76
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
96,735
|
|
|
$
|
—
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
1,505
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
38,152
|
|
|
$
|
315
|
|
|
$
|
—
|
|
|
Interest rate floors
|
|
$
|
23,691
|
|
|
|
424
|
|
|
|
—
|
|
|
Interest rate caps
|
|
$
|
28,409
|
|
|
|
283
|
|
|
|
—
|
|
|
Interest rate futures
|
|
$
|
7,563
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
Interest rate options
|
|
$
|
4,050
|
|
|
|
60
|
|
|
|
—
|
|
|
Interest rate forwards
|
|
$
|
9,921
|
|
|
|
39
|
|
|
|
—
|
|
|
Synthetic GICs
|
|
$
|
4,352
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency swaps
|
|
$
|
16,879
|
|
|
|
122
|
|
|
|
—
|
|
|
Foreign currency forwards
|
|
$
|
6,485
|
|
|
|
26
|
|
|
|
—
|
|
|
Currency options
|
|
$
|
822
|
|
|
|
18
|
|
|
|
—
|
|
|
Credit default swaps
|
|
$
|
6,723
|
|
|
|
(56
|
)
|
|
|
—
|
|
|
Credit forwards
|
|
$
|
220
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
Equity futures
|
|
$
|
7,405
|
|
|
|
23
|
|
|
|
(228
|
)
|
|
Equity options
|
|
$
|
27,175
|
|
|
|
694
|
|
|
|
(754
|
)
|
|
Variance swaps
|
|
$
|
13,654
|
|
|
|
123
|
|
|
|
10
|
|
|
Total rate of return swaps
|
|
$
|
376
|
|
|
|
(47
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
estimated fair value of all financial instruments within this
financial statement caption not necessarily those solely subject
to equity price risk. |
| |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
Equity price risk increased by $42 million to
$218 million at December 31, 2009 from
$176 million at December 31, 2008. This increase is
due to an increase of risk of $219 million attributed to
the use of derivatives employed by the Company to hedge its
equity exposures, partially offset by an increase in equity
securities of $119 million and an increase in net embedded
derivatives within liability host contracts of $53 million.
The remainder is attributable to numerous immaterial items.
172
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements and Schedules
| |
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
F-1
|
|
|
Financial Statements at December 31, 2009 and 2008 and for
the Years Ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-7
|
|
|
|
|
|
F-9
|
|
|
Financial Statement Schedules at December 31, 2009 and 2008
and for the Years Ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
F-179
|
|
|
|
|
|
F-180
|
|
|
|
|
|
F-186
|
|
|
|
|
|
F-188
|
|
173
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MetLife, Inc.:
We have audited the accompanying consolidated balance sheets of
MetLife, Inc. and subsidiaries (the “Company”) as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedules listed in the Index to Consolidated
Financial Statements and Schedules. These consolidated financial
statements and financial statement schedules are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on the consolidated
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
MetLife, Inc. and subsidiaries as of December 31, 2009 and
2008, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 1, the Company changed its method of
accounting for the recognition and presentation of
other-than-temporary
impairment losses for certain investments as required by
accounting guidance adopted on April 1, 2009, changed its
method of accounting for certain assets and liabilities to a
fair value measurement approach as required by accounting
guidance adopted on January 1, 2008, and changed its method
of accounting for deferred acquisition costs and for income
taxes as required by accounting guidance adopted on
January 1, 2007.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report, dated February 26, 2010, expressed
an unqualified opinion on the Company’s internal control
over financial reporting.
/s/ DELOITTE &
TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
February 26, 2010
F-1
| |
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $229,709 and $209,508,
respectively)
|
|
$
|
227,642
|
|
|
$
|
188,251
|
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $3,187 and $4,131, respectively)
|
|
|
3,084
|
|
|
|
3,197
|
|
|
Trading securities, at estimated fair value (cost: $2,249 and
$1,107, respectively)
|
|
|
2,384
|
|
|
|
946
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
Held-for-investment,
at amortized cost (net of valuation allowances of $721 and $304,
respectively)
|
|
|
48,181
|
|
|
|
49,352
|
|
|
Held-for-sale,
principally at estimated fair value
|
|
|
2,728
|
|
|
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
50,909
|
|
|
|
51,364
|
|
|
Policy loans
|
|
|
10,061
|
|
|
|
9,802
|
|
|
Real estate and real estate joint ventures
held-for-investment
|
|
|
6,852
|
|
|
|
7,535
|
|
|
Real estate
held-for-sale
|
|
|
44
|
|
|
|
51
|
|
|
Other limited partnership interests
|
|
|
5,508
|
|
|
|
6,039
|
|
|
Short-term investments
|
|
|
8,374
|
|
|
|
13,878
|
|
|
Other invested assets
|
|
|
12,709
|
|
|
|
17,248
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
327,567
|
|
|
|
298,311
|
|
|
Cash and cash equivalents
|
|
|
10,112
|
|
|
|
24,207
|
|
|
Accrued investment income
|
|
|
3,173
|
|
|
|
3,061
|
|
|
Premiums and other receivables
|
|
|
16,752
|
|
|
|
16,973
|
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
19,256
|
|
|
|
20,144
|
|
|
Current income tax recoverable
|
|
|
316
|
|
|
|
—
|
|
|
Deferred income tax assets
|
|
|
1,228
|
|
|
|
4,927
|
|
|
Goodwill
|
|
|
5,047
|
|
|
|
5,008
|
|
|
Other assets
|
|
|
6,822
|
|
|
|
7,262
|
|
|
Assets of subsidiaries
held-for-sale
|
|
|
—
|
|
|
|
946
|
|
|
Separate account assets
|
|
|
149,041
|
|
|
|
120,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
539,314
|
|
|
$
|
501,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
135,879
|
|
|
$
|
130,555
|
|
|
Policyholder account balances
|
|
|
138,673
|
|
|
|
142,921
|
|
|
Other policyholder funds
|
|
|
8,446
|
|
|
|
7,762
|
|
|
Policyholder dividends payable
|
|
|
761
|
|
|
|
1,023
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
24,196
|
|
|
|
31,059
|
|
|
Bank deposits
|
|
|
10,211
|
|
|
|
6,884
|
|
|
Short-term debt
|
|
|
912
|
|
|
|
2,659
|
|
|
Long-term debt
|
|
|
13,220
|
|
|
|
9,667
|
|
|
Collateral financing arrangements
|
|
|
5,297
|
|
|
|
5,192
|
|
|
Junior subordinated debt securities
|
|
|
3,191
|
|
|
|
3,758
|
|
|
Current income tax payable
|
|
|
—
|
|
|
|
342
|
|
|
Other liabilities
|
|
|
15,989
|
|
|
|
14,284
|
|
|
Liabilities of subsidiaries
held-for-sale
|
|
|
—
|
|
|
|
748
|
|
|
Separate account liabilities
|
|
|
149,041
|
|
|
|
120,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
505,816
|
|
|
|
477,693
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies, Commitments and Guarantees (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
MetLife, Inc.’s stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share;
200,000,000 shares authorized; 84,000,000 shares
issued and outstanding; $2,100 aggregate liquidation preference
|
|
|
1
|
|
|
|
1
|
|
|
Common stock, par value $0.01 per share;
3,000,000,000 shares authorized; 822,359,818 and
798,016,664 shares issued at December 31, 2009 and
2008, respectively; 818,833,810 and 793,629,070 shares
outstanding at December 31, 2009 and 2008, respectively
|
|
|
8
|
|
|
|
8
|
|
|
Additional paid-in capital
|
|
|
16,859
|
|
|
|
15,811
|
|
|
Retained earnings
|
|
|
19,501
|
|
|
|
22,403
|
|
|
Treasury stock, at cost; 3,526,008 and 4,387,594 shares at
December 31, 2009 and 2008, respectively
|
|
|
(190
|
)
|
|
|
(236
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(3,058
|
)
|
|
|
(14,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total MetLife, Inc.’s stockholders’ equity
|
|
|
33,121
|
|
|
|
23,734
|
|
|
Noncontrolling interests
|
|
|
377
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
33,498
|
|
|
|
23,985
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
539,314
|
|
|
$
|
501,678
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-2
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
26,460
|
|
|
$
|
25,914
|
|
|
$
|
22,970
|
|
|
Universal life and investment-type product policy fees
|
|
|
5,203
|
|
|
|
5,381
|
|
|
|
5,238
|
|
|
Net investment income
|
|
|
14,838
|
|
|
|
16,291
|
|
|
|
18,057
|
|
|
Other revenues
|
|
|
2,329
|
|
|
|
1,586
|
|
|
|
1,465
|
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(2,439
|
)
|
|
|
(1,296
|
)
|
|
|
(78
|
)
|
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
939
|
|
|
|
—
|
|
|
|
—
|
|
|
Other net investment gains (losses), net
|
|
|
(6,272
|
)
|
|
|
3,108
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(7,772
|
)
|
|
|
1,812
|
|
|
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
41,058
|
|
|
|
50,984
|
|
|
|
47,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
28,336
|
|
|
|
27,437
|
|
|
|
23,783
|
|
|
Interest credited to policyholder account balances
|
|
|
4,849
|
|
|
|
4,788
|
|
|
|
5,461
|
|
|
Policyholder dividends
|
|
|
1,650
|
|
|
|
1,751
|
|
|
|
1,723
|
|
|
Other expenses
|
|
|
10,556
|
|
|
|
11,947
|
|
|
|
10,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
45,391
|
|
|
|
45,923
|
|
|
|
41,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(4,333
|
)
|
|
|
5,061
|
|
|
|
5,780
|
|
|
Provision for income tax expense (benefit)
|
|
|
(2,015
|
)
|
|
|
1,580
|
|
|
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(2,318
|
)
|
|
|
3,481
|
|
|
|
4,105
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
40
|
|
|
|
(203
|
)
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,278
|
)
|
|
|
3,278
|
|
|
|
4,465
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(32
|
)
|
|
|
69
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
(2,246
|
)
|
|
|
3,209
|
|
|
|
4,317
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(2,368
|
)
|
|
$
|
3,084
|
|
|
$
|
4,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.’s common shareholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.94
|
)
|
|
$
|
4.60
|
|
|
$
|
5.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.94
|
)
|
|
$
|
4.54
|
|
|
$
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.89
|
)
|
|
$
|
4.19
|
|
|
$
|
5.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.89
|
)
|
|
$
|
4.14
|
|
|
$
|
5.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
0.74
|
|
|
$
|
0.74
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-3
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Unrealized
|
|
|
Other-Than-
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.’s
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Investment
|
|
|
Temporary
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders’
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
at Cost
|
|
|
Gains (Losses)
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
15,811
|
|
|
$
|
22,403
|
|
|
$
|
(236
|
)
|
|
$
|
(12,564
|
)
|
|
$
|
—
|
|
|
$
|
(246
|
)
|
|
$
|
(1,443
|
)
|
|
$
|
23,734
|
|
|
$
|
251
|
|
|
$
|
23,985
|
|
|
Cumulative effect of change in accounting principle, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
Common stock issuance — newly issued shares
|
|
|
|
|
|
|
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,035
|
|
|
|
|
|
|
|
1,035
|
|
|
Treasury stock transactions, net
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
(122
|
)
|
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
(610
|
)
|
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
169
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,246
|
)
|
|
|
(32
|
)
|
|
|
(2,278
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
(116
|
)
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,863
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
11,426
|
|
|
|
(11
|
)
|
|
|
11,415
|
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
Defined benefit plans adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,271
|
|
|
|
(11
|
)
|
|
|
11,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,025
|
|
|
|
(43
|
)
|
|
|
8,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
16,859
|
|
|
$
|
19,501
|
|
|
$
|
(190
|
)
|
|
$
|
(817
|
)
|
|
$
|
(513
|
)
|
|
$
|
(183
|
)
|
|
$
|
(1,545
|
)
|
|
$
|
33,121
|
|
|
$
|
377
|
|
|
$
|
33,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-4
MetLife,
Inc.
Consolidated Statements of Stockholders’
Equity — (Continued)
For the Year Ended December 31, 2008
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Investment
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.’s
|
|
|
Noncontrolling Interests
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Gains
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders’
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
at Cost
|
|
|
(Losses)
|
|
|
Adjustments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Operations
|
|
|
Operations
|
|
|
Equity
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
17,098
|
|
|
$
|
19,884
|
|
|
$
|
(2,890
|
)
|
|
$
|
971
|
|
|
$
|
347
|
|
|
$
|
(240
|
)
|
|
$
|
35,179
|
|
|
$
|
1,534
|
|
|
$
|
272
|
|
|
$
|
36,985
|
|
|
Cumulative effect of changes in accounting principles, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
|
1
|
|
|
|
8
|
|
|
|
17,098
|
|
|
|
19,911
|
|
|
|
(2,890
|
)
|
|
|
961
|
|
|
|
347
|
|
|
|
(240
|
)
|
|
|
35,196
|
|
|
|
1,534
|
|
|
|
272
|
|
|
|
37,002
|
|
|
Common stock issuance — newly issued shares
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
Treasury stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in connection with share repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
|
(800
|
)
|
|
Issued in connection with common stock issuance
|
|
|
|
|
|
|
|
|
|
|
(2,104
|
)
|
|
|
|
|
|
|
4,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,936
|
|
|
|
|
|
|
|
|
|
|
|
1,936
|
|
|
Issued to settle stock forward contracts
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
1,035
|
|
|
Acquired in connection with split-off of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,318
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,318
|
)
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
Deferral of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(592
|
)
|
|
|
|
|
|
|
|
|
|
|
(592
|
)
|
|
Dividends on subsidiary common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
34
|
|
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,409
|
)
|
|
|
(6
|
)
|
|
|
(1,415
|
)
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,209
|
|
|
|
94
|
|
|
|
(25
|
)
|
|
|
3,278
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,766
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,766
|
)
|
|
|
(150
|
)
|
|
|
10
|
|
|
|
(13,906
|
)
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(593
|
)
|
|
|
|
|
|
|
(593
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
(700
|
)
|
|
Defined benefit plans adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,203
|
)
|
|
|
(1,203
|
)
|
|
|
4
|
|
|
|
|
|
|
|
(1,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,321
|
)
|
|
|
(253
|
)
|
|
|
10
|
|
|
|
(15,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
(159
|
)
|
|
|
(15
|
)
|
|
|
(12,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
15,811
|
|
|
$
|
22,403
|
|
|
$
|
(236
|
)
|
|
$
|
(12,564
|
)
|
|
$
|
(246
|
)
|
|
$
|
(1,443
|
)
|
|
$
|
23,734
|
|
|
$
|
—
|
|
|
$
|
251
|
|
|
$
|
23,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-5
MetLife,
Inc.
Consolidated Statements of Stockholders’
Equity — (Continued)
For the Year Ended December 31, 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Unrealized
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.’s
|
|
|
Noncontrolling Interests
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Investment
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders’
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
at Cost
|
|
|
Gains (Losses)
|
|
|
Adjustments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Operations
|
|
|
Operations
|
|
|
Equity
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
17,454
|
|
|
$
|
16,574
|
|
|
$
|
(1,357
|
)
|
|
$
|
1,864
|
|
|
$
|
57
|
|
|
$
|
(803
|
)
|
|
$
|
33,798
|
|
|
$
|
1,347
|
|
|
$
|
101
|
|
|
$
|
35,246
|
|
|
Cumulative effect of changes in accounting principles, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
|
1
|
|
|
|
8
|
|
|
|
17,454
|
|
|
|
16,245
|
|
|
|
(1,357
|
)
|
|
|
1,864
|
|
|
|
57
|
|
|
|
(803
|
)
|
|
|
33,469
|
|
|
|
1,336
|
|
|
|
101
|
|
|
|
34,906
|
|
|
Treasury stock transactions, net
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
(1,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,439
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,439
|
)
|
|
Obligation under accelerated common stock repurchase agreement
|
|
|
|
|
|
|
|
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
|
(450
|
)
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
(541
|
)
|
|
Dividends on subsidiary common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
165
|
|
|
|
207
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,317
|
|
|
|
141
|
|
|
|
7
|
|
|
|
4,465
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
|
|
|
(853
|
)
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
(862
|
)
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
290
|
|
|
|
56
|
|
|
|
|
|
|
|
346
|
|
|
Defined benefit plans adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
563
|
|
|
|
1
|
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
49
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,277
|
|
|
|
190
|
|
|
|
6
|
|
|
|
4,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
17,098
|
|
|
$
|
19,884
|
|
|
$
|
(2,890
|
)
|
|
$
|
971
|
|
|
$
|
347
|
|
|
$
|
(240
|
)
|
|
$
|
35,179
|
|
|
$
|
1,534
|
|
|
$
|
272
|
|
|
$
|
36,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-6
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,278
|
)
|
|
$
|
3,278
|
|
|
$
|
4,465
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
520
|
|
|
|
375
|
|
|
|
457
|
|
|
Amortization of premiums and accretion of discounts associated
with investments, net
|
|
|
(967
|
)
|
|
|
(939
|
)
|
|
|
(955
|
)
|
|
(Gains) losses from sales of investments and businesses, net
|
|
|
7,715
|
|
|
|
(1,127
|
)
|
|
|
619
|
|
|
Undistributed equity earnings of real estate joint ventures and
other limited partnership interests
|
|
|
1,118
|
|
|
|
679
|
|
|
|
(606
|
)
|
|
Interest credited to policyholder account balances
|
|
|
4,852
|
|
|
|
4,911
|
|
|
|
5,790
|
|
|
Interest credited to bank deposits
|
|
|
163
|
|
|
|
166
|
|
|
|
200
|
|
|
Universal life and investment-type product policy fees
|
|
|
(5,218
|
)
|
|
|
(5,462
|
)
|
|
|
(5,310
|
)
|
|
Change in accrued investment income
|
|
|
(110
|
)
|
|
|
428
|
|
|
|
(275
|
)
|
|
Change in premiums and other receivables
|
|
|
(1,653
|
)
|
|
|
(1,929
|
)
|
|
|
(283
|
)
|
|
Change in deferred policy acquisition costs, net
|
|
|
(1,837
|
)
|
|
|
545
|
|
|
|
(1,178
|
)
|
|
Change in insurance-related liabilities
|
|
|
6,401
|
|
|
|
5,307
|
|
|
|
5,463
|
|
|
Change in trading securities
|
|
|
(1,152
|
)
|
|
|
(418
|
)
|
|
|
200
|
|
|
Change in residential mortgage loans
held-for-sale,
net
|
|
|
(800
|
)
|
|
|
(1,946
|
)
|
|
|
—
|
|
|
Change in mortgage servicing rights
|
|
|
(687
|
)
|
|
|
(185
|
)
|
|
|
—
|
|
|
Change in income tax payable
|
|
|
(2,614
|
)
|
|
|
920
|
|
|
|
101
|
|
|
Change in other assets
|
|
|
(660
|
)
|
|
|
5,737
|
|
|
|
582
|
|
|
Change in other liabilities
|
|
|
865
|
|
|
|
163
|
|
|
|
581
|
|
|
Other, net
|
|
|
145
|
|
|
|
199
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,803
|
|
|
|
10,702
|
|
|
|
9,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
64,428
|
|
|
|
102,250
|
|
|
|
112,062
|
|
|
Equity securities
|
|
|
2,545
|
|
|
|
2,707
|
|
|
|
1,738
|
|
|
Mortgage loans
|
|
|
5,769
|
|
|
|
6,077
|
|
|
|
9,854
|
|
|
Real estate and real estate joint ventures
|
|
|
43
|
|
|
|
140
|
|
|
|
664
|
|
|
Other limited partnership interests
|
|
|
947
|
|
|
|
593
|
|
|
|
1,121
|
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(83,940
|
)
|
|
|
(86,874
|
)
|
|
|
(112,534
|
)
|
|
Equity securities
|
|
|
(1,986
|
)
|
|
|
(1,494
|
)
|
|
|
(2,883
|
)
|
|
Mortgage loans
|
|
|
(4,692
|
)
|
|
|
(10,096
|
)
|
|
|
(14,365
|
)
|
|
Real estate and real estate joint ventures
|
|
|
(579
|
)
|
|
|
(1,170
|
)
|
|
|
(2,228
|
)
|
|
Other limited partnership interests
|
|
|
(803
|
)
|
|
|
(1,643
|
)
|
|
|
(2,041
|
)
|
|
Net change in short-term investments
|
|
|
5,534
|
|
|
|
(11,269
|
)
|
|
|
55
|
|
|
Net change in policy loans
|
|
|
(259
|
)
|
|
|
(467
|
)
|
|
|
(190
|
)
|
|
Net change in other invested assets
|
|
|
(713
|
)
|
|
|
(492
|
)
|
|
|
(1,020
|
)
|
|
Purchases of businesses, net of cash received of $0, $314 and
$13, respectively
|
|
|
—
|
|
|
|
(469
|
)
|
|
|
(43
|
)
|
|
Sales of businesses, net of cash disposed of $180, $0 and $763,
respectively
|
|
|
(50
|
)
|
|
|
(4
|
)
|
|
|
(694
|
)
|
|
Disposal of subsidiary
|
|
|
(19
|
)
|
|
|
(313
|
)
|
|
|
—
|
|
|
Other, net
|
|
|
(160
|
)
|
|
|
(147
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(13,935
|
)
|
|
$
|
(2,671
|
)
|
|
$
|
(10,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-7
MetLife,
Inc.
Consolidated Statements of Cash Flows — (Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
77,517
|
|
|
$
|
70,051
|
|
|
$
|
54,977
|
|
|
Withdrawals
|
|
|
(79,799
|
)
|
|
|
(56,406
|
)
|
|
|
(51,903
|
)
|
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
(6,863
|
)
|
|
|
(13,077
|
)
|
|
|
(1,710
|
)
|
|
Net change in bank deposits
|
|
|
3,164
|
|
|
|
2,185
|
|
|
|
(305
|
)
|
|
Net change in short-term debt
|
|
|
(1,747
|
)
|
|
|
1,992
|
|
|
|
(782
|
)
|
|
Long-term debt issued
|
|
|
2,961
|
|
|
|
339
|
|
|
|
726
|
|
|
Long-term debt repaid
|
|
|
(555
|
)
|
|
|
(422
|
)
|
|
|
(286
|
)
|
|
Collateral financing arrangements issued
|
|
|
105
|
|
|
|
310
|
|
|
|
4,882
|
|
|
Cash received in connection with collateral financing
arrangements
|
|
|
775
|
|
|
|
—
|
|
|
|
—
|
|
|
Cash paid in connection with collateral financing arrangements
|
|
|
(400
|
)
|
|
|
(800
|
)
|
|
|
—
|
|
|
Junior subordinated debt securities issued
|
|
|
500
|
|
|
|
750
|
|
|
|
694
|
|
|
Shares subject to mandatory redemption
|
|
|
—
|
|
|
|
—
|
|
|
|
(131
|
)
|
|
Debt issuance costs
|
|
|
(30
|
)
|
|
|
(34
|
)
|
|
|
(14
|
)
|
|
Common stock issued, net of issuance costs
|
|
|
—
|
|
|
|
290
|
|
|
|
—
|
|
|
Common stock issued to settle stock forward contracts
|
|
|
1,035
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock options exercised
|
|
|
8
|
|
|
|
45
|
|
|
|
110
|
|
|
Treasury stock acquired in connection with share repurchase
agreements
|
|
|
—
|
|
|
|
(1,250
|
)
|
|
|
(1,705
|
)
|
|
Treasury stock issued in connection with common stock issuance,
net of issuance costs
|
|
|
—
|
|
|
|
1,936
|
|
|
|
—
|
|
|
Treasury stock issued to settle stock forward contracts
|
|
|
—
|
|
|
|
1,035
|
|
|
|
—
|
|
|
Dividends on preferred stock
|
|
|
(122
|
)
|
|
|
(125
|
)
|
|
|
(137
|
)
|
|
Dividends on common stock
|
|
|
(610
|
)
|
|
|
(592
|
)
|
|
|
(541
|
)
|
|
Other, net
|
|
|
(42
|
)
|
|
|
(38
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(4,103
|
)
|
|
|
6,189
|
|
|
|
3,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash
balances
|
|
|
108
|
|
|
|
(349
|
)
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(14,127
|
)
|
|
|
13,871
|
|
|
|
3,261
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
24,239
|
|
|
|
10,368
|
|
|
|
7,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
10,112
|
|
|
$
|
24,239
|
|
|
$
|
10,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries
held-for-sale,
beginning of year
|
|
$
|
32
|
|
|
$
|
407
|
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries
held-for-sale,
end of year
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, beginning
of year
|
|
$
|
24,207
|
|
|
$
|
9,961
|
|
|
$
|
6,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, end of
year
|
|
$
|
10,112
|
|
|
$
|
24,207
|
|
|
$
|
9,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
989
|
|
|
$
|
1,107
|
|
|
$
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
397
|
|
|
$
|
27
|
|
|
$
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
—
|
|
|
$
|
2,083
|
|
|
$
|
—
|
|
|
Cash paid
|
|
|
—
|
|
|
|
(783
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
—
|
|
|
$
|
1,300
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of subsidiary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets disposed
|
|
$
|
—
|
|
|
$
|
22,135
|
|
|
$
|
—
|
|
|
Liabilities disposed
|
|
|
—
|
|
|
|
(20,689
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets disposed
|
|
|
—
|
|
|
|
1,446
|
|
|
|
—
|
|
|
Cash disposed
|
|
|
—
|
|
|
|
270
|
|
|
|
—
|
|
|
Transaction costs, including cash paid of $19, $43 and $0,
respectively
|
|
|
2
|
|
|
|
60
|
|
|
|
—
|
|
|
Treasury stock received in common stock exchange
|
|
|
—
|
|
|
|
(1,318
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of subsidiary
|
|
$
|
2
|
|
|
$
|
458
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remarketing of debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities redeemed
|
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issued
|
|
$
|
1,035
|
|
|
$
|
1,035
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt securities redeemed
|
|
$
|
1,067
|
|
|
$
|
1,067
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of equity securities to MetLife Foundation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase money mortgages on real estate sale
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities received in connection with insurance
contract commutation
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and real estate joint ventures acquired in
satisfaction of debt
|
|
$
|
211
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-8
MetLife,
Inc.
Notes to
the Consolidated Financial Statements
|
|
|
1.
|
Business,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Business
“MetLife” or the “Company” refers to
MetLife, Inc., a Delaware corporation incorporated in 1999 (the
“Holding Company”), and its subsidiaries, including
Metropolitan Life Insurance Company (“MLIC”). MetLife
is a leading provider of insurance, employee benefits and
financial services with operations throughout the United States
and the Latin America, Asia Pacific and Europe, Middle East and
India regions. Through its subsidiaries and affiliates, MetLife
offers life insurance, annuities, auto and home insurance,
retail banking and other financial services to individuals, as
well as group insurance and retirement & savings
products and services to corporations and other institutions.
During 2009, MetLife combined its former institutional and
individual businesses, as well as its auto & home
unit, into a single U.S. Business organization.
U.S. Business consists of Insurance Products, Retirement
Products, Corporate Benefit Funding and Auto & Home
segments. The Company also has an International segment. The
segments are managed separately because they either provide
different products and services, require different strategies or
have different technology requirements. In addition, the Company
reports certain of its results of operations in Banking,
Corporate & Other, which is comprised of MetLife Bank,
National Association (“MetLife Bank”) and other
business activities. See Note 22 for further business
segment information.
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of the Holding Company and its subsidiaries,
partnerships and joint ventures in which the Company has
control, and variable interest entities (“VIEs”) for
which the Company is the primary beneficiary. Closed block
assets, liabilities, revenues and expenses are combined on a
line-by-line
basis with the assets, liabilities, revenues and expenses
outside the closed block based on the nature of the particular
item. See Note 10. Intercompany accounts and transactions
have been eliminated.
Certain amounts in the prior year periods’ consolidated
financial statements have been reclassified to conform with the
2009 presentation. Such reclassifications include
$6.9 billion reclassified from policyholder account
balances to bank deposits in the consolidated balance sheet at
December 31, 2008 and $2,185 million and
($305) million reclassified from policyholder account
balances to net change in bank deposits within cash flows from
financing activities in the consolidated statements of cash
flows for the years ended December 31, 2008 and 2007,
respectively. See also Note 23 for reclassifications
related to discontinued operations.
Summary
of Significant Accounting Policies and Critical Accounting
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”) requires management to adopt
accounting policies and make estimates and assumptions that
affect amounts reported in the consolidated financial statements.
A description of critical estimates is incorporated within the
discussion of the related accounting policies which follows. In
applying these policies, management makes subjective and complex
judgments that frequently require estimates about matters that
are inherently uncertain. Many of these policies, estimates and
related judgments are common in the insurance and financial
services industries; others are specific to the Company’s
businesses and operations. Actual results could differ from
these estimates.
In June 2009, the Financial Accounting Standards Board
(“FASB”) approved FASB Accounting Standards
Codification (“Codification”) as the single source
of authoritative accounting guidance used in the preparation of
financial statements in conformity with GAAP for all
non-governmental entities. Codification changed the referencing
and organization of accounting guidance without modification of
existing GAAP. Since it did not modify existing GAAP,
Codification did not have any impact on the Company’s
financial condition or results of
F-9
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
operations. On the effective date of Codification, substantially
all existing non-SEC accounting and reporting standards were
superseded and, therefore, are no longer referenced by title in
the accompanying consolidated financial statements.
Fair
Value
As described below, certain assets and liabilities are measured
at estimated fair value on the Company’s consolidated
balance sheets. In addition, the notes to these consolidated
financial statements include further disclosures of estimated
fair values. The Company defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction
between market participants on the measurement date. In many
cases, the exit price and the transaction (or entry) price will
be the same at initial recognition. However, in certain cases,
the transaction price may not represent fair value. The fair
value of a liability is based on the amount that would be paid
to transfer a liability to a third-party with the same credit
standing. It requires that fair value be a market-based
measurement in which the fair value is determined based on a
hypothetical transaction at the measurement date, considered
from the perspective of a market participant. When quoted prices
are not used to determine fair value the Company considers three
broad valuation techniques: (i) the market approach,
(ii) the income approach and (iii) the cost approach.
The Company determines the most appropriate valuation technique
to use, given what is being measured and the availability of
sufficient inputs. The Company prioritizes the inputs to fair
valuation techniques and allows for the use of unobservable
inputs to the extent that observable inputs are not available.
The Company categorizes its assets and liabilities measured at
estimated fair value into a three-level hierarchy, based on the
priority of the inputs to the respective valuation technique.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or liability’s
classification within the fair value hierarchy is based on the
lowest level of input to its valuation. The input levels are as
follows:
|
|
|
| |
Level 1
|
Unadjusted quoted prices in active markets for identical assets
or liabilities. The Company defines active markets based on
average trading volume for equity securities. The size of the
bid/ask spread is used as an indicator of market activity for
fixed maturity securities.
|
| |
| |
Level 2
|
Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
|
| |
| |
Level 3
|
Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entity’s own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of estimated
fair value requires significant management judgment or
estimation.
|
Prior to January 1, 2009, the measurement and disclosures
of fair value based on exit price excluded certain items such as
nonfinancial assets and nonfinancial liabilities initially
measured at estimated fair value in a business combination,
reporting units measured at estimated fair value in the first
step of a goodwill impairment test and indefinite-lived
intangible assets measured at estimated fair value for
impairment assessment.
F-10
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Investments
The accounting policies for the Company’s principal
investments are as follows:
Fixed Maturity and Equity Securities. The
Company’s fixed maturity and equity securities are
classified as
available-for-sale
and are reported at their estimated fair value.
Unrealized investment gains and losses on these securities are
recorded as a separate component of other comprehensive income
(loss), net of policyholder related amounts and deferred income
taxes. All security transactions are recorded on a trade date
basis. Investment gains and losses on sales of securities are
determined on a specific identification basis.
Interest income on fixed maturity securities is recorded when
earned using an effective yield method giving effect to
amortization of premiums and accretion of discounts. Dividends
on equity securities are recorded when declared. These dividends
and interest income are recorded in net investment income.
Included within fixed maturity securities are loan-backed
securities including mortgage-backed and asset-backed
securities. Amortization of the premium or discount from the
purchase of these securities considers the estimated timing and
amount of prepayments of the underlying loans. Actual prepayment
experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments
originally anticipated and the actual prepayments received and
currently anticipated. Prepayment assumptions for single class
and multi-class mortgage-backed and asset-backed securities are
estimated by management using inputs obtained from third-party
specialists, including broker-dealers, and based on
management’s knowledge of the current market. For
credit-sensitive mortgage-backed and asset-backed securities and
certain prepayment-sensitive securities, the effective yield is
recalculated on a prospective basis. For all other
mortgage-backed and asset-backed securities, the effective yield
is recalculated on a retrospective basis.
The Company periodically evaluates fixed maturity and equity
securities for impairment. The assessment of whether impairments
have occurred is based on management’s
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Company’s review of its fixed
maturity and equity securities for impairments includes an
analysis of the total gross unrealized losses by three
categories of securities: (i) securities where the
estimated fair value had declined and remained below cost or
amortized cost by less than 20%; (ii) securities where the
estimated fair value had declined and remained below cost or
amortized cost by 20% or more for less than six months; and
(iii) securities where the estimated fair value had
declined and remained below cost or amortized cost by 20% or
more for six months or greater. An extended and severe
unrealized loss position on a fixed maturity security may not
have any impact on the ability of the issuer to service all
scheduled interest and principal payments and the Company’s
evaluation of recoverability of all contractual cash flows or
the ability to recover an amount at least equal to its amortized
cost based on the present value of the expected future cash
flows to be collected. In contrast, for certain equity
securities, greater weight and consideration are given by the
Company to a decline in market value and the likelihood such
market value decline will recover. See also Note 3.
Additionally, management considers a wide range of factors about
the security issuer and uses its best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-term recovery. Inherent
in management’s evaluation of the security are assumptions
and estimates about the operations of the issuer and its future
earnings potential. Considerations used by the Company in the
impairment evaluation process include, but are not limited to:
(i) the length of time and the extent to which the
estimated fair value has been below cost or amortized cost;
(ii) the potential for impairments of securities when the
issuer is experiencing significant financial difficulties;
(iii) the potential for impairments in an entire industry
sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources;
F-11
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
(vi) with respect to fixed maturity securities, whether the
Company has the intent to sell or will more likely than not be
required to sell a particular security before the decline in
estimated fair value below cost or amortized cost recovers;
(vii) with respect to equity securities, whether the
Company’s ability and intent to hold the security for a
period of time sufficient to allow for the recovery of its
estimated fair value to an amount equal to or greater than cost;
(viii) unfavorable changes in forecasted cash flows on
mortgage-backed and asset-backed securities; and (ix) other
subjective factors, including concentrations and information
obtained from regulators and rating agencies.
Effective April 1, 2009, the Company prospectively adopted
new guidance on the recognition and presentation of
other-than-temporary
impairment (“OTTI”) losses as described in
“Adoption of New Accounting Pronouncements —
Financial Instruments.” The new guidance requires that an
OTTI be recognized in earnings for a fixed maturity security in
an unrealized loss position when it is anticipated that the
amortized cost will not be recovered. In such situations, the
OTTI recognized in earnings is the entire difference between the
fixed maturity security’s amortized cost and its estimated
fair value only when either: (i) the Company has the intent
to sell the fixed maturity security; or (ii) it is more
likely than not that the Company will be required to sell the
fixed maturity security before recovery of the decline in
estimated fair value below amortized cost. If neither of these
two conditions exists, the difference between the amortized cost
basis of the fixed maturity security and the present value of
projected future cash flows expected to be collected is
recognized as an OTTI in earnings (“credit loss”). If
the estimated fair value is less than the present value of
projected future cash flows expected to be collected, this
portion of OTTI related to other-than credit factors
(“noncredit loss”) is recorded as other comprehensive
income (loss). There was no change for equity securities which,
when an OTTI has occurred, continue to be impaired for the
entire difference between the equity security’s cost and
its estimated fair value with a corresponding charge to earnings.
Prior to the adoption of the new OTTI guidance, the Company
recognized in earnings an OTTI for a fixed maturity security in
an unrealized loss position unless it could assert that it had
both the intent and ability to hold the fixed maturity security
for a period of time sufficient to allow for a recovery of
estimated fair value to the security’s amortized cost
basis. Also, prior to the adoption of this guidance, the entire
difference between the fixed maturity security’s amortized
cost basis and its estimated fair value was recognized in
earnings if it was determined to have an OTTI.
With respect to equity securities, the Company considers in its
OTTI analysis its intent and ability to hold a particular equity
security for a period of time sufficient to allow for the
recovery of its estimated fair value to an amount equal to or
greater than cost. If a sale decision is made for an equity
security and it is not expected to recover to an amount at least
equal to cost prior to the expected time of the sale, the
security will be deemed
other-than-temporarily
impaired in the period that the sale decision was made and an
OTTI loss will be recorded in earnings. When an OTTI loss has
occurred, the OTTI loss is the entire difference between the
equity security’s cost and its estimated fair value with a
corresponding charge to earnings.
With respect to perpetual hybrid securities that have attributes
of both debt and equity, some of which are classified as fixed
maturity securities and some of which are classified as
non-redeemable preferred stock within equity securities, the
Company considers in its OTTI analysis whether there has been
any deterioration in credit of the issuer and the likelihood of
recovery in value of the securities that are in a severe and
extended unrealized loss position. The Company also considers
whether any perpetual hybrid securities, with an unrealized
loss, regardless of credit rating, have deferred any dividend
payments. When an OTTI loss has occurred, the OTTI loss is the
entire difference between the perpetual hybrid security’s
cost and its estimated fair value with a corresponding charge to
earnings.
F-12
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Upon adoption of the new OTTI guidance, the Company’s
methodology and significant inputs used to determine the amount
of the credit loss are as follows:
|
|
|
| |
(i)
|
The Company calculates the recovery value of fixed maturity
securities by performing a discounted cash flow analysis based
on the present value of future cash flows expected to be
received. The discount rate is generally the effective interest
rate of the fixed maturity security prior to impairment.
|
| |
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(ii)
|
When determining the collectability and the period over which
the fixed maturity security is expected to recover, the Company
applies the same considerations utilized in its overall
impairment evaluation process which incorporates information
regarding the specific security, fundamentals of the industry
and geographic area in which the security issuer operates, and
overall macroeconomic conditions. Projected future cash flows
are estimated using assumptions derived from management’s
best estimates of likely scenario-based outcomes after giving
consideration to a variety of variables that include, but are
not limited to: general payment terms of the security; the
likelihood that the issuer can service the scheduled interest
and principal payments; the quality and amount of any credit
enhancements; the security’s position within the capital
structure of the issuer; possible corporate restructurings or
asset sales by the issuer; and changes to the rating of the
security or the issuer by rating agencies.
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(iii)
|
Additional considerations are made when assessing the unique
features that apply to certain structured securities such as
residential mortgage-backed securities (“RMBS”),
commercial mortgage-backed securities (“CMBS”) and
asset-backed securities (“ABS”). These additional
factors for structured securities include, but are not limited
to: the quality of underlying collateral; expected prepayment
speeds; current and forecasted loss severity; consideration of
the payment terms of the underlying assets backing a particular
security; and the payment priority within the tranche structure
of the security.
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(iv)
|
When determining the amount of the credit loss for U.S. and
foreign corporate securities, foreign government securities and
state and political subdivision securities, management considers
the estimated fair value as the recovery value when available
information does not indicate that another value is more
appropriate. When information is identified that indicates a
recovery value other than estimated fair value, management
considers in the determination of recovery value the same
considerations utilized in its overall impairment evaluation
process which incorporates available information and
management’s best estimated of scenarios-based outcomes
regarding the specific security and issuer; possible corporate
restructurings or asset sales by the issuer; the quality and
amount of any credit enhancements; the security’s position
within the capital structure of the issuer; fundamentals of the
industry and geographic area in which the security issuer
operates, and the overall macroeconomic conditions.
|
The cost or amortized cost of fixed maturity and equity
securities is adjusted for OTTI in the period in which the
determination is made. These impairments are included within net
investment gains (losses). The Company does not change the
revised cost basis for subsequent recoveries in value.
In periods subsequent to the recognition of OTTI on a fixed
maturity security, the Company accounts for the impaired
security as if it had been purchased on the measurement date of
the impairment. Accordingly, the discount (or reduced premium)
based on the new cost basis is accreted into net investment
income over the remaining term of the fixed maturity security in
a prospective manner based on the amount and timing of estimated
future cash flows.
The Company purchases and receives beneficial interests in
special purpose entities (“SPEs”), which enhance the
Company’s total return on its investment portfolio
principally by providing equity-based returns on fixed maturity
securities. These investments are generally made through
structured notes and similar instruments (collectively,
“Structured Investment Transactions”). The Company has
not guaranteed the performance, liquidity or obligations of the
SPEs and its exposure to loss is limited to its carrying value
of the beneficial interests in the SPEs. The Company does not
consolidate such SPEs as it has determined it is not the primary
beneficiary. These Structured Investment Transactions are
included in fixed maturity
F-13
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
securities and their investment income is generally recognized
using the retrospective interest method. Impairments of these
investments are included in net investment gains (losses). In
addition, the Company has invested in certain structured
transactions that are VIEs. These structured transactions
include reinsurance trusts, asset-backed securitizations, hybrid
securities, joint ventures, limited partnerships and limited
liability companies. The Company consolidates those VIEs for
which it is deemed to be the primary beneficiary. The Company
reconsiders whether it is the primary beneficiary for
investments designated as VIEs on a quarterly basis.
Trading Securities. The Company’s trading
securities portfolio, principally consisting of fixed maturity
and equity securities, supports investment strategies that
involve the active and frequent purchase and sale of securities
and the execution of short sale agreements, and supports asset
and liability matching strategies for certain insurance
products. Trading securities which are presented separately and
short sale agreement liabilities, which are included in other
liabilities, are recorded at estimated fair value, with
subsequent changes in estimated fair value recognized in net
investment income. Related dividends and investment income are
also included in net investment income.
Securities Lending. Securities loaned
transactions, whereby blocks of securities, which are included
in fixed maturity securities and short-term investments, are
loaned to third parties, are treated as financing arrangements
and the associated liability is recorded at the amount of cash
received. The Company generally obtains collateral in an amount
equal to 102% of the estimated fair value of the securities
loaned. The Company monitors the estimated fair value of the
securities loaned on a daily basis with additional collateral
obtained as necessary. Substantially all of the Company’s
securities loaned transactions are with brokerage firms and
commercial banks. Income and expenses associated with securities
loaned transactions are reported as investment income and
investment expense, respectively, within net investment income.
Mortgage Loans. Mortgage loans
held-for-investment
are stated at unpaid principal balance, adjusted for any
unamortized premium or discount, deferred fees or expenses, net
of valuation allowances. Interest income is accrued on the
principal amount of the loan based on the loan’s
contractual interest rate. Amortization of premiums and
discounts is recorded using the effective yield method. Interest
income, amortization of premiums and discounts and prepayment
fees are reported in net investment income. Loans are considered
to be impaired when it is probable that, based upon current
information and events, the Company will be unable to collect
all amounts due under the contractual terms of the loan
agreement. Based on the facts and circumstances of the
individual loans being impaired, loan specific valuation
allowances are established for the excess carrying value of the
loan over either: (i) the present value of expected future
cash flows discounted at the loan’s original effective
interest rate, (ii) the estimated fair value of the
loan’s underlying collateral if the loan is in the process
of foreclosure or otherwise collateral dependent, or
(iii) the loan’s observable market price. The Company
also establishes allowances for loan losses for pools of loans
with similar characteristics, such as mortgage loans based on
similar property types, similar
loan-to-value,
or similar debt service coverage ratio factors when, based on
past experience, it is probable that a credit event has occurred
and the amount of the loss can be reasonably estimated. Interest
income earned on impaired loans is accrued on the principal
amount of the loan based on the loan’s contractual interest
rate. However, interest ceases to accrue for loans on which
interest is generally more than 60 days past due
and/or when
the collection of interest is not considered probable. Cash
receipts on such impaired loans are recorded in accordance with
the loan agreement as a reduction of principal and/or as
interest income. Gains and losses from the sale of loans and
changes in valuation allowances are reported in net investment
gains (losses).
Mortgage loans
held-for-sale
primarily include residential mortgages which are originated
with the intent to sell and for which the fair value option was
elected. These loans are stated at estimated fair value with
subsequent changes in estimated fair value recognized in other
revenue. Certain other mortgage loans previously designated as
held-for-investment
have been designated as
held-for-sale
to reflect a change in the Company’s intention as it
relates to holding such loans. At the time of transfer, such
loans are recorded at the
F-14
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
lower of amortized cost or estimated fair value less expected
disposition costs determined on an individual loan basis.
Amortized cost is determined in the same manner as for mortgage
loans
held-for-investment
described above. The amount by which amortized cost exceeds
estimated fair value less expected disposition costs is
accounted for as a valuation allowance. Changes in such
valuation allowance are recognized in net investment gains
(losses).
Policy Loans. Policy loans are stated at
unpaid principal balances. Interest income on such loans is
recorded as earned in investment income using the contractually
agreed upon interest rate. Generally, interest is capitalized on
the policy’s anniversary date.
Real Estate. Real estate
held-for-investment,
including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a
straight-line basis over the estimated useful life of the asset
(typically 20 to 55 years). Rental income is recognized on
a straight-line basis over the term of the respective leases.
The Company classifies a property as
held-for-sale
if it commits to a plan to sell a property within one year and
actively markets the property in its current condition for a
price that is reasonable in comparison to its estimated fair
value. The Company classifies the results of operations and the
gain or loss on sale of a property that either has been disposed
of or classified as
held-for-sale
as discontinued operations, if the ongoing operations of the
property will be eliminated from the ongoing operations of the
Company and if the Company will not have any significant
continuing involvement in the operations of the property after
the sale. Real estate
held-for-sale
is stated at the lower of depreciated cost or estimated fair
value less expected disposition costs. Real estate is not
depreciated while it is classified as
held-for-sale.
The Company periodically reviews its properties
held-for-investment
for impairment and tests properties for recoverability whenever
events or changes in circumstances indicate the carrying amount
of the asset may not be recoverable and the carrying value of
the property exceeds its estimated fair value. Properties whose
carrying values are greater than their undiscounted cash flows
are written down to their estimated fair value, with the
impairment loss included in net investment gains (losses).
Impairment losses are based upon the estimated fair value of
real estate, which is generally computed using the present value
of expected future cash flows from the real estate discounted at
a rate commensurate with the underlying risks. Real estate
acquired upon foreclosure is recorded at the lower of estimated
fair value or the carrying value of the mortgage loan at the
date of foreclosure.
Real Estate Joint Ventures and Other Limited Partnership
Interests. The Company uses the equity method of
accounting for investments in real estate joint ventures and
other limited partnership interests consisting of leveraged
buy-out funds, hedge funds and other private equity funds in
which it has more than a minor equity interest or more than a
minor influence over the joint ventures or partnership’s
operations, but does not have a controlling interest and is not
the primary beneficiary. The equity method is also used for such
investments in which the Company has significant influence or
more than a 20% interest. For certain real estate joint ventures
the Company records its share of earnings using a three-month
lag methodology for all instances where the timely financial
information is available and the contractual right exists to
receive such financial information. The Company uses the cost
method of accounting for investments in real estate joint
ventures and other limited partnership interests in which it has
a minor equity investment and virtually no influence over the
joint ventures or the partnership’s operations. The Company
reports the distributions from real estate joint ventures and
other limited partnership interests accounted for under the cost
method and equity in earnings from real estate joint ventures
and other limited partnership interests accounted for under the
equity method in net investment income. In addition to the
investees performing regular evaluations for the impairment of
underlying investments, the Company routinely evaluates its
investments in real estate joint ventures and other limited
partnerships for impairments. The Company considers its cost
method investments for OTTI when the carrying value of real
estate joint ventures and other limited partnership interests
exceeds the net asset value (“NAV”). The Company takes
into consideration the severity and duration of this excess when
deciding if the cost method investment is
other-than-temporarily
impaired. For equity method investees, the Company considers
financial and other information provided by the investee, other
known information and
F-15
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
inherent risks in the underlying investments, as well as future
capital commitments, in determining whether an impairment has
occurred. When an OTTI is deemed to have occurred, the Company
records a realized capital loss within net investment gains
(losses) to record the investment at its estimated fair value.
Short-term Investments. Short-term investments
include investments with remaining maturities of one year or
less, but greater than three months, at the time of acquisition
and are stated at amortized cost, which approximates estimated
fair value, or stated at estimated fair value, if available.
Other Invested Assets. Other invested assets
consist principally of freestanding derivatives with positive
estimated fair values, leveraged leases, investments in
insurance enterprise joint ventures, tax credit partnerships,
funding agreements, mortgage servicing rights (“MSRs”)
and funds withheld at interest. Freestanding derivatives with
positive estimated fair values are described in the derivatives
accounting policy which follows.
Leveraged leases are recorded net of non-recourse debt. The
Company participates in lease transactions which are diversified
by industry, asset type and geographic area. The Company
recognizes income on the leveraged leases by applying the
leveraged lease’s estimated rate of return to the net
investment in the lease. The Company regularly reviews residual
values and impairs them to expected values.
Joint venture investments represent the Company’s
investments in entities that engage in insurance underwriting
activities and are accounted for on the equity method.
Tax credit partnerships are established for the purpose of
investing in low-income housing and other social causes, where
the primary return on investment is in the form of tax credits
and are also accounted for under the equity method or under the
effective yield method. The Company reports the equity in
earnings of joint venture investments and tax credit
partnerships in net investment income.
Funding agreements represent arrangements where the Company has
long-term interest bearing amounts on deposit with third parties
and are generally stated at amortized cost.
MSRs are measured at estimated fair value and are either
acquired or are generated from the sale of originated
residential mortgage loans where the servicing rights are
retained by the Company. Changes in estimated fair value of MSRs
are reported in other revenues in the period in which the change
occurs.
Funds withheld represent amounts contractually withheld by
ceding companies in accordance with reinsurance agreements. The
Company records a funds withheld receivable rather than the
underlying investments. The Company recognizes interest on funds
withheld at rates defined by the terms of the agreement which
may be contractually specified or directly related to the
investment portfolio and records it in net investment income.
The Company’s investments are exposed to four primary
sources of risk: credit, interest rate, liquidity risk, and
market valuation. The financial statement risks, stemming from
such investment risks, are those associated with the
determination of estimated fair values, the diminished ability
to sell certain investments in times of strained market
conditions, the recognition of impairments, the recognition of
income on certain investments and the potential consolidation of
VIEs. The use of different methodologies, assumptions and inputs
relating to these financial statement risks may have a material
effect on the amounts presented within the consolidated
financial statements.
When available, the estimated fair value of the Company’s
fixed maturity and equity securities are based on quoted prices
in active markets that are readily and regularly obtainable.
Generally, these are the most liquid of the Company’s
securities holdings and valuation of these securities does not
involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs to these market standard valuation methodologies include,
but are not limited to: interest rates, credit standing of the
issuer or
F-16
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
counterparty, industry sector of the issuer, coupon rate, call
provisions, sinking fund requirements, maturity, estimated
duration and management’s assumptions regarding liquidity
and estimated future cash flows. Accordingly, the estimated fair
values are based on available market information and
management’s judgments about financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active, liquid
markets, quoted prices in markets that are not active and
observable yields and spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity. Even though unobservable, these inputs are based on
assumptions deemed appropriate given the circumstances and
consistent with what other market participants would use when
pricing such securities.
The estimated fair value of residential mortgage loans
held-for-sale
are determined based on observable pricing of residential
mortgage loans
held-for-sale
with similar characteristics, or observable pricing for
securities backed by similar types of loans, adjusted to convert
the securities prices to loan prices. Generally, quoted market
prices are not available. When observable pricing for similar
loans, or securities that are backed by similar loans, are not
available, the estimated fair values of residential mortgage
loans
held-for-sale
are determined using independent broker quotations, which is
intended to approximate the amounts that would be received from
third parties. Certain other mortgage loans have also been
designated as
held-for-sale
which are recorded at the lower of amortized cost or estimated
fair value less expected disposition costs determined on an
individual loan basis. For these loans, estimated fair value is
determined using independent broker quotations or, when the loan
is in foreclosure or otherwise determined to be collateral
dependent, the estimated fair value of the underlying collateral
estimated using internal models.
The estimated fair value of MSRs is principally determined
through the use of internal discounted cash flow models which
utilize various assumptions as to discount rates,
loan-prepayments and servicing costs. The use of different
valuation assumptions and inputs, as well as assumptions
relating to the collection of expected cash flows may have a
material effect on the estimated fair values of MSRs.
Financial markets are susceptible to severe events evidenced by
rapid depreciation in asset values accompanied by a reduction in
asset liquidity. The Company’s ability to sell securities,
or the price ultimately realized for these securities, depends
upon the demand and liquidity in the market and increases the
use of judgment in determining the estimated fair value of
certain securities.
The determination of the amount of allowances and impairments,
as applicable, is described previously by investment type. The
determination of such allowances and impairments is highly
subjective and is based upon the Company’s periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available.
The recognition of income on certain investments (e.g.
loan-backed securities, including mortgage-backed and
asset-backed securities, certain structured investment
transactions, trading securities, etc.) is dependent upon market
conditions, which could result in prepayments and changes in
amounts to be earned.
The accounting rules for the determination of when an entity is
a VIE and when to consolidate a VIE are complex. The
determination of the VIE’s primary beneficiary requires an
evaluation of the contractual and implied rights and obligations
associated with each party’s relationship with or
involvement in the entity, an estimate of the
F-17
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
entity’s expected losses and expected residual returns and
the allocation of such estimates to each party involved in the
entity. The primary beneficiary is defined as the entity that
will absorb a majority of a VIE’s expected losses, receive
a majority of a VIE’s expected residual returns if no
single entity absorbs a majority of expected losses, or both.
When assessing the expected losses to determine the primary
beneficiary for structured investment products such as
asset-backed securitizations and collateralized debt
obligations, the Company uses historical default probabilities
based on the credit rating of each issuer and other inputs
including maturity dates, industry classifications and
geographic location. Using computational algorithms, the
analysis simulates default scenarios resulting in a range of
expected losses and the probability associated with each
occurrence. For other investment structures such as hybrid
securities, joint ventures, limited partnerships and limited
liability companies, the Company takes into consideration the
design of the VIE and generally uses a qualitative approach to
determine if it is the primary beneficiary. This approach
includes an analysis of all contractual and implied rights and
obligations held by all parties including profit and loss
allocations, repayment or residual value guarantees, put and
call options and other derivative instruments. If the primary
beneficiary of a VIE can not be identified using this
qualitative approach, the Company calculates the expected losses
and expected residual returns of the VIE using a
probability-weighted cash flow model. The use of different
methodologies, assumptions and inputs in the determination of
the primary beneficiary could have a material effect on the
amounts presented within the consolidated financial statements.
Derivative
Financial Instruments
Derivatives are financial instruments whose values are derived
from interest rates, foreign currency exchange rates, or other
financial indices. Derivatives may be exchange-traded or
contracted in the
over-the-counter
market. The Company uses a variety of derivatives, including
swaps, forwards, futures and option contracts, to manage risks
relating to its ongoing business. To a lesser extent, the
Company uses credit derivatives, such as credit default swaps,
to synthetically replicate investment risks and returns which
are not readily available in the cash market. The Company also
purchases certain securities, issues certain insurance policies
and investment contracts and engages in certain reinsurance
contracts that have embedded derivatives.
Freestanding derivatives are carried on the Company’s
consolidated balance sheets either as assets within other
invested assets or as liabilities within other liabilities at
estimated fair value as determined through the use of quoted
market prices for exchange-traded derivatives and interest rate
forwards to sell certain to-be-announced securities or through
the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair value, when
quoted market values are not available, is based on market
standard valuation methodologies and inputs that are assumed to
be consistent with what other market participants would use when
pricing the instruments. Derivative valuations can be affected
by changes in interest rates, foreign currency exchange rates,
financial indices, credit spreads, default risk (including the
counterparties to the contract), volatility, liquidity and
changes in estimates and assumptions used in the pricing models.
The Company does not offset the fair value amounts recognized
for derivatives executed with the same counterparty under the
same master netting agreement.
If a derivative is not designated as an accounting hedge or its
use in managing risk does not qualify for hedge accounting,
changes in the estimated fair value of the derivative are
generally reported in net investment gains (losses) except for
those (i) in policyholder benefits and claims for economic
hedges of variable annuity guarantees included in future policy
benefits, (ii) in net investment income for economic hedges
of equity method investments in joint ventures, or for all
derivatives held in relation to the trading portfolios,
(iii) in other revenues for derivatives held in connection
with the Company’s mortgage banking activities and
(iv) in other expenses for economic hedges of foreign
currency exposure related to the Company’s international
subsidiaries. The fluctuations in estimated fair value of
derivatives which have not been designated for hedge accounting
can result in significant volatility in net income.
F-18
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
To qualify for hedge accounting, at the inception of the hedging
relationship, the Company formally documents its risk management
objective and strategy for undertaking the hedging transaction,
as well as its designation of the hedge as either (i) a
hedge of the estimated fair value of a recognized asset or
liability (“fair value hedge”); (ii) a hedge of a
forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability
(“cash flow hedge”); or (iii) a hedge of a net
investment in a foreign operation. In this documentation, the
Company sets forth how the hedging instrument is expected to
hedge the designated risks related to the hedged item and sets
forth the method that will be used to retrospectively and
prospectively assess the hedging instrument’s effectiveness
and the method which will be used to measure ineffectiveness. A
derivative designated as a hedging instrument must be assessed
as being highly effective in offsetting the designated risk of
the hedged item. Hedge effectiveness is formally assessed at
inception and periodically throughout the life of the designated
hedging relationship. Assessments of hedge effectiveness and
measurements of ineffectiveness are also subject to
interpretation and estimation and different interpretations or
estimates may have a material effect on the amount reported in
net income.
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. If it was
determined that hedge accounting designations were not
appropriately applied, reported net income could be materially
affected. Differences in judgment as to the availability and
application of hedge accounting designations and the appropriate
accounting treatment may result in a differing impact in the
consolidated financial statements of the Company from that
previously reported.
Under a fair value hedge, changes in the estimated fair value of
the hedging derivative, including amounts measured as
ineffectiveness, and changes in the estimated fair value of the
hedged item related to the designated risk being hedged, are
reported within net investment gains (losses). The estimated
fair values of the hedging derivatives are exclusive of any
accruals that are separately reported in the consolidated
statement of operations within interest income or interest
expense to match the location of the hedged item. However,
accruals that are not scheduled to settle until maturity are
included in the estimated fair value of derivatives in the
consolidated balance sheets.
Under a cash flow hedge, changes in the estimated fair value of
the hedging derivative measured as effective are reported within
other comprehensive income (loss), a separate component of
stockholders’ equity and the deferred gains or losses on
the derivative are reclassified into the consolidated statement
of operations when the Company’s earnings are affected by
the variability in cash flows of the hedged item. Changes in the
estimated fair value of the hedging instrument measured as
ineffectiveness are reported within net investment gains
(losses). The estimated fair values of the hedging derivatives
are exclusive of any accruals that are separately reported in
the consolidated statement of operations within interest income
or interest expense to match the location of the hedged item.
However, accruals that are not scheduled to settle until
maturity are included in the estimated fair value of derivatives
in the consolidated balance sheets.
In a hedge of a net investment in a foreign operation, changes
in the estimated fair value of the hedging derivative that are
measured as effective are reported within other comprehensive
income (loss) consistent with the translation adjustment for the
hedged net investment in the foreign operation. Changes in the
estimated fair value of the hedging instrument measured as
ineffectiveness are reported within net investment gains
(losses).
The Company discontinues hedge accounting prospectively when:
(i) it is determined that the derivative is no longer
highly effective in offsetting changes in the estimated fair
value or cash flows of a hedged item; (ii) the derivative
expires, is sold, terminated, or exercised; (iii) it is no
longer probable that the hedged forecasted transaction will
occur; or (iv) the derivative is de-designated as a hedging
instrument.
When hedge accounting is discontinued because it is determined
that the derivative is not highly effective in offsetting
changes in the estimated fair value or cash flows of a hedged
item, the derivative continues to be carried in
F-19
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
the consolidated balance sheets at its estimated fair value,
with changes in estimated fair value recognized currently in net
investment gains (losses). The carrying value of the hedged
recognized asset or liability under a fair value hedge is no
longer adjusted for changes in its estimated fair value due to
the hedged risk, and the cumulative adjustment to its carrying
value is amortized into income over the remaining life of the
hedged item. Provided the hedged forecasted transaction is still
probable of occurrence, the changes in estimated fair value of
derivatives recorded in other comprehensive income (loss)
related to discontinued cash flow hedges are released into the
consolidated statement of operations when the Company’s
earnings are affected by the variability in cash flows of the
hedged item.
When hedge accounting is discontinued because it is no longer
probable that the forecasted transactions will occur on the
anticipated date or within two months of that date, the
derivative continues to be carried in the consolidated balance
sheets at its estimated fair value, with changes in estimated
fair value recognized currently in net investment gains
(losses). Deferred gains and losses of a derivative recorded in
other comprehensive income (loss) pursuant to the discontinued
cash flow hedge of a forecasted transaction that is no longer
probable are recognized immediately in net investment gains
(losses).
In all other situations in which hedge accounting is
discontinued, the derivative is carried at its estimated fair
value in the consolidated balance sheets, with changes in its
estimated fair value recognized in the current period as net
investment gains (losses).
The Company is also a party to financial instruments that
contain terms which are deemed to be embedded derivatives. The
Company assesses each identified embedded derivative to
determine whether it is required to be bifurcated. If the
instrument would not be accounted for in its entirety at
estimated fair value and it is determined that the terms of the
embedded derivative are not clearly and closely related to the
economic characteristics of the host contract, and that a
separate instrument with the same terms would qualify as a
derivative instrument, the embedded derivative is bifurcated
from the host contract and accounted for as a freestanding
derivative. Such embedded derivatives are carried in the
consolidated balance sheets at estimated fair value with the
host contract and changes in their estimated fair value are
generally reported in net investment gains (losses) except for
those in policyholder benefits and claims related to ceded
reinsurance of guaranteed minimum income benefits. If the
Company is unable to properly identify and measure an embedded
derivative for separation from its host contract, the entire
contract is carried on the balance sheet at estimated fair
value, with changes in estimated fair value recognized in the
current period in net investment gains (losses) or in
policyholder benefits and claims. Additionally, the Company may
elect to carry an entire contract on the balance sheet at
estimated fair value, with changes in estimated fair value
recognized in the current period in net investment gains
(losses) or in policyholder benefits and claims if that contract
contains an embedded derivative that requires bifurcation. There
is a risk that embedded derivatives requiring bifurcation may
not be identified and reported at estimated fair value in the
consolidated financial statements and that their related changes
in estimated fair value could materially affect reported net
income.
Cash and
Cash Equivalents
The Company considers all highly liquid investments purchased
with an original or remaining maturity of three months or less
at the date of purchase to be cash equivalents.
Property,
Equipment, Leasehold Improvements and Computer
Software
Property, equipment and leasehold improvements, which are
included in other assets, are stated at cost, less accumulated
depreciation and amortization. Depreciation is determined using
the straight-line method over the estimated useful lives of the
assets, as appropriate. The estimated life for company occupied
real estate property is generally 40 years. Estimated lives
generally range from five to ten years for leasehold
improvements and three to seven years for all other property and
equipment. The cost basis of the property, equipment and
leasehold improvements was $1.9 billion and
$1.8 billion at December 31, 2009 and 2008,
respectively. Accumulated
F-20
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
depreciation and amortization of property, equipment and
leasehold improvements was $1,046 million and
$926 million at December 31, 2009 and 2008,
respectively. Related depreciation and amortization expense was
$152 million, $150 million and $132 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Computer software, which is included in other assets, is stated
at cost, less accumulated amortization. Purchased software
costs, as well as certain internal and external costs incurred
to develop internal-use computer software during the application
development stage, are capitalized. Such costs are amortized
generally over a four-year period using the straight-line
method. The cost basis of computer software was
$1.7 billion and $1.5 billion at December 31,
2009 and 2008, respectively. Accumulated amortization of
capitalized software was $1.2 billion and $1.0 billion
at December 31, 2009 and 2008, respectively. Related
amortization expense was $171 million, $153 million
and $121 million for the years ended December 31,
2009, 2008 and 2007, respectively.
Deferred
Policy Acquisition Costs and Value of Business
Acquired
The Company incurs significant costs in connection with
acquiring new and renewal insurance business. Costs that vary
with and relate to the production of new business are deferred
as DAC. Such costs consist principally of commissions and agency
and policy issuance expenses. VOBA is an intangible asset that
represents the present value of future profits embedded in
acquired insurance annuity and investment — type
contracts. VOBA is based on actuarially determined projections,
by each block of business, of future policy and contract
charges, premiums, mortality and morbidity, separate account
performance, surrenders, operating expenses, investment returns
and other factors. Actual experience on the purchased business
may vary from these projections. The recovery of DAC and VOBA is
dependent upon the future profitability of the related business.
DAC and VOBA are aggregated in the financial statements for
reporting purposes.
DAC for property and casualty insurance contracts, which is
primarily composed of commissions and certain underwriting
expenses, is amortized on a pro rata basis over the applicable
contract term or reinsurance treaty.
DAC and VOBA on life insurance or investment-type contracts are
amortized in proportion to gross premiums, gross margins or
gross profits, depending on the type of contract as described
below.
The Company amortizes DAC and VOBA related to non-participating
and non-dividend-paying traditional contracts (term insurance,
non-participating whole life insurance, non-medical health
insurance and traditional group life insurance) over the entire
premium paying period in proportion to the present value of
actual historic and expected future gross premiums. The present
value of expected premiums is based upon the premium requirement
of each policy and assumptions for mortality, morbidity,
persistency and investment returns at policy issuance, or policy
acquisition, as it relates to VOBA, that include provisions for
adverse deviation and are consistent with the assumptions used
to calculate future policyholder benefit liabilities. These
assumptions are not revised after policy issuance or acquisition
unless the DAC or VOBA balance is deemed to be unrecoverable
from future expected profits. Absent a premium deficiency,
variability in amortization after policy issuance or acquisition
is caused only by variability in premium volumes.
The Company amortizes DAC and VOBA related to participating,
dividend-paying traditional contracts over the estimated lives
of the contracts in proportion to actual and expected future
gross margins. The amortization includes interest based on rates
in effect at inception or acquisition of the contracts. The
future gross margins are dependent principally on investment
returns, policyholder dividend scales, mortality, persistency,
expenses to administer the business, creditworthiness of
reinsurance counterparties and certain economic variables, such
as inflation. For participating contracts (dividend paying
traditional contracts within the closed block) future gross
margins are also dependent upon changes in the policyholder
dividend obligation. Of these factors, the Company anticipates
that investment returns, expenses, persistency and other factor
changes as well as policyholder dividend scales are reasonably
likely to impact significantly the rate of DAC and VOBA
amortization. Each reporting period, the Company updates the
estimated gross margins with the actual gross margins for that
period. When the actual
F-21
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
gross margins change from previously estimated gross margins,
the cumulative DAC and VOBA amortization is re- estimated and
adjusted by a cumulative charge or credit to current operations.
When actual gross margins exceed those previously estimated, the
DAC and VOBA amortization will increase, resulting in a current
period charge to earnings. The opposite result occurs when the
actual gross margins are below the previously estimated gross
margins. Each reporting period, the Company also updates the
actual amount of business in-force, which impacts expected
future gross margins. When expected future gross margins are
below those previously estimated, the DAC and VOBA amortization
will increase, resulting in a current period charge to earnings.
The opposite result occurs when the expected future gross
margins are above the previously estimated expected future gross
margins. Each period, the Company also reviews the estimated
gross margins for each block of business to determine the
recoverability of DAC and VOBA balances.
The Company amortizes DAC and VOBA related to fixed and variable
universal life contracts and fixed and variable deferred annuity
contracts over the estimated lives of the contracts in
proportion to actual and expected future gross profits. The
amortization includes interest based on rates in effect at
inception or acquisition of the contracts. The amount of future
gross profits is dependent principally upon returns in excess of
the amounts credited to policyholders, mortality, persistency,
interest crediting rates, expenses to administer the business,
creditworthiness of reinsurance counterparties, the effect of
any hedges used and certain economic variables, such as
inflation. Of these factors, the Company anticipates that
investment returns, expenses and persistency are reasonably
likely to impact significantly the rate of DAC and VOBA
amortization. Each reporting period, the Company updates the
estimated gross profits with the actual gross profits for that
period. When the actual gross profits change from previously
estimated gross profits, the cumulative DAC and VOBA
amortization is re-estimated and adjusted by a cumulative charge
or credit to current operations. When actual gross profits
exceed those previously estimated, the DAC and VOBA amortization
will increase, resulting in a current period charge to earnings.
The opposite result occurs when the actual gross profits are
below the previously estimated gross profits. Each reporting
period, the Company also updates the actual amount of business
remaining in-force, which impacts expected future gross profits.
When expected future gross profits are below those previously
estimated, the DAC and VOBA amortization will increase,
resulting in a current period charge to earnings. The opposite
result occurs when the expected future gross profits are above
the previously estimated expected future gross profits. Each
period, the Company also reviews the estimated gross profits for
each block of business to determine the recoverability of DAC
and VOBA balances.
Separate account rates of return on variable universal life
contracts and variable deferred annuity contracts affect
in-force account balances on such contracts each reporting
period which can result in significant fluctuations in
amortization of DAC and VOBA. Returns that are higher than the
Company’s long-term expectation produce higher account
balances, which increases the Company’s future fee
expectations and decreases future benefit payment expectations
on minimum death and living benefit guarantees, resulting in
higher expected future gross profits. The opposite result occurs
when returns are lower than the Company’s long-term
expectation. The Company’s practice to determine the impact
of gross profits resulting from returns on separate accounts
assumes that long-term appreciation in equity markets is not
changed by short-term market fluctuations, but is only changed
when sustained interim deviations are expected. The Company
monitors these changes and only changes the assumption when its
long-term expectation changes.
The Company also reviews periodically other long-term
assumptions underlying the projections of estimated gross
margins and profits. These include investment returns,
policyholder dividend scales, interest crediting rates,
mortality, persistency and expenses to administer business.
Management annually updates assumptions used in the calculation
of estimated gross margins and profits which may have
significantly changed. If the update of assumptions causes
expected future gross margins and profits to increase, DAC and
VOBA amortization will decrease, resulting in a current period
increase to earnings. The opposite result occurs when the
assumption update causes expected future gross margins and
profits to decrease.
F-22
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Periodically, the Company modifies product benefits, features,
rights or coverages that occur by the exchange of a contract for
a new contract, or by amendment, endorsement, or rider to a
contract, or by election or coverage within a contract. If such
modification, referred to as an internal replacement,
substantially changes the contract, the associated DAC is
written off immediately through income and any new deferrable
costs associated with the replacement contract are deferred. If
the modification does not substantially change the contract, the
DAC amortization on the original contract will continue and any
acquisition costs associated with the related modification are
expensed.
Sales
Inducements
The Company has two different types of sales inducements which
are included in other assets: (i) the policyholder receives
a bonus whereby the policyholder’s initial account balance
is increased by an amount equal to a specified percentage of the
customer’s deposit; and (ii) the policyholder receives
a higher interest rate using a dollar cost averaging method than
would have been received based on the normal general account
interest rate credited. The Company defers sales inducements and
amortizes them over the life of the policy using the same
methodology and assumptions used to amortize DAC. The
amortization of sales inducements is included in policyholder
benefits and claims. Each year the Company reviews the deferred
sales inducements to determine the recoverability of these
balances.
Value of
Distribution Agreements and Customer Relationships
Acquired
Value of distribution agreements (“VODA”) is reported
in other assets and represents the present value of future
profits associated with the expected future business derived
from the distribution agreements. Value of customer
relationships acquired (“VOCRA”) is also reported in
other assets and represents the present value of the expected
future profits associated with the expected future business
acquired through existing customers of the acquired company or
business. The VODA and VOCRA associated with past acquisitions
are amortized over useful life ranging from 10 to 30 years
and such amortization is included in other expenses. Each year
the Company reviews VODA and VOCRA to determine the
recoverability of these balances.
Goodwill
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Goodwill is not amortized but is tested for
impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an
interim test. The Company performs its annual goodwill
impairment testing during the third quarter of each year based
upon data as of the close of the second quarter.
Impairment testing is performed using the fair value approach,
which requires the use of estimates and judgment, at the
“reporting unit” level. A reporting unit is the
operating segment or a business one level below the operating
segment, if discrete financial information is prepared and
regularly reviewed by management at that level. For purposes of
goodwill impairment testing, a significant portion of goodwill
within Banking, Corporate & Other is allocated to
reporting units within the Company’s business segments.
For purposes of goodwill impairment testing, if the carrying
value of a reporting unit exceeds its estimated fair value,
there might be an indication of impairment. In such instances,
the implied fair value of the goodwill is determined in the same
manner as the amount of goodwill would be determined in a
business acquisition. The excess of the carrying value of
goodwill over the implied fair value of goodwill is recognized
as an impairment and recorded as a charge against net income.
In performing its goodwill impairment tests, when we believe
meaningful comparable market data are available, the estimated
fair values of the reporting units are determined using a market
multiple approach. When relevant comparables are not available,
the Company uses a discounted cash flow model. For reporting
units which
F-23
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
are particularly sensitive to market assumptions, such as the
retirement products and individual life reporting units, the
Company may corroborate its estimated fair values by using
additional valuation methodologies.
The key inputs, judgments and assumptions necessary in
determining estimated fair value include projected earnings,
current book value (with and without accumulated other
comprehensive income), the level of economic capital required to
support the mix of business, long term growth rates, comparative
market multiples, the account value of in-force business,
projections of new and renewal business, as well as margins on
such business, the level of interest rates, credit spreads,
equity market levels and the discount rate we believe
appropriate to the risk associated with the respective reporting
unit. The estimated fair value of the retirement products and
individual life reporting units are particularly sensitive to
the equity market levels.
When testing goodwill for impairment, we also consider the
Company’s market capitalization in relation to its book
value.
We apply significant judgment when determining the estimated
fair value of the Company’s reporting units and when
assessing the relationship of market capitalization to the
estimated fair value of its reporting units and their book
value. The valuation methodologies utilized are subject to key
judgments and assumptions that are sensitive to change.
Estimates of fair value are inherently uncertain and represent
only management’s reasonable expectation regarding future
developments. These estimates and the judgments and assumptions
upon which the estimates are based will, in all likelihood,
differ in some respects from actual future results. Declines in
the estimated fair value of the Company’s reporting units
could result in goodwill impairments in future periods which
could materially adversely affect the Company’s results of
operations or financial position.
During our 2009 impairment tests of goodwill, we concluded that
the fair values of all reporting units were in excess of their
carrying values and, therefore, goodwill was not impaired.
However, we continue to evaluate current market conditions that
may affect the estimated fair value of the Company’s
reporting units to assess whether any goodwill impairment
exists. Deteriorating or adverse market conditions for certain
reporting units may have a significant impact on the estimated
fair value of these reporting units and could result in future
impairments of goodwill.
See Note 7 for further consideration of goodwill impairment
testing during 2009.
Liability
for Future Policy Benefits and Policyholder Account
Balances
The Company establishes liabilities for amounts payable under
insurance policies, including traditional life insurance,
traditional annuities and non-medical health insurance.
Generally, amounts are payable over an extended period of time
and related liabilities are calculated as the present value of
future expected benefits to be paid reduced by the present value
of future expected premiums. Such liabilities are established
based on methods and underlying assumptions in accordance with
GAAP and applicable actuarial standards. Principal assumptions
used in the establishment of liabilities for future policy
benefits are mortality, morbidity, policy lapse, renewal,
retirement, disability incidence, disability terminations,
investment returns, inflation, expenses and other contingent
events as appropriate to the respective product type. Utilizing
these assumptions, liabilities are established on a block of
business basis.
Future policy benefit liabilities for participating traditional
life insurance policies are equal to the aggregate of
(i) net level premium reserves for death and endowment
policy benefits (calculated based upon the non-forfeiture
interest rate, ranging from 3% to 7% for domestic business and
3% to 12% for international business, and mortality rates
guaranteed in calculating the cash surrender values described in
such contracts); and (ii) the liability for terminal
dividends.
Future policy benefits for non-participating traditional life
insurance policies are equal to the aggregate of the present
value of expected future benefit payments and related expenses
less the present value of expected future net premiums.
Assumptions as to mortality and persistency are based upon the
Company’s experience when the basis of
F-24
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
the liability is established. Interest rate assumptions for the
aggregate future policy benefit liabilities range from 2% to 8%
for domestic business and 2% to 12% for international business.
Participating business represented approximately 6% and 8% of
the Company’s life insurance in-force, and 13% and 14% of
the number of life insurance policies in-force, at
December 31, 2009 and 2008, respectively. Participating
policies represented approximately 28% and 28%, 27% and 27%, and
31% and 30% of gross and net life insurance premiums for the
years ended December 31, 2009, 2008 and 2007, respectively.
Future policy benefit liabilities for individual and group
traditional fixed annuities after annuitization are equal to the
present value of expected future payments. Interest rate
assumptions used in establishing such liabilities range from 2%
to 11% for domestic business and 4% to 18% for international
business.
Future policy benefit liabilities for non-medical health
insurance are calculated using the net level premium method and
assumptions as to future morbidity, withdrawals and interest,
which provide a margin for adverse deviation. Interest rate
assumptions used in establishing such liabilities range from 4%
to 7% for domestic business and 2% to 9% for international
business.
Future policy benefit liabilities for disabled lives are
estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and
interest. Interest rate assumptions used in establishing such
liabilities range from 3% to 8% for domestic business and 2% to
9% for international business.
Liabilities for unpaid claims and claim expenses for property
and casualty insurance are included in future policyholder
benefits and represent the amount estimated for claims that have
been reported but not settled and claims incurred but not
reported. Liabilities for unpaid claims are estimated based upon
the Company’s historical experience and other actuarial
assumptions that consider the effects of current developments,
anticipated trends and risk management programs, reduced for
anticipated salvage and subrogation. The effects of changes in
such estimated liabilities are included in the results of
operations in the period in which the changes occur.
The Company establishes future policy benefit liabilities for
minimum death and income benefit guarantees relating to certain
annuity contracts and secondary and
paid-up
guarantees relating to certain life policies as follows:
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•
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Guaranteed minimum death benefit (“GMDB”) liabilities
are determined by estimating the expected value of death
benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period
based on total expected assessments. The Company regularly
evaluates estimates used and adjusts the additional liability
balance, with a related charge or credit to benefit expense, if
actual experience or other evidence suggests that earlier
assumptions should be revised. The assumptions used in
estimating the GMDB liabilities are consistent with those used
for amortizing DAC, and are thus subject to the same variability
and risk. The assumptions of investment performance and
volatility are consistent with the historical experience of the
Standard & Poor’s (“S&P”) 500
Index. The benefit assumptions used in calculating the
liabilities are based on the average benefits payable over a
range of scenarios.
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•
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Guaranteed minimum income benefit (“GMIB”) liabilities
are determined by estimating the expected value of the income
benefits in excess of the projected account balance at any
future date of annuitization and recognizing the excess ratably
over the accumulation period based on total expected
assessments. The Company regularly evaluates estimates used and
adjusts the additional liability balance, with a related charge
or credit to benefit expense, if actual experience or other
evidence suggests that earlier assumptions should be revised.
The assumptions used for estimating the GMIB liabilities are
consistent with those used for estimating the GMDB liabilities.
In addition, the calculation of guaranteed annuitization benefit
liabilities incorporates an assumption for the percentage of the
potential annuitizations that may be elected by the
contractholder. Certain GMIBs have settlement features that
result in a portion of that guarantee being accounted for as an
embedded derivative and are recorded in policyholder account
balances as described below.
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F-25
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Liabilities for universal and variable life secondary guarantees
and paid-up
guarantees are determined by estimating the expected value of
death benefits payable when the account balance is projected to
be zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. The
Company regularly evaluates estimates used and adjusts the
additional liability balances, with a related charge or credit
to benefit expense, if actual experience or other evidence
suggests that earlier assumptions should be revised. The
assumptions used in estimating the secondary and
paid-up
guarantee liabilities are consistent with those used for
amortizing DAC, and are thus subject to the same variability and
risk. The assumptions of investment performance and volatility
for variable products are consistent with historical S&P
experience. The benefits used in calculating the liabilities are
based on the average benefits payable over a range of scenarios.
The Company establishes policyholder account balances for
guaranteed minimum benefits relating to certain variable annuity
products as follows:
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Guaranteed minimum withdrawal benefits (“GMWB”)
guarantee the contractholder a return of their purchase payment
via partial withdrawals, even if the account value is reduced to
zero, provided that the contractholder’s cumulative
withdrawals in a contract year do not exceed a certain limit.
The initial guaranteed withdrawal amount is equal to the initial
benefit base as defined in the contract (typically, the initial
purchase payments plus applicable bonus amounts). The GMWB is an
embedded derivative, which is measured at estimated fair value
separately from the host variable annuity product.
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•
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Guaranteed minimum accumulation benefits (“GMAB”) and
settlement features in certain GMIB described above provide the
contractholder, after a specified period of time determined at
the time of issuance of the variable annuity contract, with a
minimum accumulation of their purchase payments even if the
account value is reduced to zero. The initial guaranteed
accumulation amount is equal to the initial benefit base as
defined in the contract (typically, the initial purchase
payments plus applicable bonus amounts). The GMAB is an embedded
derivative, which is measured at estimated fair value separately
from the host variable annuity product.
|
For GMWB, GMAB and certain GMIB, the initial benefit base is
increased by additional purchase payments made within a certain
time period and decreases by benefits paid
and/or
withdrawal amounts. After a specified period of time, the
benefit base may also increase as a result of an optional reset
as defined in the contract.
GMWB, GMAB and certain GMIB are accounted for as embedded
derivatives with changes in estimated fair value reported in net
investment gains (losses).
At inception of the GMWB, GMAB and certain GMIB contracts, the
Company attributes to the embedded derivative a portion of the
projected future guarantee fees to be collected from the
policyholder equal to the present value of projected future
guaranteed benefits. Any additional fees represent
“excess” fees and are reported in universal life and
investment-type product policy fees.
The fair values for these embedded derivatives are then
estimated based on the present value of projected future
benefits minus the present value of projected future fees. The
projections of future benefits and future fees require capital
market and actuarial assumptions including expectations
concerning policyholder behavior. A risk neutral valuation
methodology is used under which the cash flows from the
guarantees are projected under multiple capital market scenarios
using observable risk free rates. Beginning in 2008, the
valuation of these embedded derivatives includes an adjustment
for the Company’s own credit and risk margins for
non-capital market inputs. The Company’s own credit
adjustment is determined taking into consideration publicly
available information relating to the Company’s debt, as
well as its claims paying ability. Risk margins are established
to capture the non-capital market risks of the instrument which
represent the additional compensation a market participant would
require to assume the risks related to the uncertainties of such
actuarial assumptions as annuitization, premium persistency,
partial withdrawal and surrenders. The establishment of risk
margins requires the use of significant management judgment.
F-26
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
These guarantees may be more costly than expected in volatile or
declining equity markets. Market conditions including, but not
limited to, changes in interest rates, equity indices, market
volatility and foreign currency exchange rates; changes in the
Company’s own credit standing; and variations in actuarial
assumptions regarding policyholder behavior, and risk margins
related to non-capital market inputs may result in significant
fluctuations in the estimated fair value of the guarantees that
could materially affect net income.
The Company periodically reviews its estimates of actuarial
liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and
the assumptions used in pricing these policies and guarantees,
and in the establishment of the related liabilities result in
variances in profit and could result in losses. The effects of
changes in such estimated liabilities are included in the
results of operations in the period in which the changes occur.
Policyholder account balances relate to investment-type
contracts, universal life-type policies and certain guaranteed
minimum benefits. Investment-type contracts principally include
traditional individual fixed annuities in the accumulation phase
and, non-variable group annuity contracts. Policyholder account
balances for these contracts are equal to (i) policy
account values, which consist of an accumulation of gross
premium payments and investment performance; (ii) credited
interest, ranging from 1% to 17% for domestic business and 1% to
26% for international business, less expenses, mortality charges
and withdrawals; and (iii) fair value adjustments relating
to business combinations.
Other
Policyholder Funds
Other policyholder funds include policy and contract claims,
unearned revenue liabilities, premiums received in advance,
policyholder dividends due and unpaid and policyholder dividends
left on deposit.
The liability for policy and contract claims generally relates
to incurred but not reported death, disability, long-term care
and dental claims, as well as claims which have been reported
but not yet settled. The liability for these claims is based on
the Company’s estimated ultimate cost of settling all
claims. The Company derives estimates for the development of
incurred but not reported claims principally from actuarial
analyses of historical patterns of claims and claims development
for each line of business. The methods used to determine these
estimates are continually reviewed. Adjustments resulting from
this continuous review process and differences between estimates
and payments for claims are recognized in policyholder benefits
and claims expense in the period in which the estimates are
changed or payments are made.
The unearned revenue liability relates to universal life-type
and investment-type products and represents policy charges for
services to be provided in future periods. The charges are
deferred as unearned revenue and amortized using the
product’s estimated gross profits and margins, similar to
DAC. Such amortization is recorded in universal life and
investment-type product policy fees.
The Company accounts for the prepayment of premiums on its
individual life, group life and health contracts as premium
received in advance and applies the cash received to premiums
when due.
Also included in other policyholder funds are policyholder
dividends due and unpaid on participating policies and
policyholder dividends left on deposit. Such liabilities are
presented at amounts contractually due to policyholders.
Recognition
of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with
life contingencies are recognized as revenues when due from
policyholders. Policyholder benefits and expenses are provided
against such revenues to recognize profits over the estimated
lives of the policies. When premiums are due over a
significantly shorter period than the period over which benefits
are provided, any excess profit is deferred and recognized into
operations in a constant relationship to insurance in-force or,
for annuities, the amount of expected future policy benefit
payments.
F-27
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Premiums related to non-medical health and disability contracts
are recognized on a pro rata basis over the applicable contract
term.
Deposits related to universal life-type and investment-type
products are credited to policyholder account balances. Revenues
from such contracts consist of amounts assessed against
policyholder account balances for mortality, policy
administration and surrender charges and are recorded in
universal life and investment-type product policy fees in the
period in which services are provided. Amounts that are charged
to operations include interest credited and benefit claims
incurred in excess of related policyholder account balances.
Premiums related to property and casualty contracts are
recognized as revenue on a pro rata basis over the applicable
contract term. Unearned premiums, representing the portion of
premium written relating to the unexpired coverage, are included
in future policy benefits.
Premiums, policy fees, policyholder benefits and expenses are
presented net of reinsurance.
The portion of fees allocated to embedded derivatives described
previously is recognized within net investment gains (losses) as
part of the estimated fair value of embedded derivatives.
Other
Revenues
Other revenues include, in addition to items described elsewhere
herein, advisory fees, broker-dealer commissions and fees and
administrative service fees. Such fees and commissions are
recognized in the period in which services are performed. Other
revenues also include changes in account value relating to
corporate-owned life insurance (“COLI”). Under certain
COLI contracts, if the Company reports certain unlikely adverse
results in its consolidated financial statements, withdrawals
would not be immediately available and would be subject to
market value adjustment, which could result in a reduction of
the account value.
Policyholder
Dividends
Policyholder dividends are approved annually by the insurance
subsidiaries’ boards of directors. The aggregate amount of
policyholder dividends is related to actual interest, mortality,
morbidity and expense experience for the year, as well as
management’s judgment as to the appropriate level of
statutory surplus to be retained by the insurance subsidiaries.
Income
Taxes
The Holding Company and its includable life insurance and
non-life insurance subsidiaries file a consolidated
U.S. federal income tax return in accordance with the
provisions of the Internal Revenue Code of 1986, as amended (the
“Code”). Non-includable subsidiaries file either
separate individual corporate tax returns or separate
consolidated tax returns.
The Company’s accounting for income taxes represents
management’s best estimate of various events and
transactions.
Deferred tax assets and liabilities resulting from temporary
differences between the financial reporting and tax bases of
assets and liabilities are measured at the balance sheet date
using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse.
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. Valuation allowances are established when
management determines, based on available information, that it
is more likely than not that deferred income tax assets will not
be realized. Significant judgment is required in determining
whether valuation
F-28
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
allowances should be established, as well as the amount of such
allowances. When making such determination, consideration is
given to, among other things, the following:
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(i)
|
future taxable income exclusive of reversing temporary
differences and carryforwards;
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(ii)
|
future reversals of existing taxable temporary differences;
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(iii)
|
taxable income in prior carryback years; and
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(iv)
|
tax planning strategies.
|
The Company may be required to change its provision for income
taxes in certain circumstances. Examples of such circumstances
include when the ultimate deductibility of certain items is
challenged by taxing authorities (See also Note 15) or
when estimates used in determining valuation allowances on
deferred tax assets significantly change or when receipt of new
information indicates the need for adjustment in valuation
allowances. Additionally, future events, such as changes in tax
laws, tax regulations, or interpretations of such laws or
regulations, could have an impact on the provision for income
tax and the effective tax rate. Any such changes could
significantly affect the amounts reported in the consolidated
financial statements in the year these changes occur.
The Company determines whether it is more-likely-than-not that a
tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit
can be recorded in the financial statements. A tax position is
measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement.
Unrecognized tax benefits due to tax uncertainties that do not
meet the threshold are included within other liabilities and are
charged to earnings in the period that such determination is
made.
The Company classifies interest recognized as interest expense
and penalties recognized as a component of income tax.
Reinsurance
The Company enters into reinsurance agreements primarily as a
purchaser of reinsurance for its various insurance products and
also as a provider of reinsurance for some insurance products
issued by third parties.
For each of its reinsurance agreements, the Company determines
if the agreement provides indemnification against loss or
liability relating to insurance risk in accordance with
applicable accounting standards. The Company reviews all
contractual features, particularly those that may limit the
amount of insurance risk to which the reinsurer is subject or
features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration
contracts that transfer significant insurance risk, the
difference, if any, between the amounts paid (received), and the
liabilities ceded (assumed) related to the underlying contracts
is considered the net cost of reinsurance at the inception of
the reinsurance agreement. The net cost of reinsurance is
recorded as an adjustment to DAC and recognized as a component
of other expenses on a basis consistent with the way the
acquisition costs on the underlying reinsured contracts would be
recognized. Subsequent amounts paid (received) on the
reinsurance of in-force blocks, as well as amounts paid
(received) related to new business, are recorded as ceded
(assumed) premiums and ceded (assumed) future policy benefit
liabilities are established.
For prospective reinsurance of short-duration contracts that
meet the criteria for reinsurance accounting, amounts paid
(received) are recorded as ceded (assumed) premiums and ceded
(assumed) unearned premiums and are reflected as a component of
premiums and other receivables (future policy benefits). Such
amounts are amortized through earned premiums over the remaining
contract period in proportion to the amount of protection
provided. For retroactive reinsurance of short-duration
contracts that meet the criteria of reinsurance accounting,
amounts paid (received) in excess of (which do not exceed) the
related insurance liabilities ceded (assumed) are recognized
immediately as a loss. Any gains on such retroactive agreements
are deferred and recorded in other liabilities. The gains are
amortized primarily using the recovery method.
F-29
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The assumptions used to account for both long and short-duration
reinsurance agreements are consistent with those used for the
underlying contracts. Ceded policyholder and contract related
liabilities, other than those currently due, are reported gross
on the balance sheet.
Amounts currently recoverable under reinsurance agreements are
included in premiums and other receivables and amounts currently
payable are included in other liabilities. Such assets and
liabilities relating to reinsurance agreements with the same
reinsurer may be recorded net on the balance sheet, if a right
of offset exists within the reinsurance agreement. In the event
that reinsurers do not meet their obligations to the Company
under the terms of the reinsurance agreements, reinsurance
balances recoverable could become uncollectible. In such
instances, reinsurance recoverable balances are stated net of
allowances for uncollectible reinsurance.
Premiums, fees and policyholder benefits and claims include
amounts assumed under reinsurance agreements and are net of
reinsurance ceded. Amounts received from reinsurers for policy
administration are reported in other revenues.
If the Company determines that a reinsurance agreement does not
expose the reinsurer to a reasonable possibility of a
significant loss from insurance risk, the Company records the
agreement using the deposit method of accounting. Deposits
received are included in other liabilities and deposits made are
included within other assets. As amounts are paid or received,
consistent with the underlying contracts, the deposit assets or
liabilities are adjusted. Interest on such deposits is recorded
as other revenues or other expenses, as appropriate.
Periodically, the Company evaluates the adequacy of the expected
payments or recoveries and adjusts the deposit asset or
liability through other revenues or other expenses, as
appropriate.
Accounting for reinsurance requires extensive use of assumptions
and estimates, particularly related to the future performance of
the underlying business and the potential impact of counterparty
credit risks. The Company periodically reviews actual and
anticipated experience compared to the aforementioned
assumptions used to establish assets and liabilities relating to
ceded and assumed reinsurance and evaluates the financial
strength of counterparties to its reinsurance agreements using
criteria similar to that evaluated in the security impairment
process discussed previously.
Cessions under reinsurance arrangements do not discharge the
Company’s obligations as the primary insurer.
Employee
Benefit Plans
Certain subsidiaries of the Holding Company (the
“Subsidiaries”) sponsor
and/or
administer various plans that provide defined benefit pension
and other postretirement benefits covering eligible employees
and sales representatives. A December 31 measurement date is
used for all of the Subsidiaries’ defined benefit pension
and other postretirement benefit plans.
Pension benefits are provided utilizing either a traditional
formula or cash balance formula. The traditional formula
provides benefits based upon years of credited service and
either final average or career average earnings. The cash
balance formula utilizes hypothetical or notional accounts which
credit participants with benefits equal to a percentage of
eligible pay, as well as earnings credits, determined annually
based upon the average annual rate of interest on
30-year
Treasury securities, for each account balance. At
December 31, 2008, virtually all the obligations are
calculated using the traditional formula.
The Subsidiaries also provide certain postemployment benefits
and certain postretirement medical and life insurance benefits
for retired employees. Employees of the Subsidiaries who were
hired prior to 2003 (or, in certain cases, rehired during or
after 2003) and meet age and service criteria while working
for one of the Subsidiaries, may become eligible for these other
postretirement benefits, at various levels, in accordance with
the applicable plans. Virtually all retirees, or their
beneficiaries, contribute a portion of the total cost of
postretirement medical benefits. Employees hired after 2003 are
not eligible for any employer subsidy for postretirement medical
benefits.
F-30
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The projected pension benefit obligation (“PBO”) is
defined as the actuarially calculated present value of vested
and non-vested pension benefits accrued based on future salary
levels. The accumulated pension benefit obligation
(“ABO”) is the actuarial present value of vested and
non-vested pension benefits accrued based on current salary
levels. Obligations, both PBO and ABO, of the defined benefit
pension plans are determined using a variety of actuarial
assumptions, from which actual results may vary, as described
below.
The expected postretirement plan benefit obligations
(“EPBO”) represents the actuarial present value of all
other postretirement benefits expected to be paid after
retirement to employees and their dependents. Unlike for
pensions, the EPBO is not recorded in the financial statements
but is used in measuring the periodic expense. The accumulated
postretirement plan benefit obligations (“APBO”)
represents the actuarial present value of future other
postretirement benefits attributed to employee services rendered
through a particular date and is the valuation basis upon which
liabilities are established. The APBO is determined using a
variety of actuarial assumptions, from which actual results may
vary, as described below.
The Company recognizes the funded status of the PBO for pension
plans and the APBO for other postretirement plans for each of
its plans in the consolidated balance sheets. The actuarial
gains or losses, prior service costs and credits and the
remaining net transition asset or obligation that had not yet
been included in net periodic benefit costs are charged, net of
income tax, to accumulated other comprehensive income.
Net periodic benefit cost is determined using management
estimates and actuarial assumptions to derive service cost,
interest cost, and expected return on plan assets for a
particular year. Net periodic benefit cost also includes the
applicable amortization of any prior service cost (credit)
arising from the increase (decrease) in prior years’
benefit costs due to plan amendments or initiation of new plans.
These costs are amortized into net periodic benefit cost over
the expected service years of employees whose benefits are
affected by such plan amendments. Actual experience related to
plan assets
and/or the
benefit obligations may differ from that originally assumed when
determining net periodic benefit cost for a particular period,
resulting in gains or losses. To the extent such aggregate gains
or losses exceed 10 percent of the greater of the benefit
obligations or the market-related asset value of the plans, they
are amortized into net periodic benefit cost over the expected
service years of employees expected to receive benefits under
the plans.
The obligations and expenses associated with these plans require
an extensive use of assumptions such as the discount rate,
expected rate of return on plan assets, rate of future
compensation increases, healthcare cost trend rates, as well as
assumptions regarding participant demographics such as rate and
age of retirements, withdrawal rates and mortality. Management,
in consultation with its external consulting actuarial firm,
determines these assumptions based upon a variety of factors
such as historical performance of the plan and its assets,
currently available market and industry data and expected
benefit payout streams. The assumptions used may differ
materially from actual results due to, among other factors,
changing market and economic conditions and changes in
participant demographics. These differences may have a
significant effect on the Company’s consolidated financial
statements and liquidity.
The Subsidiaries also sponsor defined contribution savings and
investment plans (“SIP”) for substantially all
employees under which a portion of employee contributions is
matched. Applicable matching contributions are made each payroll
period. Accordingly, the Company recognizes compensation cost
for current matching contributions. As all contributions are
transferred currently as earned to the SIP trust, no liability
for matching contributions is recognized in the consolidated
balance sheets.
Stock-Based
Compensation
As more fully described in Note 18, the Company grants
certain employees and directors stock-based compensation awards
under various plans that are subject to specific vesting
conditions. The cost of all stock-based transactions is measured
at fair value at grant date and recognized over the period
during which a grantee is required
F-31
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
to provide goods or services in exchange for the award. Although
the terms of the Company’s stock-based plans do not
accelerate vesting upon retirement, or the attainment of
retirement eligibility, the requisite service period subsequent
to attaining such eligibility is considered nonsubstantive.
Accordingly, the Company recognizes compensation expense related
to stock-based awards over the shorter of the requisite service
period or the period to attainment of retirement eligibility. An
estimation of future forfeitures of stock-based awards is
incorporated into the determination of compensation expense when
recognizing expense over the requisite service period.
Foreign
Currency
Balance sheet accounts of foreign operations are translated at
the exchange rates in effect at each year-end and income and
expense accounts are translated at the average rates of exchange
prevailing during the year. The local currencies of foreign
operations generally are the functional currencies unless the
local economy is highly inflationary. Translation adjustments
are charged or credited directly to other comprehensive income
or loss. Gains and losses from foreign currency transactions are
reported as net investment gains (losses) in the period in which
they occur.
Discontinued
Operations
The results of operations of a component of the Company that
either has been disposed of or is classified as
held-for-sale
are reported in discontinued operations if the operations and
cash flows of the component have been or will be eliminated from
the ongoing operations of the Company as a result of the
disposal transaction and the Company will not have any
significant continuing involvement in the operations of the
component after the disposal transaction.
Earnings
Per Common Share
Basic earnings per common share are computed based on the
weighted average number of common shares outstanding during the
period. The difference between the number of shares assumed
issued and number of shares assumed purchased represents the
dilutive shares. Diluted earnings per common share include the
dilutive effect of the assumed: (i) exercise or issuance of
stock-based awards using the treasury stock method;
(ii) settlement of stock purchase contracts underlying
common equity units using the treasury stock method; and
(iii) settlement of accelerated common stock repurchase
contracts. Under the treasury stock method, exercise or issuance
of stock-based awards and settlement of the stock purchase
contracts underlying common equity units is assumed to occur
with the proceeds used to purchase common stock at the average
market price for the period. See Notes 14, 18 and 20.
Litigation
Contingencies
The Company is a party to a number of legal actions and is
involved in a number of regulatory investigations. Given the
inherent unpredictability of these matters, it is difficult to
estimate the impact on the Company’s financial position.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. On a quarterly and annual basis, the Company reviews
relevant information with respect to liabilities for litigation,
regulatory investigations and litigation-related contingencies
to be reflected in the Company’s consolidated financial
statements. It is possible that an adverse outcome in certain of
the Company’s litigation and regulatory investigations, or
the use of different assumptions in the determination of amounts
recorded, could have a material effect upon the Company’s
consolidated net income or cash flows in particular quarterly or
annual periods.
Separate
Accounts
Separate accounts are established in conformity with insurance
laws and are generally not chargeable with liabilities that
arise from any other business of the Company. Separate account
assets are subject to general account claims only to the extent
the value of such assets exceeds the separate account
liabilities. Assets within the Company’s separate accounts
primarily include: mutual funds, fixed maturity and equity
securities, mortgage
F-32
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
loans, derivatives, hedge funds, other limited partnership
interests, short-term investments and cash and cash equivalents.
The Company reports separately, as assets and liabilities,
investments held in separate accounts and liabilities of the
separate accounts if (i) such separate accounts are legally
recognized; (ii) assets supporting the contract liabilities
are legally insulated from the Company’s general account
liabilities; (iii) investments are directed by the
contractholder; and (iv) all investment performance, net of
contract fees and assessments, is passed through to the
contractholder. The Company reports separate account assets
meeting such criteria at their fair value which is based on the
estimated fair values of the underlying assets comprising the
portfolios of an individual separate account. Investment
performance (including investment income, net investment gains
(losses) and changes in unrealized gains (losses)) and the
corresponding amounts credited to contractholders of such
separate accounts are offset within the same line in the
consolidated statements of operations. Separate accounts not
meeting the above criteria are combined on a
line-by-line
basis with the Company’s general account assets,
liabilities, revenues and expenses and the accounting for these
investments is consistent with the methodologies described
herein for similar financial instruments held within the general
account.
The Company’s revenues reflect fees charged to the separate
accounts, including mortality charges, risk charges, policy
administration fees, investment management fees and surrender
charges.
Adoption
of New Accounting Pronouncements
Financial
Instruments
As more fully described in “Summary of Significant
Accounting Policies and Critical Accounting Estimates,”
effective April 1, 2009, the Company adopted new OTTI
guidance. This guidance amends the previously used methodology
for determining whether an OTTI exists for fixed maturity
securities, changes the presentation of OTTI for fixed maturity
securities and requires additional disclosures for OTTI on fixed
maturity and equity securities in interim and annual financial
statements.
The Company’s net cumulative effect adjustment of adopting
the OTTI guidance was an increase of $76 million to
retained earnings with a corresponding increase to accumulated
other comprehensive loss to reclassify the noncredit loss
portion of previously recognized OTTI losses on fixed maturity
securities held at April 1, 2009. This cumulative effect
adjustment was comprised of an increase in the amortized cost
basis of fixed maturity securities of $126 million, net of
policyholder related amounts of $10 million and net of
deferred income taxes of $40 million, resulting in the net
cumulative effect adjustment of $76 million. The increase
in the amortized cost basis of fixed maturity securities of
$126 million by sector was as follows:
$53 million — ABS, $43 million —
RMBS, $17 million — U.S. corporate
securities and $13 million — CMBS.
As a result of the adoption of the OTTI guidance, the
Company’s pre-tax earnings for the year ended
December 31, 2009 increased by $857 million, offset by
an increase in other comprehensive loss representing OTTI
relating to noncredit losses recognized during the year ended
December 31, 2009.
Effective January 1, 2009, the Company adopted guidance on
disclosures about derivative instruments and hedging. This
guidance requires enhanced qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments and disclosures about credit risk-related
contingent features in derivative agreements. The Company has
provided all of the material disclosures in its consolidated
financial statements.
The following new pronouncements relating to financial
instruments had no material impact on the Company’s
consolidated financial statements:
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•
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Effective January 1, 2009, the Company adopted
prospectively an update on accounting for transfers of financial
assets and repurchase financing transactions. This update
provides guidance for evaluating whether to account for a
transfer of a financial asset and repurchase financing as a
single transaction or as two separate transactions.
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F-33
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
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•
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Effective December 31, 2008, the Company adopted new
guidance on the recognition of interest income and impairment on
purchased beneficial interests and beneficial interests that
continue to be held by a transferor in securitized financial
assets. This new guidance more closely aligns the determination
of whether an OTTI has occurred for a beneficial interest in a
securitized financial asset with the original guidance for fixed
maturity securities classified as
available-for-sale
or
held-to-maturity.
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•
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Effective January 1, 2008, the Company adopted new guidance
relating to application of the shortcut method of accounting for
derivative instruments and hedging activities. This guidance
permits interest rate swaps to have a non-zero fair value at
inception when applying the shortcut method of assessing hedge
effectiveness as long as the difference between the transaction
price (zero) and the fair value (exit price), as defined by
current accounting guidance on fair value measurements, is
solely attributable to a bid-ask spread. In addition, entities
are not precluded from applying the shortcut method of assessing
hedge effectiveness in a hedging relationship of interest rate
risk involving an interest bearing asset or liability in
situations where the hedged item is not recognized for
accounting purposes until settlement date as long as the period
between trade date and settlement date of the hedged item is
consistent with generally established conventions in the
marketplace.
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•
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Effective January 1, 2008, the Company adopted new guidance
that permits a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a
payable) against fair value amounts recognized for derivative
instruments executed with the same counterparty under the same
master netting arrangement that have been offset. This new
guidance also includes certain terminology modifications. Upon
adoption of this guidance, the Company did not change its
accounting policy of not offsetting fair value amounts
recognized for derivative instruments under master netting
arrangements.
|
Business
Combinations and Noncontrolling Interests
Effective January 1, 2009, the Company adopted revised
guidance on business combinations and accounting for
noncontrolling interests in the consolidated financial
statements. Under this new guidance:
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•
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All business combinations (whether full, partial or
“step” acquisitions) result in all assets and
liabilities of an acquired business being recorded at fair
value, with limited exceptions.
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•
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Acquisition costs are generally expensed as incurred;
restructuring costs associated with a business combination are
generally expensed as incurred subsequent to the acquisition
date.
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•
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The fair value of the purchase price, including the issuance of
equity securities, is determined on the acquisition date.
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•
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Assets acquired and liabilities assumed in a business
combination that arise from contingencies are recognized at fair
value if the acquisition-date fair value can be reasonably
determined. If the fair value is not estimable, an asset or
liability is recorded if existence or incurrence at the
acquisition date is probable and its amount is reasonably
estimable.
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•
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Changes in deferred income tax asset valuation allowances and
income tax uncertainties after the acquisition date generally
affect income tax expense.
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•
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Noncontrolling interests (formerly known as “minority
interests”) are valued at fair value at the acquisition
date and are presented as equity rather than liabilities.
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•
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Net income (loss) includes amounts attributable to
noncontrolling interests.
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•
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When control is attained on previously noncontrolling interests,
the previously held equity interests are remeasured at fair
value and a gain or loss is recognized.
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F-34
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
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•
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Purchases or sales of equity interests that do not result in a
change in control are accounted for as equity transactions.
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•
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When control is lost in a partial disposition, realized gains or
losses are recorded on equity ownership sold and the remaining
ownership interest is remeasured and holding gains or losses are
recognized.
|
The adoption of this guidance on a prospective basis did not
have an impact on the Company’s consolidated financial
statements. Financial statements and disclosures for periods
prior to 2009 reflect the retrospective application of the
accounting for noncontrolling interests as required under this
guidance.
Effective January 1, 2009, the Company adopted
prospectively new guidance on determination of the useful life
of intangible assets. This guidance amends the factors that
should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. This change is intended to improve the
consistency between the useful life of a recognized intangible
asset and the period of expected future cash flows used to
measure the fair value of the asset. The Company determines
useful lives and provides all of the material disclosures
prospectively on intangible assets acquired on or after
January 1, 2009 in accordance with this guidance.
Fair
Value
Effective January 1, 2008, the Company adopted new fair
value measurements guidance which defines fair value,
establishes a consistent framework for measuring fair value,
establishes a fair value hierarchy based on the observability of
inputs used to measure fair value, and requires enhanced
disclosures about fair value measurements and applied this
guidance prospectively to assets and liabilities measured at
fair value. The adoption of this guidance changed the valuation
of certain freestanding derivatives by moving from a mid to bid
pricing convention as it relates to certain volatility inputs,
as well as the addition of liquidity adjustments and adjustments
for risks inherent in a particular input or valuation technique.
The adoption of this guidance also changed the valuation of the
Company’s embedded derivatives, most significantly the
valuation of embedded derivatives associated with certain
guarantees on variable annuity contracts. The change in
valuation of embedded derivatives associated with guarantees on
annuity contracts resulted from the incorporation of risk
margins associated with non-capital market inputs and the
inclusion of the Company’s own credit standing in their
valuation. At January 1, 2008, the impact of adopting the
guidance on assets and liabilities measured at estimated fair
value was $30 million ($19 million, net of income tax)
and was recognized as a change in estimate in the accompanying
consolidated statement of operations where it was presented in
the respective statement of operations caption to which the item
measured at estimated fair value is presented. There were no
significant changes in estimated fair value of items measured at
fair value and reflected in accumulated other comprehensive
income (loss). The addition of risk margins and the
Company’s own credit spread in the valuation of embedded
derivatives associated with annuity contracts may result in
significant volatility in the Company’s consolidated net
income in future periods. The Company provided all of the
material disclosures in Note 5.
In February 2007, the FASB issued guidance related to the fair
value option for financial assets and financial liabilities.
This guidance permits entities the option to measure most
financial instruments and certain other items at fair value at
specified election dates and to recognize related unrealized
gains and losses in earnings. The fair value option is applied
on an
instrument-by-instrument
basis upon adoption of the standard, upon the acquisition of an
eligible financial asset, financial liability or firm commitment
or when certain specified reconsideration events occur. The fair
value election is an irrevocable election. Effective
January 1, 2008, the Company elected the fair value option
on fixed maturity and equity securities backing certain pension
products sold in Brazil. Such securities are presented as
trading securities in the consolidated balance sheets with
subsequent changes in estimated fair value recognized in net
investment income. Previously, these securities were accounted
for as
available-for-sale
securities and unrealized gains and losses on these securities
were recorded as a separate component of accumulated other
comprehensive income (loss). The Company’s insurance joint
venture in Japan also elected the fair value option for certain
of its existing single premium deferred annuities and the assets
supporting such
F-35
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
liabilities. The fair value option was elected to achieve
improved reporting of the asset/liability matching associated
with these products. Adoption of this guidance by the Company
and its Japanese joint venture resulted in an increase in
retained earnings of $27 million, net of income tax, at
January 1, 2008. The election of the fair value option
resulted in the reclassification of $10 million, net of
income tax, of net unrealized gains from accumulated other
comprehensive income (loss) to retained earnings on
January 1, 2008.
Effective April 1, 2009, the Company adopted new guidance
on: (i) estimating the fair value of an asset or liability
if there was a significant decrease in the volume and level of
trading activity for these assets or liabilities; and
(ii) identifying transactions that are not orderly. The
Company has provided all of the material disclosures in its
consolidated financial statements. This adoption did not have
any other material impact on the Company’s consolidated
financial statements.
The following new pronouncements relating to fair value had no
material impact on the Company’s consolidated financial
statements:
|
|
|
| |
•
|
Effective September 30, 2008, the Company adopted new
guidance relating to the fair value measurements of financial
assets when the market for those assets is not active. It
provides guidance on how a company’s internal cash flow and
discount rate assumptions should be considered in the
measurement of fair value when relevant market data does not
exist, how observable market information in an inactive market
affects fair value measurement and how the use of market quotes
should be considered when assessing the relevance of observable
and unobservable data available to measure fair value.
|
| |
| |
•
|
Effective January 1, 2009, the Company implemented fair
value measurements guidance for certain nonfinancial assets and
liabilities that are recorded at fair value on a non-recurring
basis. This guidance applies to such items as:
(i) nonfinancial assets and nonfinancial liabilities
initially measured at estimated fair value in a business
combination; (ii) reporting units measured at estimated
fair value in the first step of a goodwill impairment test; and
(iii) indefinite-lived intangible assets measured at
estimated fair value for impairment assessment.
|
| |
| |
•
|
Effective January 1, 2009, the Company adopted
prospectively guidance on issuer’s accounting for
liabilities measured at fair value with a third-party credit
enhancement. This guidance states that an issuer of a liability
with a third-party credit enhancement should not include the
effect of the credit enhancement in the fair value measurement
of the liability. In addition, it requires disclosures about the
existence of any third-party credit enhancement related to
liabilities that are measured at fair value.
|
| |
| |
•
|
Effective December 31, 2009, the Company adopted new
guidance on: (i) measuring the fair value of investments in
certain entities that calculate NAV per share; (ii) how
investments within its scope would be classified in the fair
value hierarchy; and (iii) enhanced disclosure
requirements, for both interim and annual periods, about the
nature and risks of investments measured at fair value on a
recurring or non-recurring basis.
|
| |
| |
•
|
Effective December 31, 2009, the Company adopted new
guidance on measuring liabilities at fair value. This guidance
provides clarification for measuring fair value in circumstances
in which a quoted price in an active market for the identical
liability is not available. In such circumstances a company is
required to measure fair value using either a valuation
technique that uses: (i) the quoted price of the identical
liability when traded as an asset; or (ii) quoted prices
for similar liabilities or similar liabilities when traded as
assets; or (iii) another valuation technique that is
consistent with the principles of fair value measurement such as
an income approach (e.g., present value technique) or a market
approach (e.g., “entry” value technique).
|
F-36
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Defined
Benefit and Other Postretirement Plans
Effective December 31, 2009, the Company adopted new
guidance to enhance the transparency surrounding the types of
assets and associated risks in an employer’s defined
benefit pension or other postretirement benefit plans. This
guidance requires an employer to disclose information about the
valuation of plan assets similar to that required under other
fair value disclosure guidance. The Company provided all of the
material disclosures in its consolidated financial statements.
Other
Pronouncements
Effective April 1, 2009, the Company adopted prospectively
new guidance which establishes general standards for accounting
and disclosures of events that occur subsequent to the balance
sheet date but before financial statements are issued or
available to be issued. The Company has provided all of the
required disclosures in its consolidated financial statements.
Effective December 31, 2008, the Company adopted new
guidance relating to disclosures by public entities about
transfers of financial assets and interests in VIEs. This
guidance requires additional qualitative and quantitative
disclosures about a transferors’ continuing involvement in
transferred financial assets and involvement in VIEs. The exact
nature of the additional required VIE disclosures vary and
depend on whether or not the VIE is a qualifying special purpose
entity (“QSPE”). For VIEs that are QSPEs, the
additional disclosures are only required for a non-transferor
sponsor holding a variable interest or a non-transferor servicer
holding a significant variable interest. For VIEs that are not
QSPEs, the additional disclosures are only required if the
Company is the primary beneficiary, and if not the primary
beneficiary, only if the Company holds a significant variable
interest in the VIE or is its sponsor. The Company provided all
of the material disclosures in its consolidated financial
statements.
Effective January 1, 2007, the Company adopted new guidance
on income taxes. This guidance clarifies the accounting for
uncertainty in income tax recognized in a company’s
financial statements. It requires companies to determine whether
it is “more likely than not” that a tax position will
be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in
the financial statements. It also provides guidance on the
recognition, measurement and classification of income tax
uncertainties, along with any related interest and penalties.
Previously recorded income tax benefits that no longer meet this
standard are required to be charged to earnings in the period
that such determination is made. As a result of the
implementation, the Company recognized a $35 million
increase in the liability for unrecognized tax benefits and a
$9 million decrease in the interest liability for
unrecognized tax benefits, as well as a $17 million
increase in the liability for unrecognized tax benefits and a
$5 million increase in the interest liability for
unrecognized tax benefits which are included in liabilities of
subsidiaries
held-for-sale.
The corresponding reduction to the January 1, 2007 balance
of retained earnings was $37 million, net of
$11 million of noncontrolling interests.
Effective January 1, 2007, the Company adopted new guidance
on accounting by insurance enterprises for DAC on internal
replacements of insurance and investment contracts other than
those specifically described in guidance relating to accounting
and reporting by insurance enterprises for long-duration
contracts and for realized gains and losses from the sale of
investments. As a result of the adoption of the new guidance, if
an internal replacement modification substantially changes a
contract, then the DAC is written off immediately through income
and any new deferrable costs associated with the new replacement
are deferred. If a contract modification does not substantially
change the contract, the DAC amortization on the original
contract will continue and any acquisition costs associated with
the related modification are immediately expensed. The adoption
of this guidance resulted in a reduction to DAC and VOBA on
January 1, 2007 and an acceleration of the amortization
period relating primarily to the Company’s group life and
health insurance contracts that contain certain rate reset
provisions. Prior to the adoption, DAC on such contracts was
amortized over the expected renewable life of the contract. Upon
adoption, DAC on such contracts is to be amortized over the rate
reset period. The impact as of January 1, 2007 was a
cumulative effect adjustment of $292 million, net of income
tax of $161 million, which was recorded as a reduction to
retained earnings.
F-37
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following new pronouncements had no material impact on the
Company’s consolidated financial statements:
|
|
|
| |
•
|
Effective January 1, 2009, the Company adopted guidance on
determining whether an instrument (or embedded feature) is
indexed to an entity’s own stock. This guidance provides a
framework for evaluating the terms of a particular instrument
and whether such terms qualify the instrument as being indexed
to an entity’s own stock.
|
| |
| |
•
|
Effective January 1, 2008, the Company adopted new guidance
on written loan commitments recorded at fair value through
earnings. It provides guidance on (i) incorporating
expected net future cash flows when related to the associated
servicing of a loan when measuring fair value; and
(ii) broadening the SEC staff’s view that
internally-developed intangible assets should not be recorded as
part of the fair value of a derivative loan commitment or to
written loan commitments that are accounted for at fair value
through earnings. Internally-developed intangible assets are not
considered a component of the related instruments.
|
| |
| |
•
|
Effective January 1, 2008, the Company prospectively
adopted new guidance on the sale of real estate when the
agreement includes a buy-sell clause. This guidance addresses
whether the existence of a buy-sell arrangement would preclude
partial sales treatment when real estate is sold to a jointly
owned entity and concludes that the existence of a buy-sell
clause does not necessarily preclude partial sale treatment
under current guidance.
|
Future
Adoption of New Accounting Pronouncements
In January 2010, the FASB issued new guidance that requires new
disclosures about significant transfers in
and/or out
of Levels 1 and 2 of the fair value hierarchy and activity
in Level 3 (Accounting Standards Update (“ASU”)
2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements). In
addition, this guidance provides clarification of existing
disclosure requirements about (a) level of disaggregation
and (b) inputs and valuation techniques. The update is
effective for the first quarter of 2010. The Company is
currently evaluating the impact of this guidance on its
consolidated financial statements.
In June 2009, the FASB issued additional guidance related to
financial instrument transfers (ASU
2009-16,
Transfers and Servicing (Topic 860): Accounting for Transfers
of Financial Assets) and evaluation of VIEs for
consolidation (ASU
2009-17,
Consolidations (Topic 810): Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities). The guidance is effective for the first quarter
of 2010:
|
|
|
| |
•
|
The financial instrument transfer guidance eliminates the
concept of a “QSPE,” eliminates the guaranteed
mortgage securitization exception, changes the criteria for
achieving sale accounting when transferring a financial asset
and changes the initial recognition of retained beneficial
interests. The guidance also requires additional disclosures
about transfers of financial assets, including securitized
transactions, as well as a company’s continuing involvement
in transferred financial assets. The Company does not expect the
adoption of the new guidance to have a material impact on the
Company’s consolidated financial statements.
|
| |
| |
•
|
The consolidation guidance relating to VIEs changes the
determination of the primary beneficiary of a VIE from a
quantitative model to a qualitative model. Under the new
qualitative model, the primary beneficiary must have both the
ability to direct the activities of the VIE and the obligation
to absorb either losses or gains that could be significant to
the VIE. The guidance also changes when reassessment is needed,
as well as requires enhanced disclosures, including the effects
of a company’s involvement with VIEs on its financial
statements. The Company does not expect the adoption of the new
guidance to have a material impact on the Company’s
consolidated financial statements.
|
F-38
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
2.
|
Acquisitions
and Dispositions
|
2009
Disposition
On March 2, 2009, the Company sold Cova Corporation
(“Cova”), the parent company of Texas Life Insurance
Company (“Texas Life”) to a third-party for
$130 million in cash consideration, excluding
$1 million of transaction costs. The net assets sold were
$101 million, resulting in a gain on disposal of
$28 million, net of income tax. The Company also
reclassified $4 million, net of income tax, of the 2009
operations of Texas Life into discontinued operations in the
consolidated financial statements. As a result, the Company
recognized income from discontinued operations of
$32 million, net of income tax, during the year ended
December 31, 2009. See also Note 23.
2008
Disposition
In September 2008, the Company completed a tax-free split-off of
its majority-owned subsidiary, Reinsurance Group of America,
Incorporated (“RGA”). The Company and RGA entered into
a recapitalization and distribution agreement, pursuant to which
the Company agreed to divest substantially all of its 52%
interest in RGA to the Company’s stockholders. The
split-off was effected through the following:
|
|
|
| |
•
|
A recapitalization of RGA common stock into two classes of
common stock — RGA Class A common stock and RGA
Class B common stock. Pursuant to the terms of the
recapitalization, each outstanding share of RGA common stock,
including the 32,243,539 shares of RGA common stock
beneficially owned by the Company and its subsidiaries, was
reclassified as one share of RGA Class A common stock.
Immediately thereafter, the Company and its subsidiaries
exchanged 29,243,539 shares of its RGA Class A common
stock — which represented all of the RGA Class A
common stock beneficially owned by the Company and its
subsidiaries other than 3,000,000 shares of RGA
Class A common stock — with RGA for
29,243,539 shares of RGA Class B common stock.
|
| |
| |
•
|
An exchange offer, pursuant to which the Company offered to
acquire MetLife common stock from its stockholders in exchange
for all of its 29,243,539 shares of RGA Class B common
stock. The exchange ratio was determined based upon a ratio of
the value of the MetLife and RGA shares during the
three-day
period prior to the closing of the exchange offer. The
3,000,000 shares of the RGA Class A common stock were
not subject to the tax-free exchange.
|
As a result of completion of the recapitalization and exchange
offer, the Company received from MetLife stockholders
23,093,689 shares of the Holding Company’s common
stock with a market value of $1,318 million and, in
exchange, delivered 29,243,539 shares of RGA’s
Class B common stock with a net book value of
$1,716 million. The resulting loss on disposition,
inclusive of transaction costs of $60 million, was
$458 million. During the third quarter of 2009, the Company
incurred $2 million, net of income tax, of additional costs
related to this split-off. The 3,000,000 shares of RGA
Class A common stock retained by the Company are marketable
equity securities which do not constitute significant continuing
involvement in the operations of RGA; accordingly, they have
been classified within equity securities in the consolidated
financial statements of the Company at a cost basis of
$157 million which is equivalent to the net book value of
the shares. The cost basis will be adjusted to fair value at
each subsequent reporting date. The Company has agreed to
dispose of the remaining shares of RGA within the next five
years. In connection with the Company’s agreement to
dispose of the remaining shares, the Company also recognized, in
its provision for income tax on continuing operations, a
deferred tax liability of $16 million which represents the
difference between the book and taxable basis of the remaining
investment in RGA.
The impact of the disposition of the Company’s investment
in RGA is reflected in the Company’s consolidated financial
statements as discontinued operations.
F-39
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
2008
Acquisitions
During 2008, the Company made five acquisitions for
$783 million. As a result of these acquisitions,
MetLife’s Insurance Products segment increased its product
offering of dental and vision benefit plans, MetLife Bank within
Banking, Corporate & Other entered the mortgage
origination and servicing business and the International segment
increased its presence in Mexico and Brazil. The acquisitions
were each accounted for using the purchase method of accounting,
and accordingly, commenced being included in the operating
results of the Company upon their respective closing dates.
Total consideration paid by the Company for these acquisitions
consisted of $763 million in cash and $20 million in
transaction costs. The net fair value of assets acquired and
liabilities assumed totaled $527 million, resulting in
goodwill of $256 million. Goodwill increased by
$122 million, $73 million and $61 million in the
International segment, Insurance Products segment and Banking,
Corporate & Other, respectively. The goodwill is
deductible for tax purposes. VOCRA, VOBA and other intangibles
increased by $137 million, $7 million and
$6 million, respectively, as a result of these
acquisitions. Further information on VOBA, goodwill and VOCRA is
provided in Notes 6, 7 and 8, respectively.
2007
Acquisition and Dispositions
In June 2007, the Company acquired the remaining 50% interest in
a joint venture in Hong Kong, MetLife Fubon Limited
(“MetLife Fubon”), for $56 million in cash,
resulting in MetLife Fubon becoming a consolidated subsidiary of
the Company. The transaction was treated as a step acquisition,
and at June 30, 2007, total assets and liabilities of
MetLife Fubon of $839 million and $735 million,
respectively, were included in the Company’s consolidated
balance sheets. The Company’s investment for the initial
50% interest in MetLife Fubon was $48 million. The Company
used the equity method of accounting for such investment in
MetLife Fubon. The Company’s share of the joint
venture’s results for the six months ended June 30,
2007, was a loss of $3 million. The fair value of assets
acquired and the liabilities assumed in the step acquisition at
June 30, 2007, was $427 million and $371 million,
respectively. No additional goodwill was recorded as a part of
the step acquisition. As a result of this acquisition,
additional VOBA and VODA of $45 million and
$5 million, respectively, were recorded and both have a
weighted average amortization period of 16 years. In June
2008, the Company revised the valuation of certain long-term
liabilities, VOBA and VODA based on new information received. As
a result, the fair value of acquired insurance liabilities and
VOBA were reduced by $5 million and $12 million,
respectively, offset by an increase in VODA of $7 million.
The revised VOBA and VODA have a weighted average amortization
period of 11 years. Further information on VOBA and VODA is
described in Notes 6 and 8, respectively.
In August 2007, MetLife Insurance Limited completed the sale of
its annuities and pension businesses to a third-party for
$25 million in cash consideration resulting in a gain upon
disposal of $41 million, net of income tax.
In June 2007, the Company completed the sale of its Bermuda
insurance subsidiary, MetLife International Insurance, Ltd.
(“MLII”), to a third-party for $33 million in
cash consideration, resulting in a gain upon disposal of
$3 million, net of income tax. The net assets of MLII at
disposal were $27 million. A liability of $1 million
was recorded with respect to a guarantee provided in connection
with this disposition and remains outstanding at
December 31, 2009. Further information on guarantees is
described in Note 16.
2009
Disposition through Assumption Reinsurance
On October 30, 2009, the Company completed the disposal,
through assumption reinsurance, of substantially all of the
insurance business of MetLife Canada, a wholly-owned indirect
subsidiary, to a third-party. Pursuant to the assumption
reinsurance agreement, the consideration paid by the Company was
$259 million, comprised of cash of $14 million and
fixed maturity securities, mortgage loans and other assets
totaling $245 million. At the date of the assumption
reinsurance agreement, the carrying value of insurance
liabilities transferred was $267 million, resulting in a
gain of $5 million, net of income tax. The gain was
recognized in net investment gains (losses).
F-40
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Fixed
Maturity and Equity Securities
Available-for-Sale
The following tables present the cost or amortized cost, gross
unrealized gain and loss, estimated fair value of the
Company’s fixed maturity and equity securities and the
percentage that each sector represents by the respective total
holdings for the periods shown. The unrealized loss amounts
presented below at December 31, 2009 include the noncredit
loss component of OTTI loss:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
72,075
|
|
|
$
|
2,821
|
|
|
$
|
2,699
|
|
|
$
|
10
|
|
|
$
|
72,187
|
|
|
|
31.7
|
%
|
|
RMBS
|
|
|
45,343
|
|
|
|
1,234
|
|
|
|
1,957
|
|
|
|
600
|
|
|
|
44,020
|
|
|
|
19.3
|
|
|
Foreign corporate securities
|
|
|
37,254
|
|
|
|
2,011
|
|
|
|
1,226
|
|
|
|
9
|
|
|
|
38,030
|
|
|
|
16.7
|
|
|
U.S. Treasury, agency and government guaranteed securities (1)
|
|
|
25,712
|
|
|
|
745
|
|
|
|
1,010
|
|
|
|
—
|
|
|
|
25,447
|
|
|
|
11.2
|
|
|
CMBS
|
|
|
16,555
|
|
|
|
191
|
|
|
|
1,106
|
|
|
|
18
|
|
|
|
15,622
|
|
|
|
6.9
|
|
|
ABS
|
|
|
14,272
|
|
|
|
189
|
|
|
|
1,077
|
|
|
|
222
|
|
|
|
13,162
|
|
|
|
5.8
|
|
|
Foreign government securities
|
|
|
11,010
|
|
|
|
1,076
|
|
|
|
139
|
|
|
|
—
|
|
|
|
11,947
|
|
|
|
5.2
|
|
|
State and political subdivision securities
|
|
|
7,468
|
|
|
|
151
|
|
|
|
411
|
|
|
|
—
|
|
|
|
7,208
|
|
|
|
3.2
|
|
|
Other fixed maturity securities
|
|
|
20
|
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2), (3)
|
|
$
|
229,709
|
|
|
$
|
8,419
|
|
|
$
|
9,627
|
|
|
$
|
859
|
|
|
$
|
227,642
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,537
|
|
|
$
|
92
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
1,621
|
|
|
|
52.6
|
%
|
|
Non-redeemable preferred stock (2)
|
|
|
1,650
|
|
|
|
80
|
|
|
|
267
|
|
|
|
—
|
|
|
|
1,463
|
|
|
|
47.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (4)
|
|
$
|
3,187
|
|
|
$
|
172
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
3,084
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
72,211
|
|
|
$
|
994
|
|
|
$
|
9,902
|
|
|
$
|
63,303
|
|
|
|
33.6
|
%
|
|
RMBS
|
|
|
39,995
|
|
|
|
753
|
|
|
|
4,720
|
|
|
|
36,028
|
|
|
|
19.2
|
|
|
Foreign corporate securities
|
|
|
34,798
|
|
|
|
565
|
|
|
|
5,684
|
|
|
|
29,679
|
|
|
|
15.8
|
|
|
U.S. Treasury, agency and government guaranteed securities (1)
|
|
|
17,229
|
|
|
|
4,082
|
|
|
|
1
|
|
|
|
21,310
|
|
|
|
11.3
|
|
|
CMBS
|
|
|
16,079
|
|
|
|
18
|
|
|
|
3,453
|
|
|
|
12,644
|
|
|
|
6.7
|
|
|
ABS
|
|
|
14,246
|
|
|
|
16
|
|
|
|
3,739
|
|
|
|
10,523
|
|
|
|
5.6
|
|
|
Foreign government securities
|
|
|
9,474
|
|
|
|
1,056
|
|
|
|
377
|
|
|
|
10,153
|
|
|
|
5.4
|
|
|
State and political subdivision securities
|
|
|
5,419
|
|
|
|
80
|
|
|
|
942
|
|
|
|
4,557
|
|
|
|
2.4
|
|
|
Other fixed maturity securities
|
|
|
57
|
|
|
|
—
|
|
|
|
3
|
|
|
|
54
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2), (3)
|
|
$
|
209,508
|
|
|
$
|
7,564
|
|
|
$
|
28,821
|
|
|
$
|
188,251
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,778
|
|
|
$
|
40
|
|
|
$
|
133
|
|
|
$
|
1,685
|
|
|
|
52.7
|
%
|
|
Non-redeemable preferred stock (2)
|
|
|
2,353
|
|
|
|
4
|
|
|
|
845
|
|
|
|
1,512
|
|
|
|
47.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (4)
|
|
$
|
4,131
|
|
|
$
|
44
|
|
|
$
|
978
|
|
|
$
|
3,197
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has classified within the U.S. Treasury, agency and
government guaranteed securities caption certain corporate fixed
maturity securities issued by U.S. financial institutions that
were guaranteed by the Federal Deposit Insurance Corporation
(“FDIC”) pursuant to the FDIC’s Temporary
Liquidity Guarantee Program (“FDIC Program”) of
$407 million and $2 million at estimated fair value
with unrealized gains (losses) of $2 million and less than
($1) million at December 31, 2009 and 2008,
respectively. |
| |
|
(2) |
|
At time of acquisition, the Company classifies perpetual
securities that have attributes of both debt and equity as fixed
maturity securities if the security has a punitive interest rate
step-up
feature, as it believes in most instances this feature will
compel the issuer to redeem the security at the specified call
date. Perpetual securities that do not have a punitive interest
rate step-up
feature are classified as equity securities within
non-redeemable preferred stock. Many of such securities have
been issued by
non-U.S.
financial institutions that are accorded Tier 1 and Upper
Tier 2 capital treatment by their respective regulatory
bodies and are commonly referred to as “perpetual hybrid
securities.” The following table presents the perpetual
hybrid securities held by the Company at: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
|
Classification
|
|
Fair
|
|
Fair
|
|
Consolidated Balance Sheets
|
|
Sector Table
|
|
Primary Issuers
|
|
Value
|
|
Value
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
Non-U.S. financial institutions
|
|
$
|
988
|
|
|
$
|
1,224
|
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
U.S. financial institutions
|
|
$
|
349
|
|
|
$
|
288
|
|
|
Fixed maturity securities
|
|
Foreign corporate securities
|
|
Non-U.S. financial institutions
|
|
$
|
2,626
|
|
|
$
|
2,110
|
|
|
Fixed maturity securities
|
|
U.S. corporate securities
|
|
U.S. financial institutions
|
|
$
|
91
|
|
|
$
|
46
|
|
F-42
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
(3) |
|
The Company held $2.5 billion and $2.1 billion at
estimated fair value of redeemable preferred stock which have
stated maturity dates at December 31, 2009 and 2008,
respectively. These securities, commonly referred to as
“capital securities”, are primarily issued by U.S.
financial institutions, have cumulative interest deferral
features and are included in the U.S. corporate securities
sector within fixed maturity securities. |
| |
|
(4) |
|
Equity securities primarily consist of investments in common and
preferred stocks, including certain perpetual hybrid securities
and mutual fund interests. Privately-held equity securities
represented $1.0 billion and $1.1 billion at estimated
fair value at December 31, 2009 and 2008, respectively. |
The Company held foreign currency derivatives with notional
amounts of $9.1 billion to hedge the exchange rate risk
associated with foreign denominated fixed maturity securities at
both December 31, 2009 and December 31, 2008.
The following table presents selected information about certain
fixed maturity securities held by the Company at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Below investment grade or non-rated fixed maturity securities
(1):
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
20,201
|
|
|
$
|
12,365
|
|
|
Net unrealized loss
|
|
$
|
2,609
|
|
|
$
|
5,094
|
|
|
Non-income producing fixed maturity securities (1):
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
312
|
|
|
$
|
75
|
|
|
Net unrealized loss
|
|
$
|
31
|
|
|
$
|
19
|
|
|
Fixed maturity securities credit enhanced by financial guarantor
insurers — by sector — at estimated fair
value:
|
|
|
|
|
|
|
|
|
|
State and political subdivision securities
|
|
$
|
2,154
|
|
|
$
|
2,005
|
|
|
U.S. corporate securities
|
|
|
1,750
|
|
|
|
2,007
|
|
|
ABS
|
|
|
803
|
|
|
|
833
|
|
|
Other
|
|
|
43
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities credit enhanced by financial
guarantor insurers
|
|
$
|
4,750
|
|
|
$
|
4,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings of the financial guarantor insurers providing the credit
enhancement:
|
|
|
|
|
|
|
|
|
|
Portion rated Aa/AA
|
|
|
18
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated A
|
|
|
2
|
%
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Baa/BBB
|
|
|
36
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS held by the
Company’s domestic insurance subsidiaries. Non-agency RMBS
held by the Company’s domestic insurance subsidiaries at
December 31, 2009 are included based on final ratings from
the revised NAIC rating methodology which became effective
December 31, 2009 (which may not correspond to rating
agency designations). |
Concentrations of Credit Risk (Fixed Maturity
Securities) — Summary. The following
section contains a summary of the concentrations of credit risk
related to fixed maturity securities holdings.
F-43
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The Company is not exposed to any concentrations of credit risk
of any single issuer greater than 10% of the Company’s
stockholders’ equity, other than securities of the
U.S. government, certain U.S. government agencies and
certain securities guaranteed by the U.S. government, as
well as securities of the Mexican government and certain Mexican
government agencies. The Company’s holdings in
U.S. Treasury, agency and government guaranteed fixed
maturity securities, as well as securities of the Mexican
government and certain Mexican government agencies at estimated
fair value were $25.4 billion and $21.3 billion; and
$4.8 billion and $4.0 billion at December 31,
2009 and 2008, respectively.
Concentrations of Credit Risk (Fixed Maturity
Securities) — U.S. and Foreign Corporate
Securities. The Company maintains a diversified
portfolio of corporate fixed maturity securities across
industries and issuers. This portfolio does not have an exposure
to any single issuer in excess of 1% of total investments. The
tables below present the major industry types that comprise the
corporate fixed maturity securities holdings, the largest
exposure to a single issuer and the combined holdings in the ten
issuers to which it had the largest exposure at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Corporate fixed maturity securities — by industry type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign (1)
|
|
$
|
38,030
|
|
|
|
34.5
|
%
|
|
$
|
29,679
|
|
|
|
32.0
|
%
|
|
Industrial
|
|
|
17,246
|
|
|
|
15.6
|
|
|
|
13,324
|
|
|
|
14.3
|
|
|
Consumer
|
|
|
16,924
|
|
|
|
15.4
|
|
|
|
13,122
|
|
|
|
14.1
|
|
|
Utility
|
|
|
14,785
|
|
|
|
13.4
|
|
|
|
12,434
|
|
|
|
13.4
|
|
|
Finance
|
|
|
13,756
|
|
|
|
12.5
|
|
|
|
14,996
|
|
|
|
16.1
|
|
|
Communications
|
|
|
6,580
|
|
|
|
6.0
|
|
|
|
5,714
|
|
|
|
6.1
|
|
|
Other
|
|
|
2,896
|
|
|
|
2.6
|
|
|
|
3,713
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110,217
|
|
|
|
100.0
|
%
|
|
$
|
92,982
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. Dollar-denominated debt obligations of foreign
obligors and other foreign fixed maturity security investments. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Estimated
|
|
|
|
Estimated
|
|
|
|
|
|
Fair
|
|
% of Total
|
|
Fair
|
|
% of Total
|
|
|
|
Value
|
|
Investments
|
|
Value
|
|
Investments
|
|
|
|
(In millions)
|
|
|
|
Concentrations within corporate fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Largest exposure to a single issuer
|
|
$
|
1,038
|
|
|
|
0.3
|
%
|
|
$
|
1,469
|
|
|
|
0.5
|
%
|
|
Holdings in ten issuers with the largest exposures
|
|
$
|
7,506
|
|
|
|
2.3
|
%
|
|
$
|
8,446
|
|
|
|
2.8
|
%
|
F-44
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Concentrations of Credit Risk (Fixed Maturity
Securities) — RMBS. The table below
presents the Company’s RMBS holdings and portion rated
Aaa/AAA and portion rated NAIC 1 at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
By security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
24,480
|
|
|
|
55.6
|
%
|
|
$
|
26,025
|
|
|
|
72.2
|
%
|
|
Pass-through securities
|
|
|
19,540
|
|
|
|
44.4
|
|
|
|
10,003
|
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
44,020
|
|
|
|
100.0
|
%
|
|
$
|
36,028
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
33,334
|
|
|
|
75.7
|
%
|
|
$
|
24,409
|
|
|
|
67.8
|
%
|
|
Prime
|
|
|
6,775
|
|
|
|
15.4
|
|
|
|
8,254
|
|
|
|
22.9
|
|
|
Alternative residential mortgage loans
|
|
|
3,911
|
|
|
|
8.9
|
|
|
|
3,365
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
44,020
|
|
|
|
100.0
|
%
|
|
$
|
36,028
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA (1)
|
|
$
|
35,626
|
|
|
|
80.9
|
%
|
|
$
|
33,265
|
|
|
|
92.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1 (2)
|
|
$
|
38,464
|
|
|
|
87.4
|
%
|
|
$
|
34,513
|
|
|
|
95.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised National Association of Insurance Commissioners
(“NAIC”) methodology which became effective
December 31, 2009. |
| |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS held by the
Company’s domestic insurance subsidiaries. Non-agency RMBS
held by the Company’s domestic insurance subsidiaries at
December 31, 2009 are included based on final ratings from
the revised NAIC rating methodology which became effective
December 31, 2009 (which may not correspond to rating
agency designations). |
Collateralized mortgage obligations are a type of
mortgage-backed security structured by dividing the cash flows
of mortgages into separate pools or tranches of risk that create
multiple classes of bonds with varying maturities and priority
of payments. Pass-through mortgage-backed securities are a type
of asset-backed security that is secured by a mortgage or
collection of mortgages. The monthly mortgage payments from
homeowners pass from the originating bank through an
intermediary, such as a government agency or investment bank,
which collects the payments, and for a fee, remits or passes
these payments through to the holders of the pass-through
securities.
Prime residential mortgage lending includes the origination of
residential mortgage loans to the most credit-worthy borrowers
with high quality credit profiles. Alternative residential
mortgage loans (“Alt-A”) are a classification of
mortgage loans where the risk profile of the borrower falls
between prime and
sub-prime.
Sub-prime
mortgage lending is the origination of residential mortgage
loans to borrowers with weak credit profiles. During 2009, there
were significant ratings downgrades from investment grade to
below investment grade for non-agency RMBS, both Alt-A and prime
RMBS, contributing to the decrease in the percentage of RMBS
with a Aaa/AAA rating to 80.9% at December 31, 2009 as
compared to 92.3% at December 31, 2008, and a decrease in
RMBS with a rating of NAIC 1 to 87.4% at December 31, 2009
as compared to 95.8% at December 31, 2008. These downgrades
also contributed to the substantial decrease presented below in
the Company’s Alt-A securities holdings rated Aa/AA or
better or rated NAIC 1 as compared to December 31, 2008.
F-45
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the Company’s investment in
Alt-A RMBS by vintage year (vintage year refers to the year of
origination and not to the year of purchase) and certain other
selected data:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 & Prior
|
|
$
|
109
|
|
|
|
2.8
|
%
|
|
$
|
250
|
|
|
|
7.4
|
%
|
|
2005
|
|
|
1,395
|
|
|
|
35.7
|
|
|
|
1,493
|
|
|
|
44.4
|
|
|
2006
|
|
|
825
|
|
|
|
21.1
|
|
|
|
857
|
|
|
|
25.5
|
|
|
2007
|
|
|
814
|
|
|
|
20.8
|
|
|
|
765
|
|
|
|
22.7
|
|
|
2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2009
|
|
|
768
|
|
|
|
19.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,911
|
|
|
|
100.0
|
%
|
|
$
|
3,365
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Net unrealized loss
|
|
$
|
1,248
|
|
|
|
|
|
|
$
|
1,951
|
|
|
|
|
|
|
Rated Aa/AA or better (1)
|
|
|
|
|
|
|
26.3
|
%
|
|
|
|
|
|
|
63.4
|
%
|
|
Rated NAIC 1 (2)
|
|
|
|
|
|
|
31.3
|
|
|
|
|
|
|
|
66.7
|
|
|
Fixed rate
|
|
|
|
|
|
|
89.3
|
|
|
|
|
|
|
|
87.9
|
|
|
Hybrid ARM
|
|
|
|
|
|
|
10.7
|
|
|
|
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A RMBS
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised NAIC methodology which became effective
December 31, 2009. |
| |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS held by the
Company’s domestic insurance subsidiaries. Non-agency RMBS
held by the Company’s domestic insurance subsidiaries at
December 31, 2009 are included based on final ratings from
the revised NAIC rating methodology which became effective
December 31, 2009 (which may not correspond to rating
agency designations). |
Concentrations of Credit Risk (Fixed Maturity
Securities) — CMBS. The Company’s
holdings in CMBS were $15.6 billion and $12.6 billion
at estimated fair value at December 31, 2009 and 2008,
respectively. The Company had no exposure to CMBS index
securities and holdings of commercial real estate collateralized
debt obligations securities had an estimated fair value of
$111 million and $121 million at December 31,
2009 and 2008, respectively.
F-46
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following tables present the Company’s holdings of CMBS
by rating agency designations and by vintage year at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
2003 & Prior
|
|
$
|
6,836
|
|
|
$
|
6,918
|
|
|
$
|
394
|
|
|
$
|
365
|
|
|
$
|
162
|
|
|
$
|
140
|
|
|
$
|
52
|
|
|
$
|
41
|
|
|
$
|
36
|
|
|
$
|
18
|
|
|
$
|
7,480
|
|
|
$
|
7,482
|
|
|
2004
|
|
|
2,240
|
|
|
|
2,255
|
|
|
|
200
|
|
|
|
166
|
|
|
|
114
|
|
|
|
71
|
|
|
|
133
|
|
|
|
87
|
|
|
|
88
|
|
|
|
58
|
|
|
|
2,775
|
|
|
|
2,637
|
|
|
2005
|
|
|
2,956
|
|
|
|
2,853
|
|
|
|
144
|
|
|
|
108
|
|
|
|
85
|
|
|
|
65
|
|
|
|
39
|
|
|
|
24
|
|
|
|
57
|
|
|
|
51
|
|
|
|
3,281
|
|
|
|
3,101
|
|
|
2006
|
|
|
1,087
|
|
|
|
1,009
|
|
|
|
162
|
|
|
|
139
|
|
|
|
380
|
|
|
|
323
|
|
|
|
187
|
|
|
|
129
|
|
|
|
123
|
|
|
|
48
|
|
|
|
1,939
|
|
|
|
1,648
|
|
|
2007
|
|
|
432
|
|
|
|
314
|
|
|
|
13
|
|
|
|
12
|
|
|
|
361
|
|
|
|
257
|
|
|
|
234
|
|
|
|
153
|
|
|
|
35
|
|
|
|
13
|
|
|
|
1,075
|
|
|
|
749
|
|
|
2008
|
|
|
5
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
|
2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,556
|
|
|
$
|
13,354
|
|
|
$
|
913
|
|
|
$
|
790
|
|
|
$
|
1,102
|
|
|
$
|
856
|
|
|
$
|
645
|
|
|
$
|
434
|
|
|
$
|
339
|
|
|
$
|
188
|
|
|
$
|
16,555
|
|
|
$
|
15,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
85.4
|
%
|
|
|
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
2003 & Prior
|
|
$
|
5,428
|
|
|
$
|
4,975
|
|
|
$
|
424
|
|
|
$
|
272
|
|
|
$
|
213
|
|
|
$
|
124
|
|
|
$
|
51
|
|
|
$
|
24
|
|
|
$
|
42
|
|
|
$
|
17
|
|
|
$
|
6,158
|
|
|
$
|
5,412
|
|
|
2004
|
|
|
2,630
|
|
|
|
2,255
|
|
|
|
205
|
|
|
|
100
|
|
|
|
114
|
|
|
|
41
|
|
|
|
47
|
|
|
|
11
|
|
|
|
102
|
|
|
|
50
|
|
|
|
3,098
|
|
|
|
2,457
|
|
|
2005
|
|
|
3,403
|
|
|
|
2,664
|
|
|
|
187
|
|
|
|
49
|
|
|
|
40
|
|
|
|
13
|
|
|
|
5
|
|
|
|
1
|
|
|
|
18
|
|
|
|
10
|
|
|
|
3,653
|
|
|
|
2,737
|
|
|
2006
|
|
|
1,825
|
|
|
|
1,348
|
|
|
|
110
|
|
|
|
39
|
|
|
|
25
|
|
|
|
14
|
|
|
|
94
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,054
|
|
|
|
1,437
|
|
|
2007
|
|
|
999
|
|
|
|
535
|
|
|
|
43
|
|
|
|
28
|
|
|
|
63
|
|
|
|
28
|
|
|
|
10
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,115
|
|
|
|
600
|
|
|
2008
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,286
|
|
|
$
|
11,778
|
|
|
$
|
969
|
|
|
$
|
488
|
|
|
$
|
455
|
|
|
$
|
220
|
|
|
$
|
207
|
|
|
$
|
81
|
|
|
$
|
162
|
|
|
$
|
77
|
|
|
$
|
16,079
|
|
|
$
|
12,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
93.2
|
%
|
|
|
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of Credit Risk (Fixed Maturity
Securities) — ABS. The Company’s
holdings in ABS were $13.2 billion and $10.5 billion
at estimated fair value at December 31, 2009 and 2008,
respectively. The Company’s ABS are diversified both by
sector and by issuer.
F-47
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the types of and certain other
information about ABS held by the Company at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card loans
|
|
$
|
7,057
|
|
|
|
53.6
|
%
|
|
$
|
5,190
|
|
|
|
49.3
|
%
|
|
Student loans
|
|
|
1,855
|
|
|
|
14.1
|
|
|
|
1,085
|
|
|
|
10.3
|
|
|
RMBS backed by
sub-prime
mortgage loans
|
|
|
1,044
|
|
|
|
7.9
|
|
|
|
1,142
|
|
|
|
10.9
|
|
|
Automobile loans
|
|
|
963
|
|
|
|
7.3
|
|
|
|
1,051
|
|
|
|
10.0
|
|
|
Other loans
|
|
|
2,243
|
|
|
|
17.1
|
|
|
|
2,055
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,162
|
|
|
|
100.0
|
%
|
|
$
|
10,523
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA (1)
|
|
$
|
9,354
|
|
|
|
71.1
|
%
|
|
$
|
7,934
|
|
|
|
75.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1 (2)
|
|
$
|
11,573
|
|
|
|
87.9
|
%
|
|
$
|
9,393
|
|
|
|
89.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS backed by
sub-prime
mortgage loans — portion credit enhanced by financial
guarantor insurers
|
|
|
|
|
|
|
37.6
|
%
|
|
|
|
|
|
|
37.2
|
%
|
|
Of the 37.6% and 37.2% credit enhanced, the financial guarantor
insurers were rated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By financial guarantor insurers rated Aa/AA
|
|
|
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
18.8
|
%
|
|
By financial guarantor insurers rated A
|
|
|
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
—
|
%
|
|
By financial guarantor insurers rated Baa/BBB
|
|
|
|
|
|
|
—
|
%
|
|
|
|
|
|
|
37.3
|
%
|
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised NAIC methodology which became effective
December 31, 2009. |
| |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS backed by
sub-prime
mortgage loans held by the Company’s domestic insurance
subsidiaries. Non-agency RMBS backed by
sub-prime
mortgage loans held by the Company’s domestic insurance
subsidiaries at December 31, 2009 are included based on
final ratings from the revised NAIC rating methodology which
became effective December 31, 2009 (which may not
correspond to rating agency designations). |
F-48
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following tables present the Company’s holdings of ABS
supported by
sub-prime
mortgage loans by rating agency designations and by vintage year
at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
2003 & Prior
|
|
$
|
57
|
|
|
$
|
48
|
|
|
$
|
73
|
|
|
$
|
58
|
|
|
$
|
11
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
98
|
|
|
$
|
56
|
|
|
$
|
246
|
|
|
$
|
176
|
|
|
2004
|
|
|
99
|
|
|
|
68
|
|
|
|
316
|
|
|
|
222
|
|
|
|
39
|
|
|
|
27
|
|
|
|
24
|
|
|
|
15
|
|
|
|
31
|
|
|
|
15
|
|
|
|
509
|
|
|
|
347
|
|
|
2005
|
|
|
64
|
|
|
|
45
|
|
|
|
226
|
|
|
|
144
|
|
|
|
40
|
|
|
|
26
|
|
|
|
24
|
|
|
|
18
|
|
|
|
209
|
|
|
|
139
|
|
|
|
563
|
|
|
|
372
|
|
|
2006
|
|
|
6
|
|
|
|
6
|
|
|
|
62
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
5
|
|
|
|
115
|
|
|
|
72
|
|
|
|
205
|
|
|
|
105
|
|
|
2007
|
|
|
—
|
|
|
|
—
|
|
|
|
78
|
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
|
16
|
|
|
|
114
|
|
|
|
44
|
|
|
2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
226
|
|
|
$
|
167
|
|
|
$
|
755
|
|
|
$
|
474
|
|
|
$
|
90
|
|
|
$
|
61
|
|
|
$
|
77
|
|
|
$
|
44
|
|
|
$
|
489
|
|
|
$
|
298
|
|
|
$
|
1,637
|
|
|
$
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
16.0
|
%
|
|
|
|
|
|
|
45.4
|
%
|
|
|
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
28.6
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The rating distribution of the Company’s ABS supported by
sub-prime
mortgage loans at December 31, 2009 using NAIC ratings are
as follows: 69.1% NAIC 1, 4.2% NAIC 2, 12.2% NAIC 3, 6.2% NAIC
4, 8.3% NAIC 5 and 0% NAIC 6.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
2003 & Prior
|
|
$
|
96
|
|
|
$
|
77
|
|
|
$
|
92
|
|
|
$
|
72
|
|
|
$
|
26
|
|
|
$
|
16
|
|
|
$
|
83
|
|
|
$
|
53
|
|
|
$
|
8
|
|
|
$
|
4
|
|
|
$
|
305
|
|
|
$
|
222
|
|
|
2004
|
|
|
129
|
|
|
|
70
|
|
|
|
372
|
|
|
|
204
|
|
|
|
5
|
|
|
|
3
|
|
|
|
37
|
|
|
|
28
|
|
|
|
2
|
|
|
|
1
|
|
|
|
545
|
|
|
|
306
|
|
|
2005
|
|
|
357
|
|
|
|
227
|
|
|
|
186
|
|
|
|
114
|
|
|
|
20
|
|
|
|
11
|
|
|
|
79
|
|
|
|
46
|
|
|
|
4
|
|
|
|
4
|
|
|
|
646
|
|
|
|
402
|
|
|
2006
|
|
|
146
|
|
|
|
106
|
|
|
|
69
|
|
|
|
30
|
|
|
|
15
|
|
|
|
10
|
|
|
|
26
|
|
|
|
7
|
|
|
|
2
|
|
|
|
2
|
|
|
|
258
|
|
|
|
155
|
|
|
2007
|
|
|
—
|
|
|
|
—
|
|
|
|
78
|
|
|
|
33
|
|
|
|
35
|
|
|
|
21
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
1
|
|
|
|
118
|
|
|
|
57
|
|
|
2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
728
|
|
|
$
|
480
|
|
|
$
|
797
|
|
|
$
|
453
|
|
|
$
|
101
|
|
|
$
|
61
|
|
|
$
|
227
|
|
|
$
|
136
|
|
|
$
|
19
|
|
|
$
|
12
|
|
|
$
|
1,872
|
|
|
$
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
42.0
|
%
|
|
|
|
|
|
|
39.7
|
%
|
|
|
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
11.9
|
%
|
|
|
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of Credit Risk (Equity
Securities). The Company is not exposed to any
concentrations of credit risk in its equity securities holdings
of any single issuer greater than 10% of the Company’s
stockholders’ equity at December 31, 2009 and 2008.
F-49
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Maturities of Fixed Maturity Securities. The
amortized cost and estimated fair value of fixed maturity
securities, by contractual maturity date (excluding scheduled
sinking funds), are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Due in one year or less
|
|
$
|
6,845
|
|
|
$
|
6,924
|
|
|
$
|
5,556
|
|
|
$
|
5,491
|
|
|
Due after one year through five years
|
|
|
38,408
|
|
|
|
39,399
|
|
|
|
33,604
|
|
|
|
30,884
|
|
|
Due after five years through ten years
|
|
|
40,448
|
|
|
|
41,568
|
|
|
|
41,481
|
|
|
|
36,895
|
|
|
Due after ten years
|
|
|
67,838
|
|
|
|
66,947
|
|
|
|
58,547
|
|
|
|
55,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
153,539
|
|
|
|
154,838
|
|
|
|
139,188
|
|
|
|
129,056
|
|
|
RMBS, CMBS and ABS
|
|
|
76,170
|
|
|
|
72,804
|
|
|
|
70,320
|
|
|
|
59,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
229,709
|
|
|
$
|
227,642
|
|
|
$
|
209,508
|
|
|
$
|
188,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from contractual maturities due to
the exercise of call or prepayment options. Fixed maturity
securities not due at a single maturity date have been included
in the above table in the year of final contractual maturity.
RMBS, CMBS and ABS are shown separately in the table, as they
are not due at a single maturity.
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
As described more fully in Note 1, the Company performs a
regular evaluation, on a
security-by-security
basis, of its
available-for-sale
securities holdings in accordance with its impairment policy in
order to evaluate whether such investments are
other-than-temporarily
impaired. As described more fully in Note 1, effective
April 1, 2009, the Company adopted new OTTI guidance that
amends the methodology for determining for fixed maturity
securities whether an OTTI exists, and for certain fixed
maturity securities, changes how the amount of the OTTI loss
that is charged to earnings is determined. There was no change
in the OTTI methodology for equity securities.
With respect to fixed maturity securities, the Company
considers, amongst other impairment criteria, whether it has the
intent to sell a particular impaired fixed maturity security.
The Company’s intent to sell a particular impaired fixed
maturity security considers broad portfolio management
objectives such as asset/liability duration management, issuer
and industry segment exposures, interest rate views and the
overall total return focus. In following these portfolio
management objectives, changes in facts and circumstances that
were present in past reporting periods may trigger a decision to
sell securities that were held in prior reporting periods.
Decisions to sell are based on current conditions or the
Company’s need to shift the portfolio to maintain its
portfolio management objectives including liquidity needs or
duration targets on asset/liability managed portfolios. The
Company attempts to anticipate these types of changes and if a
sale decision has been made on an impaired security, the
security will be deemed
other-than-temporarily
impaired in the period that the sale decision was made and an
OTTI loss will be recorded in earnings. In certain
circumstances, the Company may determine that it does not intend
to sell a particular security but that it is more likely than
not that it will be required to sell that security before
recovery of the decline in estimated fair value below amortized
cost. In such instances, the fixed maturity security will be
deemed
other-than-temporarily
impaired in the period during which it was determined more
likely than not that the security will be required to be sold
and an OTTI loss will be recorded in earnings. If the Company
does not have the intent to sell (i.e., has not made the
decision to sell) and it does not believe that it is more likely
than not that it will be required to sell the security before
recovery of its amortized cost, an impairment assessment is
made, as described in Note 1. Prior to April 1, 2009,
the Company’s assessment of OTTI for fixed maturity
securities was performed in the same manner as described below
for equity securities.
F-50
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
With respect to equity securities, the Company considers in its
OTTI analysis its intent and ability to hold a particular equity
security for a period of time sufficient to allow for the
recovery of its value to an amount equal to or greater than
cost. Decisions to sell equity securities are based on current
conditions in relation to the same broad portfolio management
considerations in a manner consistent with that described above
for fixed maturity securities.
With respect to perpetual hybrid securities, some of which are
classified as fixed maturity securities and some of which are
classified as equity securities, within non-redeemable preferred
stock, the Company considers in its OTTI analysis whether there
has been any deterioration in credit of the issuer and the
likelihood of recovery in value of the securities that are in a
severe and extended unrealized loss position. The Company also
considers whether any perpetual hybrid securities with an
unrealized loss, regardless of credit rating, have deferred any
dividend payments.
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive income (loss), are
as follows at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed maturity securities that were temporarily impaired
|
|
$
|
(1,208
|
)
|
|
$
|
(21,246
|
)
|
|
$
|
3,479
|
|
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive loss
|
|
|
(859
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
(2,067
|
)
|
|
|
(21,246
|
)
|
|
|
3,479
|
|
|
Equity securities
|
|
|
(103
|
)
|
|
|
(934
|
)
|
|
|
159
|
|
|
Derivatives
|
|
|
(144
|
)
|
|
|
(2
|
)
|
|
|
(373
|
)
|
|
Other
|
|
|
71
|
|
|
|
53
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(2,243
|
)
|
|
|
(22,129
|
)
|
|
|
3,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(118
|
)
|
|
|
42
|
|
|
|
(608
|
)
|
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
DAC and VOBA
|
|
|
145
|
|
|
|
3,025
|
|
|
|
(327
|
)
|
|
Policyholder dividend obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
98
|
|
|
|
3,067
|
|
|
|
(1,724
|
)
|
|
Deferred income tax benefit (expense) on which noncredit OTTI
losses have been recognized
|
|
|
275
|
|
|
|
—
|
|
|
|
—
|
|
|
Deferred income tax benefit (expense)
|
|
|
539
|
|
|
|
6,508
|
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
(1,331
|
)
|
|
|
(12,554
|
)
|
|
|
1,121
|
|
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests
|
|
|
1
|
|
|
|
(10
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses) attributable to
MetLife, Inc.
|
|
$
|
(1,330
|
)
|
|
$
|
(12,564
|
)
|
|
$
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive loss, as presented above of
$859 million, includes $126 million related to the
transition adjustment, $939 million ($857 million, net
of DAC) of noncredit losses recognized in the year ended
December 31, 2009 and $206 million of subsequent
F-51
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
increases in estimated fair value during the year ended
December 31, 2009 on such securities for which a noncredit
loss was previously recognized in accumulated other
comprehensive loss.
The changes in net unrealized investment gains (losses) are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(12,564
|
)
|
|
$
|
971
|
|
|
$
|
1,864
|
|
|
Cumulative effect of changes in accounting principle, net of
income tax
|
|
|
(76
|
)
|
|
|
(10
|
)
|
|
|
—
|
|
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
(733
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Unrealized investment gains (losses) during the year
|
|
|
20,745
|
|
|
|
(25,536
|
)
|
|
|
(2,149
|
)
|
|
Unrealized investment losses of subsidiaries at the date of
disposal
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(160
|
)
|
|
|
650
|
|
|
|
541
|
|
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
61
|
|
|
|
—
|
|
|
|
—
|
|
|
DAC and VOBA
|
|
|
(2,880
|
)
|
|
|
3,370
|
|
|
|
(138
|
)
|
|
DAC and VOBA of subsidiary at date of disposal
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
—
|
|
|
Policyholder dividend obligation
|
|
|
—
|
|
|
|
789
|
|
|
|
273
|
|
|
Deferred income tax benefit (expense) on which noncredit OTTI
losses have been recognized
|
|
|
235
|
|
|
|
—
|
|
|
|
—
|
|
|
Deferred income tax benefit (expense)
|
|
|
(5,969
|
)
|
|
|
6,991
|
|
|
|
571
|
|
|
Deferred income tax benefit (expense) of subsidiaries at date of
disposal
|
|
|
—
|
|
|
|
(60
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
(1,341
|
)
|
|
|
(12,704
|
)
|
|
|
962
|
|
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
1
|
|
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests of subsidiary at date of disposal
|
|
|
—
|
|
|
|
150
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(1,330
|
)
|
|
$
|
(12,564
|
)
|
|
$
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
11,223
|
|
|
$
|
(13,665
|
)
|
|
$
|
(902
|
)
|
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interests
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
1
|
|
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interests of subsidiary at date of disposal
|
|
|
—
|
|
|
|
150
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses) attributable
to MetLife, Inc.’s common shareholders
|
|
$
|
11,234
|
|
|
$
|
(13,525
|
)
|
|
$
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous
Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
by Sector
The following tables present the estimated fair value and gross
unrealized loss of the Company’s fixed maturity and equity
securities in an unrealized loss position, aggregated by sector
and by length of time that the
F-52
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
securities have been in a continuous unrealized loss position.
The unrealized loss amounts presented below at December 31,
2009 include the noncredit component of OTTI loss. Fixed
maturity securities on which a noncredit OTTI loss has been
recognized in accumulated other comprehensive loss are
categorized by length of time as being “less than
12 months” or “equal to or greater than
12 months” in a continuous unrealized loss position
based on the point in time that the estimated fair value
initially declined to below the amortized cost basis and not the
period of time since the unrealized loss was deemed a noncredit
OTTI loss.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Equal to or Greater
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
than 12 Months
|
|
|
Total
|
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
8,641
|
|
|
$
|
395
|
|
|
$
|
18,004
|
|
|
$
|
2,314
|
|
|
$
|
26,645
|
|
|
$
|
2,709
|
|
|
RMBS
|
|
|
5,623
|
|
|
|
119
|
|
|
|
10,268
|
|
|
|
2,438
|
|
|
|
15,891
|
|
|
|
2,557
|
|
|
Foreign corporate securities
|
|
|
3,786
|
|
|
|
139
|
|
|
|
7,282
|
|
|
|
1,096
|
|
|
|
11,068
|
|
|
|
1,235
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
15,051
|
|
|
|
990
|
|
|
|
51
|
|
|
|
20
|
|
|
|
15,102
|
|
|
|
1,010
|
|
|
CMBS
|
|
|
2,052
|
|
|
|
29
|
|
|
|
5,435
|
|
|
|
1,095
|
|
|
|
7,487
|
|
|
|
1,124
|
|
|
ABS
|
|
|
1,259
|
|
|
|
143
|
|
|
|
5,875
|
|
|
|
1,156
|
|
|
|
7,134
|
|
|
|
1,299
|
|
|
Foreign government securities
|
|
|
2,318
|
|
|
|
55
|
|
|
|
507
|
|
|
|
84
|
|
|
|
2,825
|
|
|
|
139
|
|
|
State and political subdivision securities
|
|
|
2,086
|
|
|
|
94
|
|
|
|
1,843
|
|
|
|
317
|
|
|
|
3,929
|
|
|
|
411
|
|
|
Other fixed maturity securities
|
|
|
6
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
40,822
|
|
|
$
|
1,966
|
|
|
$
|
49,265
|
|
|
$
|
8,520
|
|
|
$
|
90,087
|
|
|
$
|
10,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
56
|
|
|
|
7
|
|
|
|
14
|
|
|
|
1
|
|
|
|
70
|
|
|
|
8
|
|
|
Non-redeemable preferred stock
|
|
|
66
|
|
|
|
41
|
|
|
|
930
|
|
|
|
226
|
|
|
|
996
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
122
|
|
|
$
|
48
|
|
|
$
|
944
|
|
|
$
|
227
|
|
|
$
|
1,066
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
2,210
|
|
|
|
|
|
|
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Equal to or Greater
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
than 12 Months
|
|
|
Total
|
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
30,076
|
|
|
$
|
4,479
|
|
|
$
|
18,011
|
|
|
$
|
5,423
|
|
|
$
|
48,087
|
|
|
$
|
9,902
|
|
|
RMBS
|
|
|
10,032
|
|
|
|
2,711
|
|
|
|
4,572
|
|
|
|
2,009
|
|
|
|
14,604
|
|
|
|
4,720
|
|
|
Foreign corporate securities
|
|
|
15,634
|
|
|
|
3,157
|
|
|
|
6,609
|
|
|
|
2,527
|
|
|
|
22,243
|
|
|
|
5,684
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
106
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
106
|
|
|
|
1
|
|
|
CMBS
|
|
|
9,259
|
|
|
|
1,665
|
|
|
|
3,093
|
|
|
|
1,788
|
|
|
|
12,352
|
|
|
|
3,453
|
|
|
ABS
|
|
|
6,412
|
|
|
|
1,325
|
|
|
|
3,777
|
|
|
|
2,414
|
|
|
|
10,189
|
|
|
|
3,739
|
|
|
Foreign government securities
|
|
|
2,030
|
|
|
|
316
|
|
|
|
403
|
|
|
|
61
|
|
|
|
2,433
|
|
|
|
377
|
|
|
State and political subdivision securities
|
|
|
2,035
|
|
|
|
405
|
|
|
|
948
|
|
|
|
537
|
|
|
|
2,983
|
|
|
|
942
|
|
|
Other fixed maturity securities
|
|
|
20
|
|
|
|
3
|
|
|
|
2
|
|
|
|
—
|
|
|
|
22
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
75,604
|
|
|
$
|
14,062
|
|
|
$
|
37,415
|
|
|
$
|
14,759
|
|
|
$
|
113,019
|
|
|
$
|
28,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
727
|
|
|
$
|
306
|
|
|
$
|
978
|
|
|
$
|
672
|
|
|
$
|
1,705
|
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
9,066
|
|
|
|
|
|
|
|
3,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Aging
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
The following tables present the cost or amortized cost, gross
unrealized loss, including the portion of OTTI loss on fixed
maturity securities recognized in accumulated other
comprehensive loss at December 31, 2009, gross unrealized
loss as a percentage of cost or amortized cost and number of
securities for fixed maturity and equity securities where the
estimated fair value had declined and remained below cost or
amortized cost by less than 20%, or 20% or more at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Loss
|
|
|
Number of Securities
|
|
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
35,163
|
|
|
$
|
2,658
|
|
|
$
|
933
|
|
|
$
|
713
|
|
|
|
1,725
|
|
|
|
186
|
|
|
Six months or greater but less than nine months
|
|
|
4,908
|
|
|
|
674
|
|
|
|
508
|
|
|
|
194
|
|
|
|
124
|
|
|
|
49
|
|
|
Nine months or greater but less than twelve months
|
|
|
1,723
|
|
|
|
1,659
|
|
|
|
167
|
|
|
|
517
|
|
|
|
106
|
|
|
|
79
|
|
|
Twelve months or greater
|
|
|
41,721
|
|
|
|
12,067
|
|
|
|
3,207
|
|
|
|
4,247
|
|
|
|
2,369
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
83,515
|
|
|
$
|
17,058
|
|
|
$
|
4,815
|
|
|
$
|
5,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost or amortized cost
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
66
|
|
|
$
|
63
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
|
199
|
|
|
|
8
|
|
|
Six months or greater but less than nine months
|
|
|
6
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
15
|
|
|
|
2
|
|
|
Nine months or greater but less than twelve months
|
|
|
13
|
|
|
|
94
|
|
|
|
2
|
|
|
|
39
|
|
|
|
8
|
|
|
|
6
|
|
|
Twelve months or greater
|
|
|
610
|
|
|
|
488
|
|
|
|
73
|
|
|
|
138
|
|
|
|
50
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
695
|
|
|
$
|
646
|
|
|
$
|
83
|
|
|
$
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Loss
|
|
|
Number of Securities
|
|
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
32,658
|
|
|
$
|
48,114
|
|
|
$
|
2,358
|
|
|
$
|
17,191
|
|
|
|
4,566
|
|
|
|
2,827
|
|
|
Six months or greater but less than nine months
|
|
|
14,975
|
|
|
|
2,180
|
|
|
|
1,313
|
|
|
|
1,109
|
|
|
|
1,314
|
|
|
|
157
|
|
|
Nine months or greater but less than twelve months
|
|
|
16,372
|
|
|
|
3,700
|
|
|
|
1,830
|
|
|
|
2,072
|
|
|
|
934
|
|
|
|
260
|
|
|
Twelve months or greater
|
|
|
23,191
|
|
|
|
650
|
|
|
|
2,533
|
|
|
|
415
|
|
|
|
1,809
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,196
|
|
|
$
|
54,644
|
|
|
$
|
8,034
|
|
|
$
|
20,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost or amortized cost
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
386
|
|
|
$
|
1,190
|
|
|
$
|
58
|
|
|
$
|
519
|
|
|
|
351
|
|
|
|
551
|
|
|
Six months or greater but less than nine months
|
|
|
33
|
|
|
|
413
|
|
|
|
6
|
|
|
|
190
|
|
|
|
8
|
|
|
|
32
|
|
|
Nine months or greater but less than twelve months
|
|
|
3
|
|
|
|
487
|
|
|
|
—
|
|
|
|
194
|
|
|
|
5
|
|
|
|
15
|
|
|
Twelve months or greater
|
|
|
171
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
593
|
|
|
$
|
2,090
|
|
|
$
|
75
|
|
|
$
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
13
|
%
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with a gross unrealized loss of 20% or more
for twelve months or greater increased from none at
December 31, 2008 to $138 million at December 31,
2009. As shown in the section below “Evaluating
Temporarily Impaired Available for Sale
Securities,” the $138 million of equity
securities with a gross unrealized loss of 20% or more for
twelve months or greater at December 31, 2009 were
investment grade non-redeemable preferred stock, of which
$136 million were financial services industry investment
grade non-redeemable preferred stock, of which 62% were rated A
or better.
F-56
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
The Company’s gross unrealized losses related to its fixed
maturity and equity securities, including the portion of OTTI
loss on fixed maturity securities recognized in accumulated
other comprehensive loss at December 31, 2009, of
$10.8 billion and $29.8 billion at December 31,
2009 and 2008, respectively, were concentrated, calculated as a
percentage of gross unrealized loss and OTTI loss, by sector and
industry as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
25
|
%
|
|
|
33
|
%
|
|
RMBS
|
|
|
24
|
|
|
|
16
|
|
|
ABS
|
|
|
12
|
|
|
|
13
|
|
|
Foreign corporate securities
|
|
|
11
|
|
|
|
19
|
|
|
CMBS
|
|
|
10
|
|
|
|
11
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
9
|
|
|
|
—
|
|
|
State and political subdivision securities
|
|
|
4
|
|
|
|
3
|
|
|
Other
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
34
|
%
|
|
|
27
|
%
|
|
Finance
|
|
|
22
|
|
|
|
24
|
|
|
Asset-backed
|
|
|
12
|
|
|
|
13
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
9
|
|
|
|
—
|
|
|
Consumer
|
|
|
4
|
|
|
|
11
|
|
|
Utility
|
|
|
4
|
|
|
|
8
|
|
|
State and political subdivision securities
|
|
|
4
|
|
|
|
3
|
|
|
Communications
|
|
|
2
|
|
|
|
5
|
|
|
Industrial
|
|
|
1
|
|
|
|
4
|
|
|
Other
|
|
|
8
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Company’s fixed maturity
and equity securities with a gross unrealized loss of greater
than $10 million, the number of securities, total gross
unrealized loss and percentage of total gross unrealized loss at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Fixed Maturity
|
|
Equity
|
|
Fixed Maturity
|
|
Equity
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
(In millions, except number of securities)
|
|
|
|
Number of securities
|
|
|
223
|
|
|
|
9
|
|
|
|
699
|
|
|
|
33
|
|
|
Total gross unrealized loss
|
|
$
|
4,465
|
|
|
$
|
132
|
|
|
$
|
14,485
|
|
|
$
|
699
|
|
|
Percentage of total gross unrealized loss
|
|
|
43
|
%
|
|
|
48
|
%
|
|
|
50
|
%
|
|
|
71
|
%
|
F-57
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$10.6 billion during the year ended December 31, 2009.
These securities were included in the Company’s OTTI review
process. Based upon the Company’s current evaluation of
these securities in accordance with its impairment policy, the
cause of the decline in, or improvement in, gross unrealized
losses for the year ended December 31, 2009 being primarily
attributable to improving market conditions, including narrowing
of credit spreads reflecting an improvement in liquidity and the
Company’s current intentions and assessments (as applicable
to the type of security) about holding, selling and any
requirements to sell these securities, the Company has concluded
that these securities are not
other-than-temporarily
impaired.
In the Company’s impairment review process, the duration
and severity of an unrealized loss position for equity
securities is given greater weight and consideration than for
fixed maturity securities. An extended and severe unrealized
loss position on a fixed maturity security may not have any
impact on the ability of the issuer to service all scheduled
interest and principal payments and the Company’s
evaluation of recoverability of all contractual cash flows or
the ability to recover an amount at least equal to its amortized
cost based on the present value of the expected future cash
flows to be collected. In contrast, for an equity security,
greater weight and consideration is given by the Company to a
decline in market value and the likelihood such market value
decline will recover.
The following table presents certain information about the
Company’s equity securities
available-for-sale
with a gross unrealized loss of 20% or more at December 31,
2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
All Types of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Equity
|
|
|
Non-Redeemable
|
|
|
Investment Grade
|
|
|
|
|
Securities
|
|
|
Preferred Stock
|
|
|
All Industries
|
|
|
Financial Services Industry
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
|
|
|
% A
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Equity
|
|
|
Unrealized
|
|
|
Non-Redeemable
|
|
|
Unrealized
|
|
|
% of All
|
|
|
Rated or
|
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
Better
|
|
|
|
|
(In millions)
|
|
|
|
|
Less than six months
|
|
$
|
14
|
|
|
$
|
13
|
|
|
|
93
|
%
|
|
$
|
9
|
|
|
|
69
|
%
|
|
$
|
9
|
|
|
|
100
|
%
|
|
|
3
|
%
|
|
Six months or greater but less than twelve months
|
|
|
40
|
|
|
|
39
|
|
|
|
98
|
%
|
|
|
39
|
|
|
|
100
|
%
|
|
|
37
|
|
|
|
95
|
%
|
|
|
99
|
%
|
|
Twelve months or greater
|
|
|
138
|
|
|
|
138
|
|
|
|
100
|
%
|
|
|
138
|
|
|
|
100
|
%
|
|
|
136
|
|
|
|
99
|
%
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
192
|
|
|
$
|
190
|
|
|
|
99
|
%
|
|
$
|
186
|
|
|
|
98
|
%
|
|
$
|
182
|
|
|
|
98
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the equity securities impairment review
process at December 31, 2009, the Company evaluated its
holdings in non-redeemable preferred stock, particularly those
of financial services companies. The Company considered several
factors including whether there has been any deterioration in
credit of the issuer and the likelihood of recovery in value of
non-redeemable preferred stock with a severe or an extended
unrealized loss. The Company also considered whether any
non-redeemable preferred stock with an unrealized loss,
regardless of credit rating, have deferred any dividend
payments. No such dividend payments were deferred.
With respect to common stock holdings, the Company considered
the duration and severity of the unrealized losses for
securities in an unrealized loss position of 20% or more; and
the duration of unrealized losses for securities in an
unrealized loss position of 20% or less in an extended
unrealized loss position (i.e., 12 months or greater).
Future
other-than-temporary
impairments will depend primarily on economic fundamentals,
issuer performance (including changes in the present value of
future cash flows expected to be collected), changes in credit
rating, changes in collateral valuation, changes in interest
rates and changes in credit spreads. If economic fundamentals
and any of the above factors deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming quarters.
F-58
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Net
Investment Gains (Losses)
As described more fully in Note 1, effective April 1,
2009, the Company adopted new guidance on the recognition and
presentation of OTTI that amends the methodology to determine
for fixed maturity securities whether an OTTI exists, and for
certain fixed maturity securities, changes how OTTI losses that
are charged to earnings are measured. There was no change in the
methodology for identification and measurement of OTTI losses
charged to earnings for impaired equity securities.
The components of net investment gains (losses) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Total losses on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(2,439
|
)
|
|
$
|
(1,296
|
)
|
|
$
|
(78
|
)
|
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive loss
|
|
|
939
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(1,500
|
)
|
|
|
(1,296
|
)
|
|
|
(78
|
)
|
|
Fixed maturity securities — net gains (losses) on
sales and disposals
|
|
|
(163
|
)
|
|
|
(657
|
)
|
|
|
(537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses on fixed maturity securities
|
|
|
(1,663
|
)
|
|
|
(1,953
|
)
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(399
|
)
|
|
|
(253
|
)
|
|
|
164
|
|
|
Mortgage loans
|
|
|
(442
|
)
|
|
|
(136
|
)
|
|
|
3
|
|
|
Real estate and real estate joint ventures
|
|
|
(164
|
)
|
|
|
(18
|
)
|
|
|
46
|
|
|
Other limited partnership interests
|
|
|
(356
|
)
|
|
|
(140
|
)
|
|
|
16
|
|
|
Freestanding derivatives
|
|
|
(6,624
|
)
|
|
|
6,560
|
|
|
|
61
|
|
|
Embedded derivatives
|
|
|
1,758
|
|
|
|
(2,650
|
)
|
|
|
(321
|
)
|
|
Other
|
|
|
118
|
|
|
|
402
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
(7,772
|
)
|
|
$
|
1,812
|
|
|
$
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales or disposals of fixed maturity and equity
securities and the components of fixed maturity and equity
securities net investment gains (losses) are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Proceeds
|
|
$
|
38,972
|
|
|
$
|
62,495
|
|
|
$
|
78,001
|
|
|
$
|
950
|
|
|
$
|
2,107
|
|
|
$
|
1,112
|
|
|
$
|
39,922
|
|
|
$
|
64,602
|
|
|
$
|
79,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
947
|
|
|
|
858
|
|
|
|
554
|
|
|
|
134
|
|
|
|
440
|
|
|
|
226
|
|
|
|
1,081
|
|
|
|
1,298
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(1,110
|
)
|
|
|
(1,515
|
)
|
|
|
(1,091
|
)
|
|
|
(133
|
)
|
|
|
(263
|
)
|
|
|
(43
|
)
|
|
|
(1,243
|
)
|
|
|
(1,778
|
)
|
|
|
(1,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(1,137
|
)
|
|
|
(1,138
|
)
|
|
|
(58
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,137
|
)
|
|
|
(1,138
|
)
|
|
|
(58
|
)
|
|
Other (1)
|
|
|
(363
|
)
|
|
|
(158
|
)
|
|
|
(20
|
)
|
|
|
(400
|
)
|
|
|
(430
|
)
|
|
|
(19
|
)
|
|
|
(763
|
)
|
|
|
(588
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(1,500
|
)
|
|
|
(1,296
|
)
|
|
|
(78
|
)
|
|
|
(400
|
)
|
|
|
(430
|
)
|
|
|
(19
|
)
|
|
|
(1,900
|
)
|
|
|
(1,726
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(1,663
|
)
|
|
$
|
(1,953
|
)
|
|
$
|
(615
|
)
|
|
$
|
(399
|
)
|
|
$
|
(253
|
)
|
|
$
|
164
|
|
|
$
|
(2,062
|
)
|
|
$
|
(2,206
|
)
|
|
$
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on perpetual hybrid securities
classified within fixed maturity securities where the primary
reason for the impairment was the severity and/or the duration
of an unrealized loss position and fixed maturity securities
where there is an intent to sell or it is more likely than not
that the Company will be required to sell the security before
recovery of the decline in estimated fair value. |
F-59
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The Company periodically disposes of fixed maturity and equity
securities at a loss. Generally, such losses are insignificant
in amount or in relation to the cost basis of the investment,
are attributable to declines in estimated fair value occurring
in the period of the disposition or are as a result of
management’s decision to sell securities based on current
conditions, or the Company’s need to shift the portfolio to
maintain its portfolio management objectives. Investment gains
and losses on sales of securities are determined on a specific
identification basis.
Fixed maturity security OTTI losses recognized in earnings
relates to the following sectors and industries:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. and foreign corporate securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
$
|
459
|
|
|
$
|
673
|
|
|
$
|
18
|
|
|
Communications
|
|
|
235
|
|
|
|
134
|
|
|
|
—
|
|
|
Consumer
|
|
|
211
|
|
|
|
107
|
|
|
|
—
|
|
|
Utility
|
|
|
89
|
|
|
|
5
|
|
|
|
1
|
|
|
Industrial
|
|
|
30
|
|
|
|
26
|
|
|
|
18
|
|
|
Other
|
|
|
26
|
|
|
|
185
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
1,050
|
|
|
|
1,130
|
|
|
|
65
|
|
|
RMBS
|
|
|
193
|
|
|
|
—
|
|
|
|
—
|
|
|
ABS
|
|
|
168
|
|
|
|
99
|
|
|
|
13
|
|
|
CMBS
|
|
|
88
|
|
|
|
65
|
|
|
|
—
|
|
|
Foreign government securities
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,500
|
|
|
$
|
1,296
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security OTTI losses recognized in earnings relates to
the following sectors and industries:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
333
|
|
|
$
|
319
|
|
|
$
|
1
|
|
|
Common stock
|
|
|
67
|
|
|
|
111
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
400
|
|
|
$
|
430
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
310
|
|
|
$
|
90
|
|
|
$
|
—
|
|
|
Common and remaining non-redeemable preferred stock
|
|
|
30
|
|
|
|
251
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial services industry
|
|
|
340
|
|
|
|
341
|
|
|
|
1
|
|
|
Other
|
|
|
60
|
|
|
|
89
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
400
|
|
|
$
|
430
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Credit
Loss Rollforward — Rollforward of the Cumulative
Credit Loss Component of OTTI Loss Recognized in Earnings on
Fixed Maturity Securities Still Held for Which a Portion of the
OTTI Loss was Recognized in Other Comprehensive
Loss
The table below presents a rollforward of the cumulative credit
loss component of OTTI loss recognized in earnings on fixed
maturity securities still held by the Company at
December 31, 2009 for which a portion of the OTTI loss was
recognized in other comprehensive loss:
| |
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
—
|
|
|
Credit loss component of OTTI loss not reclassified to other
comprehensive loss in the cumulative effect transition adjustment
|
|
|
230
|
|
|
Additions:
|
|
|
|
|
|
Initial impairments — credit loss OTTI recognized on
securities not previously impaired
|
|
|
311
|
|
|
Additional impairments — credit loss OTTI recognized
on securities previously impaired
|
|
|
91
|
|
|
Reductions:
|
|
|
|
|
|
Due to sales (or maturities, pay downs or prepayments) during
the period of securities previously credit loss OTTI impaired
|
|
|
(49
|
)
|
|
Due to increases in cash flows — accretion of previous
credit loss OTTI
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
581
|
|
|
|
|
|
|
|
Net
Investment Income
The components of net investment income are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed maturity securities
|
|
$
|
11,617
|
|
|
$
|
13,577
|
|
|
$
|
14,576
|
|
|
Equity securities
|
|
|
178
|
|
|
|
258
|
|
|
|
265
|
|
|
Trading securities
|
|
|
400
|
|
|
|
(193
|
)
|
|
|
50
|
|
|
Mortgage loans
|
|
|
2,743
|
|
|
|
2,855
|
|
|
|
2,811
|
|
|
Policy loans
|
|
|
648
|
|
|
|
601
|
|
|
|
572
|
|
|
Real estate and real estate joint ventures
|
|
|
(196
|
)
|
|
|
574
|
|
|
|
943
|
|
|
Other limited partnership interests
|
|
|
174
|
|
|
|
(170
|
)
|
|
|
1,309
|
|
|
Cash, cash equivalents and short-term investments
|
|
|
129
|
|
|
|
353
|
|
|
|
491
|
|
|
International joint ventures (1)
|
|
|
(115
|
)
|
|
|
43
|
|
|
|
17
|
|
|
Other
|
|
|
205
|
|
|
|
350
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
15,783
|
|
|
|
18,248
|
|
|
|
21,354
|
|
|
Less: Investment expenses
|
|
|
945
|
|
|
|
1,957
|
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
14,838
|
|
|
$
|
16,291
|
|
|
$
|
18,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
(1) |
|
Amounts are presented net of changes in estimated fair value of
derivatives related to economic hedges of the Company’s
investment in these equity method international joint
investments that do not qualify for hedge accounting of ($143)
million, $178 million and $12 million for the years ended
December 31, 2009, 2008 and 2007, respectively. The current
year losses were primarily attributable to losses on equity
derivatives and losses on foreign currency derivatives (both of
which are used to hedge embedded derivative risk) due to
improving equity markets in the current period and the U.S.
Dollar weakening against several major foreign currencies. In
addition, included in the equity in earnings of the joint
ventures were losses attributable to the narrowing of the
Company’s own credit spread, which is included in the
valuation of certain liabilities, including embedded
derivatives, that are carried at estimated fair value. |
Securities
Lending
The Company participates in securities lending programs whereby
blocks of securities, which are included in fixed maturity
securities and short-term investments, are loaned to third
parties, primarily brokerage firms and commercial banks. The
Company generally obtains collateral in an amount equal to 102%
of the estimated fair value of the securities loaned. Securities
loaned under such transactions may be sold or repledged by the
transferee. The Company is liable to return to its
counterparties the cash collateral under its control, the
amounts of which by aging category are presented below.
Elements of the securities lending programs are presented below
at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Securities on loan:
|
|
|
|
|
|
|
|
|
|
Cost or amortized cost
|
|
$
|
21,012
|
|
|
$
|
20,791
|
|
|
Estimated fair value
|
|
$
|
20,949
|
|
|
$
|
22,885
|
|
|
Aging of cash collateral liability:
|
|
|
|
|
|
|
|
|
|
Open (1)
|
|
$
|
3,290
|
|
|
$
|
5,118
|
|
|
Less than thirty days
|
|
|
13,605
|
|
|
|
14,711
|
|
|
Thirty days or greater but less than sixty days
|
|
|
3,534
|
|
|
|
3,472
|
|
|
Sixty days or greater but less than ninety days
|
|
|
92
|
|
|
|
—
|
|
|
Ninety days or greater
|
|
|
995
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash collateral liability
|
|
$
|
21,516
|
|
|
$
|
23,301
|
|
|
|
|
|
|
|
|
|
|
|
|
Security collateral on deposit from counterparties
|
|
$
|
6
|
|
|
$
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinvestment portfolio — estimated fair value
|
|
$
|
20,339
|
|
|
$
|
19,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Open — meaning that the related loaned security could
be returned to the Company on the next business day requiring
the Company to immediately return the cash collateral. |
The estimated fair value of the securities related to the cash
collateral on open at December 31, 2009 has been reduced to
$3,193 million from $4,986 million at
December 31, 2008. Of the $3,193 million of estimated
fair value of the securities related to the cash collateral on
open at December 31, 2009, $3,012 million were
U.S. Treasury, agency and government guaranteed securities
which, if put to the Company, can be immediately sold to satisfy
the cash requirements. The remainder of the securities on loan,
related to the cash collateral aged less than thirty days to
ninety days or greater, was primarily U.S. Treasury, agency
and government guaranteed securities, and very liquid RMBS. The
reinvestment portfolio acquired with the cash collateral
consisted principally of fixed maturity securities (including
RMBS, ABS, U.S. corporate and foreign corporate securities).
F-62
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Security collateral on deposit from counterparties in connection
with the securities lending transactions may not be sold or
repledged, unless the counterparty is in default, and is not
reflected in the consolidated financial statements.
Invested
Assets on Deposit, Held in Trust and Pledged as
Collateral
The invested assets on deposit, invested assets held in trust
and invested assets pledged as collateral are presented in the
table below. The amounts presented in the table below are at
estimated fair value for cash and cash equivalents, fixed
maturity and equity securities and at carrying value for
mortgage loans.
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Invested assets on deposit:
|
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
1,383
|
|
|
$
|
1,282
|
|
|
Invested assets held in trust:
|
|
|
|
|
|
|
|
|
|
Collateral financing arrangements (2)
|
|
|
5,653
|
|
|
|
4,431
|
|
|
Reinsurance arrangements (3)
|
|
|
2,719
|
|
|
|
2,037
|
|
|
Invested assets pledged as collateral:
|
|
|
|
|
|
|
|
|
|
Debt and funding agreements — FHLB of NY (4)
|
|
|
20,612
|
|
|
|
20,880
|
|
|
Debt and funding agreements — FHLB of Boston (4)
|
|
|
419
|
|
|
|
1,284
|
|
|
Funding agreements — Farmer MAC (5)
|
|
|
2,871
|
|
|
|
2,875
|
|
|
Federal Reserve Bank of New York (6)
|
|
|
1,537
|
|
|
|
1,577
|
|
|
Collateral financing arrangements (7)
|
|
|
80
|
|
|
|
316
|
|
|
Derivative transactions (8)
|
|
|
1,671
|
|
|
|
1,744
|
|
|
Short sale agreements (9)
|
|
|
496
|
|
|
|
346
|
|
|
Other
|
|
|
—
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
Total invested assets on deposit, held in trust and pledged as
collateral
|
|
$
|
37,441
|
|
|
$
|
36,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company had investment assets on deposit with regulatory
agencies consisting primarily of fixed maturity and equity
securities. |
| |
|
(2) |
|
The Company held in trust cash and securities, primarily fixed
maturity and equity securities, to satisfy collateral
requirements. |
| |
|
(3) |
|
The Company has pledged certain investments, primarily fixed
maturity securities, in connection with certain reinsurance
transactions. |
| |
|
(4) |
|
The Company has pledged fixed maturity securities and mortgage
loans in support of its debt and funding agreements with the
Federal Home Loan Bank of New York (“FHLB of NY”) and
has pledged fixed maturity securities to the Federal Home Loan
Bank of Boston (“FHLB of Boston”). The nature of these
Federal Home Loan Bank arrangements is described in Note 8. |
| |
|
(5) |
|
The Company has pledged certain agricultural real estate
mortgage loans in connection with funding agreements with the
Federal Agricultural Mortgage Corporation (“Farmer
MAC”). The nature of the Farmer MAC arrangements is
described in Note 8. |
| |
|
(6) |
|
The Company has pledged qualifying mortgage loans and fixed
maturity securities in connection with collateralized borrowings
from the Federal Reserve Bank of New York’s Term Auction
Facility. The nature of the Federal Reserve Bank of New York
arrangements is described in Note 11. |
| |
|
(7) |
|
The Holding Company has pledged certain collateral in support of
the collateral financing arrangements described in Note 12. |
F-63
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
(8) |
|
Certain of the Company’s invested assets are pledged as
collateral for various derivative transactions as described in
Note 4. |
| |
|
(9) |
|
Certain of the Company’s trading securities and cash and
cash equivalents are pledged to secure liabilities associated
with short sale agreements in the trading securities portfolio
as described in the following section. |
See also the immediately preceding section “Securities
Lending” for the amount of the Company’s cash and
invested assets received from and due back to counterparties
pursuant to the securities lending program.
Trading
Securities
The Company has trading securities portfolios to support
investment strategies that involve the active and frequent
purchase and sale of securities, the execution of short sale
agreements and asset and liability matching strategies for
certain insurance products.
The table below presents certain information about the
Company’s trading securities portfolios:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
Trading securities — at estimated fair value
|
|
$
|
2,384
|
|
|
$
|
946
|
|
|
Short sale agreement liabilities — at estimated fair
value (included in other liabilities)
|
|
$
|
106
|
|
|
$
|
57
|
|
|
Investments pledged to secure short sale agreement liabilities
|
|
$
|
496
|
|
|
$
|
346
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Net investment income (1)
|
|
$
|
400
|
|
|
$
|
(193
|
)
|
|
$
|
50
|
|
|
Changes in estimated fair value included in net investment income
|
|
$
|
309
|
|
|
$
|
(174
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
(1) |
|
Includes interest and dividends earned on trading securities, in
addition to the net realized gains (losses) and changes in
estimated fair value subsequent to purchase, recognized on the
trading securities and the related short sale agreement
liabilities. |
F-64
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Mortgage
Loans
Mortgage loans, net of valuation allowances, are categorized as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Mortgage loans
held-for-investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
34,587
|
|
|
|
67.9
|
%
|
|
$
|
35,965
|
|
|
|
70.1
|
%
|
|
Agricultural mortgage loans
|
|
|
12,140
|
|
|
|
23.8
|
|
|
|
12,234
|
|
|
|
23.8
|
|
|
Residential and consumer loans
|
|
|
1,454
|
|
|
|
2.9
|
|
|
|
1,153
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-investment
|
|
|
48,181
|
|
|
|
94.6
|
%
|
|
|
49,352
|
|
|
|
96.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential — fair value option
|
|
|
2,470
|
|
|
|
4.9
|
|
|
|
1,975
|
|
|
|
3.8
|
|
|
Commercial and residential — lower of amortized cost
or estimated fair value
|
|
|
258
|
|
|
|
0.5
|
|
|
|
37
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-sale
|
|
|
2,728
|
|
|
|
5.4
|
|
|
|
2,012
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
50,909
|
|
|
|
100.0
|
%
|
|
$
|
51,364
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans by Geographic Region and Property
Type — The Company diversifies its mortgage loans
by both geographic region and property type to reduce risk of
concentration. Mortgage loans are collateralized by properties
primarily located in the United States. The carrying value of
the Company’s mortgage loans located in California, New
York and Texas were 20%, 7% and 6% at December 31, 2009,
respectively. Generally, the Company, as the lender, only loans
up to 75% of the purchase price of the underlying real estate.
Commercial mortgage loans at December 31, 2009 and 2008
were $35,176 million and $36,197 million,
respectively, or 68.1% and 72.9%, respectively, of total
mortgage loans prior to valuation allowances. Net of valuation
allowances
F-65
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
commercial mortgage loans were $34,587 million and
$35,965 million, respectively, at December 31, 2009
and 2008 and there was diversity across geographic regions and
property types as shown below at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific
|
|
$
|
8,684
|
|
|
|
25.1
|
%
|
|
$
|
8,837
|
|
|
|
24.6
|
%
|
|
South Atlantic
|
|
|
7,342
|
|
|
|
21.2
|
|
|
|
8,101
|
|
|
|
22.5
|
|
|
Middle Atlantic
|
|
|
5,948
|
|
|
|
17.2
|
|
|
|
5,931
|
|
|
|
16.5
|
|
|
International
|
|
|
3,564
|
|
|
|
10.3
|
|
|
|
3,414
|
|
|
|
9.5
|
|
|
West South Central
|
|
|
2,870
|
|
|
|
8.3
|
|
|
|
3,070
|
|
|
|
8.5
|
|
|
East North Central
|
|
|
2,487
|
|
|
|
7.2
|
|
|
|
2,591
|
|
|
|
7.2
|
|
|
New England
|
|
|
1,414
|
|
|
|
4.1
|
|
|
|
1,529
|
|
|
|
4.3
|
|
|
Mountain
|
|
|
944
|
|
|
|
2.7
|
|
|
|
1,052
|
|
|
|
2.9
|
|
|
West North Central
|
|
|
641
|
|
|
|
1.9
|
|
|
|
716
|
|
|
|
2.0
|
|
|
East South Central
|
|
|
443
|
|
|
|
1.3
|
|
|
|
468
|
|
|
|
1.3
|
|
|
Other
|
|
|
250
|
|
|
|
0.7
|
|
|
|
256
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,587
|
|
|
|
100.0
|
%
|
|
$
|
35,965
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
14,986
|
|
|
|
43.3
|
%
|
|
$
|
15,307
|
|
|
|
42.6
|
%
|
|
Retail
|
|
|
7,870
|
|
|
|
22.8
|
|
|
|
8,038
|
|
|
|
22.3
|
|
|
Apartments
|
|
|
3,696
|
|
|
|
10.7
|
|
|
|
4,113
|
|
|
|
11.4
|
|
|
Hotel
|
|
|
2,947
|
|
|
|
8.5
|
|
|
|
3,078
|
|
|
|
8.6
|
|
|
Industrial
|
|
|
2,759
|
|
|
|
8.0
|
|
|
|
2,901
|
|
|
|
8.1
|
|
|
Other
|
|
|
2,329
|
|
|
|
6.7
|
|
|
|
2,528
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,587
|
|
|
|
100.0
|
%
|
|
$
|
35,965
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the Company’s real estate joint ventures have
mortgage loans with the Company. The carrying values of such
mortgage loans were $368 million and $372 million at
December 31, 2009 and 2008, respectively.
Information regarding valuation allowances on mortgage loans
held-for-investment
is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, January 1,
|
|
$
|
304
|
|
|
$
|
197
|
|
|
$
|
182
|
|
|
Additions
|
|
|
475
|
|
|
|
200
|
|
|
|
76
|
|
|
Deductions
|
|
|
(58
|
)
|
|
|
(93
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
|
|
$
|
721
|
|
|
$
|
304
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Impaired mortgage loans
held-for-investment
consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Impaired loans with valuation allowances
|
|
$
|
316
|
|
|
$
|
259
|
|
|
Impaired loans without valuation allowances
|
|
|
106
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
422
|
|
|
|
311
|
|
|
Less: Valuation allowances on impaired loans
|
|
|
123
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net
|
|
$
|
299
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
Information about impaired loans, restructured loans, loans
90 days or more past due and loans in foreclosure is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
(In millions)
|
|
|
|
Impaired loans — average investment during the period
|
|
$
|
338
|
|
|
$
|
389
|
|
|
$
|
453
|
|
|
Impaired loans — interest income
recognized — accrual basis
|
|
$
|
1
|
|
|
$
|
10
|
|
|
$
|
38
|
|
|
Impaired loans — interest income
recognized — cash basis
|
|
$
|
8
|
|
|
$
|
12
|
|
|
$
|
19
|
|
|
Restructured loans — amount
|
|
$
|
37
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
Restructured loans — interest income recognized
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
Loans 90 days or more past due, interest still
accruing — amortized cost
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
Loans 90 days or more past due, interest no longer
accruing — amortized cost
|
|
$
|
62
|
|
|
$
|
11
|
|
|
$
|
28
|
|
|
Loans in foreclosure — amortized cost
|
|
$
|
91
|
|
|
$
|
28
|
|
|
$
|
12
|
|
Real
Estate Holdings
Real estate holdings by type consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Real estate
|
|
$
|
5,435
|
|
|
|
78.8
|
%
|
|
$
|
5,351
|
|
|
|
70.6
|
%
|
|
Accumulated depreciation
|
|
|
(1,408
|
)
|
|
|
(20.4
|
)
|
|
|
(1,340
|
)
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net real estate
|
|
|
4,027
|
|
|
|
58.4
|
|
|
|
4,011
|
|
|
|
52.9
|
|
|
Real estate joint ventures and funds
|
|
|
2,698
|
|
|
|
39.1
|
|
|
|
3,522
|
|
|
|
46.4
|
|
|
Foreclosed real estate
|
|
|
127
|
|
|
|
1.9
|
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
held-for-investment
|
|
|
6,852
|
|
|
|
99.4
|
|
|
|
7,535
|
|
|
|
99.3
|
|
|
Real estate
held-for-sale
|
|
|
44
|
|
|
|
0.6
|
|
|
|
51
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate holdings
|
|
$
|
6,896
|
|
|
|
100.0
|
%
|
|
$
|
7,586
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related depreciation expense on real estate was
$135 million, $136 million and $130 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. These amounts include $1 million, $1 million
and $3 million of depreciation expense related to
discontinued operations for the years ended December 31,
2009, 2008 and 2007, respectively.
F-67
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
There were no impairments recognized on real estate
held-for-sale
for each of the years ended December 31, 2009, 2008 and
2007. Impairments of real estate and real estate joint ventures
held-for-investment
were $160 million and $20 million for the years ended
December 31, 2009 and 2008, respectively. There were no
impairments of real estate and real estate joint ventures
held-for-investment
for the year ended December 31, 2007. The carrying value of
non-income producing real estate was $76 million and
$28 million at December 31, 2009 and 2008,
respectively.
The Company diversifies its real estate holdings by both
geographic region and property type to reduce risk of
concentration. The Company’s real estate holdings are
primarily located in the United States, and at December 31,
2009, 23%, 13%, 11% and 10% were located in California, Florida,
New York and Texas, respectively.
Real estate holdings were categorized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Office
|
|
$
|
3,557
|
|
|
|
52
|
%
|
|
$
|
3,489
|
|
|
|
46
|
%
|
|
Apartments
|
|
|
1,438
|
|
|
|
21
|
|
|
|
1,602
|
|
|
|
21
|
|
|
Real estate investment funds
|
|
|
504
|
|
|
|
7
|
|
|
|
1,080
|
|
|
|
14
|
|
|
Retail
|
|
|
467
|
|
|
|
7
|
|
|
|
472
|
|
|
|
6
|
|
|
Industrial
|
|
|
436
|
|
|
|
6
|
|
|
|
483
|
|
|
|
7
|
|
|
Hotel
|
|
|
203
|
|
|
|
3
|
|
|
|
180
|
|
|
|
3
|
|
|
Land
|
|
|
110
|
|
|
|
1
|
|
|
|
155
|
|
|
|
2
|
|
|
Agriculture
|
|
|
57
|
|
|
|
1
|
|
|
|
24
|
|
|
|
—
|
|
|
Other
|
|
|
124
|
|
|
|
2
|
|
|
|
101
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate holdings
|
|
$
|
6,896
|
|
|
|
100
|
%
|
|
$
|
7,586
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Limited Partnership Interests
The carrying value of other limited partnership interests (which
primarily represent ownership interests in pooled investment
funds that principally make private equity investments in
companies in the United States and overseas) was
$5.5 billion and $6.0 billion at December 31,
2009 and 2008, respectively. Included within other limited
partnership interests were $1.0 billion and
$1.3 billion, at December 31, 2009 and 2008,
respectively, of investments in hedge funds. Impairments of
other limited partnership interests, principally cost method
other limited partnership interests, were $354 million,
$105 million and $4 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
F-68
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Other
Invested Assets
The following table presents the carrying value of the
Company’s other invested assets by type at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Freestanding derivatives with positive fair values
|
|
$
|
6,133
|
|
|
|
48.2
|
%
|
|
$
|
12,306
|
|
|
|
71.3
|
%
|
|
Leveraged leases, net of non-recourse debt
|
|
|
2,227
|
|
|
|
17.5
|
|
|
|
2,146
|
|
|
|
12.4
|
|
|
Joint venture investments
|
|
|
977
|
|
|
|
7.7
|
|
|
|
751
|
|
|
|
4.4
|
|
|
MSRs
|
|
|
878
|
|
|
|
6.9
|
|
|
|
191
|
|
|
|
1.1
|
|
|
Tax credit partnerships
|
|
|
719
|
|
|
|
5.7
|
|
|
|
503
|
|
|
|
2.9
|
|
|
Funds withheld
|
|
|
505
|
|
|
|
4.0
|
|
|
|
62
|
|
|
|
0.4
|
|
|
Funding agreements
|
|
|
409
|
|
|
|
3.2
|
|
|
|
394
|
|
|
|
2.3
|
|
|
Other
|
|
|
861
|
|
|
|
6.8
|
|
|
|
895
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,709
|
|
|
|
100.0
|
%
|
|
$
|
17,248
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 4 for information regarding the freestanding
derivatives with positive estimated fair values. See the
following section for the composition of leveraged leases and
information on MSRs. Joint venture investments are accounted for
on the equity method and represent the Company’s investment
in insurance underwriting joint ventures in Japan, Chile and
China. Tax credit partnerships are established for the purpose
of investing in low-income housing and other social causes,
where the primary return on investment is in the form of tax
credits, and are accounted for under the equity method or under
the effective yield method. Funds withheld represent amounts
contractually withheld by ceding companies in accordance with
reinsurance agreements. Funding agreements represent
arrangements where the Company has long-term interest bearing
amounts on deposit with third parties and are generally stated
at amortized cost.
Leveraged
Leases
Investment in leveraged leases, included in other invested
assets, consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Rental receivables, net
|
|
$
|
1,698
|
|
|
$
|
1,486
|
|
|
Estimated residual values
|
|
|
1,921
|
|
|
|
1,913
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,619
|
|
|
|
3,399
|
|
|
Unearned income
|
|
|
(1,392
|
)
|
|
|
(1,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investment in leveraged leases
|
|
$
|
2,227
|
|
|
$
|
2,146
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s deferred income tax liability related to
leveraged leases was $1.3 billion and $1.2 billion at
December 31, 2009 and 2008, respectively. The rental
receivables set forth above are generally due in periodic
installments. The payment periods range from one to
15 years, but in certain circumstances are as long as
30 years.
F-69
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The components of net income from investment in leveraged leases
are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
Income from investment in leveraged leases (included in net
investment income)
|
|
$
|
114
|
|
|
$
|
116
|
|
|
$
|
68
|
|
|
Less: Income tax expense on leveraged leases
|
|
|
(40
|
)
|
|
|
(40
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from investment in leveraged leases
|
|
$
|
74
|
|
|
$
|
76
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Servicing Rights
The following table presents the carrying value and changes in
capitalized MSRs, which are included in other invested assets:
| |
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Estimated fair value, January 1,
|
|
$
|
191
|
|
|
$
|
—
|
|
|
Acquisition of MSRs
|
|
|
117
|
|
|
|
350
|
|
|
Origination of MSRs
|
|
|
511
|
|
|
|
—
|
|
|
Reductions due to loan payments
|
|
|
(113
|
)
|
|
|
(10
|
)
|
|
Reductions due to sales
|
|
|
—
|
|
|
|
—
|
|
|
Changes in estimated fair value due to:
|
|
|
|
|
|
|
|
|
|
Changes in valuation model inputs or assumptions
|
|
|
172
|
|
|
|
(149
|
)
|
|
Other changes in estimated fair value
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value, December 31,
|
|
$
|
878
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes the rights to service residential
mortgage loans as MSRs. MSRs are either acquired or are
generated from the sale of originated residential mortgage loans
where the servicing rights are retained by the Company. MSRs are
carried at estimated fair value and changes in estimated fair
value, primarily due to changes in valuation inputs and
assumptions and to the collection of expected cash flows, are
reported in other revenues in the period in which the change
occurs. See also Note 5 for further information about how
the estimated fair value of MSRs is determined and other related
information.
Variable
Interest Entities
The Company invests in certain entities that are VIEs, as a
passive investor holding a limited partnership interest, or as a
sponsor or debt holder. The following table presents the total
assets and total liabilities relating to VIEs for which the
Company has concluded that it is the primary beneficiary and
which are consolidated in the Company’s financial
statements at December 31, 2009 and 2008. Generally,
creditors or beneficial interest holders
F-70
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
of VIEs where the Company is the primary beneficiary have no
recourse to the general credit of the Company, as the
Company’s obligation to the VIEs is limited to the amount
of its committed investment.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
(In millions)
|
|
|
|
|
MRSC collateral financing arrangement (1)
|
|
$
|
3,230
|
|
|
$
|
—
|
|
|
$
|
2,361
|
|
|
$
|
—
|
|
|
Other limited partnership interests
|
|
|
367
|
|
|
|
72
|
|
|
|
20
|
|
|
|
3
|
|
|
Other invested assets
|
|
|
27
|
|
|
|
1
|
|
|
|
10
|
|
|
|
3
|
|
|
Real estate joint ventures
|
|
|
22
|
|
|
|
17
|
|
|
|
26
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,646
|
|
|
$
|
90
|
|
|
$
|
2,417
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 12 for a description of the MetLife Reinsurance
Company of South Carolina (“MRSC”) collateral
financing arrangement. At December 31, 2009 and 2008, these
assets are presented at estimated fair value and consist of the
following: |
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,049
|
|
|
$
|
948
|
|
|
ABS
|
|
|
963
|
|
|
|
409
|
|
|
RMBS
|
|
|
672
|
|
|
|
561
|
|
|
CMBS
|
|
|
348
|
|
|
|
98
|
|
|
Foreign corporate securities
|
|
|
80
|
|
|
|
95
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
33
|
|
|
|
—
|
|
|
State and political subdivision securities
|
|
|
21
|
|
|
|
21
|
|
|
Foreign government securities
|
|
|
5
|
|
|
|
5
|
|
|
Cash and cash equivalents (including cash held in trust of less
than $1 million and $60 million, respectively)
|
|
|
59
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,230
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
F-71
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The Company invests in certain entities that are VIEs, as a
passive investor holding a limited partnership interest, or as a
sponsor or debt holder. The following table presents the
carrying amount and maximum exposure to loss relating to VIEs
for which the Company holds significant variable interests but
is not the primary beneficiary and which have not been
consolidated at December 31, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
$
|
1,254
|
|
|
$
|
1,254
|
|
|
$
|
1,080
|
|
|
$
|
1,080
|
|
|
U.S. corporate securities
|
|
|
1,216
|
|
|
|
1,216
|
|
|
|
992
|
|
|
|
992
|
|
|
Other limited partnership interests
|
|
|
2,543
|
|
|
|
2,887
|
|
|
|
3,496
|
|
|
|
4,004
|
|
|
Other invested assets
|
|
|
416
|
|
|
|
409
|
|
|
|
318
|
|
|
|
108
|
|
|
Equity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred
|
|
|
31
|
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
Real estate joint ventures
|
|
|
30
|
|
|
|
30
|
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,490
|
|
|
$
|
5,827
|
|
|
$
|
5,918
|
|
|
$
|
6,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The maximum exposure to loss relating to the fixed maturity
securities
available-for-sale
and equity securities
available-for-sale
is equal to the carrying amounts or carrying amounts of retained
interests. The maximum exposure to loss relating to the real
estate joint ventures and other limited partnership interests is
equal to the carrying amounts plus any unfunded commitments.
Such a maximum loss would be expected to occur only upon
bankruptcy of the issuer or investee. For certain of its
investments in other invested assets, the Company’s return
is in the form of tax credits which are guaranteed by a
creditworthy third-party. For such investments, the maximum
exposure to loss is equal to the carrying amounts plus any
unfunded commitments, reduced by amounts guaranteed by third
parties of $232 million and $278 million at
December 31, 2009 and 2008, respectively. |
As described in Note 16, the Company makes commitments to
fund partnership investments in the normal course of business.
Excluding these commitments, the Company did not provide
financial or other support to investees designated as VIEs
during the years ended December 31, 2009, 2008 and 2007.
|
|
|
4.
|
Derivative
Financial Instruments
|
Accounting
for Derivative Financial Instruments
See Note 1 for a description of the Company’s
accounting policies for derivative financial instruments.
See Note 5 for information about the fair value hierarchy
for derivatives.
Primary
Risks Managed by Derivative Financial Instruments and
Non-Derivative Financial Instruments
The Company is exposed to various risks relating to its ongoing
business operations, including interest rate risk, foreign
currency risk, credit risk and equity market risk. The Company
uses a variety of strategies to manage these risks, including
the use of derivative instruments. The following table presents
the notional amount, estimated
F-72
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
fair value and primary underlying risk exposure of the
Company’s derivative financial instruments, excluding
embedded derivatives held at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
Fair Value (1)
|
|
|
Notional
|
|
|
Fair Value (1)
|
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
38,152
|
|
|
$
|
1,570
|
|
|
$
|
1,255
|
|
|
$
|
34,060
|
|
|
$
|
4,617
|
|
|
$
|
1,468
|
|
|
|
|
Interest rate floors
|
|
|
23,691
|
|
|
|
461
|
|
|
|
37
|
|
|
|
48,517
|
|
|
|
1,748
|
|
|
|
—
|
|
|
|
|
Interest rate caps
|
|
|
28,409
|
|
|
|
283
|
|
|
|
—
|
|
|
|
24,643
|
|
|
|
11
|
|
|
|
—
|
|
|
|
|
Interest rate futures
|
|
|
7,563
|
|
|
|
8
|
|
|
|
10
|
|
|
|
13,851
|
|
|
|
44
|
|
|
|
117
|
|
|
|
|
Interest rate options
|
|
|
4,050
|
|
|
|
117
|
|
|
|
57
|
|
|
|
2,365
|
|
|
|
939
|
|
|
|
35
|
|
|
|
|
Interest rate forwards
|
|
|
9,921
|
|
|
|
66
|
|
|
|
27
|
|
|
|
16,616
|
|
|
|
49
|
|
|
|
70
|
|
|
|
|
Synthetic GICs
|
|
|
4,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,260
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
16,879
|
|
|
|
1,514
|
|
|
|
1,392
|
|
|
|
19,438
|
|
|
|
1,953
|
|
|
|
1,866
|
|
|
|
|
Foreign currency forwards
|
|
|
6,485
|
|
|
|
83
|
|
|
|
57
|
|
|
|
5,167
|
|
|
|
153
|
|
|
|
129
|
|
|
|
|
Currency options
|
|
|
822
|
|
|
|
18
|
|
|
|
—
|
|
|
|
932
|
|
|
|
73
|
|
|
|
—
|
|
|
|
|
Non-derivative hedging instruments (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
351
|
|
|
|
—
|
|
|
|
323
|
|
|
Credit
|
|
Swap spreadlocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,338
|
|
|
|
—
|
|
|
|
99
|
|
|
|
|
Credit default swaps
|
|
|
6,723
|
|
|
|
74
|
|
|
|
130
|
|
|
|
5,219
|
|
|
|
152
|
|
|
|
69
|
|
|
|
|
Credit forwards
|
|
|
220
|
|
|
|
2
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Equity market
|
|
Equity futures
|
|
|
7,405
|
|
|
|
44
|
|
|
|
21
|
|
|
|
6,057
|
|
|
|
1
|
|
|
|
88
|
|
|
|
|
Equity options
|
|
|
27,175
|
|
|
|
1,712
|
|
|
|
1,018
|
|
|
|
5,153
|
|
|
|
2,150
|
|
|
|
—
|
|
|
|
|
Variance swaps
|
|
|
13,654
|
|
|
|
181
|
|
|
|
58
|
|
|
|
9,222
|
|
|
|
416
|
|
|
|
—
|
|
|
|
|
Total rate of return swaps
|
|
|
376
|
|
|
|
—
|
|
|
|
47
|
|
|
|
250
|
|
|
|
—
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
195,877
|
|
|
$
|
6,133
|
|
|
$
|
4,115
|
|
|
$
|
198,439
|
|
|
$
|
12,306
|
|
|
$
|
4,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated fair value of all derivatives in an asset position
is reported within other invested assets in the consolidated
balance sheets and the estimated fair value of all derivatives
in a liability position is reported within other liabilities in
the consolidated balance sheets. |
| |
|
(2) |
|
The estimated fair value of non-derivative hedging instruments
represents the amortized cost of the instruments, as adjusted
for foreign currency transaction gains or losses. Non-derivative
hedging instruments are reported within policyholder account
balances in the consolidated balance sheets. |
F-73
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the notional amount of derivative
financial instruments by maturity at December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Life
|
|
|
|
|
|
|
|
After One Year
|
|
|
After Five Years
|
|
|
|
|
|
|
|
|
|
|
One Year or
|
|
|
Through Five
|
|
|
Through Ten
|
|
|
After Ten
|
|
|
|
|
|
|
|
Less
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Interest rate swaps
|
|
$
|
2,509
|
|
|
$
|
9,855
|
|
|
$
|
16,498
|
|
|
$
|
9,290
|
|
|
$
|
38,152
|
|
|
Interest rate floors
|
|
|
325
|
|
|
|
2,580
|
|
|
|
20,786
|
|
|
|
—
|
|
|
|
23,691
|
|
|
Interest rate caps
|
|
|
4,003
|
|
|
|
21,050
|
|
|
|
3,356
|
|
|
|
—
|
|
|
|
28,409
|
|
|
Interest rate futures
|
|
|
7,563
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,563
|
|
|
Interest rate options
|
|
|
200
|
|
|
|
100
|
|
|
|
3,750
|
|
|
|
—
|
|
|
|
4,050
|
|
|
Interest rate forwards
|
|
|
9,921
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,921
|
|
|
Synthetic GICs
|
|
|
4,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,352
|
|
|
Foreign currency swaps
|
|
|
880
|
|
|
|
8,290
|
|
|
|
4,588
|
|
|
|
3,121
|
|
|
|
16,879
|
|
|
Foreign currency forwards
|
|
|
6,485
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,485
|
|
|
Currency options
|
|
|
822
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
822
|
|
|
Credit default swaps
|
|
|
112
|
|
|
|
5,910
|
|
|
|
701
|
|
|
|
—
|
|
|
|
6,723
|
|
|
Credit forwards
|
|
|
200
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
220
|
|
|
Equity futures
|
|
|
7,405
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,405
|
|
|
Equity options
|
|
|
355
|
|
|
|
22,007
|
|
|
|
4,384
|
|
|
|
429
|
|
|
|
27,175
|
|
|
Variance swaps
|
|
|
—
|
|
|
|
1,259
|
|
|
|
11,908
|
|
|
|
487
|
|
|
|
13,654
|
|
|
Total rate of return swaps
|
|
|
376
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,508
|
|
|
$
|
71,071
|
|
|
$
|
65,971
|
|
|
$
|
13,327
|
|
|
$
|
195,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps are used by the Company primarily to reduce
market risks from changes in interest rates and to alter
interest rate exposure arising from mismatches between assets
and liabilities (duration mismatches). In an interest rate swap,
the Company agrees with another party to exchange, at specified
intervals, the difference between fixed rate and floating rate
interest amounts as calculated by reference to an agreed
notional principal amount. These transactions are entered into
pursuant to master agreements that provide for a single net
payment to be made by the counterparty at each due date. The
Company utilizes interest rate swaps in fair value, cash flow
and non-qualifying hedging relationships.
The Company also enters into basis swaps to better match the
cash flows from assets and related liabilities. In a basis swap,
both legs of the swap are floating with each based on a
different index. Generally, no cash is exchanged at the outset
of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty
at each due date. Basis swaps are included in interest rate
swaps in the preceding table. The Company utilizes basis swaps
in non-qualifying hedging relationships.
Inflation swaps are used as an economic hedge to reduce
inflation risk generated from inflation-indexed liabilities.
Inflation swaps are included in interest rate swaps in the
preceding table. The Company utilizes inflation swaps in
non-qualifying hedging relationships.
Implied volatility swaps are used by the Company primarily as
economic hedges of interest rate risk associated with the
Company’s investments in mortgage-backed securities. In an
implied volatility swap, the Company exchanges fixed payments
for floating payments that are linked to certain market
volatility measures. If implied volatility rises, the floating
payments that the Company receives will increase, and if implied
volatility falls, the floating payments that the Company
receives will decrease. Implied volatility swaps are included in
interest rate swaps in the preceding table. The Company utilizes
implied volatility swaps in non-qualifying hedging relationships.
The Company purchases interest rate caps and floors primarily to
protect its floating rate liabilities against rises in interest
rates above a specified level, and against interest rate
exposure arising from mismatches between
F-74
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
assets and liabilities (duration mismatches), as well as to
protect its minimum rate guarantee liabilities against declines
in interest rates below a specified level, respectively. In
certain instances, the Company locks in the economic impact of
existing purchased caps and floors by entering into offsetting
written caps and floors. The Company utilizes interest rate caps
and floors in non-qualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures
transactions, the Company agrees to purchase or sell a specified
number of contracts, the value of which is determined by the
different classes of interest rate securities, and to post
variation margin on a daily basis in an amount equal to the
difference in the daily market values of those contracts. The
Company enters into exchange-traded futures with regulated
futures commission merchants that are members of the exchange.
Exchange-traded interest rate (Treasury and swap) futures are
used primarily to hedge mismatches between the duration of
assets in a portfolio and the duration of liabilities supported
by those assets, to hedge against changes in value of securities
the Company owns or anticipates acquiring and to hedge against
changes in interest rates on anticipated liability issuances by
replicating Treasury or swap curve performance. The Company
utilizes exchange-traded interest rate futures in non-qualifying
hedging relationships.
Swaptions are used by the Company to hedge interest rate risk
associated with the Company’s long-term liabilities. A
swaption is an option to enter into a swap with a forward
starting effective date. In certain instances, the Company locks
in the economic impact of existing purchased swaptions by
entering into offsetting written swaptions. The Company pays a
premium for purchased swaptions and receives a premium for
written swaptions. Swaptions are included in interest rate
options in the preceding table. The Company utilizes swaptions
in non-qualifying hedging relationships.
The Company writes covered call options on its portfolio of
U.S. Treasuries as an income generation strategy. In a
covered call transaction, the Company receives a premium at the
inception of the contract in exchange for giving the derivative
counterparty the right to purchase the referenced security from
the Company at a predetermined price. The call option is
“covered” because the Company owns the referenced
security over the term of the option. Covered call options are
included in interest rate options in the preceding table. The
Company utilizes covered call options in non-qualifying hedging
relationships.
The Company enters into interest rate forwards to buy and sell
securities. The price is agreed upon at the time of the contract
and payment for such a contract is made at a specified future
date. The Company also uses interest rate forwards to sell to be
announced securities as economic hedges against the risk of
changes in the fair value of mortgage loans
held-for-sale
and interest rate lock commitments. The Company utilizes
interest rate forwards in cash flow and non-qualifying hedging
relationships.
Interest rate lock commitments are short-term commitments to
fund mortgage loan applications in process (the pipeline) for a
fixed term at a fixed price. During the term of an interest rate
lock commitment, the Company is exposed to the risk that
interest rates will change from the rate quoted to the potential
borrower. Interest rate lock commitments to fund mortgage loans
that will be
held-for-sale
are considered derivative instruments. Interest rate lock
commitments are included in interest rate forwards in the
preceding table. Interest rate lock commitments are not
designated as hedging instruments.
A synthetic GIC is a contract that simulates the performance of
a traditional guaranteed interest contract through the use of
financial instruments. Under a synthetic GIC, the policyholder
owns the underlying assets. The Company guarantees a rate return
on those assets for a premium. Synthetic GICs are not designated
as hedging instruments.
Foreign currency derivatives, including foreign currency swaps,
foreign currency forwards and currency option contracts, are
used by the Company to reduce the risk from fluctuations in
foreign currency exchange rates associated with its assets and
liabilities denominated in foreign currencies. The Company also
uses foreign currency forwards and swaps to hedge the foreign
currency risk associated with certain of its net investments in
foreign operations.
In a foreign currency swap transaction, the Company agrees with
another party to exchange, at specified intervals, the
difference between one currency and another at a fixed exchange
rate, generally set at inception,
F-75
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
calculated by reference to an agreed upon principal amount. The
principal amount of each currency is exchanged at the inception
and termination of the currency swap by each party. The Company
utilizes foreign currency swaps in fair value, cash flow, net
investment in foreign operations and non-qualifying hedging
relationships.
In a foreign currency forward transaction, the Company agrees
with another party to deliver a specified amount of an
identified currency at a specified future date. The price is
agreed upon at the time of the contract and payment for such a
contract is made in a different currency at the specified future
date. The Company utilizes foreign currency forwards in net
investment in foreign operations and non-qualifying hedging
relationships.
The Company enters into currency option contracts that give it
the right, but not the obligation, to sell the foreign currency
amount in exchange for a functional currency amount within a
limited time at a contracted price. The contracts may also be
net settled in cash, based on differentials in the foreign
exchange rate and the strike price. The Company uses currency
options to hedge against the foreign currency exposure inherent
in certain of its variable annuity products. The Company also
uses currency options as an economic hedge of foreign currency
exposure related to the Company’s international
subsidiaries. The Company utilizes currency options in
non-qualifying hedging relationships.
The Company uses certain of its foreign currency denominated
funding agreements to hedge portions of its net investments in
foreign operations against adverse movements in exchange rates.
Such contracts are included in non-derivative hedging
instruments in the preceding table.
Swap spreadlocks are used by the Company to hedge invested
assets on an economic basis against the risk of changes in
credit spreads. Swap spreadlocks are forward transactions
between two parties whose underlying reference index is a
forward starting interest rate swap where the Company agrees to
pay a coupon based on a predetermined reference swap spread in
exchange for receiving a coupon based on a floating rate. The
Company has the option to cash settle with the counterparty in
lieu of maintaining the swap after the effective date. The
Company utilizes swap spreadlocks in non-qualifying hedging
relationships.
Certain credit default swaps are used by the Company to hedge
against credit-related changes in the value of its investments
and to diversify its credit risk exposure in certain portfolios.
In a credit default swap transaction, the Company agrees with
another party, at specified intervals, to pay a premium to hedge
credit risk. If a credit event, as defined by the contract,
occurs, generally the contract will require the swap to be
settled gross by the delivery of par quantities of the
referenced investment equal to the specified swap notional in
exchange for the payment of cash amounts by the counterparty
equal to the par value of the investment surrendered. The
Company utilizes credit default swaps in non-qualifying hedging
relationships.
Credit default swaps are also used to synthetically create
investments that are either more expensive to acquire or
otherwise unavailable in the cash markets. These transactions
are a combination of a derivative and a cash instrument such as
a U.S. Treasury or Agency security. The Company also enters
into certain credit default swaps held in relation to trading
portfolios for the purpose of generating profits on short-term
differences in price. These credit default swaps are not
designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid
for forward purchases of certain securities. The price is agreed
upon at the time of the contract and payment for the contract is
made at a specified future date. When the primary purpose of
entering into these transactions is to hedge against the risk of
changes in purchase price due to changes in credit spreads, the
Company designates these as credit forwards. The Company
utilizes credit forwards in cash flow hedging relationships.
In exchange-traded equity futures transactions, the Company
agrees to purchase or sell a specified number of contracts, the
value of which is determined by the different classes of equity
securities, and to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of
those contracts. The Company enters into exchange-traded futures
with regulated futures commission merchants that are members of
the exchange. Exchange-traded equity futures are used primarily
to hedge liabilities embedded in certain variable annuity
products offered by the Company. The Company utilizes
exchange-traded equity futures in non-qualifying hedging
relationships.
F-76
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Equity index options are used by the Company primarily to hedge
minimum guarantees embedded in certain variable annuity products
offered by the Company. To hedge against adverse changes in
equity indices, the Company enters into contracts to sell the
equity index within a limited time at a contracted price. The
contracts will be net settled in cash based on differentials in
the indices at the time of exercise and the strike price. In
certain instances, the Company may enter into a combination of
transactions to hedge adverse changes in equity indices within a
pre-determined range through the purchase and sale of options.
Equity index options are included in equity options in the
preceding table. The Company utilizes equity index options in
non-qualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge
minimum guarantees embedded in certain variable annuity products
offered by the Company. In an equity variance swap, the Company
agrees with another party to exchange amounts in the future,
based on changes in equity volatility over a defined period.
Equity variance swaps are included in variance swaps in the
preceding table. The Company utilizes equity variance swaps in
non-qualifying hedging relationships.
Total rate of return swaps (“TRRs”) are swaps whereby
the Company agrees with another party to exchange, at specified
intervals, the difference between the economic risk and reward
of an asset or a market index and LIBOR, calculated by reference
to an agreed notional principal amount. No cash is exchanged at
the outset of the contract. Cash is paid and received over the
life of the contract based on the terms of the swap. These
transactions are entered into pursuant to master agreements that
provide for a single net payment to be made by the counterparty
at each due date. The Company uses TRRs to hedge its equity
market guarantees in certain of its insurance products. TRRs can
be used as hedges or to synthetically create investments. The
Company utilizes TRRs in non-qualifying hedging relationships.
Hedging
The following table presents the notional amount and estimated
fair value of derivatives designated as hedging instruments by
type of hedge designation at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
(In millions)
|
|
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
4,807
|
|
|
$
|
854
|
|
|
$
|
132
|
|
|
$
|
6,093
|
|
|
$
|
467
|
|
|
$
|
550
|
|
|
Interest rate swaps
|
|
|
4,824
|
|
|
|
500
|
|
|
|
75
|
|
|
|
4,141
|
|
|
|
1,338
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
9,631
|
|
|
|
1,354
|
|
|
|
207
|
|
|
|
10,234
|
|
|
|
1,805
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
4,108
|
|
|
|
127
|
|
|
|
347
|
|
|
|
3,782
|
|
|
|
463
|
|
|
|
381
|
|
|
Interest rate swaps
|
|
|
1,740
|
|
|
|
—
|
|
|
|
48
|
|
|
|
286
|
|
|
|
—
|
|
|
|
6
|
|
|
Interest rate forwards
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit forwards
|
|
|
220
|
|
|
|
2
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6,068
|
|
|
|
129
|
|
|
|
401
|
|
|
|
4,068
|
|
|
|
463
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Operations Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
1,880
|
|
|
|
27
|
|
|
|
13
|
|
|
|
1,670
|
|
|
|
32
|
|
|
|
50
|
|
|
Foreign currency swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
|
|
1
|
|
|
|
—
|
|
|
Non-derivative hedging instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
351
|
|
|
|
—
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,880
|
|
|
|
27
|
|
|
|
13
|
|
|
|
2,185
|
|
|
|
33
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
17,579
|
|
|
$
|
1,510
|
|
|
$
|
621
|
|
|
$
|
16,487
|
|
|
$
|
2,301
|
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the notional amount and estimated
fair value of derivatives that are not designated or do not
qualify as hedging instruments by derivative type at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
Value
|
|
|
Value
|
|
Derivatives Not Designated or Not
|
|
Notional
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
Qualifying as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
(In millions)
|
|
|
|
|
Interest rate swaps
|
|
$
|
31,588
|
|
|
$
|
1,070
|
|
|
$
|
1,132
|
|
|
$
|
29,633
|
|
|
$
|
3,279
|
|
|
$
|
1,309
|
|
|
Interest rate floors
|
|
|
23,691
|
|
|
|
461
|
|
|
|
37
|
|
|
|
48,517
|
|
|
|
1,748
|
|
|
|
—
|
|
|
Interest rate caps
|
|
|
28,409
|
|
|
|
283
|
|
|
|
—
|
|
|
|
24,643
|
|
|
|
11
|
|
|
|
—
|
|
|
Interest rate futures
|
|
|
7,563
|
|
|
|
8
|
|
|
|
10
|
|
|
|
13,851
|
|
|
|
44
|
|
|
|
117
|
|
|
Interest rate options
|
|
|
4,050
|
|
|
|
117
|
|
|
|
57
|
|
|
|
2,365
|
|
|
|
939
|
|
|
|
35
|
|
|
Interest rate forwards
|
|
|
9,921
|
|
|
|
66
|
|
|
|
27
|
|
|
|
16,616
|
|
|
|
49
|
|
|
|
70
|
|
|
Synthetic GICs
|
|
|
4,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,260
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency swaps
|
|
|
7,964
|
|
|
|
533
|
|
|
|
913
|
|
|
|
9,399
|
|
|
|
1,022
|
|
|
|
935
|
|
|
Foreign currency forwards
|
|
|
4,605
|
|
|
|
56
|
|
|
|
44
|
|
|
|
3,497
|
|
|
|
121
|
|
|
|
79
|
|
|
Currency options
|
|
|
822
|
|
|
|
18
|
|
|
|
—
|
|
|
|
932
|
|
|
|
73
|
|
|
|
—
|
|
|
Swap spreadlocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,338
|
|
|
|
—
|
|
|
|
99
|
|
|
Credit default swaps
|
|
|
6,723
|
|
|
|
74
|
|
|
|
130
|
|
|
|
5,219
|
|
|
|
152
|
|
|
|
69
|
|
|
Equity futures
|
|
|
7,405
|
|
|
|
44
|
|
|
|
21
|
|
|
|
6,057
|
|
|
|
1
|
|
|
|
88
|
|
|
Equity options
|
|
|
27,175
|
|
|
|
1,712
|
|
|
|
1,018
|
|
|
|
5,153
|
|
|
|
2,150
|
|
|
|
—
|
|
|
Variance swaps
|
|
|
13,654
|
|
|
|
181
|
|
|
|
58
|
|
|
|
9,222
|
|
|
|
416
|
|
|
|
—
|
|
|
Total rate of return swaps
|
|
|
376
|
|
|
|
—
|
|
|
|
47
|
|
|
|
250
|
|
|
|
—
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
178,298
|
|
|
$
|
4,623
|
|
|
$
|
3,494
|
|
|
$
|
181,952
|
|
|
$
|
10,005
|
|
|
$
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the settlement payments recorded in
income for the:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
49
|
|
|
$
|
19
|
|
|
$
|
29
|
|
|
Interest credited to policyholder account balances
|
|
|
220
|
|
|
|
105
|
|
|
|
(34
|
)
|
|
Other expenses
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
1
|
|
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(5
|
)
|
|
Net investment gains (losses)
|
|
|
91
|
|
|
|
49
|
|
|
|
278
|
|
|
Other revenues
|
|
|
77
|
|
|
|
3
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
432
|
|
|
$
|
168
|
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
The Company designates and accounts for the following as fair
value hedges when they have met the requirements of fair value
hedging: (i) interest rate swaps to convert fixed rate
investments to floating rate
F-78
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
investments; (ii) interest rate swaps to convert fixed rate
liabilities to floating rate liabilities; and (iii) foreign
currency swaps to hedge the foreign currency fair value exposure
of foreign currency denominated investments and liabilities.
The Company recognizes gains and losses on derivatives and the
related hedged items in fair value hedges within net investment
gains (losses). The following table represents the amount of
such net investment gains (losses) recognized for the years
ended December 31, 2009, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
Net Investment Gains
|
|
|
Recognized in
|
|
Derivatives in Fair Value
|
|
Hedged Items in Fair Value
|
|
Recognized
|
|
|
(Losses) Recognized
|
|
|
Net Investment
|
|
|
Hedging Relationships
|
|
Hedging Relationships
|
|
for Derivatives
|
|
|
for Hedged Items
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
49
|
|
|
$
|
(42
|
)
|
|
$
|
7
|
|
|
|
|
Policyholder account balances (1)
|
|
|
(963
|
)
|
|
|
951
|
|
|
|
(12
|
)
|
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
(13
|
)
|
|
|
10
|
|
|
|
(3
|
)
|
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
462
|
|
|
|
(449
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(465
|
)
|
|
$
|
470
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
245
|
|
|
$
|
(248
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
$
|
334
|
|
|
$
|
(326
|
)
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fixed rate liabilities |
| |
|
(2) |
|
Fixed rate or floating rate liabilities |
All components of each derivative’s gain or loss were
included in the assessment of hedge effectiveness.
Cash
Flow Hedges
The Company designates and accounts for the following as cash
flow hedges when they have met the requirements of cash flow
hedging: (i) interest rate swaps to convert floating rate
investments to fixed rate investments; (ii) interest rate
swaps to convert floating rate liabilities to fixed rate
liabilities; (iii) foreign currency swaps to hedge the
foreign currency cash flow exposure of foreign currency
denominated investments and liabilities; (iv) interest rate
forwards and credit forwards to lock in the price to be paid for
forward purchases of investments; and (v) interest rate
swaps to hedge the forecasted purchases of fixed-rate
investments.
For the year ended December 31, 2009, the Company
recognized $3 million of net investment losses which
represented the ineffective portion of all cash flow hedges. For
the years ended December 31, 2008 and 2007, the Company did
not recognize any net investment gains (losses) which
represented the ineffective portion of all cash flow hedges. All
components of each derivative’s gain or loss were included
in the assessment of hedge effectiveness. In certain instances,
the Company discontinued cash flow hedge accounting because the
forecasted transactions did not occur on the anticipated date or
within two months of that date. The net amounts reclassified
into net investment losses for the years ended December 31,
2009, 2008 and 2007 related to such discontinued cash flow
hedges were $7 million, $12 million and
$3 million, respectively. As of December 31, 2009, the
maximum length of time over which the Company is hedging its
exposure to variability in future cash flows for forecasted
transactions does not exceed five years. There were no hedged
forecasted transactions, other than the receipt or payment of
variable interest payments for the years ended December 31,
2008 and 2007.
F-79
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the components of other
comprehensive income (loss), before income tax, related to cash
flow hedges:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Other comprehensive income (loss), balance at January 1,
|
|
$
|
82
|
|
|
$
|
(270
|
)
|
|
$
|
(208
|
)
|
|
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
|
|
(221
|
)
|
|
|
203
|
|
|
|
(168
|
)
|
|
Amounts reclassified to net investment gains (losses)
|
|
|
54
|
|
|
|
140
|
|
|
|
96
|
|
|
Amounts reclassified to net investment income
|
|
|
8
|
|
|
|
9
|
|
|
|
13
|
|
|
Amortization of transition adjustment
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
Amounts reclassified to other expenses
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), balance at December 31,
|
|
$
|
(76
|
)
|
|
$
|
82
|
|
|
$
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, $47 million of deferred net
losses on derivatives accumulated in other comprehensive income
(loss) is expected to be reclassified to earnings within the
next 12 months.
The following table presents the effects of derivatives in cash
flow hedging relationships on the consolidated statements of
operations and the consolidated statements of stockholders’
equity for the years ended December 31, 2009, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gains
|
|
|
Amount and Location
|
|
|
|
|
|
|
|
(Losses) Deferred
|
|
|
of Gains (Losses)
|
|
|
Amount and Location
|
|
|
|
|
in Accumulated Other
|
|
|
Reclassified from
|
|
|
of Gains (Losses)
|
|
Derivatives in Cash Flow
|
|
Comprehensive Income
|
|
|
Accumulated Other Comprehensive
|
|
|
Recognized in Income (Loss)
|
|
|
Hedging Relationships
|
|
(Loss) on Derivatives
|
|
|
Income (Loss) into Income (Loss)
|
|
|
on Derivatives
|
|
|
|
|
|
|
|
|
|
|
(Ineffective Portion and
|
|
|
|
|
|
|
|
|
|
|
Amount Excluded from
|
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Effectiveness Testing)
|
|
|
|
|
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
Other
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
Income
|
|
|
Expenses
|
|
|
Gains (Losses)
|
|
|
Income
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(45
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
Foreign currency swaps
|
|
|
(319
|
)
|
|
|
(133
|
)
|
|
|
(6
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
Interest rate forwards
|
|
|
147
|
|
|
|
79
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit forwards
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(221
|
)
|
|
$
|
(54
|
)
|
|
$
|
(6
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency swaps
|
|
|
203
|
|
|
|
(140
|
)
|
|
|
(10
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
203
|
|
|
$
|
(140
|
)
|
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency swaps
|
|
|
(171
|
)
|
|
|
(96
|
)
|
|
|
(12
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(168
|
)
|
|
$
|
(96
|
)
|
|
$
|
(12
|
)
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedges
of Net Investments in Foreign Operations
The Company uses foreign exchange contracts, which may include
foreign currency swaps, forwards and options, to hedge portions
of its net investments in foreign operations against adverse
movements in exchange rates. The Company measures
ineffectiveness on these contracts based upon the change in
forward rates. In addition, the Company may also use
non-derivative financial instruments to hedge portions of its
net investments in foreign
F-80
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
operations against adverse movements in exchange rates. The
Company measures ineffectiveness on non-derivative financial
instruments based upon the change in spot rates.
When net investments in foreign operations are sold or
substantially liquidated, the amounts in accumulated other
comprehensive income (loss) are reclassified to the consolidated
statements of operations, while a pro rata portion will be
reclassified upon partial sale of the net investments in foreign
operations.
The following table presents the effects of derivatives and
non-derivative financial instruments in net investment hedging
relationships in the consolidated statements of operations and
the consolidated statements of stockholders’ equity for the
years ended December 31, 2009, 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Gains (Losses)
|
|
|
|
|
Amount of Gains (Losses)
|
|
|
Reclassified From Accumulated Other
|
|
|
|
|
Deferred in Accumulated
|
|
|
Comprehensive Income
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
(Loss) into Income (Loss)
|
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Gains (Losses)
|
|
Derivatives and Non-Derivative Hedging Instruments in Net
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
Investment Hedging Relationships (1), (2)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(244
|
)
|
|
$
|
338
|
|
|
$
|
(36
|
)
|
|
$
|
(59
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency swaps
|
|
|
(18
|
)
|
|
|
76
|
|
|
|
(82
|
)
|
|
|
(63
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Non-derivative hedging instruments
|
|
|
(37
|
)
|
|
|
81
|
|
|
|
(62
|
)
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(299
|
)
|
|
$
|
495
|
|
|
$
|
(180
|
)
|
|
$
|
(133
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the year-ended December 31, 2009, the Company
substantially liquidated, through assumption reinsurance (see
Note 2), the portion of its Canadian operations that was
being hedged in a net investment hedging relationship. As a
result, the Company reclassified losses of $133 million
from accumulated other comprehensive loss into earnings. During
the years ended December 31, 2008 and 2007, there were no
sales or substantial liquidations of net investments in foreign
operations that would have required the reclassification of
gains or losses from accumulated other comprehensive loss into
earnings. |
| |
|
(2) |
|
There was no ineffectiveness recognized for the Company’s
hedges of net investments in foreign operations. |
At December 31, 2009 and 2008, the cumulative foreign
currency translation gain (loss) recorded in accumulated other
comprehensive loss related to hedges of net investments in
foreign operations was ($40) million and $126 million,
respectively.
Non-Qualifying
Derivatives and Derivatives for Purposes Other Than
Hedging
The Company enters into the following derivatives that do not
qualify for hedge accounting or for purposes other than hedging:
(i) interest rate swaps, implied volatility swaps, caps and
floors and interest rate futures to economically hedge its
exposure to interest rates; (ii) foreign currency forwards,
swaps and option contracts to economically hedge its exposure to
adverse movements in exchange rates; (iii) credit default
swaps to economically hedge exposure to adverse movements in
credit; (iv) equity futures, equity index options, interest
rate futures, TRRs and equity variance swaps to economically
hedge liabilities embedded in certain variable annuity products;
(v) swap spreadlocks to economically hedge invested assets
against the risk of changes in credit spreads;
(vi) interest rate forwards to buy and sell securities to
economically hedge its exposure to interest rates;
(vii) credit default swaps and TRRs to synthetically create
investments; (viii) basis swaps to better match the cash
flows of assets and related liabilities; (ix) credit
default swaps held in relation to trading portfolios;
(x) swaptions to hedge interest rate risk;
(xi) inflation swaps to reduce risk generated from
inflation-indexed liabilities; (xii) covered call options
for income generation; (xiii) interest rate lock
commitments; (xiv) synthetic GICs and (xv) equity
options to economically hedge certain invested assets against
adverse changes in equity indices.
F-81
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the amount and location of gains
(losses) recognized in income for derivatives that are not
designated or qualifying as hedging instruments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
Other
|
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses (4)
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(1,700
|
)
|
|
$
|
(5
|
)
|
|
$
|
(13
|
)
|
|
$
|
(161
|
)
|
|
$
|
—
|
|
|
Interest rate floors
|
|
|
(907
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest rate caps
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest rate futures
|
|
|
(366
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Equity futures
|
|
|
(681
|
)
|
|
|
(38
|
)
|
|
|
(363
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency swaps
|
|
|
(405
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign currency forwards
|
|
|
(102
|
)
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Currency options
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
Equity options
|
|
|
(1,713
|
)
|
|
|
(68
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest rate options
|
|
|
(379
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest rate forwards
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
Variance swaps
|
|
|
(276
|
)
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Swap spreadlocks
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit default swaps
|
|
|
(243
|
)
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total rate of return swaps
|
|
|
63
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6,757
|
)
|
|
$
|
(158
|
)
|
|
$
|
(376
|
)
|
|
$
|
(165
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
6,688
|
|
|
$
|
240
|
|
|
$
|
331
|
|
|
$
|
146
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
$
|
(227
|
)
|
|
$
|
31
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value related to economic hedges of
equity method investments in joint ventures, and changes in
estimated fair value related to derivatives held in relation to
trading portfolios. |
| |
|
(2) |
|
Changes in estimated fair value related to economic hedges of
variable annuity guarantees included in future policy benefits. |
| |
|
(3) |
|
Changes in estimated fair value related to derivatives held in
connection with the Company’s mortgage banking activities. |
| |
|
(4) |
|
Changes in estimated fair value related to economic hedges of
foreign currency exposure associated with the Company’s
international subsidiaries. |
Credit
Derivatives
In connection with synthetically created investment transactions
and credit default swaps held in relation to the trading
portfolio, the Company writes credit default swaps for which it
receives a premium to insure credit risk. Such credit
derivatives are included within the non-qualifying derivatives
and derivatives for purposes other than hedging table. If a
credit event, as defined by the contract, occurs generally the
contract will require the Company to pay the counterparty the
specified swap notional amount in exchange for the delivery of
par quantities of the referenced credit obligation. The
Company’s maximum amount at risk, assuming the value of all
referenced credit obligations is zero, was $3,101 million
and $1,875 million at December 31, 2009 and 2008,
respectively. The Company can terminate these contracts at any
time through cash settlement with the counterparty at an amount
equal to the then current fair value of the credit default
swaps. At December 31, 2009, the Company would have
F-82
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
received $53 million to terminate all of these contracts,
and at December 31, 2008, the Company would have paid
$37 million to terminate all of these contracts.
The Company has also entered into credit default swaps to
purchase credit protection on certain of the referenced credit
obligations in the table below. As a result, the maximum amounts
of potential future recoveries available to offset the
$3,101 million and $1,875 million from the table below
were $31 million and $13 million at December 31,
2009 and 2008, respectively. The following table presents the
estimated fair value, maximum amount of future payments and
weighted average years to maturity of written credit default
swaps at December 31, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
Estimated
|
|
|
Amount of
|
|
|
|
|
|
|
|
Fair
|
|
|
of Future
|
|
|
Weighted
|
|
|
Fair Value
|
|
|
Future
|
|
|
Weighted
|
|
|
|
|
Value of Credit
|
|
|
Payments under
|
|
|
Average
|
|
|
of Credit
|
|
|
Payments under
|
|
|
Average
|
|
Rating Agency Designation of Referenced
|
|
Default
|
|
|
Credit Default
|
|
|
Years to
|
|
|
Default
|
|
|
Credit Default
|
|
|
Years to
|
|
|
Credit Obligations (1)
|
|
Swaps
|
|
|
Swaps (2)
|
|
|
Maturity (3)
|
|
|
Swaps
|
|
|
Swaps (2)
|
|
|
Maturity (3)
|
|
|
|
|
(In millions)
|
|
|
|
|
Aaa/Aa/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
$
|
5
|
|
|
$
|
175
|
|
|
|
4.3
|
|
|
$
|
1
|
|
|
$
|
143
|
|
|
|
5.0
|
|
|
Credit default swaps referencing indices
|
|
|
46
|
|
|
|
2,676
|
|
|
|
3.4
|
|
|
|
(33
|
)
|
|
|
1,372
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
51
|
|
|
|
2,851
|
|
|
|
3.5
|
|
|
|
(32
|
)
|
|
|
1,515
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
2
|
|
|
|
195
|
|
|
|
4.8
|
|
|
|
2
|
|
|
|
110
|
|
|
|
2.6
|
|
|
Credit default swaps referencing indices
|
|
|
—
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
(5
|
)
|
|
|
215
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2
|
|
|
|
205
|
|
|
|
4.8
|
|
|
|
(3
|
)
|
|
|
325
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ba
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
—
|
|
|
|
25
|
|
|
|
5.0
|
|
|
|
—
|
|
|
|
25
|
|
|
|
1.6
|
|
|
Credit default swaps referencing indices
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
—
|
|
|
|
25
|
|
|
|
5.0
|
|
|
|
—
|
|
|
|
25
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit default swaps referencing indices
|
|
|
—
|
|
|
|
20
|
|
|
|
5.0
|
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
—
|
|
|
|
20
|
|
|
|
5.0
|
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and lower
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit default swaps referencing indices
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In or near default
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit default swaps referencing indices
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53
|
|
|
$
|
3,101
|
|
|
|
3.6
|
|
|
$
|
(37
|
)
|
|
$
|
1,875
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The rating agency designations are based on availability and the
midpoint of the applicable ratings among Moody’s, S&P
and Fitch. If no rating is available from a rating agency, then
the MetLife rating is used. |
| |
|
(2) |
|
Assumes the value of the referenced credit obligations is zero. |
| |
|
(3) |
|
The weighted average years to maturity of the credit default
swaps is calculated based on weighted average notional amounts. |
F-83
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Credit
Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event
of nonperformance by counterparties to derivative financial
instruments. Generally, the current credit exposure of the
Company’s derivative contracts is limited to the net
positive estimated fair value of derivative contracts at the
reporting date after taking into consideration the existence of
netting agreements and any collateral received pursuant to
credit support annexes.
The Company manages its credit risk related to
over-the-counter
derivatives by entering into transactions with creditworthy
counterparties, maintaining collateral arrangements and through
the use of master agreements that provide for a single net
payment to be made by one counterparty to another at each due
date and upon termination. Because exchange-traded futures are
effected through regulated exchanges, and positions are marked
to market on a daily basis, the Company has minimal exposure to
credit-related losses in the event of nonperformance by
counterparties to such derivative instruments. See Note 1
for a description of the impact of credit risk on the valuation
of derivative instruments.
The Company enters into various collateral arrangements, which
require both the pledging and accepting of collateral in
connection with its derivative instruments. At December 31,
2009 and 2008, the Company was obligated to return cash
collateral under its control of $2,680 million and
$7,758 million, respectively. This unrestricted cash
collateral is included in cash and cash equivalents or in
short-term investments and the obligation to return it is
included in payables for collateral under securities loaned and
other transactions in the consolidated balance sheets. At
December 31, 2009 and 2008, the Company had also accepted
collateral consisting of various securities with a fair market
value of $221 million and $1,249 million,
respectively, which are held in separate custodial accounts. The
Company is permitted by contract to sell or repledge this
collateral, but at December 31, 2009, none of the
collateral had been sold or repledged.
The Company’s collateral arrangements for its
over-the-counter
derivatives generally require the counterparty in a net
liability position, after considering the effect of netting
agreements, to pledge collateral when the fair value of that
counterparty’s derivatives reaches a pre-determined
threshold. Certain of these arrangements also include
credit-contingent provisions that provide for a reduction of
these thresholds (on a sliding scale that converges toward zero)
in the event of downgrades in the credit ratings of the Company
and/or the
counterparty. In addition, certain of the Company’s netting
agreements for derivative instruments contain provisions that
require the Company to maintain a specific investment grade
credit rating from at least one of the major credit rating
agencies. If the Company’s credit ratings were to fall
below that specific investment grade credit rating, it would be
in violation of these provisions, and the counterparties to the
derivative instruments could request immediate payment or demand
immediate and ongoing full overnight collateralization on
derivative instruments that are in a net liability position
after considering the effect of netting agreements.
F-84
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following table presents the estimated fair value of the
Company’s
over-the-counter
derivatives that are in a net liability position after
considering the effect of netting agreements, together with the
estimated fair value and balance sheet location of the
collateral pledged. The table also presents the incremental
collateral that the Company would be required to provide if
there was a one notch downgrade in the Company’s credit
rating at the reporting date or if the Company’s credit
rating sustained a downgrade to a level that triggered full
overnight collateralization or termination of the derivative
position at the reporting date. Derivatives that are not subject
to collateral agreements are not included in the scope of this
table.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
|
|
|
|
Fair Value (1) of
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
Derivatives in Net
|
|
|
Collateral
|
|
|
|
|
|
|
|
Liability Position
|
|
|
Provided
|
|
|
Fair Value of Incremental Collateral
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
Provided Upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
|
|
|
|
|
|
One Notch
|
|
|
Company’s Credit Rating
|
|
|
|
|
|
|
|
|
|
|
Downgrade
|
|
|
to a Level that Triggers
|
|
|
|
|
|
|
|
|
|
|
in the
|
|
|
Full Overnight
|
|
|
|
|
|
|
|
|
|
|
Company’s
|
|
|
Collateralization or
|
|
|
|
|
|
|
|
Fixed Maturity
|
|
|
Credit
|
|
|
Termination
|
|
|
|
|
|
|
|
Securities (2)
|
|
|
Rating
|
|
|
of the Derivative Position
|
|
|
|
|
(In millions)
|
|
|
|
|
Derivatives subject to credit-contingent provisions
|
|
$
|
1,163
|
|
|
$
|
1,017
|
|
|
$
|
90
|
|
|
$
|
218
|
|
|
Derivatives not subject to credit-contingent provisions
|
|
|
48
|
|
|
|
42
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,211
|
|
|
$
|
1,059
|
|
|
$
|
90
|
|
|
$
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After taking into consideration the existence of netting
agreements. |
| |
|
(2) |
|
Included in fixed maturity securities in the consolidated
balance sheets. The counterparties are permitted by contract to
sell or repledge this collateral. At December 31, 2009, the
Company did not provide any cash collateral. |
Without considering the effect of netting agreements, the
estimated fair value of the Company’s
over-the-counter
derivatives with credit-contingent provisions that were in a
gross liability position at December 31, 2009 was
$1,645 million. At December 31, 2009, the Company
provided securities collateral of $1,017 million in
connection with these derivatives. In the unlikely event that
both: (i) the Company’s credit rating is downgraded to
a level that triggers full overnight collateralization or
termination of all derivative positions; and (ii) the
Company’s netting agreements are deemed to be legally
unenforceable, then the additional collateral that the Company
would be required to provide to its counterparties in connection
with its derivatives in a gross liability position at
December 31, 2009 would be $628 million. This amount
does not consider gross derivative assets of $488 million
for which the Company has the contractual right of offset.
At December 31, 2008, the Company provided securities
collateral for various arrangements in connection with
derivative instruments of $776 million, which is included
in fixed maturity securities. The counterparties are permitted
by contract to sell or repledge this collateral.
The Company also has exchange-traded futures, which require the
pledging of collateral. At December 31, 2009 and 2008, the
Company pledged securities collateral for exchange-traded
futures of $50 million and $282 million, respectively,
which is included in fixed maturity securities. The
counterparties are permitted by contract to sell or repledge
this collateral. At December 31, 2009 and 2008, the Company
provided cash collateral for exchange-traded futures of
$562 million and $686 million, respectively, which is
included in premiums and other receivables.
F-85
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Embedded
Derivatives
The Company has certain embedded derivatives that are required
to be separated from their host contracts and accounted for as
derivatives. These host contracts principally include: variable
annuities with guaranteed minimum benefits, including GMWBs,
GMABs and certain GMIBs; ceded reinsurance contracts of
guaranteed minimum benefits related to GMABs and certain GMIBs;
and funding agreements with equity or bond indexed crediting
rates.
The following table presents the estimated fair value of the
Company’s embedded derivatives at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefits
|
|
$
|
76
|
|
|
$
|
205
|
|
|
Call options in equity securities
|
|
|
(37
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
39
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefits
|
|
$
|
1,500
|
|
|
$
|
3,134
|
|
|
Other
|
|
|
5
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
1,505
|
|
|
$
|
3,051
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents changes in estimated fair value
related to embedded derivatives:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Net investment gains (losses) (1)
|
|
$
|
1,758
|
|
|
$
|
(2,650
|
)
|
|
$
|
(321
|
)
|
|
Policyholder benefits and claims
|
|
$
|
(114
|
)
|
|
$
|
182
|
|
|
$
|
—
|
|
|
|
|
|
(1) |
|
Effective January 1, 2008, the valuation of the
Company’s guaranteed minimum benefits includes an
adjustment for the Company’s own credit. Included in net
investment gains (losses) for the years ended December 31,
2009 and 2008 were gains (losses) of ($1,932) million and
$2,994 million, respectively, in connection with this
adjustment. |
Effective January 1, 2008, the Company prospectively
adopted the provisions of fair value measurement guidance.
Considerable judgment is often required in interpreting market
data to develop estimates of fair value and the use of different
assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
F-86
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Fair
Value of Financial Instruments
Amounts related to the Company’s financial instruments are
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
|
December 31, 2009
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
227,642
|
|
|
$
|
227,642
|
|
|
Equity securities
|
|
|
|
|
|
$
|
3,084
|
|
|
$
|
3,084
|
|
|
Trading securities
|
|
|
|
|
|
$
|
2,384
|
|
|
$
|
2,384
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
$
|
48,181
|
|
|
$
|
46,315
|
|
|
Held-for-sale
|
|
|
|
|
|
|
2,728
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
50,909
|
|
|
$
|
49,043
|
|
|
Policy loans
|
|
|
|
|
|
$
|
10,061
|
|
|
$
|
11,294
|
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
115
|
|
|
$
|
127
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
1,571
|
|
|
$
|
1,581
|
|
|
Short-term investments
|
|
|
|
|
|
$
|
8,374
|
|
|
$
|
8,374
|
|
|
Other invested assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (2)
|
|
$
|
122,156
|
|
|
$
|
6,133
|
|
|
$
|
6,133
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
$
|
878
|
|
|
$
|
878
|
|
|
Other
|
|
|
|
|
|
$
|
1,241
|
|
|
$
|
1,284
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
10,112
|
|
|
$
|
10,112
|
|
|
Accrued investment income
|
|
|
|
|
|
$
|
3,173
|
|
|
$
|
3,173
|
|
|
Premiums and other receivables (1)
|
|
|
|
|
|
$
|
3,375
|
|
|
$
|
3,532
|
|
|
Other assets (1)
|
|
|
|
|
|
$
|
425
|
|
|
$
|
440
|
|
|
Separate account assets
|
|
|
|
|
|
$
|
149,041
|
|
|
$
|
149,041
|
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
76
|
|
|
$
|
76
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
97,131
|
|
|
$
|
96,735
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
24,196
|
|
|
$
|
24,196
|
|
|
Bank deposits
|
|
|
|
|
|
$
|
10,211
|
|
|
$
|
10,300
|
|
|
Short-term debt
|
|
|
|
|
|
$
|
912
|
|
|
$
|
912
|
|
|
Long-term debt (1)
|
|
|
|
|
|
$
|
13,185
|
|
|
$
|
13,831
|
|
|
Collateral financing arrangements
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
2,877
|
|
|
Junior subordinated debt securities
|
|
|
|
|
|
$
|
3,191
|
|
|
$
|
3,167
|
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
73,721
|
|
|
$
|
4,115
|
|
|
$
|
4,115
|
|
|
Trading liabilities
|
|
|
|
|
|
$
|
106
|
|
|
$
|
106
|
|
|
Other
|
|
|
|
|
|
$
|
1,788
|
|
|
$
|
1,788
|
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
32,171
|
|
|
$
|
32,171
|
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
1,505
|
|
|
$
|
1,505
|
|
|
Commitments: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
2,220
|
|
|
$
|
—
|
|
|
$
|
(48
|
)
|
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
1,261
|
|
|
$
|
—
|
|
|
$
|
(52
|
)
|
F-87
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
|
December 31, 2008
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
188,251
|
|
|
$
|
188,251
|
|
|
Equity securities
|
|
|
|
|
|
$
|
3,197
|
|
|
$
|
3,197
|
|
|
Trading securities
|
|
|
|
|
|
$
|
946
|
|
|
$
|
946
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
$
|
49,352
|
|
|
$
|
48,133
|
|
|
Held-for-sale
|
|
|
|
|
|
|
2,012
|
|
|
|
2,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
51,364
|
|
|
$
|
50,143
|
|
|
Policy loans
|
|
|
|
|
|
$
|
9,802
|
|
|
$
|
11,952
|
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
163
|
|
|
$
|
176
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
1,900
|
|
|
$
|
2,269
|
|
|
Short-term investments
|
|
|
|
|
|
$
|
13,878
|
|
|
$
|
13,878
|
|
|
Other invested assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (2)
|
|
$
|
133,565
|
|
|
$
|
12,306
|
|
|
$
|
12,306
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
$
|
191
|
|
|
$
|
191
|
|
|
Other
|
|
|
|
|
|
$
|
801
|
|
|
$
|
900
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
24,207
|
|
|
$
|
24,207
|
|
|
Accrued investment income
|
|
|
|
|
|
$
|
3,061
|
|
|
$
|
3,061
|
|
|
Premiums and other receivables (1)
|
|
|
|
|
|
$
|
2,995
|
|
|
$
|
3,473
|
|
|
Other assets (1)
|
|
|
|
|
|
$
|
800
|
|
|
$
|
629
|
|
|
Assets of subsidiaries
held-for-sale
(1)
|
|
|
|
|
|
$
|
630
|
|
|
$
|
649
|
|
|
Separate account assets
|
|
|
|
|
|
$
|
120,839
|
|
|
$
|
120,839
|
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
205
|
|
|
$
|
205
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
103,290
|
|
|
$
|
95,950
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
31,059
|
|
|
$
|
31,059
|
|
|
Bank deposits
|
|
|
|
|
|
$
|
6,884
|
|
|
$
|
6,952
|
|
|
Short-term debt
|
|
|
|
|
|
$
|
2,659
|
|
|
$
|
2,659
|
|
|
Long-term debt (1)
|
|
|
|
|
|
$
|
9,619
|
|
|
$
|
8,155
|
|
|
Collateral financing arrangements
|
|
|
|
|
|
$
|
5,192
|
|
|
$
|
1,880
|
|
|
Junior subordinated debt securities
|
|
|
|
|
|
$
|
3,758
|
|
|
$
|
2,606
|
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
64,523
|
|
|
$
|
4,042
|
|
|
$
|
4,042
|
|
|
Trading liabilities
|
|
|
|
|
|
$
|
57
|
|
|
$
|
57
|
|
|
Other
|
|
|
|
|
|
$
|
638
|
|
|
$
|
638
|
|
|
Liabilities of subsidiaries
held-for-sale
(1)
|
|
|
|
|
|
$
|
50
|
|
|
$
|
49
|
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
28,862
|
|
|
$
|
28,862
|
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
3,051
|
|
|
$
|
3,051
|
|
|
Commitments: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
2,690
|
|
|
$
|
—
|
|
|
$
|
(129
|
)
|
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
971
|
|
|
$
|
—
|
|
|
$
|
(105
|
)
|
|
|
|
|
(1) |
|
Carrying values presented herein differ from those presented in
the consolidated balance sheets because certain items within the
respective financial statement caption are not considered
financial instruments. Financial statement captions excluded
from the table above are not considered financial instruments. |
| |
|
(2) |
|
Derivative assets are presented within other invested assets and
derivative liabilities are presented within other liabilities.
At December 31, 2009 and 2008, certain non-derivative
hedging instruments of $0 and $323 million, |
F-88
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
respectively, which are carried at amortized cost, are included
with the liabilities total in Note 4 but are excluded from
derivative liabilities here as they are not derivative
instruments. |
| |
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums and other receivables. Net embedded
derivatives within liability host contracts are presented
primarily within policyholder account balances. At
December 31, 2009 and 2008, equity securities also included
embedded derivatives of ($37) million and
($173) million, respectively. |
| |
|
(4) |
|
Commitments are off-balance sheet obligations. Negative
estimated fair values represent off-balance sheet liabilities. |
The methods and assumptions used to estimate the fair value of
financial instruments are summarized as follows:
Fixed Maturity Securities, Equity Securities and Trading
Securities — When available, the estimated fair
value of the Company’s fixed maturity, equity and trading
securities are based on quoted prices in active markets that are
readily and regularly obtainable. Generally, these are the most
liquid of the Company’s securities holdings and valuation
of these securities does not involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs in applying these market standard valuation methodologies
include, but are not limited to: interest rates, credit standing
of the issuer or counterparty, industry sector of the issuer,
coupon rate, call provisions, sinking fund requirements,
maturity and management’s assumptions regarding estimated
duration, liquidity and estimated future cash flows.
Accordingly, the estimated fair values are based on available
market information and management’s judgments about
financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active markets, quoted
prices in markets that are not active and observable yields and
spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation and cannot be supported by reference to market
activity. Even though unobservable, these inputs are assumed to
be consistent with what other market participants would use when
pricing such securities and are considered appropriate given the
circumstances.
The use of different methodologies, assumptions and inputs may
have a material effect on the estimated fair values of the
Company’s securities holdings.
Mortgage Loans — The Company originates
mortgage loans for both investment purposes and with the
intention to sell them to third parties. Commercial and
agricultural mortgage loans are originated for investment
purposes and are primarily carried at amortized cost.
Residential mortgage and consumer loans are generally purchased
from third parties for investment purposes and are primarily
carried at amortized cost. Mortgage loans
held-for-sale
consist principally of residential mortgage loans for which the
Company has elected the fair value option and which are carried
at estimated fair value and to a significantly lesser degree
certain mortgage loans which were previously
held-for-investment
but where the Company has changed its intention as it relates to
holding them for investment. The estimated fair values of these
mortgage loans are determined as follows:
Mortgage Loans
Held-for-Investment —
For mortgage loans
held-for-investment
and carried at amortized cost, estimated fair value was
primarily determined by estimating expected future cash flows
and discounting them using current interest rates for similar
mortgage loans with similar credit risk.
F-89
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Mortgage Loans
Held-for-Sale —
Mortgage loans
held-for-sale
principally include residential mortgage loans for which the
fair value option was elected and which are carried at estimated
fair value. Generally, quoted market prices are not available
for residential mortgage loans
held-for-sale;
accordingly, the estimated fair values of such assets are
determined based on observable pricing of residential mortgage
loans
held-for-sale
with similar characteristics, or observable pricing for
securities backed by similar types of mortgage loans, adjusted
to convert the securities prices to mortgage loan prices. When
observable pricing for similar loans or securities that are
backed by similar loans are not available, the estimated fair
values of residential mortgage loans
held-for-sale
are determined using independent broker quotations, which is
intended to approximate the amounts that would be received from
third parties. Certain other mortgage loans previously
classified as
held-for-investment
have also been designated as
held-for-sale.
For these mortgage loans, estimated fair value is determined
using independent broker quotations or, when the mortgage loan
is in foreclosure or otherwise determined to be collateral
dependent, the fair value of the underlying collateral is
estimated using internal models.
Policy Loans — For policy loans with fixed
interest rates, estimated fair values are determined using a
discounted cash flow model applied to groups of similar policy
loans determined by the nature of the underlying insurance
liabilities. Cash flow estimates are developed applying a
weighted-average interest rate to the outstanding principal
balance of the respective group of policy loans and an estimated
average maturity determined through experience studies of the
past performance of policyholder repayment behavior for similar
loans. These cash flows are discounted using current risk-free
interest rates with no adjustment for borrower credit risk as
these loans are fully collateralized by the cash surrender value
of the underlying insurance policy. The estimated fair value for
policy loans with variable interest rates approximates carrying
value due to the absence of borrower credit risk and the short
time period between interest rate resets, which presents minimal
risk of a material change in estimated fair value due to changes
in market interest rates.
Real Estate Joint Ventures and Other Limited Partnership
Interests — Real estate joint ventures and other
limited partnership interests included in the preceding tables
consist of those investments accounted for using the cost
method. The remaining carrying value recognized in the
consolidated balance sheets represents investments in real
estate or real estate joint ventures and other limited
partnership interests accounted for using the equity method,
which do not meet the definition of financial instruments for
which fair value is required to be disclosed.
The estimated fair values for other limited partnership
interests and real estate joint ventures accounted for under the
cost method are generally based on the Company’s share of
the NAV as provided in the financial statements of the
investees. In certain circumstances, management may adjust the
NAV by a premium or discount when it has sufficient evidence to
support applying such adjustments.
Short-term Investments — Certain short-term
investments do not qualify as securities and are recognized at
amortized cost in the consolidated balance sheets. For these
instruments, the Company believes that there is minimal risk of
material changes in interest rates or credit of the issuer such
that estimated fair value approximates carrying value. In light
of recent market conditions, short-term investments have been
monitored to ensure there is sufficient demand and maintenance
of issuer credit quality and the Company has determined
additional adjustment is not required. Short-term investments
that meet the definition of a security are recognized at
estimated fair value in the consolidated balance sheets in the
same manner described above for similar instruments that are
classified within captions of other major investment classes.
Other Invested Assets — Other invested assets
in the consolidated balance sheets are principally comprised of
freestanding derivatives with positive estimated fair values,
leveraged leases, joint venture investments, investments in tax
credit partnerships, investment in a funding agreement, MSRs,
funds withheld at interest and various interest-bearing assets
held in foreign subsidiaries. Leveraged leases and investments
in tax credit partnerships and joint venture investments, which
are accounted for under the equity method or under the effective
yield method, are not financial instruments subject to fair
value disclosure. Accordingly, they have been excluded from the
preceding table.
The estimated fair value of derivatives — with
positive and negative estimated fair values — is
described in the section labeled “Derivatives” which
follows.
F-90
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Although MSRs are not financial instruments, the Company has
included them in the preceding table as a result of its election
to carry MSRs at estimated fair value. As sales of MSRs tend to
occur in private transactions where the precise terms and
conditions of the sales are typically not readily available,
observable market valuations are limited. As such, the Company
relies primarily on a discounted cash flow model to estimate the
fair value of the MSRs. The model requires inputs such as type
of loan (fixed vs. variable and agency vs. other), age of loan,
loan interest rates and current market interest rates that are
generally observable. The model also requires the use of
unobservable inputs including assumptions regarding estimates of
discount rates, loan prepayments and servicing costs.
The estimated fair value of the investment in funding agreements
is estimated by discounting the expected future cash flows using
current market rates and the credit risk of the note issuer.
For funds withheld at interest and the various interest-bearing
assets held in foreign subsidiaries, the Company evaluates the
specific facts and circumstances of each instrument to determine
the appropriate estimated fair values. These estimated fair
values were not materially different from the recognized
carrying values.
Cash and Cash Equivalents — Due to the
short-term maturities of cash and cash equivalents, the Company
believes there is minimal risk of material changes in interest
rates or credit of the issuer such that estimated fair value
generally approximates carrying value. In light of recent market
conditions, cash and cash equivalent instruments have been
monitored to ensure there is sufficient demand and maintenance
of issuer credit quality, or sufficient solvency in the case of
depository institutions, and the Company has determined
additional adjustment is not required.
Accrued Investment Income — Due to the
short-term until settlement of accrued investment income, the
Company believes there is minimal risk of material changes in
interest rates or credit of the issuer such that estimated fair
value approximates carrying value. In light of recent market
conditions, the Company has monitored the credit quality of the
issuers and has determined additional adjustment is not required.
Premiums and Other Receivables — Premiums and
other receivables in the consolidated balance sheets are
principally comprised of premiums due and unpaid for insurance
contracts, amounts recoverable under reinsurance contracts,
amounts on deposit with financial institutions to facilitate
daily settlements related to certain derivative positions,
amounts receivable for securities sold but not yet settled, fees
and general operating receivables and embedded derivatives
related to the ceded reinsurance of certain variable annuity
guarantees.
Premiums receivable and those amounts recoverable under
reinsurance treaties determined to transfer sufficient risk are
not financial instruments subject to disclosure and thus have
been excluded from the amounts presented in the preceding table.
Amounts recoverable under ceded reinsurance contracts, which the
Company has determined do not transfer sufficient risk such that
they are accounted for using the deposit method of accounting,
have been included in the preceding table with the estimated
fair value determined as the present value of expected future
cash flows under the related contracts discounted using an
interest rate determined to reflect the appropriate credit
standing of the assuming counterparty.
The amounts on deposit for derivative settlements essentially
represent the equivalent of demand deposit balances and amounts
due for securities sold are generally received over short
periods such that the estimated fair value approximates carrying
value. In light of recent market conditions, the Company has
monitored the solvency position of the financial institutions
and has determined additional adjustments are not required.
Embedded derivatives recognized in connection with ceded
reinsurance of certain variable annuity guarantees are included
in this caption in the consolidated financial statements but
excluded from this caption in the preceding table as they are
separately presented. The estimated fair value of these embedded
derivatives is described in the section labeled “Embedded
Derivatives within Asset and Liability Host Contracts”
which follows.
Other Assets — Other assets in the consolidated
balance sheets are principally comprised of prepaid expenses,
amounts held under corporate owned life insurance, fixed assets,
capitalized software, deferred sales inducements, VODA, VOCRA
and a receivable for cash paid to an unaffiliated financial
institution under the MetLife Reinsurance Company of Charleston
(“MRC”) collateral financing arrangement as described
in Note 12. With
F-91
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
the exception of the receivable for cash paid to the
unaffiliated financial institution, other assets are not
considered financial instruments subject to disclosure.
Accordingly, the amount presented in the preceding table
represents the receivable for the cash paid to the unaffiliated
financial institution under the MRC collateral financing
arrangement for which the estimated fair value was determined by
discounting the expected future cash flows using a discount rate
that reflects the credit of the unaffiliated financial
institution.
Separate Account Assets — Separate account
assets are carried at estimated fair value and reported as a
summarized total on the consolidated balance sheets. The
estimated fair value of separate account assets are based on the
estimated fair value of the underlying assets owned by the
separate account. Assets within the Company’s separate
accounts include: mutual funds, fixed maturity securities,
equity securities, mortgage loans, derivatives, hedge funds,
other limited partnership interests, short-term investments and
cash and cash equivalents. The estimated fair value of mutual
funds is based upon quoted prices or reported NAVs provided by
the fund manager. Accounting guidance effective for
December 31, 2009 clarified how investments that use NAV as
a practical expedient for their fair value measurement are
classified in the fair value hierarchy. As a result, the Company
has included certain mutual funds in the amount of
$96.2 billion in Level 2 of the fair value hierarchy
which were previously included in Level 1. The estimated
fair values of fixed maturity securities, equity securities,
derivatives, short-term investments and cash and cash
equivalents held by separate accounts are determined on a basis
consistent with the methodologies described herein for similar
financial instruments held within the general account. The
estimated fair value of hedge funds is based upon NAVs provided
by the fund manager. The estimated fair value of mortgage loans
is determined by discounting expected future cash flows, using
current interest rates for similar loans with similar credit
risk. Other limited partnership interests are valued giving
consideration to the value of the underlying holdings of the
partnerships and by applying a premium or discount, if
appropriate, for factors such as liquidity, bid/ask spreads, the
performance record of the fund manager or other relevant
variables which may impact the exit value of the particular
partnership interest.
Policyholder Account Balances — Policyholder
account balances in the table above include investment
contracts. Embedded derivatives on investment contracts and
certain variable annuity guarantees accounted for as embedded
derivatives are included in this caption in the consolidated
financial statements but excluded from this caption in the
tables above as they are separately presented therein. The
remaining difference between the amounts reflected as
policyholder account balances in the preceding table and those
recognized in the consolidated balance sheets represents those
amounts due under contracts that satisfy the definition of
insurance contracts and are not considered financial instruments.
The investment contracts primarily include certain funding
agreements, fixed deferred annuities, modified guaranteed
annuities, fixed term payout annuities and total control
accounts. The fair values for these investment contracts are
estimated by discounting best estimate future cash flows using
current market risk-free interest rates and adding a spread for
the Company’s own credit which is determined using publicly
available information relating to the Company’s debt, as
well as its claims paying ability.
Bank Deposits — Due to frequency of interest
rate resets on customer bank deposits held in money market
accounts, the Company believes that there is minimal risk of a
material change in interest rates such that the estimated fair
value approximates carrying value. For time deposits, estimated
fair values are estimated by discounting the expected cash flows
to maturity using a discount rate based on an average market
rate for certificates of deposit being offered by a
representative group of large financial institutions at the date
of the valuation.
Short-term and Long-term Debt, Collateral Financing
Arrangements and Junior Subordinated Debt
Securities — The estimated fair value for
short-term debt approximates carrying value due to the
short-term nature of these obligations. The estimated fair
values of long-term debt, collateral financing arrangements and
junior subordinated debt securities are generally determined by
discounting expected future cash flows using market rates
currently available for debt with similar remaining maturities
and reflecting the credit risk of the Company including inputs,
when available, from actively traded debt of the Company or
other companies with similar types of borrowing arrangements.
Risk-adjusted discount rates applied to the expected future cash
flows can
F-92
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
vary significantly based upon the specific terms of each
individual arrangement, including, but not limited to:
subordinated rights; contractual interest rates in relation to
current market rates; the structuring of the arrangement; and
the nature and observability of the applicable valuation inputs.
Use of different risk-adjusted discount rates could result in
different estimated fair values.
The carrying value of long-term debt presented in the table
above differs from the amounts presented in the consolidated
balance sheets as it does not include capital leases which are
not required to be disclosed at estimated fair value.
Payables for Collateral Under Securities Loaned and Other
Transactions — The estimated fair value for
payables for collateral under securities loaned and other
transactions approximates carrying value. The related agreements
to loan securities are short-term in nature such that the
Company believes there is limited risk of a material change in
market interest rates. Additionally, because borrowers are
cross-collateralized by the borrowed securities, the Company
believes no additional consideration for changes in its own
credit are necessary.
Other Liabilities — Other liabilities in the
consolidated balance sheets are principally comprised of
freestanding derivatives with negative estimated fair values;
securities trading liabilities; tax and litigation contingency
liabilities; obligations for employee-related benefits; interest
due on the Company’s debt obligations and on cash
collateral held in relation to securities lending; dividends
payable; amounts due for securities purchased but not yet
settled; amounts due under assumed reinsurance contracts; and
general operating accruals and payables.
The estimated fair value of derivatives — with
positive and negative estimated fair values — and
embedded derivatives within asset and liability host contracts
are described in the sections labeled “Derivatives”
and “Embedded Derivatives within Asset and Liability Host
Contracts” which follow.
The remaining other amounts included in the table above reflect
those other liabilities that satisfy the definition of financial
instruments subject to disclosure. These items consist primarily
of securities trading liabilities; interest and dividends
payable; amounts due for securities purchased but not yet
settled; and amounts payable under certain assumed reinsurance
contracts recognized using the deposit method of accounting. The
Company evaluates the specific terms, facts and circumstances of
each instrument to determine the appropriate estimated fair
values, which were not materially different from the recognized
carrying values.
Separate Account Liabilities — Separate account
liabilities included in the table above represent those balances
due to policyholders under contracts that are classified as
investment contracts. The difference between the separate
account liabilities reflected above and the amounts presented in
the consolidated balance sheets represents those contracts
classified as insurance contracts which do not satisfy the
criteria of financial instruments for which fair value is to be
disclosed.
Separate account liabilities classified as investment contracts
primarily represent variable annuities with no significant
mortality risk to the Company such that the death benefit is
equal to the account balance; funding agreements related to
group life contracts; and certain contracts that provide for
benefit funding.
Separate account liabilities, whether related to investment or
insurance contracts, are recognized in the consolidated balance
sheets at an equivalent summary total of the separate account
assets. Separate account assets, which equal net deposits, net
investment income and realized and unrealized capital gains and
losses, are fully offset by corresponding amounts credited to
the contractholders’ liability which is reflected in
separate account liabilities. Since separate account liabilities
are fully funded by cash flows from the separate account assets
which are recognized at estimated fair value as described above,
the Company believes the value of those assets approximates the
estimated fair value of the related separate account liabilities.
Derivatives — The estimated fair value of
derivatives is determined through the use of quoted market
prices for exchange-traded derivatives and interest rate
forwards to sell certain to be announced securities, or through
the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair value, when
quoted
F-93
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
market values are not available, is based on market standard
valuation methodologies and inputs that are assumed to be
consistent with what other market participants would use when
pricing the instruments. Derivative valuations can be affected
by changes in interest rates, foreign currency exchange rates,
financial indices, credit spreads, default risk (including the
counterparties to the contract), volatility, liquidity and
changes in estimates and assumptions used in the pricing models.
The significant inputs to the pricing models for most
over-the-counter
derivatives are inputs that are observable in the market or can
be derived principally from or corroborated by observable market
data. Significant inputs that are observable generally include:
interest rates, foreign currency exchange rates, interest rate
curves, credit curves and volatility. However, certain
over-the-counter
derivatives may rely on inputs that are significant to the
estimated fair value that are not observable in the market or
cannot be derived principally from or corroborated by observable
market data. Significant inputs that are unobservable generally
include: independent broker quotes, credit correlation
assumptions, references to emerging market currencies and inputs
that are outside the observable portion of the interest rate
curve, credit curve, volatility or other relevant market
measure. These unobservable inputs may involve significant
management judgment or estimation. Even though unobservable,
these inputs are based on assumptions deemed appropriate given
the circumstances and are assumed to be consistent with what
other market participants would use when pricing such
instruments.
The credit risk of both the counterparty and the Company are
considered in determining the estimated fair value for all
over-the-counter
derivatives, and any potential credit adjustment is based on the
net exposure by counterparty after taking into account the
effects of netting agreements and collateral arrangements. The
Company values its derivative positions using the standard swap
curve which includes a spread over the risk free rate. This
credit spread is appropriate for those parties that execute
trades at pricing levels consistent with the standard swap
curve. As the Company and its significant derivative
counterparties consistently execute trades at such pricing
levels, additional credit risk adjustments are not currently
required in the valuation process. The Company’s ability to
consistently execute at such pricing levels is in part due to
the netting agreements and collateral arrangements that are in
place with all of its significant derivative counterparties. The
evaluation of the requirement to make additional credit risk
adjustments is performed by the Company each reporting period.
Most inputs for
over-the-counter
derivatives are mid market inputs but, in certain cases, bid
level inputs are used when they are deemed more representative
of exit value. Market liquidity, as well as the use of different
methodologies, assumptions and inputs, may have a material
effect on the estimated fair values of the Company’s
derivatives and could materially affect net income.
Embedded Derivatives within Asset and Liability Host
Contracts — Embedded derivatives principally
include certain direct, assumed and ceded variable annuity
guarantees and certain funding agreements with equity or bond
indexed crediting rates. Embedded derivatives are recorded in
the financial statements at estimated fair value with changes in
estimated fair value reported in net income.
The Company issues certain variable annuity products with
guaranteed minimum benefit guarantees. GMWB, GMAB and certain
GMIB are embedded derivatives, which are measured at estimated
fair value separately from the host variable annuity contract,
with changes in estimated fair value reported in net investment
gains (losses). These embedded derivatives are classified within
policyholder account balances.
The fair value for these guarantees are estimated using the
present value of future benefits minus the present value of
future fees using actuarial and capital market assumptions
related to the projected cash flows over the expected lives of
the contracts. A risk neutral valuation methodology is used
under which the cash flows from the
F-94
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
guarantees are projected under multiple capital market scenarios
using observable risk free rates. The valuation of these
guarantees includes an adjustment for the Company’s own
credit and risk margins for non-capital market inputs. The
Company’s own credit adjustment is determined taking into
consideration publicly available information relating to the
Company’s debt, as well as its claims paying ability. Risk
margins are established to capture the non-capital market risks
of the instrument which represent the additional compensation a
market participant would require to assume the risks related to
the uncertainties of such actuarial assumptions as
annuitization, premium persistency, partial withdrawal and
surrenders. The establishment of risk margins requires the use
of significant management judgment.
These guarantees may be more costly than expected in volatile or
declining equity markets. Market conditions including, but not
limited to, changes in interest rates, equity indices, market
volatility and foreign currency exchange rates; changes in the
Company’s own credit standing; and variations in actuarial
assumptions regarding policyholder behavior and risk margins
related to non-capital market inputs may result in significant
fluctuations in the estimated fair value of the guarantees that
could materially affect net income.
The Company ceded the risk associated with certain of the GMIB
and GMAB described in the preceding paragraph. These reinsurance
contracts contain embedded derivatives which are included in
premiums and other receivables with changes in estimated fair
value reported in net investment gains (losses) or policyholder
benefit and claims depending on the statement of operations
classification of the direct risk. The value of the embedded
derivatives on the ceded risk is determined using a methodology
consistent with that described previously for the guarantees
directly written by the Company.
The estimated fair value of the embedded derivatives within
funds withheld at interest related to certain ceded reinsurance
is determined based on the change in estimated fair value of the
underlying assets held by the Company in a reference portfolio
backing the funds withheld liability. The estimated fair value
of the underlying assets is determined as described above in
“Fixed Maturity Securities, Equity Securities and Trading
Securities” and “Short-term Investments.” The
estimated fair value of these embedded derivatives is included,
along with their funds withheld hosts, in other liabilities with
changes in estimated fair value recorded in net investment gains
(losses). Changes in the credit spreads on the underlying
assets, interest rates and market volatility may result in
significant fluctuations in the estimated fair value of these
embedded derivatives that could materially affect net income.
The estimated fair value of the embedded equity and bond indexed
derivatives contained in certain funding agreements is
determined using market standard swap valuation models and
observable market inputs, including an adjustment for the
Company’s own credit that takes into consideration publicly
available information relating to the Company’s debt, as
well as its claims paying ability. The estimated fair value of
these embedded derivatives are included, along with their
funding agreements host, within policyholder account balances
with changes in estimated fair value recorded in net investment
gains (losses). Changes in equity and bond indices, interest
rates and the Company’s credit standing may result in
significant fluctuations in the estimated fair value of these
embedded derivatives that could materially affect net income.
Assets and Liabilities of Subsidiaries
Held-For-Sale —
The carrying value of the assets and liabilities of subsidiaries
held-for-sale
reflects those assets and liabilities which were previously
determined to be financial instruments and which were reflected
in other financial statement captions in the table above in
previous periods but have been reclassified to this caption to
reflect the discontinued nature of the operations. The estimated
fair value of the assets and liabilities of subsidiaries
held-for-sale
have been determined on a basis consistent with the asset type
as described herein.
Mortgage Loan Commitments and Commitments to Fund Bank
Credit Facilities, Bridge Loans and Private Corporate Bond
Investments — The estimated fair values for
mortgage loan commitments and commitments to fund bank credit
facilities, bridge loans and private corporate bond investments
reflected in the above table represent the difference between
the discounted expected future cash flows using interest rates
that incorporate current credit risk for similar instruments on
the reporting date and the principal amounts of the original
commitments.
F-95
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Assets
and Liabilities Measured at Fair Value
Recurring
Fair Value Measurements
The assets and liabilities measured at estimated fair value on a
recurring basis, including those items for which the Company has
elected the fair value option, are determined as described in
the preceding section. These estimated fair values and their
corresponding fair value hierarchy are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
Total
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
—
|
|
|
$
|
65,493
|
|
|
$
|
6,694
|
|
|
$
|
72,187
|
|
|
RMBS
|
|
|
—
|
|
|
|
42,180
|
|
|
|
1,840
|
|
|
|
44,020
|
|
|
Foreign corporate securities
|
|
|
—
|
|
|
|
32,738
|
|
|
|
5,292
|
|
|
|
38,030
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
10,951
|
|
|
|
14,459
|
|
|
|
37
|
|
|
|
25,447
|
|
|
CMBS
|
|
|
—
|
|
|
|
15,483
|
|
|
|
139
|
|
|
|
15,622
|
|
|
ABS
|
|
|
—
|
|
|
|
10,450
|
|
|
|
2,712
|
|
|
|
13,162
|
|
|
Foreign government securities
|
|
|
306
|
|
|
|
11,240
|
|
|
|
401
|
|
|
|
11,947
|
|
|
State and political subdivision securities
|
|
|
—
|
|
|
|
7,139
|
|
|
|
69
|
|
|
|
7,208
|
|
|
Other fixed maturity securities
|
|
|
—
|
|
|
|
13
|
|
|
|
6
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
11,257
|
|
|
|
199,195
|
|
|
|
17,190
|
|
|
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
490
|
|
|
|
995
|
|
|
|
136
|
|
|
|
1,621
|
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
359
|
|
|
|
1,104
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
490
|
|
|
|
1,354
|
|
|
|
1,240
|
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
1,886
|
|
|
|
415
|
|
|
|
83
|
|
|
|
2,384
|
|
|
Short-term investments (1)
|
|
|
5,650
|
|
|
|
2,500
|
|
|
|
23
|
|
|
|
8,173
|
|
|
Mortgage loans (2)
|
|
|
—
|
|
|
|
2,445
|
|
|
|
25
|
|
|
|
2,470
|
|
|
Derivative assets (3)
|
|
|
103
|
|
|
|
5,600
|
|
|
|
430
|
|
|
|
6,133
|
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
76
|
|
|
|
76
|
|
|
Mortgage servicing rights (5)
|
|
|
—
|
|
|
|
—
|
|
|
|
878
|
|
|
|
878
|
|
|
Separate account assets (6)
|
|
|
17,601
|
|
|
|
129,545
|
|
|
|
1,895
|
|
|
|
149,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,987
|
|
|
$
|
341,054
|
|
|
$
|
21,840
|
|
|
$
|
399,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (3)
|
|
$
|
51
|
|
|
$
|
3,990
|
|
|
$
|
74
|
|
|
$
|
4,115
|
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
1,531
|
|
|
|
1,505
|
|
|
Trading liabilities (7)
|
|
|
106
|
|
|
|
—
|
|
|
|
—
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
157
|
|
|
$
|
3,964
|
|
|
$
|
1,605
|
|
|
$
|
5,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-96
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
Total
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
—
|
|
|
$
|
55,805
|
|
|
$
|
7,498
|
|
|
$
|
63,303
|
|
|
RMBS
|
|
|
—
|
|
|
|
35,433
|
|
|
|
595
|
|
|
|
36,028
|
|
|
Foreign corporate securities
|
|
|
—
|
|
|
|
23,735
|
|
|
|
5,944
|
|
|
|
29,679
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
10,132
|
|
|
|
11,090
|
|
|
|
88
|
|
|
|
21,310
|
|
|
CMBS
|
|
|
—
|
|
|
|
12,384
|
|
|
|
260
|
|
|
|
12,644
|
|
|
ABS
|
|
|
—
|
|
|
|
8,071
|
|
|
|
2,452
|
|
|
|
10,523
|
|
|
Foreign government securities
|
|
|
282
|
|
|
|
9,463
|
|
|
|
408
|
|
|
|
10,153
|
|
|
State and political subdivision securities
|
|
|
—
|
|
|
|
4,434
|
|
|
|
123
|
|
|
|
4,557
|
|
|
Other fixed maturity securities
|
|
|
—
|
|
|
|
14
|
|
|
|
40
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
10,414
|
|
|
|
160,429
|
|
|
|
17,408
|
|
|
|
188,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
413
|
|
|
|
1,167
|
|
|
|
105
|
|
|
|
1,685
|
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
238
|
|
|
|
1,274
|
|
|
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
413
|
|
|
|
1,405
|
|
|
|
1,379
|
|
|
|
3,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
587
|
|
|
|
184
|
|
|
|
175
|
|
|
|
946
|
|
|
Short-term investments (1)
|
|
|
10,549
|
|
|
|
2,913
|
|
|
|
100
|
|
|
|
13,562
|
|
|
Mortgage loans (2)
|
|
|
—
|
|
|
|
1,798
|
|
|
|
177
|
|
|
|
1,975
|
|
|
Derivative assets (3)
|
|
|
55
|
|
|
|
9,483
|
|
|
|
2,768
|
|
|
|
12,306
|
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
205
|
|
|
|
205
|
|
|
Mortgage servicing rights (5)
|
|
|
—
|
|
|
|
—
|
|
|
|
191
|
|
|
|
191
|
|
|
Separate account assets (6)
|
|
|
85,886
|
|
|
|
33,195
|
|
|
|
1,758
|
|
|
|
120,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
107,904
|
|
|
$
|
209,407
|
|
|
$
|
24,161
|
|
|
$
|
341,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (3)
|
|
$
|
273
|
|
|
$
|
3,548
|
|
|
$
|
221
|
|
|
$
|
4,042
|
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
—
|
|
|
|
(83
|
)
|
|
|
3,134
|
|
|
|
3,051
|
|
|
Trading liabilities (7)
|
|
|
57
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
330
|
|
|
$
|
3,465
|
|
|
$
|
3,355
|
|
|
$
|
7,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Short-term investments as presented in the tables above differ
from the amounts presented in the consolidated balance sheets
because certain short-term investments are not measured at
estimated fair value (e.g. time deposits, money market funds,
etc.). |
| |
|
(2) |
|
Mortgage loans as presented in the tables above differ from the
amount presented in the consolidated balance sheets as these
tables only include residential mortgage loans
held-for-sale
measured at estimated fair value on a recurring basis. |
| |
|
(3) |
|
Derivative assets are presented within other invested assets and
derivative liabilities are presented within other liabilities.
The amounts are presented gross in the tables above to reflect
the presentation in the consolidated balance sheets, but are
presented net for purposes of the rollforward in the following
tables. At December 31, |
F-97
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
2009 and 2008, certain non-derivative hedging instruments of $0
and $323 million, respectively, which are carried at
amortized cost, are included with the liabilities total in
Note 4 but are excluded from derivative liabilities here as
they are not derivative instruments. |
| |
|
(4) |
|
Net embedded derivatives within asset host contracts are
presented within premiums and other receivables. Net embedded
derivatives within liability host contracts are presented
primarily within policyholder account balances. At
December 31, 2009 and 2008, equity securities also included
embedded derivatives of ($37) million and
($173) million, respectively. |
| |
|
(5) |
|
MSRs are presented within other invested assets. |
| |
|
(6) |
|
Separate account assets are measured at estimated fair value.
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. Separate account liabilities are set equal
to the estimated fair value of separate account assets. |
| |
|
(7) |
|
Trading liabilities are presented within other liabilities. |
The Company has categorized its assets and liabilities into the
three-level fair value hierarchy based upon the priority of the
inputs to the respective valuation technique. The following
summarizes the types of assets and liabilities included within
the three-level fair value hierarchy presented in the preceding
table.
|
|
|
| |
Level 1
|
This category includes certain U.S. Treasury, agency and
government guaranteed fixed maturity securities, certain foreign
government fixed maturity securities; exchange-traded common
stock; certain trading securities; and certain short-term money
market securities. As it relates to derivatives, this level
includes exchange-traded equity and interest rate futures, as
well as interest rate forwards to sell certain to be announced
securities. Separate account assets classified within this level
are similar in nature to those classified in this level for the
general account.
|
| |
| |
Level 2
|
This category includes fixed maturity and equity securities
priced principally by independent pricing services using
observable inputs. Fixed maturity securities classified as
Level 2 include most U.S. Treasury, agency and
government guaranteed securities, as well as the majority of
U.S. and foreign corporate securities, RMBS, CMBS, state
and political subdivision securities, foreign government
securities and ABS. Equity securities classified as Level 2
securities consist principally of common stock and
non-redeemable preferred stock where market quotes are available
but are not considered actively traded. Short-term investments
and trading securities included within Level 2 are of a
similar nature to these fixed maturity and equity securities.
Mortgage loans included in Level 2 include residential
mortgage loans
held-for-sale
for which there is readily available observable pricing for
similar loans or securities backed by similar loans and the
unobservable adjustments to such prices are insignificant. As it
relates to derivatives, this level includes all types of
derivative instruments utilized by the Company with the
exception of exchange-traded futures and interest rate forwards
to sell certain to be announced securities included within
Level 1 and those derivative instruments with unobservable
inputs as described in Level 3. Separate account assets
classified within this level are generally similar to those
classified within this level for the general account, with the
exception of certain mutual funds without readily determinable
fair values given prices are not published publicly. Hedge funds
and mutual funds owned by separate accounts are also included
within this level. Embedded derivatives classified within this
level include embedded equity derivatives contained in certain
funding agreements.
|
| |
| |
Level 3
|
This category includes fixed maturity securities priced
principally through independent broker quotations or market
standard valuation methodologies using inputs that are not
market observable or cannot be derived principally from or
corroborated by observable market data. This level primarily
consists of less liquid fixed maturity securities with very
limited trading activity or where
|
F-98
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
| |
|
less price transparency exists around the inputs to the
valuation methodologies including: U.S. and foreign
corporate securities — including below investment
grade private placements; RMBS and ABS — including all
of those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of non-redeemable preferred stock
and common stock of companies that are privately held or of
companies for which there has been very limited trading activity
or where less price transparency exists around the inputs to the
valuation. Short-term investments and trading securities
included within Level 3 are of a similar nature to these
fixed maturity and equity securities. Mortgage loans included in
Level 3 include residential mortgage loans
held-for-sale
for which pricing for similar loans or securities backed by
similar loans is not observable and the estimated fair value is
determined using unobservable independent broker quotations. As
it relates to derivatives this category includes: swap
spreadlocks with maturities which extend beyond observable
periods; interest rate forwards including interest rate lock
commitments with certain unobservable inputs, including
pull-through rates; equity variance swaps with unobservable
volatility inputs or that are priced via independent broker
quotations; foreign currency swaps which are cancelable and
priced through independent broker quotations; interest rate
swaps with maturities which extend beyond the observable portion
of the yield curve; credit default swaps based upon baskets of
credits having unobservable credit correlations, as well as
credit default swaps with maturities which extend beyond the
observable portion of the credit curves and credit default swaps
priced through independent broker quotations; foreign currency
forwards priced via independent broker quotations or with
liquidity adjustments; interest rate caps and floors referencing
unobservable yield curves
and/or which
include liquidity and volatility adjustments; implied volatility
swaps with unobservable volatility inputs; currency options
based upon baskets of currencies having unobservable currency
correlations; credit forwards having unobservable repurchase
rates; and equity options with unobservable volatility inputs.
Separate account assets classified within this level are
generally similar to those classified within this level for the
general account; however, they also include mortgage loans, and
other limited partnership interests. Embedded derivatives
classified within this level primarily include embedded
derivatives associated with certain variable annuity guarantees.
This category also includes MSRs which are carried at estimated
fair value and have multiple significant unobservable inputs
including discount rates, estimates of loan prepayments and
servicing costs.
|
F-99
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
A rollforward of all assets and liabilities measured at
estimated fair value on a recurring basis using significant
unobservable (Level 3) inputs for the years ended
December 31, 2009 and 2008 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
|
Balance,
|
|
|
Impact of
|
|
|
Balance,
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
|
December 31, 2007
|
|
|
Adoption (2)
|
|
|
January 1,
|
|
|
Earnings (3), (4)
|
|
|
Income (Loss)
|
|
|
Settlements (5)
|
|
|
of Level 3 (6)
|
|
|
December 31,
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
|
|
|
|
|
|
|
$
|
7,498
|
|
|
$
|
(429
|
)
|
|
$
|
939
|
|
|
$
|
(1,358
|
)
|
|
$
|
44
|
|
|
$
|
6,694
|
|
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
595
|
|
|
|
31
|
|
|
|
105
|
|
|
|
1,199
|
|
|
|
(90
|
)
|
|
|
1,840
|
|
|
Foreign corporate securities
|
|
|
|
|
|
|
|
|
|
|
5,944
|
|
|
|
(330
|
)
|
|
|
1,517
|
|
|
|
(511
|
)
|
|
|
(1,328
|
)
|
|
|
5,292
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(29
|
)
|
|
|
(21
|
)
|
|
|
37
|
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
(36
|
)
|
|
|
53
|
|
|
|
(44
|
)
|
|
|
(94
|
)
|
|
|
139
|
|
|
ABS
|
|
|
|
|
|
|
|
|
|
|
2,452
|
|
|
|
(121
|
)
|
|
|
578
|
|
|
|
(212
|
)
|
|
|
15
|
|
|
|
2,712
|
|
|
Foreign government securities
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
(40
|
)
|
|
|
54
|
|
|
|
6
|
|
|
|
(27
|
)
|
|
|
401
|
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
—
|
|
|
|
7
|
|
|
|
(19
|
)
|
|
|
(42
|
)
|
|
|
69
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
1
|
|
|
|
—
|
|
|
|
(35
|
)
|
|
|
—
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
|
|
|
|
|
|
|
$
|
17,408
|
|
|
$
|
(924
|
)
|
|
$
|
3,252
|
|
|
$
|
(1,003
|
)
|
|
$
|
(1,543
|
)
|
|
$
|
17,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
$
|
105
|
|
|
$
|
(2
|
)
|
|
$
|
6
|
|
|
$
|
23
|
|
|
$
|
4
|
|
|
$
|
136
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
1,274
|
|
|
|
(357
|
)
|
|
|
486
|
|
|
|
(254
|
)
|
|
|
(45
|
)
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
|
|
|
|
|
|
|
$
|
1,379
|
|
|
$
|
(359
|
)
|
|
$
|
492
|
|
|
$
|
(231
|
)
|
|
$
|
(41
|
)
|
|
$
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
$
|
175
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
(108
|
)
|
|
$
|
—
|
|
|
$
|
83
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
(21
|
)
|
|
$
|
—
|
|
|
$
|
(51
|
)
|
|
$
|
(5
|
)
|
|
$
|
23
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
|
|
$
|
177
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
(151
|
)
|
|
$
|
25
|
|
|
Net derivatives (7)
|
|
|
|
|
|
|
|
|
|
$
|
2,547
|
|
|
$
|
(273
|
)
|
|
$
|
(11
|
)
|
|
$
|
97
|
|
|
$
|
(2,004
|
)
|
|
$
|
356
|
|
|
Mortgage servicing rights (8), (9)
|
|
|
|
|
|
|
|
|
|
$
|
191
|
|
|
$
|
172
|
|
|
$
|
—
|
|
|
$
|
515
|
|
|
$
|
—
|
|
|
$
|
878
|
|
|
Separate account assets (10)
|
|
|
|
|
|
|
|
|
|
$
|
1,758
|
|
|
$
|
(213
|
)
|
|
$
|
—
|
|
|
$
|
485
|
|
|
$
|
(135
|
)
|
|
$
|
1,895
|
|
|
Net embedded derivatives (11)
|
|
|
|
|
|
|
|
|
|
$
|
(2,929
|
)
|
|
$
|
1,602
|
|
|
$
|
15
|
|
|
$
|
(143
|
)
|
|
$
|
—
|
|
|
$
|
(1,455
|
)
|
F-100
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
|
Balance,
|
|
|
Impact of
|
|
|
Balance,
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
|
December 31, 2007
|
|
|
Adoption (2)
|
|
|
January 1,
|
|
|
Earnings (3), (4)
|
|
|
Income (Loss)
|
|
|
Settlements (5)
|
|
|
of Level 3 (6)
|
|
|
December 31,
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
8,368
|
|
|
$
|
—
|
|
|
$
|
8,368
|
|
|
$
|
(696
|
)
|
|
$
|
(1,758
|
)
|
|
$
|
859
|
|
|
$
|
725
|
|
|
$
|
7,498
|
|
|
RMBS
|
|
|
1,423
|
|
|
|
—
|
|
|
|
1,423
|
|
|
|
4
|
|
|
|
(218
|
)
|
|
|
(204
|
)
|
|
|
(410
|
)
|
|
|
595
|
|
|
Foreign corporate securities
|
|
|
7,228
|
|
|
|
(8
|
)
|
|
|
7,220
|
|
|
|
(12
|
)
|
|
|
(2,873
|
)
|
|
|
(57
|
)
|
|
|
1,666
|
|
|
|
5,944
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
80
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
6
|
|
|
|
88
|
|
|
CMBS
|
|
|
539
|
|
|
|
—
|
|
|
|
539
|
|
|
|
(72
|
)
|
|
|
(136
|
)
|
|
|
2
|
|
|
|
(73
|
)
|
|
|
260
|
|
|
ABS
|
|
|
4,490
|
|
|
|
—
|
|
|
|
4,490
|
|
|
|
(125
|
)
|
|
|
(1,136
|
)
|
|
|
(740
|
)
|
|
|
(37
|
)
|
|
|
2,452
|
|
|
Foreign government securities
|
|
|
785
|
|
|
|
—
|
|
|
|
785
|
|
|
|
19
|
|
|
|
(101
|
)
|
|
|
(295
|
)
|
|
|
—
|
|
|
|
408
|
|
|
State and political subdivision securities
|
|
|
124
|
|
|
|
—
|
|
|
|
124
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
45
|
|
|
|
(38
|
)
|
|
|
123
|
|
|
Other fixed maturity securities
|
|
|
289
|
|
|
|
—
|
|
|
|
289
|
|
|
|
1
|
|
|
|
(41
|
)
|
|
|
(209
|
)
|
|
|
—
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
23,326
|
|
|
$
|
(8
|
)
|
|
$
|
23,318
|
|
|
$
|
(881
|
)
|
|
$
|
(6,272
|
)
|
|
$
|
(596
|
)
|
|
$
|
1,839
|
|
|
$
|
17,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
183
|
|
|
$
|
—
|
|
|
$
|
183
|
|
|
$
|
(2
|
)
|
|
$
|
(12
|
)
|
|
$
|
(46
|
)
|
|
$
|
(18
|
)
|
|
$
|
105
|
|
|
Non-redeemable preferred stock
|
|
|
2,188
|
|
|
|
—
|
|
|
|
2,188
|
|
|
|
(195
|
)
|
|
|
(466
|
)
|
|
|
(242
|
)
|
|
|
(11
|
)
|
|
|
1,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
2,371
|
|
|
$
|
—
|
|
|
$
|
2,371
|
|
|
$
|
(197
|
)
|
|
$
|
(478
|
)
|
|
$
|
(288
|
)
|
|
$
|
(29
|
)
|
|
$
|
1,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
183
|
|
|
$
|
8
|
|
|
$
|
191
|
|
|
$
|
(26
|
)
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
(8
|
)
|
|
$
|
175
|
|
|
Short-term investments
|
|
$
|
179
|
|
|
$
|
—
|
|
|
$
|
179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(79
|
)
|
|
$
|
—
|
|
|
$
|
100
|
|
|
Mortgage loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
171
|
|
|
$
|
2
|
|
|
$
|
177
|
|
|
Net derivatives (7)
|
|
$
|
789
|
|
|
$
|
(1
|
)
|
|
$
|
788
|
|
|
$
|
1,729
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
2,547
|
|
|
Mortgage servicing rights (8), (9)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(149
|
)
|
|
$
|
—
|
|
|
$
|
340
|
|
|
$
|
—
|
|
|
$
|
191
|
|
|
Separate account assets (10)
|
|
$
|
1,464
|
|
|
$
|
—
|
|
|
$
|
1,464
|
|
|
$
|
(129
|
)
|
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
333
|
|
|
$
|
1,758
|
|
|
Net embedded derivatives (11)
|
|
$
|
(278
|
)
|
|
$
|
24
|
|
|
$
|
(254
|
)
|
|
$
|
(2,500
|
)
|
|
$
|
(81
|
)
|
|
$
|
(94
|
)
|
|
$
|
—
|
|
|
$
|
(2,929
|
)
|
|
|
|
|
(1) |
|
Amounts presented do not reflect any associated hedging
activities. Actual earnings associated with Level 3,
inclusive of hedging activities, could differ materially. |
| |
|
(2) |
|
Impact of adoption of fair value measurement guidance represents
the amount recognized in earnings as a change in estimate
associated with Level 3 financial instruments held at
January 1, 2008. The net impact of adoption on Level 3
assets and liabilities presented in the table above was a
$23 million increase to net assets. Such amount was also
impacted by an increase to DAC of $17 million. The impact
of this adoption on RGA — not reflected in the table
above as a result of the reflection of RGA in discontinued
operations — was a net increase of $2 million
(i.e., a decrease in Level 3 net embedded derivative
liabilities of $17 million offset by a DAC decrease of
$15 million) for a total impact of $42 million on
Level 3 assets and liabilities. This impact of
$42 million along with a $12 million reduction in the
estimated fair value of Level 2 freestanding derivatives,
resulted in a total net impact of adoption of $30 million. |
| |
|
(3) |
|
Amortization of premium/discount is included within net
investment income which is reported within the earnings caption
of total gains (losses). Impairments charged to earnings are
included within net investment gains (losses) which are reported
within the earnings caption of total gains (losses). Lapses
associated with embedded derivatives are included with the
earnings caption of total gains (losses). |
| |
|
(4) |
|
Interest and dividend accruals, as well as cash interest coupons
and dividends received, are excluded from the rollforward. |
| |
|
(5) |
|
The amount reported within purchases, sales, issuances and
settlements is the purchase/issuance price (for purchases and
issuances) and the sales/settlement proceeds (for sales and
settlements) based upon the actual date purchased/issued or
sold/settled. Items purchased/issued and sold/settled in the
same period are excluded |
F-101
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
from the rollforward. For embedded derivatives, attributed fees
are included within this caption along with settlements, if any. |
| |
|
(6) |
|
Total gains and losses (in earnings and other comprehensive
income (loss)) are calculated assuming transfers in and/or out
of Level 3 occurred at the beginning of the period. Items
transferred in and out in the same period are excluded from the
rollforward. |
| |
|
(7) |
|
Freestanding derivative assets and liabilities are presented net
for purposes of the rollforward. |
| |
|
(8) |
|
The additions and reductions (due to loan payments) affecting
MSRs were $628 million and ($113) million,
respectively, for the year ended December 31, 2009 and
$350 million and ($10) million, respectively, for the
year ended December 31, 2008. |
| |
|
(9) |
|
The changes in estimated fair value due to changes in valuation
model inputs or assumptions, and other changes in estimated fair
value affecting MSRs were $172 million and $0,
respectively, for the year ended December 31, 2009, and
($149) million and $0, respectively, for the year ended
December 31, 2008. |
| |
|
(10) |
|
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. |
| |
|
(11) |
|
Embedded derivative assets and liabilities are presented net for
purposes of the rollforward. |
The table below summarizes both realized and unrealized gains
and losses for the years ended December 31, 2009 and 2008
due to changes in estimated fair value recorded in earnings for
Level 3 assets and liabilities:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
15
|
|
|
$
|
(444
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(429
|
)
|
|
RMBS
|
|
|
30
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
Foreign corporate securities
|
|
|
(4
|
)
|
|
|
(326
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(330
|
)
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
CMBS
|
|
|
1
|
|
|
|
(37
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(36
|
)
|
|
ABS
|
|
|
8
|
|
|
|
(129
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(121
|
)
|
|
Foreign government securities
|
|
|
12
|
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(40
|
)
|
|
State and political subdivision securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other fixed maturity securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
63
|
|
|
$
|
(987
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
(357
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
—
|
|
|
$
|
(359
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
Short-term investments
|
|
$
|
—
|
|
|
$
|
(21
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(21
|
)
|
|
Mortgage loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
Net derivatives
|
|
$
|
(13
|
)
|
|
$
|
(225
|
)
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(273
|
)
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
172
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
172
|
|
|
Net embedded derivatives
|
|
$
|
—
|
|
|
$
|
1,716
|
|
|
$
|
—
|
|
|
$
|
(114
|
)
|
|
$
|
—
|
|
|
$
|
1,602
|
|
F-102
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
15
|
|
|
$
|
(711
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(696
|
)
|
|
RMBS
|
|
|
3
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
Foreign corporate securities
|
|
|
123
|
|
|
|
(135
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
CMBS
|
|
|
4
|
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(72
|
)
|
|
ABS
|
|
|
4
|
|
|
|
(129
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(125
|
)
|
|
Foreign government securities
|
|
|
27
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
State and political subdivision securities
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other fixed maturity securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
176
|
|
|
$
|
(1,057
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
—
|
|
|
$
|
(197
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(26
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(26
|
)
|
|
Short-term investments
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Mortgage loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
Net derivatives
|
|
$
|
103
|
|
|
$
|
1,587
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,729
|
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(149
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(149
|
)
|
|
Net embedded derivatives
|
|
$
|
—
|
|
|
$
|
(2,682
|
)
|
|
$
|
—
|
|
|
$
|
182
|
|
|
$
|
—
|
|
|
$
|
(2,500
|
)
|
F-103
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The table below summarizes the portion of unrealized gains and
losses recorded in earnings for the years ended
December 31, 2009 and 2008 for Level 3 assets and
liabilities that were still held at December 31, 2009 and
2008, respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
|
Relating to Assets and Liabilities Held at December 31,
2009
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
18
|
|
|
$
|
(412
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(394
|
)
|
|
RMBS
|
|
|
30
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(176
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(179
|
)
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
CMBS
|
|
|
1
|
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(60
|
)
|
|
ABS
|
|
|
8
|
|
|
|
(136
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(128
|
)
|
|
Foreign government securities
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
State and political subdivision securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other fixed maturity securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
66
|
|
|
$
|
(779
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
(168
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
—
|
|
|
$
|
(169
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
Short-term investments
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Mortgage loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
Net derivatives
|
|
$
|
(13
|
)
|
|
$
|
(194
|
)
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(204
|
)
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
147
|
|
|
Net embedded derivatives
|
|
$
|
—
|
|
|
$
|
1,697
|
|
|
$
|
—
|
|
|
$
|
(114
|
)
|
|
$
|
—
|
|
|
$
|
1,583
|
|
F-104
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
|
Relating to Assets and Liabilities Held at December 31,
2008
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
12
|
|
|
$
|
(497
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(485
|
)
|
|
RMBS
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
Foreign corporate securities
|
|
|
117
|
|
|
|
(125
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
CMBS
|
|
|
4
|
|
|
|
(69
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(65
|
)
|
|
ABS
|
|
|
3
|
|
|
|
(102
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(99
|
)
|
|
Foreign government securities
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
State and political subdivision securities
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
Other fixed maturity securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
163
|
|
|
$
|
(793
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
Non-redeemable preferred stock
|
|
|
—
|
|
|
|
(163
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
—
|
|
|
$
|
(164
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
Short-term investments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Mortgage loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Net derivatives
|
|
$
|
114
|
|
|
$
|
1,504
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,656
|
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(150
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(150
|
)
|
|
Net embedded derivatives
|
|
$
|
—
|
|
|
$
|
(2,779
|
)
|
|
$
|
—
|
|
|
$
|
182
|
|
|
$
|
—
|
|
|
$
|
(2,597
|
)
|
Fair
Value Option — Mortgage Loans
Held-For-Sale
The Company has elected fair value accounting for certain
residential mortgage loans
held-for-sale.
The following table presents residential mortgage loans
held-for-sale
carried under the fair value option at:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Unpaid principal balance
|
|
$
|
2,418
|
|
|
$
|
1,920
|
|
|
Excess estimated fair value over unpaid principal balance
|
|
|
52
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
2,470
|
|
|
$
|
1,975
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in non-accrual status
|
|
$
|
4
|
|
|
$
|
—
|
|
|
Loans more than 90 days past due
|
|
$
|
2
|
|
|
$
|
—
|
|
|
Loans in non-accrual status or more than 90 days past due,
or both — difference between aggregate estimated fair
value and unpaid principal balance
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
F-105
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Residential mortgage loans
held-for-sale
accounted for under the fair value option are initially measured
at estimated fair value. Interest income on residential mortgage
loans
held-for-sale
is recorded based on the stated rate of the loan and is recorded
in net investment income. Gains and losses from initial
measurement, subsequent changes in estimated fair value and
gains or losses on sales are recognized in other revenues, and
such changes in estimated fair value were due to the following:
| |
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Instrument-specific credit risk based on changes in credit
spreads for non-agency loans and adjustments in individual loan
quality
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
Other changes in estimated fair value
|
|
|
600
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) recognized in other revenues
|
|
$
|
598
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
|
Non-Recurring
Fair Value Measurements
Certain assets are measured at estimated fair value on a
non-recurring basis and are not included in the tables above.
The amounts below relate to certain investments measured at
estimated fair value during the period and still held as of the
reporting dates.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
|
|
(In millions)
|
|
|
|
|
Mortgage loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
294
|
|
|
$
|
202
|
|
|
$
|
(92
|
)
|
|
$
|
257
|
|
|
$
|
188
|
|
|
$
|
(69
|
)
|
|
Held-for-sale
|
|
|
9
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
42
|
|
|
|
32
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
303
|
|
|
$
|
210
|
|
|
$
|
(93
|
)
|
|
$
|
299
|
|
|
$
|
220
|
|
|
$
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other limited partnership interests (2)
|
|
$
|
915
|
|
|
$
|
561
|
|
|
$
|
(354
|
)
|
|
$
|
242
|
|
|
$
|
137
|
|
|
$
|
(105
|
)
|
|
Real estate joint ventures (3)
|
|
$
|
175
|
|
|
$
|
93
|
|
|
$
|
(82
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(1) |
|
Mortgage Loans — The impaired mortgage loans
presented above were written down to their estimated fair values
at the date the impairments were recognized. Estimated fair
values for impaired mortgage loans are based on observable
market prices or, if the loans are in foreclosure or are
otherwise determined to be collateral dependent, on the
estimated fair value of the underlying collateral, or the
present value of the expected future cash flows. Impairments to
estimated fair value represent non-recurring fair value
measurements that have been categorized as Level 3 due to
the lack of price transparency inherent in the limited markets
for such mortgage loans. |
| |
|
(2) |
|
Other Limited Partnership Interests — The
impaired investments presented above were accounted for using
the cost basis. Impairments on these cost basis investments were
recognized at estimated fair value determined from information
provided in the financial statements of the underlying entities
in the period in which the impairment was incurred. These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments. This category includes several
private equity and debt funds that typically invest primarily in
a diversified pool of investments across certain investment
strategies including domestic and international leveraged buyout
funds; power, energy, timber and infrastructure development |
F-106
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
funds; venture capital funds; below investment grade debt and
mezzanine debt funds. The estimated fair values of these
investments have been determined using the NAV of the
Company’s ownership interest in the partners’ capital.
Distributions from these investments will be generated from
investment gains, from operating income from the underlying
investments of the funds and from liquidation of the underlying
assets of the funds. It is estimated that the underlying assets
of the funds will be liquidated over the next 2 to
10 years. Unfunded commitments for these investments were
$354 million as of December 31, 2009. |
| |
|
(3) |
|
Real Estate Joint Ventures — The impaired
investments presented above were accounted for using the cost
basis. Impairments on these cost basis investments were
recognized at estimated fair value determined from information
provided in the financial statements of the underlying entities
in the period in which the impairment was incurred. These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments. This category includes several real
estate funds that typically invest primarily in commercial real
estate. The estimated fair values of these investments have been
determined using the NAV of the Company’s ownership
interest in the partners’ capital. Distributions from these
investments will be generated from investment gains, from
operating income from the underlying investments of the funds
and from liquidation of the underlying assets of the funds. It
is estimated that the underlying assets of the funds will be
liquidated over the next 2 to 10 years. Unfunded
commitments for these investments were $86 million as of
December 31, 2009. |
F-107
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
6.
|
Deferred
Policy Acquisition Costs and Value of Business
Acquired
|
Information regarding DAC and VOBA is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
13,212
|
|
|
$
|
4,292
|
|
|
$
|
17,504
|
|
|
Effect of adoption of new accounting principle
|
|
|
(205
|
)
|
|
|
(248
|
)
|
|
|
(453
|
)
|
|
Capitalizations
|
|
|
3,064
|
|
|
|
—
|
|
|
|
3,064
|
|
|
Acquisitions
|
|
|
—
|
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
16,071
|
|
|
|
4,092
|
|
|
|
20,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(115
|
)
|
|
|
(11
|
)
|
|
|
(126
|
)
|
|
Other expenses
|
|
|
1,881
|
|
|
|
495
|
|
|
|
2,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
1,766
|
|
|
|
484
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
75
|
|
|
|
63
|
|
|
|
138
|
|
|
Less: Other
|
|
|
(30
|
)
|
|
|
(5
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
14,260
|
|
|
|
3,550
|
|
|
|
17,810
|
|
|
Capitalizations
|
|
|
3,092
|
|
|
|
—
|
|
|
|
3,092
|
|
|
Acquisitions
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
17,352
|
|
|
|
3,545
|
|
|
|
20,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
489
|
|
|
|
32
|
|
|
|
521
|
|
|
Other expenses
|
|
|
2,460
|
|
|
|
508
|
|
|
|
2,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
2,949
|
|
|
|
540
|
|
|
|
3,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
(2,753
|
)
|
|
|
(599
|
)
|
|
|
(3,352
|
)
|
|
Less: Other
|
|
|
503
|
|
|
|
113
|
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
16,653
|
|
|
|
3,491
|
|
|
|
20,144
|
|
|
Capitalizations
|
|
|
3,019
|
|
|
|
—
|
|
|
|
3,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
19,672
|
|
|
|
3,491
|
|
|
|
23,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(625
|
)
|
|
|
(87
|
)
|
|
|
(712
|
)
|
|
Other expenses
|
|
|
1,754
|
|
|
|
265
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
1,129
|
|
|
|
178
|
|
|
|
1,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
2,314
|
|
|
|
505
|
|
|
|
2,819
|
|
|
Less: Other
|
|
|
(163
|
)
|
|
|
(56
|
)
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
16,392
|
|
|
$
|
2,864
|
|
|
$
|
19,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2 for a description of acquisitions and
dispositions.
The estimated future amortization expense allocated to other
expenses for the next five years for VOBA is $394 million
in 2010, $352 million in 2011, $311 million in 2012,
$264 million in 2013 and $222 million in 2014.
F-108
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Amortization of DAC and VOBA is attributed to both investment
gains and losses and to other expenses for the amount of gross
margins or profits originating from transactions other than
investment gains and losses. Unrealized investment gains and
losses represent the amount of DAC and VOBA that would have been
amortized if such gains and losses had been recognized.
Information regarding DAC and VOBA by segment and reporting unit
is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
27
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
27
|
|
|
$
|
40
|
|
|
Individual life
|
|
|
8,129
|
|
|
|
9,495
|
|
|
|
1,005
|
|
|
|
1,122
|
|
|
|
9,134
|
|
|
|
10,617
|
|
|
Non-medical health
|
|
|
942
|
|
|
|
898
|
|
|
|
—
|
|
|
|
—
|
|
|
|
942
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Insurance Products
|
|
|
9,098
|
|
|
|
10,426
|
|
|
|
1,005
|
|
|
|
1,129
|
|
|
|
10,103
|
|
|
|
11,555
|
|
|
Retirement Products
|
|
|
4,611
|
|
|
|
3,971
|
|
|
|
1,412
|
|
|
|
1,917
|
|
|
|
6,023
|
|
|
|
5,888
|
|
|
Corporate Benefit Funding
|
|
|
73
|
|
|
|
72
|
|
|
|
2
|
|
|
|
3
|
|
|
|
75
|
|
|
|
75
|
|
|
Auto & Home
|
|
|
181
|
|
|
|
183
|
|
|
|
—
|
|
|
|
—
|
|
|
|
181
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
13,963
|
|
|
|
14,652
|
|
|
|
2,419
|
|
|
|
3,049
|
|
|
|
16,382
|
|
|
|
17,701
|
|
|
International
|
|
|
2,426
|
|
|
|
1,998
|
|
|
|
444
|
|
|
|
438
|
|
|
|
2,870
|
|
|
|
2,436
|
|
|
Banking, Corporate & Other
|
|
|
3
|
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,392
|
|
|
$
|
16,653
|
|
|
$
|
2,864
|
|
|
$
|
3,491
|
|
|
$
|
19,256
|
|
|
$
|
20,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Information regarding goodwill is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
5,008
|
|
|
$
|
4,814
|
|
|
$
|
4,801
|
|
|
Acquisitions (1)
|
|
|
—
|
|
|
|
256
|
|
|
|
2
|
|
|
Other, net (2)
|
|
|
39
|
|
|
|
(62
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
5,047
|
|
|
$
|
5,008
|
|
|
$
|
4,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 for a description of acquisitions and
dispositions. |
| |
|
(2) |
|
Consisting principally of foreign currency translation
adjustments. |
F-109
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Information regarding goodwill by segment and reporting unit is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
Insurance Products:
|
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Individual life
|
|
|
1,263
|
|
|
|
1,265
|
|
|
Non-medical health
|
|
|
149
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Insurance Products
|
|
|
1,414
|
|
|
|
1,416
|
|
|
Retirement Products
|
|
|
1,692
|
|
|
|
1,692
|
|
|
Corporate Benefit Funding
|
|
|
900
|
|
|
|
900
|
|
|
Auto & Home
|
|
|
157
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
4,163
|
|
|
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
Latin America region
|
|
|
214
|
|
|
|
184
|
|
|
Asia Pacific region
|
|
|
160
|
|
|
|
152
|
|
|
EMEI region
|
|
|
40
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
414
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking, Corporate & Other
|
|
|
470
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,047
|
|
|
$
|
5,008
|
|
|
|
|
|
|
|
|
|
|
|
As described in more detail in Note 1, the Company
performed its annual goodwill impairment tests during the third
quarter of 2009 based upon data at June 30, 2009 that
indicated that goodwill was not impaired. During the fourth
quarter of 2009, the Company realigned its reportable segments.
See Notes 1 and 22. The 2009 annual goodwill impairment
tests were based on the segment structure in existence prior to
such realignment. The realignment did not significantly change
the reporting units for goodwill impairment testing purposes and
management concluded that no additional tests were required at
December 31, 2009.
Previously, due to economic conditions, the sustained low level
of equity markets, declining market capitalizations in the
insurance industry and lower operating earnings projections,
particularly in individual annuity and variable &
universal life reporting units, management performed an interim
goodwill impairment test at December 31, 2008 and again,
for certain reporting units most affected by the current
economic environment at March 31, 2009. Based upon the
tests performed, management concluded no impairment of goodwill
had occurred for any of the Company’s reporting units at
March 31, 2009 and December 31, 2008.
Management continues to evaluate current market conditions that
may affect the estimated fair value of the Company’s
reporting units to assess whether any goodwill impairment
exists. Continued deteriorating or adverse market conditions for
certain reporting units may have a significant impact on the
estimated fair value of these reporting units and could result
in future impairments of goodwill.
F-110
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Insurance
Liabilities
Insurance liabilities are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy
|
|
|
Policyholder Account
|
|
|
Other Policyholder
|
|
|
|
|
Benefits
|
|
|
Balances
|
|
|
Funds
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
2,981
|
|
|
$
|
2,984
|
|
|
$
|
8,985
|
|
|
$
|
8,422
|
|
|
$
|
2,411
|
|
|
$
|
2,341
|
|
|
Individual life
|
|
|
55,302
|
|
|
|
54,099
|
|
|
|
18,632
|
|
|
|
17,587
|
|
|
|
2,911
|
|
|
|
2,876
|
|
|
Non-medical health
|
|
|
12,738
|
|
|
|
11,619
|
|
|
|
501
|
|
|
|
501
|
|
|
|
616
|
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Insurance Products
|
|
|
71,021
|
|
|
|
68,702
|
|
|
|
28,118
|
|
|
|
26,510
|
|
|
|
5,938
|
|
|
|
5,826
|
|
|
Retirement Products
|
|
|
3,978
|
|
|
|
3,655
|
|
|
|
46,821
|
|
|
|
44,282
|
|
|
|
103
|
|
|
|
88
|
|
|
Corporate Benefit Funding
|
|
|
41,614
|
|
|
|
40,682
|
|
|
|
55,556
|
|
|
|
66,409
|
|
|
|
216
|
|
|
|
249
|
|
|
Auto & Home
|
|
|
2,972
|
|
|
|
3,083
|
|
|
|
—
|
|
|
|
—
|
|
|
|
184
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
119,585
|
|
|
|
116,122
|
|
|
|
130,495
|
|
|
|
137,201
|
|
|
|
6,441
|
|
|
|
6,206
|
|
|
International
|
|
|
10,830
|
|
|
|
9,241
|
|
|
|
8,128
|
|
|
|
5,654
|
|
|
|
1,637
|
|
|
|
1,227
|
|
|
Banking, Corporate & Other
|
|
|
5,464
|
|
|
|
5,192
|
|
|
|
50
|
|
|
|
66
|
|
|
|
368
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
135,879
|
|
|
$
|
130,555
|
|
|
$
|
138,673
|
|
|
$
|
142,921
|
|
|
$
|
8,446
|
|
|
$
|
7,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of Distribution Agreements and Customer Relationships
Acquired
Information regarding the VODA and VOCRA, which are reported in
other assets, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at January 1,
|
|
$
|
822
|
|
|
$
|
706
|
|
|
$
|
708
|
|
|
Acquisitions
|
|
|
—
|
|
|
|
144
|
|
|
|
11
|
|
|
Amortization
|
|
|
(34
|
)
|
|
|
(25
|
)
|
|
|
(16
|
)
|
|
Other
|
|
|
4
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
792
|
|
|
$
|
822
|
|
|
$
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense allocated to other
expenses for the next five years for VODA and VOCRA is
$40 million in 2010, $44 million in 2011,
$49 million in 2012, $52 million in 2013 and
$55 million in 2014. See Note 2 for a description of
acquisitions and dispositions.
F-111
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Sales
Inducements
Information regarding deferred sales inducements, which are
reported in other assets, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at January 1,
|
|
$
|
711
|
|
|
$
|
677
|
|
|
$
|
578
|
|
|
Capitalization
|
|
|
193
|
|
|
|
176
|
|
|
|
181
|
|
|
Amortization
|
|
|
(63
|
)
|
|
|
(142
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
841
|
|
|
$
|
711
|
|
|
$
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate
Accounts
Separate account assets and liabilities include two categories
of account types: pass-through separate accounts totaling
$121.4 billion and $96.6 billion at December 31,
2009 and 2008, respectively, for which the policyholder assumes
all investment risk, and separate accounts with a minimum return
or account value for which the Company contractually guarantees
either a minimum return or account value to the policyholder
which totaled $27.6 billion and $24.2 billion at
December 31, 2009 and 2008, respectively. The latter
category consisted primarily of funding agreements and
participating close-out contracts. The average interest rate
credited on these contracts was 3.35% and 4.40% at
December 31, 2009 and 2008, respectively.
Fees charged to the separate accounts by the Company (including
mortality charges, policy administration fees and surrender
charges) are reflected in the Company’s revenues as
universal life and investment-type product policy fees and
totaled $2.6 billion, $3.2 billion and
$2.8 billion for the years ended December 31, 2009,
2008 and 2007, respectively.
The Company’s proportional interest in separate accounts is
included in the consolidated balance sheets as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
Fixed maturity securities
|
|
$
|
11
|
|
|
$
|
21
|
|
|
Equity securities
|
|
$
|
57
|
|
|
$
|
19
|
|
|
Cash and cash equivalents
|
|
$
|
2
|
|
|
$
|
3
|
|
For the years ended December 31, 2009, 2008 and 2007, there
were no investment gains (losses) on transfers of assets from
the general account to the separate accounts.
Obligations
Under Funding Agreements
The Company issues fixed and floating rate funding agreements,
which are denominated in either U.S. Dollars or foreign
currencies, to certain SPEs that have issued debt securities for
which payment of interest and principal is secured by such
funding agreements. During the years ended December 31,
2009, 2008 and 2007, the Company issued $4.3 billion,
$5.8 billion and $5.2 billion, respectively, and
repaid $7.7 billion, $8.3 billion and
$4.3 billion, respectively, of such funding agreements. At
December 31, 2009 and 2008, funding agreements outstanding,
which are included in policyholder account balances, were
$19.3 billion and $21.6 billion, respectively. During
the years ended December 31, 2009, 2008 and 2007, interest
credited on the funding agreements, which are included in
interest credited to policyholder account balances, was
$0.6 billion, $1.0 billion and $1.1 billion,
respectively.
MetLife Insurance Company of Connecticut (“MICC”) is a
member of the FHLB of Boston and holds $70 million of
common stock of the FHLB of Boston at both December 31,
2009 and 2008, which is included in
F-112
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
equity securities. MICC has also entered into funding agreements
with the FHLB of Boston whereby MICC has issued such funding
agreements in exchange for cash and for which the FHLB of Boston
has been granted a blanket lien on certain MICC assets,
including RMBS, to collateralize MICC’s obligations under
the funding agreements. MICC maintains control over these
pledged assets, and may use, commingle, encumber or dispose of
any portion of the collateral as long as there is no event of
default and the remaining qualified collateral is sufficient to
satisfy the collateral maintenance level. Upon any event of
default by MICC, the FHLB of Boston’s recovery on the
collateral is limited to the amount of MICC’s liability to
the FHLB of Boston. The amount of MICC’s liability for
funding agreements with the FHLB of Boston was $326 million
and $526 million at December 31, 2009 and 2008,
respectively, which is included in policyholder account
balances. In addition, at December 31, 2008, MICC had
advances of $300 million from the FHLB of Boston with
original maturities of less than one year and therefore, such
advances are included in short-term debt. There were no such
advances at December 31, 2009. These advances and the
advances on these funding agreements are collateralized by
mortgage-backed securities with estimated fair values of
$419 million and $1,284 million at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009, 2008 and 2007, interest credited on the
funding agreements, which are included in interest credited to
policyholder account balances, was $6 million,
$15 million and $34 million, respectively.
MLIC is a member of the FHLB of NY and holds $742 million
and $830 million of common stock of the FHLB of NY at
December 31, 2009 and 2008, respectively, which is included
in equity securities. MLIC has also entered into funding
agreements with the FHLB of NY whereby MLIC has issued such
funding agreements in exchange for cash and for which the FHLB
of NY has been granted a lien on certain MLIC assets, including
RMBS to collateralize MLIC’s obligations under the funding
agreements. MLIC maintains control over these pledged assets,
and may use, commingle, encumber or dispose of any portion of
the collateral as long as there is no event of default and the
remaining qualified collateral is sufficient to satisfy the
collateral maintenance level. Upon any event of default by MLIC,
the FHLB of NY’s recovery on the collateral is limited to
the amount of MLIC’s liability to the FHLB of NY. The
amount of the Company’s liability for funding agreements
with the FHLB of NY was $13.7 billion and
$15.2 billion at December 31, 2009 and 2008,
respectively, which is included in policyholder account
balances. The advances on these agreements are collateralized by
mortgage-backed securities with estimated fair values of
$15.1 billion and $17.8 billion at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009, 2008 and 2007, interest credited on the
funding agreements, which are included in interest credited to
policyholder account balances, was $333 million,
$229 million and $94 million, respectively.
The temporary contingent increase in MLIC’s borrowing
capacity that was in effect on December 31, 2008 expired
December 31, 2009.
MLIC has issued funding agreements to certain SPEs that have
issued debt securities for which payment of interest and
principal is secured by such funding agreements, and such debt
securities are also guaranteed as to payment of interest and
principal by the Farmer MAC, a federally chartered
instrumentality of the United States. The obligations under
these funding agreements are secured by a pledge of certain
eligible agricultural real estate mortgage loans and may, under
certain circumstances, be secured by other qualified collateral.
The amount of the Company’s liability for funding
agreements issued to such trusts was $2.5 billion at both
December 31, 2009 and 2008, which is included in
policyholder account balances. The obligations under these
funding agreements are collateralized by designated agricultural
real estate mortgage loans with estimated fair values of
$2.9 billion at both December 31, 2009 and 2008.
During the years ended December 31, 2009, 2008 and 2007,
interest credited on the funding agreements, which are included
in interest credited to policyholder account balances, was
$132 million, $132 million and $117 million,
respectively.
F-113
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Liabilities
for Unpaid Claims and Claim Expenses
Information regarding the liabilities for unpaid claims and
claim expenses relating to property and casualty, group accident
and non-medical health policies and contracts, which are
reported in future policy benefits and other policyholder funds,
is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at January 1,
|
|
$
|
8,260
|
|
|
$
|
7,836
|
|
|
$
|
7,244
|
|
|
Less: Reinsurance recoverables
|
|
|
(1,042
|
)
|
|
|
(955
|
)
|
|
|
(937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at January 1,
|
|
|
7,218
|
|
|
|
6,881
|
|
|
|
6,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
6,569
|
|
|
|
6,263
|
|
|
|
5,796
|
|
|
Prior years
|
|
|
(152
|
)
|
|
|
(353
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,417
|
|
|
|
5,910
|
|
|
|
5,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(3,972
|
)
|
|
|
(3,861
|
)
|
|
|
(3,297
|
)
|
|
Prior years
|
|
|
(1,991
|
)
|
|
|
(1,712
|
)
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,963
|
)
|
|
|
(5,573
|
)
|
|
|
(4,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at December 31,
|
|
|
7,672
|
|
|
|
7,218
|
|
|
|
6,881
|
|
|
Add: Reinsurance recoverables
|
|
|
547
|
|
|
|
1,042
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
8,219
|
|
|
$
|
8,260
|
|
|
$
|
7,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, 2008 and 2007, as a result of changes in estimates
of insured events in the respective prior year, claims and claim
adjustment expenses associated with prior years decreased by
$152 million, $353 million and $325 million,
respectively, due to a reduction in prior year automobile bodily
injury and homeowners’ severity, reduced loss adjustment
expenses, improved loss ratio for non-medical health claim
liabilities and improved claim management.
Guarantees
The Company issues annuity contracts which may include
contractual guarantees to the contractholder for:
(i) return of no less than total deposits made to the
contract less any partial withdrawals (“return of net
deposits”); and (ii) the highest contract value on a
specified anniversary date minus any withdrawals following the
contract anniversary, or total deposits made to the contract
less any partial withdrawals plus a minimum return
(“anniversary contract value” or “minimum
return”). The Company also issues annuity contracts that
apply a lower rate of funds deposited if the contractholder
elects to surrender the contract for cash and a higher rate if
the contractholder elects to annuitize (“two tier
annuities”). These guarantees include benefits that are
payable in the event of death or at annuitization.
The Company also issues universal and variable life contracts
where the Company contractually guarantees to the contractholder
a secondary guarantee or a guaranteed
paid-up
benefit.
F-114
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Information regarding the types of guarantees relating to
annuity contracts and universal and variable life contracts is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
In the
|
|
|
At
|
|
|
In the
|
|
|
At
|
|
|
|
|
Event of Death
|
|
|
Annuitization
|
|
|
Event of Death
|
|
|
Annuitization
|
|
|
|
|
(In millions)
|
|
|
|
|
Annuity Contracts (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Net Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
24,747
|
|
|
|
N/A
|
|
|
$
|
15,882
|
|
|
|
N/A
|
|
|
Net amount at risk (2)
|
|
$
|
1,531
|
(3)
|
|
|
N/A
|
|
|
$
|
4,384
|
(3)
|
|
|
N/A
|
|
|
Average attained age of contractholders
|
|
|
62 years
|
|
|
|
N/A
|
|
|
|
62 years
|
|
|
|
N/A
|
|
|
Anniversary Contract Value or Minimum Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
78,808
|
|
|
$
|
40,234
|
|
|
$
|
62,345
|
|
|
$
|
24,328
|
|
|
Net amount at risk (2)
|
|
$
|
9,039
|
(3)
|
|
$
|
7,361
|
(4)
|
|
$
|
18,637
|
(3)
|
|
$
|
11,312
|
(4)
|
|
Average attained age of contractholders
|
|
|
61 years
|
|
|
|
61 years
|
|
|
|
60 years
|
|
|
|
61 years
|
|
|
Two Tier Annuities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General account value
|
|
|
N/A
|
|
|
$
|
282
|
|
|
|
N/A
|
|
|
$
|
283
|
|
|
Net amount at risk (2)
|
|
|
N/A
|
|
|
$
|
50
|
(5)
|
|
|
N/A
|
|
|
$
|
50
|
(5)
|
|
Average attained age of contractholders
|
|
|
N/A
|
|
|
|
61 years
|
|
|
|
N/A
|
|
|
|
60 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Secondary
|
|
|
Paid-Up
|
|
|
Secondary
|
|
|
Paid-Up
|
|
|
|
|
Guarantees
|
|
|
Guarantees
|
|
|
Guarantees
|
|
|
Guarantees
|
|
|
|
|
(In millions)
|
|
|
|
|
Universal and Variable Life Contracts (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account value (general and separate account)
|
|
$
|
9,483
|
|
|
$
|
4,104
|
|
|
$
|
7,825
|
|
|
$
|
4,135
|
|
|
Net amount at risk (2)
|
|
$
|
150,905
|
(3)
|
|
$
|
28,826
|
(3)
|
|
$
|
145,927
|
(3)
|
|
$
|
31,274
|
(3)
|
|
Average attained age of policyholders
|
|
|
52 years
|
|
|
|
57 years
|
|
|
|
50 years
|
|
|
|
56 years
|
|
|
|
|
|
(1) |
|
The Company’s annuity and life contracts with guarantees
may offer more than one type of guarantee in each contract.
Therefore, the amounts listed above may not be mutually
exclusive. |
| |
|
(2) |
|
The net amount at risk is based on the direct amount at risk
(excluding reinsurance). |
| |
|
(3) |
|
The net amount at risk for guarantees of amounts in the event of
death is defined as the current GMDB in excess of the current
account balance at the balance sheet date. |
| |
|
(4) |
|
The net amount at risk for guarantees of amounts at
annuitization is defined as the present value of the minimum
guaranteed annuity payments available to the contractholder
determined in accordance with the terms of the contract in
excess of the current account balance. |
| |
|
(5) |
|
The net amount at risk for two tier annuities is based on the
excess of the upper tier, adjusted for a profit margin, less the
lower tier. |
F-115
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Information regarding the liabilities for guarantees (excluding
base policy liabilities) relating to annuity and universal and
variable life contracts is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal and Variable
|
|
|
|
|
|
|
|
Annuity Contracts
|
|
|
Life Contracts
|
|
|
|
|
|
|
|
Guaranteed
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
|
|
|
Annuitization
|
|
|
Secondary
|
|
|
Paid-Up
|
|
|
|
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Guarantees
|
|
|
Guarantees
|
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
|
Direct
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at January 1, 2007
|
|
$
|
60
|
|
|
$
|
39
|
|
|
$
|
95
|
|
|
$
|
108
|
|
|
$
|
302
|
|
|
Incurred guaranteed benefits
|
|
|
28
|
|
|
|
39
|
|
|
|
57
|
|
|
|
13
|
|
|
|
137
|
|
|
Paid guaranteed benefits
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2007
|
|
|
80
|
|
|
|
78
|
|
|
|
152
|
|
|
|
121
|
|
|
|
431
|
|
|
Incurred guaranteed benefits
|
|
|
267
|
|
|
|
325
|
|
|
|
119
|
|
|
|
19
|
|
|
|
730
|
|
|
Paid guaranteed benefits
|
|
|
(96
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2008
|
|
|
251
|
|
|
|
403
|
|
|
|
271
|
|
|
|
140
|
|
|
|
1,065
|
|
|
Incurred guaranteed benefits
|
|
|
118
|
|
|
|
(1
|
)
|
|
|
233
|
|
|
|
34
|
|
|
|
384
|
|
|
Paid guaranteed benefits
|
|
|
(201
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2009
|
|
$
|
168
|
|
|
$
|
402
|
|
|
$
|
504
|
|
|
$
|
174
|
|
|
$
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at January 1, 2007
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
51
|
|
|
$
|
68
|
|
|
$
|
129
|
|
|
Incurred guaranteed benefits
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
4
|
|
|
|
7
|
|
|
|
11
|
|
|
Paid guaranteed benefits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2007
|
|
|
6
|
|
|
|
4
|
|
|
|
55
|
|
|
|
75
|
|
|
|
140
|
|
|
Incurred guaranteed benefits
|
|
|
18
|
|
|
|
(4
|
)
|
|
|
25
|
|
|
|
15
|
|
|
|
54
|
|
|
Paid guaranteed benefits
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2008
|
|
|
8
|
|
|
|
—
|
|
|
|
80
|
|
|
|
90
|
|
|
|
178
|
|
|
Incurred guaranteed benefits
|
|
|
26
|
|
|
|
—
|
|
|
|
102
|
|
|
|
32
|
|
|
|
160
|
|
|
Paid guaranteed benefits
|
|
|
(28
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2009
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
182
|
|
|
$
|
122
|
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at January 1, 2007
|
|
$
|
53
|
|
|
$
|
36
|
|
|
$
|
44
|
|
|
$
|
40
|
|
|
$
|
173
|
|
|
Incurred guaranteed benefits
|
|
|
29
|
|
|
|
38
|
|
|
|
53
|
|
|
|
6
|
|
|
|
126
|
|
|
Paid guaranteed benefits
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2007
|
|
|
74
|
|
|
|
74
|
|
|
|
97
|
|
|
|
46
|
|
|
|
291
|
|
|
Incurred guaranteed benefits
|
|
|
249
|
|
|
|
329
|
|
|
|
94
|
|
|
|
4
|
|
|
|
676
|
|
|
Paid guaranteed benefits
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2008
|
|
|
243
|
|
|
|
403
|
|
|
|
191
|
|
|
|
50
|
|
|
|
887
|
|
|
Incurred guaranteed benefits
|
|
|
92
|
|
|
|
(1
|
)
|
|
|
131
|
|
|
|
2
|
|
|
|
224
|
|
|
Paid guaranteed benefits
|
|
|
(173
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31, 2009
|
|
$
|
162
|
|
|
$
|
402
|
|
|
$
|
322
|
|
|
$
|
52
|
|
|
$
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-116
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Account balances of contracts with insurance guarantees are
invested in separate account asset classes as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Fund Groupings:
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
48,852
|
|
|
$
|
39,842
|
|
|
Balanced
|
|
|
31,011
|
|
|
|
14,548
|
|
|
Bond
|
|
|
7,166
|
|
|
|
5,671
|
|
|
Money Market
|
|
|
2,104
|
|
|
|
2,456
|
|
|
Specialty
|
|
|
1,865
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
90,998
|
|
|
$
|
63,005
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s Insurance Products segment participates in
reinsurance activities in order to limit losses, minimize
exposure to significant risks and provide additional capacity
for future growth.
For its individual life insurance products, the Company has
historically reinsured the mortality risk primarily on an excess
of retention basis or a quota share basis. Until 2005, the
Company reinsured up to 90% of the mortality risk for all new
individual life insurance policies that it wrote through its
various subsidiaries. During 2005, the Company changed its
retention practices for certain individual life insurance
policies. Under the new retention guidelines, the Company
reinsures up to 90% of the mortality risk in excess of
$1 million. Retention limits remain unchanged for other new
individual life insurance policies. Policies reinsured in years
prior to 2005 remain reinsured under the original reinsurance
agreements. On a case by case basis, the Company may retain up
to $20 million per life and reinsure 100% of amounts in
excess of the Company’s retention limits. The Company
evaluates its reinsurance programs routinely and may increase or
decrease its retention at any time. Placement of reinsurance is
done primarily on an automatic basis and also on a facultative
basis for risks with specific characteristics. In addition to
reinsuring mortality risk as described above, the Company
reinsures other risks, as well as specific coverages. The
Company routinely reinsures certain classes of risks in order to
limit its exposure to particular travel, avocation and lifestyle
hazards.
For other policies within the Insurance Products segment, the
Company generally retains most of the risk and only cedes
particular risks on certain client arrangements.
The Company’s Retirement Products segment reinsures a
portion of the living and death benefit guarantees issued in
connection with its variable annuities. Under these reinsurance
agreements, the Company pays a reinsurance premium generally
based on fees associated with the guarantees collected from
policyholders, and receives reimbursement for benefits paid or
accrued in excess of account values, subject to certain
limitations. The Company enters into similar agreements for new
or in-force business depending on market conditions.
The Company’s International and Corporate Benefit Funding
segments have periodically engaged in reinsurance activities, as
considered appropriate. The impact of these activities on the
financial results of these segments has not been significant.
The Company’s Auto & Home segment purchases
reinsurance to manage its exposure to large losses (primarily
catastrophe losses) and to protect statutory surplus. The
Company cedes to reinsurers a portion of losses and premiums
based upon the exposure of the policies subject to reinsurance.
To manage exposure to large property and casualty losses, the
Company utilizes property catastrophe, casualty and property per
risk excess of loss agreements.
F-117
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The Company also reinsures, through 100% quota share reinsurance
agreements, certain long-term care and workers’
compensation business written by MICC. These are run-off
businesses which have been included within Banking,
Corporate & Other.
The Company has exposure to catastrophes, which could contribute
to significant fluctuations in the Company’s results of
operations. The Company uses excess of retention and quota share
reinsurance arrangements to provide greater diversification of
risk and minimize exposure to larger risks.
The Company reinsures its business through a diversified group
of reinsurers and periodically monitors collectibility of
reinsurance balances. These reinsurance recoverable balances are
stated net of allowances for uncollectible reinsurance, which as
of December 31, 2009 and 2008, were immaterial.
The Company analyzes recent trends in arbitration and litigation
outcomes in disputes, if any, with its reinsurers. The Company
monitors ratings and evaluates the financial strength of the
Company’s reinsurers by analyzing their financial
statements. In addition, the reinsurance recoverable balance due
from each reinsurer is evaluated as part of the overall
monitoring process. Recoverability of reinsurance recoverable
balances are evaluated based on these analyses.
The Company has secured certain reinsurance recoverable balances
with various forms of collateral, including secured trusts,
funds withheld accounts and irrevocable letters of credit. At
December 31, 2009, the Company had $4.4 billion of
unsecured unaffiliated reinsurance recoverable balances.
At December 31, 2009, the Company had $11.7 billion of
net unaffiliated ceded reinsurance recoverables. Of this total,
$9.2 billion, or 79%, were with the Company’s five
largest unaffiliated ceded reinsurers, including
$3.0 billion of which were unsecured.
The amounts in the consolidated statements of operations include
the impact of reinsurance. Information regarding the effect of
reinsurance is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct premiums
|
|
$
|
27,472
|
|
|
$
|
27,058
|
|
|
$
|
24,149
|
|
|
Reinsurance assumed
|
|
|
1,313
|
|
|
|
1,466
|
|
|
|
1,192
|
|
|
Reinsurance ceded
|
|
|
(2,325
|
)
|
|
|
(2,610
|
)
|
|
|
(2,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
26,460
|
|
|
$
|
25,914
|
|
|
$
|
22,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life and investment-type product policy fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct universal life and investment-type product policy fees
|
|
$
|
5,790
|
|
|
$
|
5,909
|
|
|
$
|
5,686
|
|
|
Reinsurance assumed
|
|
|
106
|
|
|
|
79
|
|
|
|
54
|
|
|
Reinsurance ceded
|
|
|
(693
|
)
|
|
|
(607
|
)
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net universal life and investment-type product policy fees
|
|
$
|
5,203
|
|
|
$
|
5,381
|
|
|
$
|
5,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct policyholder benefits and claims
|
|
$
|
30,363
|
|
|
$
|
29,772
|
|
|
$
|
25,507
|
|
|
Reinsurance assumed
|
|
|
1,024
|
|
|
|
1,235
|
|
|
|
804
|
|
|
Reinsurance ceded
|
|
|
(3,051
|
)
|
|
|
(3,570
|
)
|
|
|
(2,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net policyholder benefits and claims
|
|
$
|
28,336
|
|
|
$
|
27,437
|
|
|
$
|
23,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-118
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The amounts in the consolidated balance sheets include the
impact of reinsurance. Information regarding the effect of
reinsurance is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Total, Net of
|
|
|
|
|
Sheet
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Reinsurance
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other receivables
|
|
$
|
16,752
|
|
|
$
|
550
|
|
|
$
|
12,274
|
|
|
$
|
3,928
|
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
19,256
|
|
|
|
190
|
|
|
|
(206
|
)
|
|
|
19,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,008
|
|
|
$
|
740
|
|
|
$
|
12,068
|
|
|
$
|
23,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
135,879
|
|
|
$
|
2,000
|
|
|
$
|
(43
|
)
|
|
$
|
133,922
|
|
|
Policyholder account balances
|
|
|
138,673
|
|
|
|
1,321
|
|
|
|
—
|
|
|
|
137,352
|
|
|
Other policyholder funds
|
|
|
8,446
|
|
|
|
257
|
|
|
|
494
|
|
|
|
7,695
|
|
|
Other liabilities
|
|
|
15,989
|
|
|
|
364
|
|
|
|
2,489
|
|
|
|
13,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
298,987
|
|
|
$
|
3,942
|
|
|
$
|
2,940
|
|
|
$
|
292,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Total, Net of
|
|
|
|
|
Sheet
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Reinsurance
|
|
|
|
|
(In millions)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other receivables
|
|
$
|
16,973
|
|
|
$
|
489
|
|
|
$
|
11,067
|
|
|
$
|
5,417
|
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
20,144
|
|
|
|
61
|
|
|
|
(79
|
)
|
|
|
20,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
37,117
|
|
|
$
|
550
|
|
|
$
|
10,988
|
|
|
$
|
25,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
130,555
|
|
|
$
|
1,761
|
|
|
$
|
(41
|
)
|
|
$
|
128,835
|
|
|
Policyholder account balances
|
|
|
142,921
|
|
|
|
1,247
|
|
|
|
(59
|
)
|
|
|
141,733
|
|
|
Other policyholder funds
|
|
|
7,762
|
|
|
|
235
|
|
|
|
350
|
|
|
|
7,177
|
|
|
Other liabilities
|
|
|
14,284
|
|
|
|
309
|
|
|
|
1,096
|
|
|
|
12,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
295,522
|
|
|
$
|
3,552
|
|
|
$
|
1,346
|
|
|
$
|
290,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 7, 2000, (the “Demutualization Date”),
MLIC converted from a mutual life insurance company to a stock
life insurance company and became a wholly-owned subsidiary of
MetLife, Inc. The conversion was pursuant to an order by the New
York Superintendent of Insurance (the
“Superintendent”) approving MLIC’s plan of
reorganization, as amended (the “Plan”). On the
Demutualization Date, MLIC established a closed block for the
benefit of holders of certain individual life insurance policies
of MLIC. Assets have been allocated to the closed block in an
amount that has been determined to produce cash flows which,
together with anticipated revenues from the policies included in
the closed block, are reasonably expected to be sufficient to
support obligations and liabilities relating to these policies,
including, but not limited to, provisions for the payment of
claims and certain expenses and taxes, and to provide for the
continuation of policyholder dividend scales in effect for 1999,
if the experience underlying such dividend scales continues, and
for appropriate adjustments in such scales if the experience
changes. At least annually, the Company compares actual and
projected experience against the
F-119
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
experience assumed in the then-current dividend scales. Dividend
scales are adjusted periodically to give effect to changes in
experience.
The closed block assets, the cash flows generated by the closed
block assets and the anticipated revenues from the policies in
the closed block will benefit only the holders of the policies
in the closed block. To the extent that, over time, cash flows
from the assets allocated to the closed block and claims and
other experience related to the closed block are, in the
aggregate, more or less favorable than what was assumed when the
closed block was established, total dividends paid to closed
block policyholders in the future may be greater than or less
than the total dividends that would have been paid to these
policyholders if the policyholder dividend scales in effect for
1999 had been continued. Any cash flows in excess of amounts
assumed will be available for distribution over time to closed
block policyholders and will not be available to stockholders.
If the closed block has insufficient funds to make guaranteed
policy benefit payments, such payments will be made from assets
outside of the closed block. The closed block will continue in
effect as long as any policy in the closed block remains
in-force. The expected life of the closed block is over
100 years.
The Company uses the same accounting principles to account for
the participating policies included in the closed block as it
used prior to the Demutualization Date. However, the Company
establishes a policyholder dividend obligation for earnings that
will be paid to policyholders as additional dividends as
described below. The excess of closed block liabilities over
closed block assets at the effective date of the demutualization
(adjusted to eliminate the impact of related amounts in
accumulated other comprehensive income) represents the estimated
maximum future earnings from the closed block expected to result
from operations attributed to the closed block after income
taxes. Earnings of the closed block are recognized in income
over the period the policies and contracts in the closed block
remain in-force. Management believes that over time the actual
cumulative earnings of the closed block will approximately equal
the expected cumulative earnings due to the effect of dividend
changes. If, over the period the closed block remains in
existence, the actual cumulative earnings of the closed block
are greater than the expected cumulative earnings of the closed
block, the Company will pay the excess of the actual cumulative
earnings of the closed block over the expected cumulative
earnings to closed block policyholders as additional
policyholder dividends unless offset by future unfavorable
experience of the closed block and, accordingly, will recognize
only the expected cumulative earnings in income with the excess
recorded as a policyholder dividend obligation. If over such
period, the actual cumulative earnings of the closed block are
less than the expected cumulative earnings of the closed block,
the Company will recognize only the actual earnings in income.
However, the Company may change policyholder dividend scales in
the future, which would be intended to increase future actual
earnings until the actual cumulative earnings equal the expected
cumulative earnings.
Recent experience within the closed block, in particular
mortality and investment yields, as well as realized and
unrealized losses, have resulted in a policyholder dividend
obligation of zero at both December 31, 2009 and 2008. The
policyholder dividend obligation of zero and the Company’s
decision to revise the expected policyholder dividend scales,
which are based upon statutory results, have resulted in a
reduction to both actual and expected cumulative earnings of the
closed block. Amortization of the closed block DAC, which
resides outside of the closed block, will be based upon actual
cumulative earnings rather than expected cumulative earnings of
the closed block until such time as the actual cumulative
earnings of the closed block exceed the expected cumulative
earnings, at which time the policyholder dividend obligation
will be reestablished. Actual cumulative earnings less than
expected cumulative earnings will result in future adjustments
to DAC and net income of the Company and increase sensitivity of
the Company’s net income to movements in closed block
results.
F-120
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Information regarding the closed block liabilities and assets
designated to the closed block is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Closed Block Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
43,576
|
|
|
$
|
43,520
|
|
|
Other policyholder funds
|
|
|
307
|
|
|
|
315
|
|
|
Policyholder dividends payable
|
|
|
615
|
|
|
|
711
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
—
|
|
|
|
2,852
|
|
|
Other liabilities
|
|
|
576
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
Total closed block liabilities
|
|
|
45,074
|
|
|
|
47,652
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Designated to the Closed Block
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $27,129 and $27,947,
respectively)
|
|
|
27,375
|
|
|
|
26,205
|
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $204 and $280, respectively)
|
|
|
218
|
|
|
|
210
|
|
|
Mortgage loans
|
|
|
6,200
|
|
|
|
7,243
|
|
|
Policy loans
|
|
|
4,538
|
|
|
|
4,426
|
|
|
Real estate and real estate joint ventures
held-for-investment
|
|
|
321
|
|
|
|
381
|
|
|
Short-term investments
|
|
|
1
|
|
|
|
52
|
|
|
Other invested assets
|
|
|
463
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
39,116
|
|
|
|
39,469
|
|
|
Cash and cash equivalents
|
|
|
241
|
|
|
|
262
|
|
|
Accrued investment income
|
|
|
489
|
|
|
|
484
|
|
|
Premiums and other receivables
|
|
|
78
|
|
|
|
98
|
|
|
Current income tax recoverable
|
|
|
112
|
|
|
|
—
|
|
|
Deferred income tax assets
|
|
|
612
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets designated to the closed block
|
|
|
40,648
|
|
|
|
41,945
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of closed block liabilities over assets designated to the
closed block
|
|
|
4,426
|
|
|
|
5,707
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses), net of income tax of $89
and ($633), respectively
|
|
|
166
|
|
|
|
(1,174
|
)
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax of ($3) and ($8), respectively
|
|
|
(5
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts included in accumulated other comprehensive income
(loss)
|
|
|
161
|
|
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Maximum future earnings to be recognized from closed block
assets and liabilities
|
|
$
|
4,587
|
|
|
$
|
4,518
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding the closed block policyholder dividend
obligation is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at January 1,
|
|
$
|
789
|
|
|
$
|
1,063
|
|
|
Change in unrealized investment and derivative gains (losses)
|
|
|
(789
|
)
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
—
|
|
|
$
|
789
|
|
|
|
|
|
|
|
|
|
|
|
F-121
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Information regarding the closed block revenues and expenses is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2,708
|
|
|
$
|
2,787
|
|
|
$
|
2,870
|
|
|
Net investment income and other revenues
|
|
|
2,197
|
|
|
|
2,248
|
|
|
|
2,350
|
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(107
|
)
|
|
|
(94
|
)
|
|
|
(3
|
)
|
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
40
|
|
|
|
—
|
|
|
|
—
|
|
|
Other net investment gains (losses), net
|
|
|
199
|
|
|
|
10
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
132
|
|
|
|
(84
|
)
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,037
|
|
|
|
4,951
|
|
|
|
5,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
3,329
|
|
|
|
3,393
|
|
|
|
3,457
|
|
|
Policyholder dividends
|
|
|
1,394
|
|
|
|
1,498
|
|
|
|
1,492
|
|
|
Other expenses
|
|
|
203
|
|
|
|
217
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,926
|
|
|
|
5,108
|
|
|
|
5,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses before provision for income tax
expense (benefit)
|
|
|
111
|
|
|
|
(157
|
)
|
|
|
68
|
|
|
Provision (benefit) for income tax expense (benefit)
|
|
|
36
|
|
|
|
(68
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses and provision for income tax expense
(benefit)
|
|
$
|
75
|
|
|
$
|
(89
|
)
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the maximum future earnings of the closed block is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at December 31,
|
|
$
|
4,587
|
|
|
$
|
4,518
|
|
|
$
|
4,429
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of
income tax
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
Closed block adjustment (1)
|
|
|
144
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance at January 1,
|
|
|
4,518
|
|
|
|
4,429
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change during year
|
|
$
|
(75
|
)
|
|
$
|
89
|
|
|
$
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The closed block adjustment represents an intra-company
reallocation of assets which affected the closed block. The
adjustment had no impact on the Company’s consolidated
financial statements. |
MLIC charges the closed block with federal income taxes, state
and local premium taxes and other additive state or local taxes,
as well as investment management expenses relating to the closed
block as provided in the Plan. MLIC also charges the closed
block for expenses of maintaining the policies included in the
closed block.
F-122
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
11.
|
Long-term
and Short-term Debt
|
Long-term and short-term debt outstanding is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
December 31,
|
|
|
|
|
Range
|
|
Average
|
|
|
Maturity
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Senior notes
|
|
0.57%-7.71%
|
|
|
5.94
|
%
|
|
2011-2035
|
|
$
|
10,458
|
|
|
$
|
7,660
|
|
|
Repurchase agreements
|
|
0.31%-4.90%
|
|
|
3.35
|
%
|
|
2010-2014
|
|
|
1,846
|
|
|
|
1,062
|
|
|
Surplus notes
|
|
7.63%-7.88%
|
|
|
7.98
|
%
|
|
2015-2025
|
|
|
698
|
|
|
|
698
|
|
|
Fixed rate notes
|
|
3.76%-8.56%
|
|
|
8.56
|
%
|
|
2010
|
|
|
63
|
|
|
|
65
|
|
|
Other notes with varying interest rates
|
|
2.16%-8.00%
|
|
|
4.50
|
%
|
|
2010-2016
|
|
|
120
|
|
|
|
134
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
13,220
|
|
|
|
9,667
|
|
|
Total short-term debt
|
|
|
|
|
|
|
|
|
|
|
912
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
14,132
|
|
|
$
|
12,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate maturities of long-term debt at December 31,
2009 for the next five years are $431 million in 2010,
$1,358 million in 2011, $1,506 million in 2012,
$718 million in 2013, $416 million in 2014 and
$8,789 million thereafter.
Repurchase agreements and capital lease obligations are
collateralized and rank highest in priority, followed by
unsecured senior debt which consists of senior notes, fixed rate
notes and other notes with varying interest rates, followed by
subordinated debt which consists of junior subordinated debt
securities. Payments of interest and principal on the
Company’s surplus notes, which are subordinate to all other
obligations at the operating company level and senior to
obligations at the Holding Company, may be made only with the
prior approval of the insurance department of the state of
domicile. Collateral financing arrangements are supported by
either surplus notes of subsidiaries or financing arrangements
with the Holding Company and accordingly have priority
consistent with other such obligations.
Certain of the Company’s debt instruments, credit
facilities and committed facilities contain various
administrative, reporting, legal and financial covenants. The
Company believes it was in compliance with all covenants at both
December 31, 2009 and 2008.
Senior
Notes
In May 2009, the Holding Company issued $1,250 million of
senior notes due June 1, 2016. The notes bear interest at a
fixed rate of 6.75%, payable semiannually. In connection with
the offering, the Holding Company incurred $6 million of
issuance costs which have been capitalized and included in other
assets. These costs are being amortized over the term of the
notes.
In March 2009, the Holding Company issued $397 million of
floating rate senior notes due June 29, 2012 under the FDIC
Program. The notes bear interest at a rate equal to three-month
LIBOR, reset quarterly, plus 0.32%. The notes are not redeemable
prior to their maturity. In connection with the offering, the
Holding Company incurred $15 million of issuance costs
which have been capitalized and included in other assets. These
costs are being amortized over the term of the notes.
In February 2009, the Holding Company remarketed its existing
$1,035 million 4.91% Series B junior subordinated debt
securities as 7.717% senior debt securities, Series B,
due 2019. In August 2008, the Holding Company remarketed its
existing $1,035 million 4.82% Series A junior
subordinated debt securities as 6.817% senior debt
securities, Series A, due 2018. Interest on both series of
debt securities is payable
F-123
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
semiannually. The Series A and Series B junior
subordinated debt securities were originally issued in 2005 in
connection with the common equity units. See Notes 13 and
14.
Repurchase
Agreements with the Federal Home Loan Bank of New
York
MetLife Bank is a member of the FHLB of NY and held
$124 million and $89 million of common stock of the
FHLB of NY at December 31, 2009 and 2008, respectively,
which is included in equity securities. MetLife Bank has also
entered into repurchase agreements with the FHLB of NY whereby
MetLife Bank has issued repurchase agreements in exchange for
cash and for which the FHLB of NY has been granted a blanket
lien on certain of MetLife Bank’s residential mortgages,
mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities to
collateralize MetLife Bank’s obligations under the
repurchase agreements. MetLife Bank maintains control over these
pledged assets, and may use, commingle, encumber or dispose of
any portion of the collateral as long as there is no event of
default and the remaining qualified collateral is sufficient to
satisfy the collateral maintenance level. The repurchase
agreements and the related security agreement represented by
this blanket lien provide that upon any event of default by
MetLife Bank, the FHLB of NY’s recovery is limited to the
amount of MetLife Bank’s liability under the outstanding
repurchase agreements. The amount of MetLife Bank’s
liability for repurchase agreements entered into with the FHLB
of NY was $2.4 billion and $1.8 billion at
December 31, 2009 and 2008, respectively, which is included
in long-term debt and short-term debt depending upon the
original tenor of the advance. During the years ended
December 31, 2009, 2008 and 2007, MetLife Bank received
advances related to long-term borrowings totaling
$1,280 million, $220 million and $390 million,
respectively, from the FHLB of NY. MetLife Bank made repayments
to the FHLB of NY of $497 million, $371 million and
$175 million related to long-term borrowings for the years
ended December 31, 2009, 2008 and 2007, respectively. The
advances on the repurchase agreements related to both long-term
and short-term debt were collateralized by residential
mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities with
estimated fair values of $5.5 billion and $3.1 billion
at December 31, 2009 and 2008, respectively.
Collateralized
Borrowing from the Federal Reserve Bank of New
York
MetLife Bank is a depository institution that is approved to use
the Federal Reserve Bank of New York Discount Window borrowing
privileges and participate in the Federal Reserve Bank of New
York Term Auction Facility. In order to utilize these
facilities, MetLife Bank has pledged qualifying loans and
investment securities to the Federal Reserve Bank of New York as
collateral. At December 31, 2008, MetLife Bank’s
liability for advances from the Federal Reserve Bank of New York
under these facilities was $950 million, which is included
in short-term debt. MetLife Bank had no liability for advances
from the Federal Reserve Bank of New York under these facilities
at December 31, 2009. The estimated fair value of loan and
investment security collateral pledged by MetLife Bank to the
Federal Reserve Bank of New York at December 31, 2009 and
2008 was $1.5 billion and $1.6 billion, respectively.
During the years ended December 31, 2009 and 2008, the
weighted average interest rate on these advances was 0.26% and
0.79%, respectively. During the years ended December 31,
2009 and 2008, respectively, the average daily balance of these
advances was $1,513 million and $145 million and these
advances were outstanding for an average of 24 days and
41 days. The Company did not participate in these programs
during 2007.
F-124
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Short-term
Debt
Short-term debt with maturities less than one year is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Commercial paper
|
|
$
|
319
|
|
|
$
|
714
|
|
|
MetLife Bank, N.A. — Collateralized borrowings from
the Federal Reserve Bank of New York
|
|
|
—
|
|
|
|
950
|
|
|
MetLife Bank, N.A. — Repurchase agreements with the
FHLB of NY
|
|
|
585
|
|
|
|
695
|
|
|
MetLife Insurance Company of Connecticut —
Collateralized borrowings from the FHLB of Boston
|
|
|
—
|
|
|
|
300
|
|
|
Other
|
|
|
8
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
$
|
912
|
|
|
$
|
2,659
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily balance
|
|
$
|
2,845
|
|
|
$
|
1,252
|
|
|
Average days outstanding
|
|
|
16 days
|
|
|
|
25 days
|
|
During the years ended December 31, 2009, 2008 and 2007,
the weighted average interest rate on short-term debt was 0.42%,
2.4% and 5.0%, respectively.
Interest
Expense
Interest expense related to the Company’s indebtedness
included in other expenses was $713 million,
$554 million and $600 million for the years ended
December 31, 2009, 2008 and 2007, respectively, and does
not include interest expense on collateral financing
arrangements, junior subordinated debt securities or common
equity units. See Notes 12 and 13.
Credit
and Committed Facilities
The Company maintains unsecured credit facilities and committed
facilities, which aggregated $3.2 billion and
$12.8 billion, respectively, at December 31, 2009.
When drawn upon, these facilities bear interest at varying rates
in accordance with the respective agreements.
Credit Facilities. The unsecured credit
facilities are used for general corporate purposes. At
December 31, 2009, the Company had outstanding
$548 million in letters of credit and no aggregate
drawdowns against these facilities. Remaining unused commitments
were $2.6 billion at December 31, 2009.
Total fees expensed associated with these credit facilities were
$43 million and $17 million for the years ended
December 31, 2009 and 2008, respectively. Information on
these credit facilities at December 31, 2009 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
|
|
Unused
|
|
|
Borrower(s)
|
|
Expiration
|
|
Capacity
|
|
|
Issuances
|
|
|
Drawdowns
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
MetLife, Inc. and MetLife Funding, Inc.
|
|
June 2012 (1)
|
|
$
|
2,850
|
|
|
$
|
548
|
|
|
$
|
—
|
|
|
$
|
2,302
|
|
|
MetLife Bank, N.A.
|
|
August 2010
|
|
|
300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
3,150
|
|
|
$
|
548
|
|
|
$
|
—
|
|
|
$
|
2,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-125
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
(1) |
|
Proceeds are available to be used for general corporate
purposes, to support the borrowers’ commercial paper
programs and for the issuance of letters of credit. All
borrowings under the credit agreement must be repaid by June
2012, except that letters of credit outstanding upon termination
may remain outstanding until June 2013. |
Committed Facilities. The committed facilities
are used for collateral for certain of the Company’s
affiliated reinsurance liabilities. At December 31, 2009,
the Company had outstanding $4.7 billion in letters of
credit and $2.8 billion in aggregate drawdowns against
these facilities. Remaining unused commitments were
$5.4 billion at December 31, 2009.
Total fees expensed associated with these committed facilities
were $55 million and $35 million for the years ended
December 31, 2009 and 2008, respectively. Information on
these committed facilities at December 31, 2009 is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
|
|
Unused
|
|
|
Maturity
|
|
|
Account Party/Borrower(s)
|
|
Expiration
|
|
Capacity
|
|
Issuances
|
|
|
Drawdowns
|
|
|
Commitments
|
|
|
(Years)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
MetLife, Inc.
|
|
August 2010
|
|
$300
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
MetLife, Inc.
|
|
December 2010
|
|
1,500
|
|
|
412
|
|
|
|
—
|
|
|
|
1,088
|
|
|
|
—
|
|
|
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri
Reinsurance (Barbados), Inc.
|
|
June 2016 (1)
|
|
500
|
|
|
490
|
|
|
|
—
|
|
|
|
10
|
|
|
|
6
|
|
|
Exeter Reassurance Company Ltd.
|
|
December 2027 (2)
|
|
650
|
|
|
490
|
|
|
|
—
|
|
|
|
160
|
|
|
|
18
|
|
|
MetLife Reinsurance Company of South Carolina &
MetLife, Inc.
|
|
June 2037
|
|
3,500
|
|
|
—
|
|
|
|
2,797
|
|
|
|
703
|
|
|
|
27
|
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
December 2037 (2)
|
|
2,896
|
|
|
1,483
|
|
|
|
—
|
|
|
|
1,413
|
|
|
|
28
|
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
September 2038 (2)
|
|
3,500
|
|
|
1,508
|
|
|
|
—
|
|
|
|
1,992
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$12,846
|
|
$
|
4,683
|
|
|
$
|
2,797
|
|
|
$
|
5,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Letters of credit and replacements or renewals thereof issued
under this facility of $280 million, $10 million and
$200 million are set to expire no later than December 2015,
March 2016 and June 2016, respectively. |
| |
|
(2) |
|
The Holding Company is a guarantor under this agreement. |
|
|
|
12.
|
Collateral
Financing Arrangements
|
Associated
with the Closed Block
In December 2007, MLIC reinsured a portion of its closed block
liabilities to MRC, a wholly-owned subsidiary of the Company. In
connection with this transaction, MRC issued, to investors
placed by an unaffiliated financial institution,
$2.5 billion in aggregate principal amount of
35-year
surplus notes to provide statutory reserve support for the
assumed closed block liabilities. Interest on the surplus notes
accrues at an annual rate of
3-month
LIBOR plus 0.55%, payable quarterly. The ability of MRC to make
interest and principal payments on the surplus notes is
contingent upon South Carolina regulatory approval. At both
December 31, 2009 and 2008, the amount of the surplus notes
outstanding was $2.5 billion.
Simultaneous with the issuance of the surplus notes, the Holding
Company entered into an agreement with the unaffiliated
financial institution, under which the Holding Company is
entitled to the interest paid by MRC on the surplus notes of
3-month
LIBOR plus 0.55% in exchange for the payment of
3-month
LIBOR plus 1.12%, payable quarterly on such amount as adjusted,
as described below. The Holding Company may also be required to
pledge collateral or make payments to the unaffiliated financial
institution related to any decline in the estimated fair value
F-126
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
of the surplus notes. Any such payments would be accounted for
as a receivable and included in other assets on the
Company’s consolidated balance sheets and would not reduce
the principal amount outstanding of the surplus notes. Such
payments would, however, reduce the amount of interest payments
due from the Holding Company under the agreement. Any payment
received from the unaffiliated financial institution would
reduce the receivable by an amount equal to such payment and
would also increase the amount of interest payments due from the
Holding Company under the agreement. In addition, the
unaffiliated financial institution may be required to pledge
collateral to the Holding Company related to any increase in the
estimated fair value of the surplus notes. During 2008, the
Holding Company paid an aggregate of $800 million to the
unaffiliated financial institution relating to declines in the
estimated fair value of the surplus notes. The Holding Company
did not receive any payments from the unaffiliated financial
institution during 2008. During 2009, on a net basis, the
Holding Company received $375 million from the unaffiliated
financial institution related to changes in the estimated fair
value of the surplus notes. No payments were made or received by
the Holding Company during 2007. Since the closing of the
collateral financing arrangement in December 2007, on a net
basis, the Holding Company has paid $425 million to the
unaffiliated financial institution related to changes in the
estimated fair value of the surplus notes. In addition, at
December 31, 2008, the Holding Company had pledged
collateral with an estimated fair value of $230 million to
the unaffiliated financial institution. At December 31,
2009, the Holding Company had no collateral pledged to the
unaffiliated financial institution in connection with this
agreement. The Holding Company may also be required to make a
payment to the unaffiliated financial institution in connection
with any early termination of this agreement.
A majority of the proceeds from the offering of the surplus
notes was placed in a trust, which is consolidated by the
Company, to support MRC’s statutory obligations associated
with the assumed closed block liabilities. During 2007, MRC
deposited $2.0 billion into the trust, from the proceeds of
the surplus notes issued in 2007. During 2008, MRC deposited an
additional $314 million into the trust. No amounts were
deposited into the trust during 2009. At December 31, 2009
and 2008, the estimated fair value of assets held in trust by
the Company was $2.4 billion and $2.1 billion,
respectively. The assets are principally invested in fixed
maturity securities and are presented as such within the
Company’s consolidated balance sheets, with the related
income included within net investment income in the
Company’s consolidated statements of operations. Interest
on the collateral financing arrangement is included as a
component of other expenses.
Total interest expense related to the collateral financing
arrangement was $51 million, $117 million and
$5 million for the years ended December 31, 2009, 2008
and 2007, respectively.
Associated
with Secondary Guarantees
In May 2007, the Holding Company and MRSC, a wholly-owned
subsidiary of the Company, entered into a
30-year
collateral financing arrangement with an unaffiliated financial
institution that provides up to $3.5 billion of statutory
reserve support for MRSC associated with reinsurance obligations
under intercompany reinsurance agreements. Such statutory
reserves are associated with universal life secondary guarantees
and are required under U.S. Valuation of Life Policies
Model Regulation (commonly referred to as
Regulation A-XXX).
At December 31, 2009 and 2008, $2.8 billion and
$2.7 billion, respectively, had been drawn upon under the
collateral financing arrangement. The collateral financing
arrangement may be extended by agreement of the Holding Company
and the unaffiliated financial institution on each anniversary
of the closing.
Proceeds from the collateral financing arrangement were placed
in trusts to support MRSC’s statutory obligations
associated with the reinsurance of secondary guarantees. The
trusts are VIEs which are consolidated by the Company. The
unaffiliated financial institution is entitled to the return on
the investment portfolio held by the trusts. At
December 31, 2009 and 2008, the Company held assets in
trust with an estimated fair value of $3.2 billion and
$2.4 billion, respectively, associated with the collateral
financing arrangement. The assets are principally invested in
fixed maturity securities and are presented as such within the
Company’s consolidated balance sheets, with the related
income included within net investment income in the
Company’s consolidated statements of operations. Interest
on the collateral financing arrangement is included as a
component of other expenses.
F-127
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
In connection with the collateral financing arrangement, the
Holding Company entered into an agreement with the same
unaffiliated financial institution under which the Holding
Company is entitled to the return on the investment portfolio
held by the trusts established in connection with this
collateral financing arrangement in exchange for the payment of
a stated rate of return to the unaffiliated financial
institution of
3-month
LIBOR plus 0.70%, payable quarterly. The Holding Company may
also be required to make payments to the unaffiliated financial
institution, for deposit into the trusts, related to any decline
in the estimated fair value of the assets held by the trusts, as
well as amounts outstanding upon maturity or early termination
of the collateral financing arrangement. During 2009 and 2008,
the Holding Company contributed $360 million and
$320 million, respectively, as a result of declines in the
estimated fair value of the assets in the trusts. Cumulatively
since May 2007, the Holding Company has contributed a total of
$680 million as a result of declines in the estimated fair
value of the assets in the trusts, all of which was deposited
into the trusts.
In addition, the Holding Company may be required to pledge
collateral to the unaffiliated financial institution under this
agreement. At December 31, 2009 and 2008, the Holding
Company had pledged $80 million and $86 million,
respectively, under the agreement.
Transaction costs associated with the collateral financing
arrangement of $5 million have been capitalized, are
included in other assets, and are being amortized over the
period from May 2007, the date the Holding Company entered into
the collateral financing arrangement, to its expiration. Total
interest expense related to the collateral financing arrangement
was $44 million, $107 million and $84 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
|
13.
|
Junior
Subordinated Debt Securities
|
Junior
Subordinated Debt Securities Underlying Common Equity
Units
In June 2005, the Holding Company issued $1,067 million
4.82% Series A and $1,067 million 4.91% Series B
junior subordinated debt securities due no later than
February 15, 2039 and February 15, 2040, respectively,
for a total of $2,134 million, in exchange for
$64 million in trust common securities of MetLife Capital
Trust II (“Series A Trust”) and MetLife
Capital Trust III (“Series B Trust”) and
together with the Series A Trust, (the “Capital
Trusts”), both subsidiary trusts of MetLife, Inc., and
$2,070 million in aggregate cash proceeds from the sale by
the subsidiary trusts of trust preferred securities,
constituting part of the common equity units. The subsidiary
trusts each issued $1,035 million of trust preferred
securities and $32 million of trust common securities.
In August 2008, the Series A Trust was dissolved and
$32 million of the Series A junior subordinated debt
securities were returned to the Holding Company concurrently
with the cancellation of the $32 million of trust common
securities of the Series A Trust held by MetLife, Inc. Upon
dissolution of the Series A Trust, the remaining
$1,035 million of Series A junior subordinated debt
securities were distributed to the holders of the trust
preferred securities and such trust preferred securities were
cancelled. In connection with the remarketing transaction on
August 15, 2008, the remaining $1,035 million of
MetLife, Inc. Series A junior subordinated debt securities
were modified, as permitted by their terms, to be
6.817% senior debt securities, Series A, due
August 15, 2018. The Company did not receive any proceeds
from the remarketing. See also Notes 11, 14 and 18.
In February 2009, the Series B Trust was dissolved and
$32 million of the Series B junior subordinated debt
securities were returned to the Holding Company concurrently
with the cancellation of the $32 million of trust common
securities of the Series B Trust held by MetLife, Inc. Upon
dissolution of the Series B Trust, the remaining
$1,035 million of Series B junior subordinated debt
securities were distributed to the holders of the trust
preferred securities and such trust preferred securities were
cancelled. In connection with the remarketing transaction on
February 17, 2009, the remaining $1,035 million of
MetLife, Inc. Series B junior subordinated debt securities
were modified, as permitted by their terms, to be
7.717% senior debt securities, Series B, due
February 15, 2019. The Company did not receive any proceeds
from the remarketing. See also Notes 11, 14 and 18.
F-128
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Interest expense on the junior subordinated debt securities
underlying the common equity units was $6 million,
$84 million and $104 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Other
Junior Subordinated Debt Securities
Other outstanding junior subordinated debt securities and trust
securities which MetLife, Inc. will exchange for junior
subordinated debt securities prior to redemption or repayment
are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled
|
|
|
|
Carrying Value
|
|
|
|
|
|
|
Face
|
|
|
Interest
|
|
|
Scheduled
|
|
Redemption
|
|
Final
|
|
at December 31,
|
|
|
Issuer
|
|
Issue Date
|
|
Value
|
|
|
Rate (2)
|
|
|
Redemption Date
|
|
Date (3)
|
|
Maturity
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
MetLife, Inc.
|
|
July 2009
|
|
$
|
500
|
|
|
|
10.750
|
%
|
|
August 2039
|
|
LIBOR + 7.548%
|
|
August 2069
|
|
$
|
500
|
|
|
$
|
—
|
|
|
MetLife Capital Trust X (1)
|
|
April 2008
|
|
$
|
750
|
|
|
|
9.250
|
%
|
|
April 2038
|
|
LIBOR + 5.540%
|
|
April 2068
|
|
|
750
|
|
|
|
750
|
|
|
MetLife Capital Trust IV (1)
|
|
December 2007
|
|
$
|
700
|
|
|
|
7.875
|
%
|
|
December 2037
|
|
LIBOR + 3.960%
|
|
December 2067
|
|
|
694
|
|
|
|
694
|
|
|
MetLife, Inc.
|
|
December 2006
|
|
$
|
1,250
|
|
|
|
6.400
|
%
|
|
December 2036
|
|
LIBOR + 2.205%
|
|
December 2066
|
|
|
1,247
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,191
|
|
|
$
|
2,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
MetLife Capital Trust X and MetLife Capital Trust IV
are VIEs which are consolidated in the financial statements of
the Company. The securities issued by these entities are
exchangeable surplus trust securities, which will be exchanged
for a like amount of the Holding Company’s junior
subordinated debt securities on the scheduled redemption date;
mandatorily under certain circumstances, and at any time upon
the Holding Company exercising its option to redeem the
securities. The exchangeable surplus trust securities are
classified as junior subordinated debt securities for purposes
of financial statement presentation. |
| |
|
(2) |
|
Prior to the scheduled redemption date, interest is payable
semiannually in arrears. |
| |
|
(3) |
|
In the event the securities are not redeemed on or before the
scheduled redemption date, interest will accrue after such date
at an annual rate of
3-month
LIBOR plus a margin, payable quarterly in arrears. |
In connection with each of the securities described above, the
Holding Company may redeem or may cause the redemption of the
securities (i) in whole or in part, at any time on or after
the date five years prior to the scheduled redemption date at
their principal amount plus accrued and unpaid interest to, but
excluding, the date of redemption, or (ii) in certain
circumstances, in whole or in part, prior to the date five years
prior to the scheduled redemption date at their principal amount
plus accrued and unpaid interest to, but excluding, the date of
redemption or, if greater, a make-whole price. The Holding
Company also has the right to, and in certain circumstances the
requirement to, defer interest payments on the securities for a
period up to ten years. Interest compounds during such periods
of deferral. If interest is deferred for more than five
consecutive years, the Holding Company is required to use
proceeds from the sale of its common stock or warrants on common
stock to satisfy interest payment obligation. In connection with
each of the securities described above, the Holding Company
entered into a replacement capital covenant (“RCC”).
As part of the RCC, the Holding Company agreed that it will not
repay, redeem, or purchase the securities on or before a date
ten years prior to the final maturity date of each issuance,
unless, subject to certain limitations, it has received proceeds
during a specified period from the sale of specified replacement
securities. The RCC will terminate upon the occurrence of
certain events, including an acceleration of the securities due
to the occurrence of an event of default. The RCC is not
intended for the benefit of holders of the securities and may
not be enforced by them. The RCC is for the benefit of holders
of one or more other designated series of the Holding
Company’s indebtedness (which will initially be its
5.70% senior notes due June 2035). The Holding Company also
entered into a replacement capital obligation which will
commence during the six month period prior to the scheduled
redemption date and under which the Holding Company must use
reasonable commercial efforts to raise replacement capital to
permit repayment of the securities through the issuance of
certain qualifying capital securities.
F-129
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Issuance costs associated with the issuance of the securities of
$5 million, $8 million and $10 million were
incurred during the years ended December 31, 2009, 2008 and
2007, respectively. These issuance costs have been capitalized,
are included in other assets, and are amortized over the period
from the issuance date until the scheduled redemption date of
the respective issuances. Interest expense on other junior
subordinated debt securities was $231 million,
$186 million and $83 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
In connection with financing the acquisition of The Travelers
Insurance Company on July 1, 2005, the Holding Company
distributed and sold 82.8 million 6.375% common equity
units for $2,070 million in proceeds in a registered public
offering on June 21, 2005. The common equity units
consisted of interests in trust preferred securities issued by
MetLife Capital Trusts II and III, and stock purchase
contracts issued by the Holding Company. The only assets of
MetLife Capital Trusts II and III were junior
subordinated debt securities issued by the Holding Company. The
common equity units ceased to exist upon the closing of the
remarketing of the underlying debt instruments and the
settlement of the stock purchase contracts in August 2008 and
February 2009. See Notes 13 and 18.
The provision for income tax from continuing operations is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(45
|
)
|
|
$
|
216
|
|
|
$
|
439
|
|
|
State and local
|
|
|
12
|
|
|
|
10
|
|
|
|
15
|
|
|
Foreign
|
|
|
50
|
|
|
|
372
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
17
|
|
|
|
598
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,190
|
)
|
|
|
1,078
|
|
|
|
1,015
|
|
|
State and local
|
|
|
26
|
|
|
|
(6
|
)
|
|
|
31
|
|
|
Foreign
|
|
|
132
|
|
|
|
(90
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(2,032
|
)
|
|
|
982
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
$
|
(2,015
|
)
|
|
$
|
1,580
|
|
|
$
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-130
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The reconciliation of the income tax provision at the
U.S. statutory rate to the provision for income tax as
reported for continuing operations is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Tax provision at U.S. statutory rate
|
|
$
|
(1,517
|
)
|
|
$
|
1,771
|
|
|
$
|
2,023
|
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt investment income
|
|
|
(288
|
)
|
|
|
(254
|
)
|
|
|
(296
|
)
|
|
State and local income tax
|
|
|
17
|
|
|
|
2
|
|
|
|
39
|
|
|
Prior year tax
|
|
|
(26
|
)
|
|
|
53
|
|
|
|
70
|
|
|
Tax credits
|
|
|
(87
|
)
|
|
|
(58
|
)
|
|
|
(42
|
)
|
|
Foreign tax rate differential and change in valuation allowance
|
|
|
(118
|
)
|
|
|
65
|
|
|
|
(108
|
)
|
|
Other, net
|
|
|
4
|
|
|
|
1
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
$
|
(2,015
|
)
|
|
$
|
1,580
|
|
|
$
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax represents the tax effect of the differences
between the book and tax basis of assets and liabilities. Net
deferred income tax assets and liabilities consisted of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
Policyholder liabilities and receivables
|
|
$
|
3,929
|
|
|
$
|
5,553
|
|
|
Net operating loss carryforwards
|
|
|
871
|
|
|
|
741
|
|
|
Employee benefits
|
|
|
661
|
|
|
|
657
|
|
|
Capital loss carryforwards
|
|
|
551
|
|
|
|
273
|
|
|
Tax credit carryforwards
|
|
|
401
|
|
|
|
348
|
|
|
Net unrealized investment losses
|
|
|
816
|
|
|
|
6,590
|
|
|
Litigation-related and government mandated
|
|
|
240
|
|
|
|
284
|
|
|
Other
|
|
|
276
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,745
|
|
|
|
14,688
|
|
|
Less: Valuation allowance
|
|
|
217
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,528
|
|
|
|
14,416
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
Investments, including derivatives
|
|
|
1,434
|
|
|
|
5,299
|
|
|
Intangibles
|
|
|
334
|
|
|
|
156
|
|
|
DAC
|
|
|
4,439
|
|
|
|
3,939
|
|
|
Other
|
|
|
93
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,300
|
|
|
|
9,489
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
1,228
|
|
|
$
|
4,927
|
|
|
|
|
|
|
|
|
|
|
|
Domestic net operating loss carryforwards amount to
$1,998 million at December 31, 2009 and will expire
beginning in 2020. Foreign net operating loss carryforwards
amount to $669 million at December 31, 2009 and were
generated in various foreign countries with expiration periods
of five years to indefinite expiration. Domestic
F-131
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
capital loss carryforwards amount to $1,525 million at
December 31, 2009 and will expire beginning in 2010.
Foreign capital loss carryforwards amount to $51 million at
December 31, 2009 and will expire beginning in 2014. Tax
credit carryforwards amount to $401 million at
December 31, 2009.
The Company has recorded a valuation allowance related to tax
benefits of certain foreign net operating and capital loss
carryforwards and certain foreign unrealized losses. The
valuation allowance reflects management’s assessment, based
on available information, that it is more likely than not that
the deferred income tax asset for certain foreign net operating
and capital loss carryforwards and certain foreign unrealized
losses will not be realized. The tax benefit will be recognized
when management believes that it is more likely than not that
these deferred income tax assets are realizable. In 2009, the
Company recorded an overall decrease to the deferred tax
valuation allowance of $55 million, comprised of a decrease
of $80 million related to certain foreign unrealized
losses, an increase of $13 million related to certain
foreign capital loss carryforwards and an increase of
$12 million related to certain foreign net operating loss
carryforwards.
The Company has not established a valuation allowance against
the deferred tax asset of $816 million recognized in
connection with unrealized losses at December 31, 2009,
other than the $2 million of valuation allowance recognized
in connection with certain foreign unrealized losses. A
valuation allowance was not considered necessary based upon the
Company’s intent and ability to hold such securities until
their recovery or maturity and the existence of tax-planning
strategies that include sources of future taxable income against
which such losses could be offset.
The Company files income tax returns with the U.S. federal
government and various state and local jurisdictions, as well as
foreign jurisdictions. The Company is under continuous
examination by the Internal Revenue Service (“IRS”)
and other tax authorities in jurisdictions in which the Company
has significant business operations. The income tax years under
examination vary by jurisdiction. With a few exceptions, the
Company is no longer subject to U.S. federal, state and
local, or foreign income tax examinations by tax authorities for
years prior to 2000. In early 2009, the Company and the IRS
completed and substantially settled the audit years of 2000 to
2002. A few issues not settled have been escalated to the next
level, IRS Appeals. The IRS exam of the next audit cycle, years
2003 to 2005, is expected to begin in early 2010.
The Company classifies interest accrued related to unrecognized
tax benefits in interest expense, while penalties are included
within income tax expense.
At December 31, 2007, the Company’s total amount of
unrecognized tax benefits was $840 million and the total
amount of unrecognized tax benefits that would affect the
effective tax rate, if recognized, was $565 million. The
total amount of unrecognized tax benefits decreased by
$92 million from January 1, 2007 primarily due to
settlements reached with the IRS with respect to certain
significant issues involving demutualization, post-sale purchase
price adjustments and reinsurance offset by additions for tax
positions of the current year. As a result of the settlements,
items within the liability for unrecognized tax benefits, in the
amount of $177 million, were reclassified to current and
deferred income tax payable, as applicable, and a payment of
$156 million was made in December of 2007, with
$6 million paid in 2009 and the remaining $15 million
to be paid in future years.
At December 31, 2008, the Company’s total amount of
unrecognized tax benefits was $766 million and the total
amount of unrecognized tax benefits that would affect the
effective tax rate, if recognized, was $567 million. The
total amount of unrecognized tax benefits decreased by
$74 million from December 31, 2007 primarily due to
settlements reached with the IRS with respect to certain
significant issues involving demutualization, leasing and tax
credits offset by additions for tax positions of the current
year. As a result of the settlements, items within the liability
for unrecognized tax benefits, in the amount of
$153 million, were reclassified to current and deferred
income tax payable, as applicable, of which $20 million was
paid in 2008 and $133 million was paid in 2009.
At December 31, 2009, the Company’s total amount of
unrecognized tax benefits was $773 million and the total
amount of unrecognized tax benefits that would affect the
effective tax rate, if recognized, was $583 million. The
total amount of unrecognized tax benefits increased by
$7 million from December 31, 2008 primarily due to
F-132
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
additions for tax positions of the current and prior years
offset by settlements reached with the IRS. Settlements with tax
authorities amounted to $46 million, of which
$44 million was reclassified to current income tax payable
and paid in 2009 and $2 million reduced current income tax
expense.
The Company’s liability for unrecognized tax benefits may
decrease in the next 12 months pending the outcome of
remaining issues, tax-exempt income and tax credits, associated
with the 2000 to 2002 IRS audit. A reasonable estimate of
decrease cannot be made at this time. However, the Company
continues to believe that the ultimate resolution of the issues
will not result in a material change to its consolidated
financial statements, although the resolution of income tax
matters could impact the Company’s effective tax rate for a
particular future period.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
766
|
|
|
$
|
840
|
|
|
$
|
932
|
|
|
Additions for tax positions of prior years
|
|
|
43
|
|
|
|
11
|
|
|
|
73
|
|
|
Reductions for tax positions of prior years
|
|
|
(33
|
)
|
|
|
(51
|
)
|
|
|
(53
|
)
|
|
Additions for tax positions of current year
|
|
|
52
|
|
|
|
147
|
|
|
|
77
|
|
|
Reductions for tax positions of current year
|
|
|
(9
|
)
|
|
|
(22
|
)
|
|
|
(8
|
)
|
|
Settlements with tax authorities
|
|
|
(46
|
)
|
|
|
(153
|
)
|
|
|
(177
|
)
|
|
Lapses of statutes of limitations
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
$
|
773
|
|
|
$
|
766
|
|
|
$
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2007, the Company
recognized $81 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2007, the Company had $218 million of
accrued interest associated with the liability for unrecognized
tax benefits. The $8 million increase from January 1,
2007 in accrued interest associated with the liability for
unrecognized tax benefits resulted from an increase of
$81 million of interest expense and a $73 million
decrease primarily resulting from the aforementioned IRS
settlements. The $73 million was reclassified to current
income tax payable in 2007 and paid in 2009.
During the year ended December 31, 2008, the Company
recognized $37 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2008, the Company had $176 million of
accrued interest associated with the liability for unrecognized
tax benefits. The $42 million decrease from
December 31, 2007 in accrued interest associated with the
liability for unrecognized tax benefits resulted from an
increase of $37 million of interest expense and a
$79 million decrease primarily resulting from the
aforementioned IRS settlements. Of the $79 million
decrease, $78 million was reclassified to current income
tax payable in 2008, with $7 million and $71 million
paid in 2008 and 2009, respectively. The remaining
$1 million reduced interest expense.
During the year ended December 31, 2009, the Company
recognized $44 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2009, the Company had $198 million of
accrued interest associated with the liability for unrecognized
tax benefits. The $22 million increase from
December 31, 2008 in accrued interest associated with the
liability for unrecognized tax benefits resulted from an
increase of $44 million of interest expense and a
$22 million decrease primarily resulting from the
aforementioned IRS settlements. Of the $22 million
decrease, $20 million has been reclassified to current
income tax payable and was paid in 2009. The remaining
$2 million reduced interest expense.
F-133
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The U.S. Treasury Department and the IRS have indicated
that they intend to address through regulations the methodology
to be followed in determining the dividends received deduction
(“DRD”), related to variable life insurance and
annuity contracts. The DRD reduces the amount of dividend income
subject to tax and is a significant component of the difference
between the actual tax expense and expected amount determined
using the federal statutory tax rate of 35%. Any regulations
that the IRS ultimately proposes for issuance in this area will
be subject to public notice and comment, at which time insurance
companies and other interested parties will have the opportunity
to raise legal and practical questions about the content, scope
and application of such regulations. As a result, the ultimate
timing and substance of any such regulations are unknown at this
time. For the years ended December 31, 2009 and 2008, the
Company recognized an income tax benefit of $216 million
and $179 million, respectively, related to the separate
account DRD. The 2009 benefit included a benefit of
$33 million related to a
true-up of
the prior year tax return.
|
|
|
16.
|
Contingencies,
Commitments and Guarantees
|
Contingencies
Litigation
The Company is a defendant in a large number of litigation
matters. In some of the matters, very large
and/or
indeterminate amounts, including punitive and treble damages,
are sought. Modern pleading practice in the United States
permits considerable variation in the assertion of monetary
damages or other relief. Jurisdictions may permit claimants not
to specify the monetary damages sought or may permit claimants
to state only that the amount sought is sufficient to invoke the
jurisdiction of the trial court. In addition, jurisdictions may
permit plaintiffs to allege monetary damages in amounts well
exceeding reasonably possible verdicts in the jurisdiction for
similar matters. This variability in pleadings, together with
the actual experience of the Company in litigating or resolving
through settlement numerous claims over an extended period of
time, demonstrate to management that the monetary relief which
may be specified in a lawsuit or claim bears little relevance to
its merits or disposition value. Thus, unless stated below, the
specific monetary relief sought is not noted.
Due to the vagaries of litigation, the outcome of a litigation
matter and the amount or range of potential loss at particular
points in time may normally be inherently impossible to
ascertain with any degree of certainty. Inherent uncertainties
can include how fact finders will view individually and in their
totality documentary evidence, the credibility and effectiveness
of witnesses’ testimony and how trial and appellate courts
will apply the law in the context of the pleadings or evidence
presented, whether by motion practice, or at trial or on appeal.
Disposition valuations are also subject to the uncertainty of
how opposing parties and their counsel will themselves view the
relevant evidence and applicable law.
On a quarterly and annual basis, the Company reviews relevant
information with respect to litigation and contingencies to be
reflected in the Company’s consolidated financial
statements. In 2007, the Company received $39 million upon
the resolution of an indemnification claim associated with the
2000 acquisition of General American Life Insurance Company
(“GALIC”), and the Company reduced legal liabilities
by $38 million after the settlement of certain cases. The
review includes senior legal and financial personnel. Unless
stated below, estimates of possible losses or ranges of loss for
particular matters cannot in the ordinary course be made with a
reasonable degree of certainty. Liabilities are established when
it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. Liabilities have been
established for a number of the matters noted below. In 2009,
the Company increased legal liabilities for litigation matters
pending against the Company. It is possible that some of the
matters could require the Company to pay damages or make other
expenditures or establish accruals in amounts that could not be
estimated at December 31, 2009.
F-134
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Asbestos-Related
Claims
MLIC is and has been a defendant in a large number of
asbestos-related suits filed primarily in state courts. These
suits principally allege that the plaintiff or plaintiffs
suffered personal injury resulting from exposure to asbestos and
seek both actual and punitive damages. MLIC has never engaged in
the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products nor has MLIC
issued liability or workers’ compensation insurance to
companies in the business of manufacturing, producing,
distributing or selling asbestos or asbestos-containing
products. The lawsuits principally have focused on allegations
with respect to certain research, publication and other
activities of one or more of MLIC’s employees during the
period from the 1920’s through approximately the
1950’s and allege that MLIC learned or should have learned
of certain health risks posed by asbestos and, among other
things, improperly publicized or failed to disclose those health
risks. MLIC believes that it should not have legal liability in
these cases. The outcome of most asbestos litigation matters,
however, is uncertain and can be impacted by numerous variables,
including differences in legal rulings in various jurisdictions,
the nature of the alleged injury and factors unrelated to the
ultimate legal merit of the claims asserted against MLIC. MLIC
employs a number of resolution strategies to manage its asbestos
loss exposure, including seeking resolution of pending
litigation by judicial rulings and settling individual or groups
of claims or lawsuits under appropriate circumstances.
Claims asserted against MLIC have included negligence,
intentional tort and conspiracy concerning the health risks
associated with asbestos. MLIC’s defenses (beyond denial of
certain factual allegations) include that: (i) MLIC owed no
duty to the plaintiffs— it had no special relationship
with the plaintiffs and did not manufacture, produce, distribute
or sell the asbestos products that allegedly injured plaintiffs;
(ii) plaintiffs did not rely on any actions of MLIC;
(iii) MLIC’s conduct was not the cause of the
plaintiffs’ injuries; (iv) plaintiffs’ exposure
occurred after the dangers of asbestos were known; and
(v) the applicable time with respect to filing suit has
expired. During the course of the litigation, certain trial
courts have granted motions dismissing claims against MLIC,
while other trial courts have denied MLIC’s motions to
dismiss. There can be no assurance that MLIC will receive
favorable decisions on motions in the future. While most cases
brought to date have settled, MLIC intends to continue to defend
aggressively against claims based on asbestos exposure,
including defending claims at trials.
The approximate total number of asbestos personal injury claims
pending against MLIC as of the dates indicated, the approximate
number of new claims during the years ended on those dates and
the approximate total settlement payments made to resolve
asbestos personal injury claims at or during those years are set
forth in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions, except number of claims)
|
|
|
|
|
Asbestos personal injury claims at year end
|
|
|
68,804
|
|
|
|
74,027
|
|
|
|
79,717
|
|
|
Number of new claims during the year
|
|
|
3,910
|
|
|
|
5,063
|
|
|
|
7,161
|
|
|
Settlement payments during the year (1)
|
|
$
|
37.6
|
|
|
$
|
99.0
|
|
|
$
|
28.2
|
|
|
|
|
|
(1) |
|
Settlement payments represent payments made by MLIC during the
year in connection with settlements made in that year and in
prior years. Amounts do not include MLIC’s attorneys’
fees and expenses and do not reflect amounts received from
insurance carriers. |
In 2006, MLIC received approximately 7,870 new claims, ending
the year with a total of approximately 87,070 claims, and paid
approximately $35.5 million for settlements reached in 2006
and prior years. In 2005, MLIC received approximately 18,500 new
claims, ending the year with a total of approximately 100,250
claims, and paid approximately $74.3 million for
settlements reached in 2005 and prior years. In 2004, MLIC
received approximately 23,900 new claims, ending the year with a
total of approximately 108,000 claims, and paid approximately
$85.5 million for settlements reached in 2004 and prior
years. In 2003, MLIC received approximately 58,750 new claims,
ending the year with a total of approximately 111,700 claims,
and paid
F-135
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
approximately $84.2 million for settlements reached in 2003
and prior years. The number of asbestos cases that may be
brought, the aggregate amount of any liability that MLIC may
incur, and the total amount paid in settlements in any given
year are uncertain and may vary significantly from year to year.
The ability of MLIC to estimate its ultimate asbestos exposure
is subject to considerable uncertainty, and the conditions
impacting its liability can be dynamic and subject to change.
The availability of reliable data is limited and it is difficult
to predict with any certainty the numerous variables that can
affect liability estimates, including the number of future
claims, the cost to resolve claims, the disease mix and severity
of disease in pending and future claims, the impact of the
number of new claims filed in a particular jurisdiction and
variations in the law in the jurisdictions in which claims are
filed, the possible impact of tort reform efforts, the
willingness of courts to allow plaintiffs to pursue claims
against MLIC when exposure to asbestos took place after the
dangers of asbestos exposure were well known, and the impact of
any possible future adverse verdicts and their amounts.
The ability to make estimates regarding ultimate asbestos
exposure declines significantly as the estimates relate to years
further in the future. In the Company’s judgment, there is
a future point after which losses cease to be probable and
reasonably estimable. It is reasonably possible that the
Company’s total exposure to asbestos claims may be
materially greater than the asbestos liability currently accrued
and that future charges to income may be necessary. While the
potential future charges could be material in the particular
quarterly or annual periods in which they are recorded, based on
information currently known by management, management does not
believe any such charges are likely to have a material adverse
effect on the Company’s financial position.
During 1998, MLIC paid $878 million in premiums for excess
insurance policies for asbestos-related claims. The excess
insurance policies for asbestos-related claims provided for
recovery of losses up to $1.5 billion in excess of a
$400 million self-insured retention. The Company’s
initial option to commute the excess insurance policies for
asbestos-related claims would have arisen at the end of 2008. On
September 29, 2008, MLIC entered into agreements commuting
the excess insurance policies at September 30, 2008. As a
result of the commutation of the policies, MLIC received cash
and securities totaling $632 million. Of this total, MLIC
received $115 million in fixed maturity securities on
September 26, 2008, $200 million in cash on
October 29, 2008, and $317 million in cash on
January 29, 2009. MLIC recognized a loss on commutation of
the policies in the amount of $35.3 million during 2008.
In the years prior to commutation, the excess insurance policies
for asbestos-related claims were subject to annual and per claim
sublimits. Amounts exceeding the sublimits during 2007, 2006 and
2005 were approximately $16 million, $8 million and
$0, respectively. Amounts were recoverable under the policies
annually with respect to claims paid during the prior calendar
year. Each asbestos-related policy contained an experience fund
and a reference fund that provided for payments to MLIC at the
commutation date if the reference fund was greater than zero at
commutation or pro rata reductions from time to time in the loss
reimbursements to MLIC if the cumulative return on the reference
fund was less than the return specified in the experience fund.
The return in the reference fund was tied to performance of the
S&P 500 Index and the Lehman Brothers Aggregate Bond Index.
A claim with respect to the prior year was made under the excess
insurance policies in each year from 2003 through 2008 for the
amounts paid with respect to asbestos litigation in excess of
the retention. The foregone loss reimbursements were
approximately $62.2 million with respect to claims for the
period of 2002 through 2007. Because the policies were commuted
at September 30, 2008, there will be no claims under the
policies or forgone loss reimbursements with respect to payments
made in 2008 and thereafter.
The Company believes adequate provision has been made in its
consolidated financial statements for all probable and
reasonably estimable losses for asbestos-related claims.
MLIC’s recorded asbestos liability is based on its
estimation of the following elements, as informed by the facts
presently known to it, its understanding of current law and its
past experiences: (i) the probable and reasonably estimable
liability for asbestos claims already asserted against MLIC,
including claims settled but not yet paid; (ii) the
probable and reasonably estimable liability for asbestos claims
not yet asserted against MLIC, but which MLIC believes are
reasonably probable of assertion; and (iii) the legal
defense costs associated with the foregoing claims. Significant
assumptions underlying MLIC’s
F-136
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
analysis of the adequacy of its recorded liability with respect
to asbestos litigation include: (i) the number of future
claims; (ii) the cost to resolve claims; and (iii) the
cost to defend claims.
MLIC reevaluates on a quarterly and annual basis its exposure
from asbestos litigation, including studying its claims
experience, reviewing external literature regarding asbestos
claims experience in the United States, assessing relevant
trends impacting asbestos liability and considering numerous
variables that can affect its asbestos liability exposure on an
overall or per claim basis. These variables include bankruptcies
of other companies involved in asbestos litigation, legislative
and judicial developments, the number of pending claims
involving serious disease, the number of new claims filed
against it and other defendants and the jurisdictions in which
claims are pending. As previously disclosed, in 2002 MLIC
increased its recorded liability for asbestos-related claims by
$402 million from approximately $820 million to
$1,225 million. Based upon its regular reevaluation of its
exposure from asbestos litigation, MLIC has updated its
liability analysis for asbestos-related claims through
December 31, 2009.
Regulatory
Matters
The Company receives and responds to subpoenas or other
inquiries from state regulators, including state insurance
commissioners; state attorneys general or other state
governmental authorities; federal regulators, including the SEC;
federal governmental authorities, including congressional
committees; and the Financial Industry Regulatory Authority
(“FINRA”) seeking a broad range of information. The
issues involved in information requests and regulatory matters
vary widely. Certain regulators have requested information and
documents regarding contingent commission payments to brokers,
the Company’s awareness of any “sham” bids for
business, bids and quotes that the Company submitted to
potential customers, incentive agreements entered into with
brokers, or compensation paid to intermediaries. The Company has
received a subpoena from and has had discussions with the Office
of the U.S. Attorney for the Southern District of
California regarding the insurance broker Universal Life
Resources. The Florida insurance regulator has initiated
discussions with the Company regarding its investigation of
contingent payments made to brokers. The Massachusetts Office of
the Attorney General has been conducting a civil investigation
of the rating practices of motorcycle insurers in Massachusetts
including Metropolitan Property and Casualty Insurance Company
(“MPC”). MPC has reached an agreement with the
Massachusetts Office of the Attorney General to resolve this
matter by refunding premiums with interest to affected
policyholders. The Company has been cooperating fully in these
inquiries.
In June 2008, the Environmental Protection Agency issued a
Notice of Violation (“NOV”) regarding the operations
of the Homer City Generating Station, an electrical generation
facility. The NOV alleges, among other things, that the
electrical generation facility is being operated in violation of
certain federal and state Clean Air Act requirements. Homer City
OL6 LLC, an entity owned by MLIC, is a passive investor with a
noncontrolling interest in the electrical generation facility,
which is solely operated by the lessee, EME Homer City
Generation L.P. (“EME Homer”). Homer City OL6 LLC and
EME Homer are among the respondents identified in the NOV. EME
Homer has been notified of its obligation to indemnify Homer
City OL6 LLC and MLIC for any claims resulting from the NOV and
has expressly acknowledged its obligation to indemnify Homer
City OL6 LLC.
Regulatory authorities in a small number of states and FINRA
have had investigations or inquiries relating to sales of
individual life insurance policies or annuities or other
products by MLIC, MICC, New England Mutual Life Insurance
Company, New England Life Insurance Company and GALIC, and the
four Company broker dealers, which are MetLife Securities, Inc.
(“MSI”), New England Securities Corporation, Walnut
Street Securities, Inc. and Tower Square Securities, Inc. Over
the past several years, these and a number of investigations by
other regulatory authorities were resolved for monetary payments
and certain other relief. The Company may continue to resolve
investigations in a similar manner.
MSI is a defendant in two regulatory matters brought by the
Illinois Department of Securities. In 2005, MSI received a
notice from the Illinois Department of Securities asserting
possible violations of the Illinois Securities Act in connection
with alleged failure to disclose portability with respect to
sales of a former affiliate’s mutual funds and
representative compensation with respect to proprietary
products. A response has been submitted and in
F-137
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
January 2008, MSI received notice of the commencement of an
administrative action by the Illinois Department of Securities.
In May 2008, MSI’s motion to dismiss the action was denied.
In the second matter, in December 2008 MSI received a Notice of
Hearing from the Illinois Department of Securities based upon a
complaint alleging that MSI failed to reasonably supervise one
of its former registered representatives in connection with the
sale of variable annuities to Illinois investors. MSI intends to
vigorously defend against the claims in these matters.
On April 14, 2009, MSI received a Wells Notice from FINRA
stating that FINRA was considering recommending that a
disciplinary action be brought against MSI. FINRA contended that
during the period from March 1999 through December 2006,
MSI’s registered representative supervisory system was not
reasonably designed to achieve compliance with National
Association of Securities Dealers Conduct Rules relating to the
review of registered representatives’ electronic
correspondence, private securities transactions and outside
business activities. In November 2009, the Company and FINRA
reached a settlement resolving the matter on behalf of the four
Company broker dealers, which included payment of a penalty. The
four Company broker dealers neither admitted nor denied
FINRA’s findings.
Demutualization
Actions
The Company is a defendant in two lawsuits challenging the
fairness of the Plan and the adequacy and accuracy of
MLIC’s disclosure to policyholders regarding the Plan. The
plaintiffs in the consolidated state court class action,
Fiala, et al. v. Metropolitan Life Ins. Co., et al.
(Sup. Ct., N.Y. County, filed March 17, 2000), sought
compensatory relief and punitive damages against MLIC, the
Holding Company, and individual directors. The court certified a
litigation class of present and former policyholders on
plaintiffs’ claim that defendants violated
section 7312 of the New York Insurance Law. The plaintiffs
in the consolidated federal court class action, In re MetLife
Demutualization Litig. (E.D.N.Y., filed April 18,
2000), sought rescission and compensatory damages against
MLIC and the Holding Company. Plaintiffs asserted violations of
the Securities Act of 1933 and the Securities Exchange Act of
1934 (“Exchange Act”) in connection with the Plan,
claiming that the Policyholder Information Booklets failed to
disclose certain material facts and contained certain material
misstatements. The court certified a litigation class of present
and former policyholders. On November 4, and 5, 2009, the
courts in these cases issued orders preliminarily approving a
proposed settlement of this litigation and directing the parties
to give notice of the proposed settlement to the class. On
December 30, 2009 and February 9, 2010, the courts
conducted a hearing jointly to determine the fairness of the
proposed settlement, class counsel’s fee request, and other
matters. On December 30, 2009, the federal court issued an
order holding that the notice given to the class members
concerning the proposed settlement was adequate under federal
law. On February 12, 2010, the federal court approved the
settlement in an order that will become effective upon the state
court’s issuance of its order approving the settlement.
Other
Litigation
Travelers Ins. Co., et al. v. Banc of America Securities
LLC (S.D.N.Y., filed December 13, 2001). On
January 6, 2009, after a jury trial, the district
court entered a judgment in favor of The Travelers Insurance
Company, now known as MetLife Insurance Company of Connecticut,
in the amount of approximately $42 million in connection
with securities and common law claims against the defendant. On
May 14, 2009, the district court issued an opinion and
order denying the defendant’s post judgment motion seeking
a judgment in its favor or, in the alternative, a new trial. On
June 3, 2009, the defendant filed a notice of appeal from
the January 6, 2009 judgment and the May 14, 2009
opinion and order. As it is possible that the judgment could be
affected during appellate practice, and the Company has not
collected any portion of the judgment, the Company has not
recognized any award amount in its consolidated financial
statements.
Shipley v. St. Paul Fire and Marine Ins. Co. and
Metropolitan Property and Casualty Ins. Co. (Ill. Cir. Ct.,
Madison County, filed February 26 and July 2,
2003). Two putative nationwide class actions have
been filed against Metropolitan Property and Casualty Insurance
Company in Illinois. One suit claims breach of contract and
F-138
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
fraud due to the alleged underpayment of medical claims arising
from the use of a purportedly biased provider fee pricing
system. The second suit currently alleges breach of contract
arising from the alleged use of preferred provider organizations
to reduce medical provider fees covered by the medical claims
portion of the insurance policy. Motions for class certification
have been filed and briefed in both cases. Simon v.
Metropolitan Property and Casualty Ins. Co. (W.D. Okla., filed
September 23, 2008), a third putative nationwide class
action lawsuit relating to payment of medical providers, is
pending in federal court in Oklahoma. The Company is vigorously
defending against the claims in these matters.
The American Dental Association, et al. v. MetLife Inc., et
al. (S.D. Fla., filed May 19, 2003). The
American Dental Association and three individual providers had
sued the Holding Company, MLIC and other non-affiliated
insurance companies in a putative class action lawsuit. The
plaintiffs purported to represent a nationwide class of
in-network
providers who alleged that their claims were being wrongfully
reduced by downcoding, bundling, and the improper use and
programming of software. The complaint alleged federal
racketeering and various state law theories of liability. All of
plaintiffs’ claims except for breach of contract claims
were dismissed with prejudice on March 2, 2009. By order
dated March 20, 2009, the district court declined to retain
jurisdiction over the remaining breach of contract claims and
dismissed the lawsuit. On April 17, 2009, plaintiffs filed
a notice of appeal from this order.
In Re Ins. Brokerage Antitrust Litig. (D. N.J., filed
February 24, 2005). In this multi-district
class action proceeding, plaintiffs’ complaint alleged that
the Holding Company, MLIC, several non-affiliated insurance
companies and several insurance brokers violated the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), the
Employee Retirement Income Security Act of 1974
(“ERISA”), and antitrust laws and committed other
misconduct in the context of providing insurance to employee
benefit plans and to persons who participate in such employee
benefit plans. In August and September 2007 and January 2008,
the court issued orders granting defendants’ motions to
dismiss with prejudice the federal antitrust, the RICO, and the
ERISA claims. In February 2008, the court dismissed the
remaining state law claims on jurisdictional grounds.
Plaintiffs’ appeal from the orders dismissing their RICO
and federal antitrust claims is pending with the U.S. Court
of Appeals for the Third Circuit. A putative class action
alleging that the Holding Company and other non-affiliated
defendants violated state laws was transferred to the District
of New Jersey but was not consolidated with other related
actions. Plaintiffs’ motion to remand this action to state
court in Florida is pending.
Metropolitan Life Ins. Co. v. Park Avenue Securities,
et. al. (FINRA Arbitration, filed May 2006). MLIC
commenced an action against Park Avenue Securities LLC., a
registered investment adviser and broker-dealer that is an
indirect wholly-owned subsidiary of The Guardian Life Insurance
Company of America, alleging misappropriation of confidential
and proprietary information and use of prohibited methods to
solicit the Company’s customers and recruit the
Company’s financial services representatives. On
February 12, 2009, a FINRA arbitration panel awarded MLIC
$21 million in damages, including punitive damages and
attorneys’ fees. In March 2009, Park Avenue Securities
filed a motion to vacate the decision. In September 2009, the
parties reached a settlement of this action together with
related and similar matters brought by MLIC against Park Avenue
Securities and The Guardian Life Insurance Company of America.
Roberts, et al. v. Tishman Speyer Properties, et al. (Sup.
Ct., N.Y. County, filed January 22,
2007). This lawsuit was filed by a putative class
of market rate tenants at Stuyvesant Town and Peter Cooper
Village against parties including Metropolitan Tower Life
Insurance Company and Metropolitan Insurance and Annuity
Company. These tenants claim that the Company, as former owner,
and the current owner improperly deregulated apartments while
receiving J-51 tax abatements. The lawsuit seeks declaratory
relief and damages for rent overcharges. In August 2007, the
trial court granted the Company’s motion to dismiss. In
March 2009, New York’s intermediate appellate court
reversed the trial court’s decision and reinstated the
lawsuit. The defendants appealed this ruling to the New York
State Court of Appeals, which in October 2009 issued an opinion
affirming the ruling of the intermediate appellate court. The
lawsuit has returned to the trial court for further proceedings
but is temporarily
F-139
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
stayed to allow for settlement discussions between the current
owner and plaintiffs. The Company will continue to vigorously
defend against the claims against it in the lawsuit.
Thomas, et al. v. Metropolitan Life Ins. Co., et al. (W.D.
Okla., filed January 31, 2007). A putative
class action complaint was filed against MLIC and MSI.
Plaintiffs asserted legal theories of violations of the federal
securities laws and violations of state laws with respect to the
sale of certain proprietary products by the Company’s
agency distribution group. Plaintiffs sought rescission,
compensatory damages, interest, punitive damages and
attorneys’ fees and expenses. In August 2009, the court
granted defendants’ motion for summary judgment. On
September 29, 2009, plaintiffs filed a notice of appeal
from the court’s order dismissing the lawsuit.
Sales Practices Claims. Over the past several
years, the Company has faced numerous claims, including class
action lawsuits, alleging improper marketing or sales of
individual life insurance policies, annuities, mutual funds or
other products. Some of the current cases seek substantial
damages, including punitive and treble damages and
attorneys’ fees. At December 31, 2009, there were
approximately 130 sales practices litigation matters pending
against the Company. The Company continues to vigorously defend
against the claims in these matters. The Company believes
adequate provision has been made in its consolidated financial
statements for all probable and reasonably estimable losses for
sales practices matters.
Summary
Putative or certified class action litigation and other
litigation and claims and assessments against the Company, in
addition to those discussed previously and those otherwise
provided for in the Company’s consolidated financial
statements, have arisen in the course of the Company’s
business, including, but not limited to, in connection with its
activities as an insurer, employer, investor, investment advisor
and taxpayer. Further, state insurance regulatory authorities
and other federal and state authorities regularly make inquiries
and conduct investigations concerning the Company’s
compliance with applicable insurance and other laws and
regulations.
It is not possible to predict the ultimate outcome of all
pending investigations and legal proceedings or provide
reasonable ranges of potential losses, except as noted
previously in connection with specific matters. In some of the
matters referred to previously, very large
and/or
indeterminate amounts, including punitive and treble damages,
are sought. Although in light of these considerations it is
possible that an adverse outcome in certain cases could have a
material adverse effect upon the Company’s financial
position, based on information currently known by the
Company’s management, in its opinion, the outcomes of such
pending investigations and legal proceedings are not likely to
have such an effect. However, given the large
and/or
indeterminate amounts sought in certain of these matters and the
inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could, from time to time,
have a material adverse effect on the Company’s
consolidated net income or cash flows in particular quarterly or
annual periods.
Insolvency
Assessments
Most of the jurisdictions in which the Company is admitted to
transact business require insurers doing business within the
jurisdiction to participate in guaranty associations, which are
organized to pay contractual benefits owed pursuant to insurance
policies issued by impaired, insolvent or failed insurers. These
associations levy assessments, up to prescribed limits, on all
member insurers in a particular state on the basis of the
proportionate share of the premiums written by member insurers
in the lines of business in which the impaired, insolvent or
failed insurer
F-140
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
engaged. Some states permit member insurers to recover
assessments paid through full or partial premium tax offsets.
Assets and liabilities held for insolvency assessments are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
Premium tax offset for future undiscounted assessments
|
|
$
|
54
|
|
|
$
|
50
|
|
|
Premium tax offsets currently available for paid assessments
|
|
|
9
|
|
|
|
7
|
|
|
Receivable for reimbursement of paid assessments (1)
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
|
Insolvency assessments
|
|
$
|
86
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company holds a receivable from the seller of a prior
acquisition in accordance with the purchase agreement. |
Assessments levied against the Company were $2 million,
$2 million and ($1) million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Argentina
The Argentine economic, regulatory and legal environment,
including interpretations of laws and regulations by regulators
and courts, is uncertain. Potential legal or governmental
actions related to pension reform, fiduciary responsibilities,
performance guarantees and tax rulings could adversely affect
the results of the Company.
In 2007, pension reform legislation in Argentina was enacted
which relieved the Company of its obligation to provide death
and disability policy coverages and resulted in the elimination
of related insurance liabilities. The reform reinstituted the
government’s pension plan system and allowed for pension
participants to transfer their future contributions to the
government pension plan system.
Although it no longer received compensation, the Company
continued to be responsible for managing the funds of those
participants that transferred to the government system. This
change resulted in the establishment of a liability for future
servicing obligations and the elimination of the Company’s
obligations under death and disability policy coverages. The
impact of the 2007 Argentine pension reform was an increase to
net income of $114 million, net of income tax, due to the
reduction of the insurance liabilities and other balances
associated with the death and disability coverages of
$197 million, net of income tax, which exceeded the
establishment of the liability for future service obligations of
$83 million, net of income tax, during the year ended
December 31, 2007. During 2008, the future servicing
obligation was reduced by $23 million, net of income tax,
when information regarding the level of participation in the
government pension plan became fully available.
In September 2008, the Argentine Supreme Court ruled against the
validity of the 2002 Pesification Law enacted by the Argentine
government. This ruling applied to certain social security
pension annuity contractholders that had filed a lawsuit against
the 2002 Pesification Law. The annuity contracts impacted by
this ruling, which were deemed peso denominated under the 2002
Pesification Law, are now considered to be U.S. Dollar
denominated obligations of the Company. The applicable
contingent liabilities were then adjusted and refined to be
consistent with this ruling. The impact of the refinements
resulting from the change in these contingent liabilities and
the associated future policyholder benefits was an increase to
net income of $34 million, net of income tax, during the
year ended December 31, 2008.
In October 2008, the Argentine government announced its
intention to nationalize private pensions and, in December 2008,
the Argentine government nationalized the private pension system
seizing the underlying
F-141
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
investments of participants which were being managed by the
Company (“Nationalization”). With this action, the
Company’s pension business in Argentina ceased to exist and
the Company eliminated certain assets and liabilities held in
connection with the pension business. Deferred acquisition
costs, deferred tax assets, and liabilities —
primarily the liability for future servicing obligation referred
to above — were eliminated and the Company incurred
severance costs associated with the termination of employees.
The impact of the elimination of assets and liabilities and the
incurral of severance costs was an increase to net income of
$6 million, net of income tax, during the year ended
December 31, 2008.
As part of Nationalization, the Company may receive compensation
from the Argentine government for the loss of the pension
business in the form of government bonds. The amount of any such
compensation, as well as the terms and value of the government
bonds to be received, cannot be determined at this time. The
compensation will only be reflected in the consolidated
financial statements of the Company if and when the fair value
of the compensation is received.
In March 2009, in light of market developments resulting from
the Supreme Court ruling contrary to the Pesification Law and
the implementation by the Company of a program to allow the
contractholders that had not filed a lawsuit to convert to
U.S. Dollars the social security annuity contracts
denominated in pesos by the Pesification Law, the Company
further reduced the outstanding contingent liabilities by
$108 million, net of income tax, which was partially offset
by the establishment of contingent liabilities from the
implementation of the program to convert these contracts to
U.S. Dollars of $13 million, net of income tax,
resulting in a decrease to net loss of $95 million, net of
income tax, for the year ended December 31, 2009.
Further governmental or legal actions are possible in Argentina.
Such actions may impact the level of existing liabilities or may
create additional obligations or benefits to the Company’s
operations in Argentina. Management has made its best estimate
of its obligations based upon information currently available;
however, further governmental or legal actions could result in
changes in obligations which could materially impact the amounts
presented within the consolidated financial statements.
Commitments
Leases
In accordance with industry practice, certain of the
Company’s income from lease agreements with retail tenants
are contingent upon the level of the tenants’ revenues.
Additionally, the Company, as lessee, has entered into various
lease and sublease agreements for office space, information
technology and other equipment. Future minimum rental and
sublease income, and minimum gross rental payments relating to
these lease agreements are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Rental
|
|
|
Sublease
|
|
|
Rental
|
|
|
|
|
Income
|
|
|
Income
|
|
|
Payments
|
|
|
|
|
(In millions)
|
|
|
|
|
2010
|
|
$
|
415
|
|
|
$
|
15
|
|
|
$
|
287
|
|
|
2011
|
|
$
|
357
|
|
|
$
|
17
|
|
|
$
|
237
|
|
|
2012
|
|
$
|
288
|
|
|
$
|
16
|
|
|
$
|
190
|
|
|
2013
|
|
$
|
253
|
|
|
$
|
15
|
|
|
$
|
169
|
|
|
2014
|
|
$
|
221
|
|
|
$
|
9
|
|
|
$
|
119
|
|
|
Thereafter
|
|
$
|
723
|
|
|
$
|
44
|
|
|
$
|
994
|
|
During 2008, the Company moved certain of its operations in New
York from Long Island City to New York City. As a result of this
movement of operations and current market conditions, which
precluded the Company’s immediate and complete sublet of
all unused space in both Long Island City and New York City, the
Company incurred a lease impairment charge of $38 million
which is included within other expenses in Banking,
Corporate &
F-142
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Other. The impairment charge was determined based upon the
present value of the gross rental payments less sublease income
discounted at a risk-adjusted rate over the remaining lease
terms which range from
15-20 years.
The Company has made assumptions with respect to the timing and
amount of future sublease income in the determination of this
impairment charge. During 2009, pending sublease deals were
impacted by the further decline of market conditions, which
resulted in an additional lease impairment charge of
$52 million. See Note 19 for discussion of
$28 million of such charges related to restructuring.
Additional impairment charges could be incurred should market
conditions deteriorate further or last for a period
significantly longer than anticipated.
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business. The amounts of these unfunded
commitments were $4.1 billion and $4.5 billion at
December 31, 2009 and 2008, respectively. The Company
anticipates that these amounts will be invested in partnerships
over the next five years.
Mortgage
Loan Commitments
The Company has issued interest rate lock commitments on certain
residential mortgage loan applications totaling
$2.7 billion and $8.0 billion at December 31,
2009 and 2008, respectively. The Company intends to sell the
majority of these originated residential mortgage loans.
Interest rate lock commitments to fund mortgage loans that will
be
held-for-sale
are considered derivatives and their estimated fair value and
notional amounts are included within interest rate forwards in
Note 4.
The Company also commits to lend funds under certain other
mortgage loan commitments that will be
held-for-investment.
The amounts of these mortgage loan commitments were
$2.2 billion and $2.7 billion at December 31,
2009 and 2008, respectively.
Commitments
to Fund Bank Credit Facilities, Bridge Loans and Private
Corporate Bond Investments
The Company commits to lend funds under bank credit facilities,
bridge loans and private corporate bond investments. The amounts
of these unfunded commitments were $1.3 billion and
$1.0 billion at December 31, 2009 and 2008,
respectively.
Guarantees
In the normal course of its business, the Company has provided
certain indemnities, guarantees and commitments to third parties
pursuant to which it may be required to make payments now or in
the future. In the context of acquisition, disposition,
investment and other transactions, the Company has provided
indemnities and guarantees, including those related to tax,
environmental and other specific liabilities and other
indemnities and guarantees that are triggered by, among other
things, breaches of representations, warranties or covenants
provided by the Company. In addition, in the normal course of
business, the Company provides indemnifications to
counterparties in contracts with triggers similar to the
foregoing, as well as for certain other liabilities, such as
third-party
lawsuits. These obligations are often subject to time
limitations that vary in duration, including contractual
limitations and those that arise by operation of law, such as
applicable statutes of limitation. In some cases, the maximum
potential obligation under the indemnities and guarantees is
subject to a contractual limitation ranging from less than
$1 million to $800 million, with a cumulative maximum
of $1.6 billion, while in other cases such limitations are
not specified or applicable. Since certain of these obligations
are not subject to limitations, the Company does not believe
that it is possible to determine the maximum potential amount
that could become due under these guarantees in the future.
Management believes that it is unlikely the Company will have to
make any material payments under these indemnities, guarantees,
or commitments.
In addition, the Company indemnifies its directors and officers
as provided in its charters and by-laws. Also, the Company
indemnifies its agents for liabilities incurred as a result of
their representation of the Company’s
F-143
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
interests. Since these indemnities are generally not subject to
limitation with respect to duration or amount, the Company does
not believe that it is possible to determine the maximum
potential amount that could become due under these indemnities
in the future.
The Company has also guaranteed minimum investment returns on
certain international retirement funds in accordance with local
laws. Since these guarantees are not subject to limitation with
respect to duration or amount, the Company does not believe that
it is possible to determine the maximum potential amount that
could become due under these guarantees in the future.
During the year ended December 31, 2009, the Company
reduced $1 million of previously recorded liabilities
related to certain investment transactions. The Company’s
recorded liabilities were $5 million and $6 million at
December 31, 2009 and 2008, respectively, for indemnities,
guarantees and commitments.
|
|
|
17.
|
Employee
Benefit Plans
|
Pension
and Other Postretirement Benefit Plans
The Subsidiaries sponsor
and/or
administer various qualified and non-qualified defined benefit
pension plans and other postretirement employee benefit plans
covering employees and sales representatives who meet specified
eligibility requirements. Pension benefits are provided
utilizing either a traditional formula or cash balance formula.
The traditional formula provides benefits based upon years of
credited service and final average earnings. The cash balance
formula utilizes hypothetical or notional accounts which credit
participants with benefits equal to a percentage of eligible
pay, as well as earnings credits, determined annually based upon
the average annual rate of interest on
30-year
U.S. Treasury securities, for each account balance. At
December 31, 2009, the majority of active participants are
accruing benefits under the cash balance formula; however,
approximately 92% of the Subsidiaries’ obligations result
from benefits calculated with the traditional formula. The
non-qualified pension plans provide supplemental benefits in
excess of limits applicable to a qualified plan.
The Subsidiaries also provide certain postemployment benefits
and certain postretirement medical and life insurance benefits
for retired employees. Employees of the Subsidiaries who were
hired prior to 2003 (or, in certain cases, rehired during or
after 2003) and meet age and service criteria while working
for one of the Subsidiaries may become eligible for these other
postretirement benefits, at various levels, in accordance with
the applicable plans. Virtually all retirees, or their
beneficiaries, contribute a portion of the total cost of
postretirement medical benefits. Employees hired after 2003 are
not eligible for any employer subsidy for postretirement medical
benefits.
A December 31 measurement date is used for all of the
Subsidiaries’ defined benefit pension and other
postretirement benefit plans.
F-144
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Obligations,
Funded Status and Net Periodic Benefit Costs
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
6,041
|
|
|
$
|
5,722
|
|
|
$
|
1,632
|
|
|
$
|
1,599
|
|
|
Service cost
|
|
|
170
|
|
|
|
164
|
|
|
|
22
|
|
|
|
21
|
|
|
Interest cost
|
|
|
395
|
|
|
|
379
|
|
|
|
125
|
|
|
|
103
|
|
|
Plan participants’ contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
31
|
|
|
Net actuarial losses
|
|
|
421
|
|
|
|
129
|
|
|
|
351
|
|
|
|
16
|
|
|
Settlements and curtailments
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Change in benefits
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(167
|
)
|
|
|
1
|
|
|
Prescription drug subsidy
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
10
|
|
|
Benefits paid
|
|
|
(384
|
)
|
|
|
(352
|
)
|
|
|
(158
|
)
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
6,649
|
|
|
|
6,041
|
|
|
|
1,847
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
5,559
|
|
|
|
6,520
|
|
|
|
1,011
|
|
|
|
1,183
|
|
|
Actual return on plan assets
|
|
|
525
|
|
|
|
(952
|
)
|
|
|
137
|
|
|
|
(150
|
)
|
|
Plan participants’ contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
Employer contribution
|
|
|
70
|
|
|
|
343
|
|
|
|
4
|
|
|
|
2
|
|
|
Benefits paid
|
|
|
(384
|
)
|
|
|
(352
|
)
|
|
|
(33
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
5,770
|
|
|
|
5,559
|
|
|
|
1,121
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(879
|
)
|
|
$
|
(482
|
)
|
|
$
|
(726
|
)
|
|
$
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
—
|
|
|
$
|
227
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other liabilities
|
|
|
(879
|
)
|
|
|
(709
|
)
|
|
|
(726
|
)
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(879
|
)
|
|
$
|
(482
|
)
|
|
$
|
(726
|
)
|
|
$
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (income) loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial losses
|
|
$
|
2,267
|
|
|
$
|
2,184
|
|
|
$
|
388
|
|
|
$
|
147
|
|
|
Prior service cost (credit)
|
|
|
25
|
|
|
|
45
|
|
|
|
(288
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,292
|
|
|
|
2,229
|
|
|
|
100
|
|
|
|
(10
|
)
|
|
Deferred income tax and noncontrolling interests, net of income
tax
|
|
|
(811
|
)
|
|
|
(780
|
)
|
|
|
(36
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,481
|
|
|
$
|
1,449
|
|
|
$
|
64
|
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-145
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The aggregate projected benefit obligation and aggregate fair
value of plan assets for the pension plans were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Plan
|
|
|
Non-Qualified Plan
|
|
|
Total
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Aggregate fair value of plan assets
|
|
$
|
5,770
|
|
|
$
|
5,559
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,770
|
|
|
$
|
5,559
|
|
|
Aggregate projected benefit obligation
|
|
|
5,862
|
|
|
|
5,356
|
|
|
|
787
|
|
|
|
685
|
|
|
|
6,649
|
|
|
|
6,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over (under) funded
|
|
$
|
(92
|
)
|
|
$
|
203
|
|
|
$
|
(787
|
)
|
|
$
|
(685
|
)
|
|
$
|
(879
|
)
|
|
$
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit
pension plans was $6,231 million and $5,620 million at
December 31, 2009 and 2008, respectively.
The aggregate pension accumulated benefit obligation and
aggregate fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
Projected benefit obligation
|
|
$
|
798
|
|
|
$
|
708
|
|
|
Accumulated benefit obligation
|
|
$
|
714
|
|
|
$
|
590
|
|
|
Fair value of plan assets
|
|
$
|
1
|
|
|
$
|
—
|
|
Information for pension and other postretirement benefit plans
with a projected benefit obligation in excess of plan assets is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Pension
|
|
Postretirement
|
|
|
|
Benefits
|
|
Benefits
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
Projected benefit obligation
|
|
$
|
6,580
|
|
|
$
|
712
|
|
|
$
|
1,847
|
|
|
$
|
1,632
|
|
|
Fair value of plan assets
|
|
$
|
5,700
|
|
|
$
|
4
|
|
|
$
|
1,121
|
|
|
$
|
1,011
|
|
Net periodic pension cost and net periodic other postretirement
benefit plan cost are comprised of the following:
|
|
|
| |
i)
|
Service Cost — Service cost is the increase in the
projected (expected) pension benefit obligation resulting from
benefits payable to employees of the Subsidiaries on service
rendered during the current year.
|
| |
| |
ii)
|
Interest Cost on the Liability — Interest cost is the
time value adjustment on the projected (expected) pension
benefit obligation at the end of each year.
|
| |
| |
iii)
|
Expected Return on Plan Assets — Expected return on
plan assets is the assumed return earned by the accumulated
(other) pension fund assets in a particular year.
|
| |
| |
iv)
|
Amortization of Prior Service Cost — This cost relates
to the recognition of increases or decreases in pension (other
postretirement) benefit obligation due to amendments in plans or
initiation of new plans. These increases or decreases in
obligation are recognized in accumulated other comprehensive
income at the time of the amendment. These costs are then
amortized to pension (other postretirement benefit) expense over
the expected service years of the employees affected by the
change.
|
F-146
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
| |
v)
|
Amortization of Net Actuarial Gains or Losses —
Actuarial gains and losses result from differences between the
actual experience and the expected experience on pension (other
postretirement) plan assets or projected (expected) pension
benefit obligation during a particular period. These gains and
losses are accumulated and, to the extent they exceed 10% of the
greater of the PBO or the fair value of plan assets, the excess
is amortized into pension (other postretirement benefit) expense
over the expected service years of the employees.
|
The components of net periodic benefit cost and other changes in
plan assets and benefit obligations recognized in other
comprehensive income (loss) were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
170
|
|
|
$
|
164
|
|
|
$
|
162
|
|
|
$
|
22
|
|
|
$
|
21
|
|
|
$
|
27
|
|
|
Interest cost
|
|
|
395
|
|
|
|
379
|
|
|
|
351
|
|
|
|
125
|
|
|
|
103
|
|
|
|
103
|
|
|
Settlement and curtailment cost
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expected return on plan assets
|
|
|
(439
|
)
|
|
|
(517
|
)
|
|
|
(505
|
)
|
|
|
(72
|
)
|
|
|
(86
|
)
|
|
|
(86
|
)
|
|
Amortization of net actuarial (gains) losses
|
|
|
227
|
|
|
|
24
|
|
|
|
68
|
|
|
|
42
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
Amortization of prior service cost (credit)
|
|
|
10
|
|
|
|
15
|
|
|
|
17
|
|
|
|
(36
|
)
|
|
|
(37
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
380
|
|
|
|
65
|
|
|
|
93
|
|
|
|
81
|
|
|
|
—
|
|
|
|
8
|
|
|
Net periodic benefit cost of subsidiary
held-for-sale
|
|
|
—
|
|
|
|
1
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380
|
|
|
|
66
|
|
|
|
98
|
|
|
|
81
|
|
|
|
—
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses
|
|
|
310
|
|
|
|
1,561
|
|
|
|
(432
|
)
|
|
|
283
|
|
|
|
259
|
|
|
|
(440
|
)
|
|
Prior service cost (credit)
|
|
|
(10
|
)
|
|
|
(19
|
)
|
|
|
40
|
|
|
|
(167
|
)
|
|
|
36
|
|
|
|
—
|
|
|
Amortization of net actuarial (gains) losses
|
|
|
(227
|
)
|
|
|
(24
|
)
|
|
|
(68
|
)
|
|
|
(42
|
)
|
|
|
1
|
|
|
|
—
|
|
|
Amortization of prior service cost (credit)
|
|
|
(10
|
)
|
|
|
(15
|
)
|
|
|
(17
|
)
|
|
|
36
|
|
|
|
37
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income (loss)
|
|
|
63
|
|
|
|
1,503
|
|
|
|
(477
|
)
|
|
|
110
|
|
|
|
333
|
|
|
|
(404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive income (loss)
|
|
$
|
443
|
|
|
$
|
1,569
|
|
|
$
|
(379
|
)
|
|
$
|
191
|
|
|
$
|
333
|
|
|
$
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within other comprehensive income (loss) are other
changes in plan assets and benefit obligations associated with
pension benefits of $63 million and other postretirement
benefits of $110 million for an aggregate reduction in
other comprehensive income (loss) of $173 million before
income tax and $102 million, net of income tax and
noncontrolling interests.
The estimated net actuarial losses and prior service cost for
the pension plans that will be amortized from accumulated other
comprehensive income (loss) into net periodic benefit cost over
the next year are $203 million and $7 million,
respectively.
The estimated net actuarial losses and prior service credit for
the defined benefit other postretirement benefit plans that will
be amortized from accumulated other comprehensive income (loss)
into net periodic benefit cost over the next year are
$38 million and ($83) million, respectively.
F-147
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The Company receives subsidies under the Prescription Drug Act.
A summary of the reduction to the APBO and related reduction to
the components of net periodic other postretirement benefit plan
cost is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Cumulative reduction in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
317
|
|
|
$
|
299
|
|
|
$
|
328
|
|
|
Service cost
|
|
|
2
|
|
|
|
5
|
|
|
|
7
|
|
|
Interest cost
|
|
|
16
|
|
|
|
20
|
|
|
|
19
|
|
|
Net actuarial gains (losses)
|
|
|
(76
|
)
|
|
|
3
|
|
|
|
(42
|
)
|
|
Prescription drug subsidy
|
|
|
(12
|
)
|
|
|
(10
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
247
|
|
|
$
|
317
|
|
|
$
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Reduction in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
7
|
|
|
Interest cost
|
|
|
16
|
|
|
|
20
|
|
|
|
19
|
|
|
Amortization of net actuarial gains (losses)
|
|
|
10
|
|
|
|
—
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reduction in net periodic benefit cost
|
|
$
|
29
|
|
|
$
|
25
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company received subsidies of $12 million,
$12 million and $10 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Assumptions
Assumptions used in determining benefit obligations were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Other Postretirement
|
|
|
|
Benefits
|
|
Benefits
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Weighted average discount rate
|
|
6.25%
|
|
6.60%
|
|
6.25%
|
|
6.62%
|
|
Rate of compensation increase
|
|
2.0%-7.5%
|
|
3.5%-7.5%
|
|
N/A
|
|
N/A
|
Assumptions used in determining net periodic benefit cost were
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Weighted average discount rate
|
|
6.60%
|
|
6.65%
|
|
6.00%
|
|
6.60%
|
|
6.65%
|
|
6.00%
|
|
Weighted average expected rate of return on plan assets
|
|
8.25%
|
|
8.25%
|
|
8.25%
|
|
7.36%
|
|
7.33%
|
|
7.47%
|
|
Rate of compensation increase
|
|
3.5%-7.5%
|
|
3.5%-8%
|
|
3.5%-8%
|
|
N/A
|
|
N/A
|
|
N/A
|
The discount rate is determined annually based on the yield,
measured on a yield to worst basis, of a hypothetical portfolio
constructed of high quality debt instruments available on the
valuation date, which would provide the necessary future cash
flows to pay the aggregate projected benefit obligation when due.
F-148
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The expected rate of return on plan assets is based on
anticipated performance of the various asset sectors in which
the plan invests, weighted by target allocation percentages.
Anticipated future performance is based on long-term historical
returns of the plan assets by sector, adjusted for the
Subsidiaries’ long-term expectations on the performance of
the markets. While the precise expected return derived using
this approach will fluctuate from year to year, the
Subsidiaries’ policy is to hold this long-term assumption
constant as long as it remains within reasonable tolerance from
the derived rate.
The weighted average expected return on plan assets for use in
that plan’s valuation in 2010 is currently anticipated to
be 8.00% for pension benefits and postretirement medical
benefits and 7.20% for postretirement life benefits.
The assumed healthcare cost trend rates used in measuring the
APBO and net periodic benefit cost were as follows:
| |
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Pre-and Post-Medicare eligible claims
|
|
8.2% down to 5.8% in 2018 and gradually decreasing until 2079
reaching the ultimate rate of 4.1%
|
|
8.8% down to 5.8% in 2018 and gradually decreasing until 2079
reaching the ultimate rate of 4.1%
|
Assumed healthcare cost trend rates may have a significant
effect on the amounts reported for healthcare plans. A
one-percentage point change in assumed healthcare cost trend
rates would have the following effects:
| |
|
|
|
|
|
|
|
|
|
|
|
One Percent
|
|
One Percent
|
|
|
|
Increase
|
|
Decrease
|
|
|
|
(In millions)
|
|
|
|
Effect on total of service and interest cost components
|
|
$
|
9
|
|
|
$
|
(10
|
)
|
|
Effect of accumulated postretirement benefit obligation
|
|
$
|
94
|
|
|
$
|
(103
|
)
|
Plan
Assets
The Subsidiaries have issued group annuity and life insurance
contracts supporting the pension and other postretirement
benefit plans assets, which are invested primarily in separate
accounts.
The underlying assets of the separate accounts are principally
comprised of cash and cash equivalents, short-term investments,
fixed maturity and equity securities, mutual funds, real estate,
private equity investments and hedge funds investments.
F-149
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The fair values of the Subsidiaries’ pension plan assets at
December 31, 2009 by asset class were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Pension Assets
|
|
|
Other Postretirement Assets
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
Reporting Date Using
|
|
|
|
|
|
Reporting Date Using
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Significant
|
|
|
|
|
|
|
|
|
for
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Other
|
|
|
Significant
|
|
|
Total
|
|
|
Identical
|
|
|
Other
|
|
|
Significant
|
|
|
Total
|
|
|
|
|
Assets and
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
Assets and
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
|
Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
|
(In millions)
|
|
|
|
|
Asset Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
Fixed maturities and equity securities
|
|
|
—
|
|
|
|
63
|
|
|
|
—
|
|
|
|
63
|
|
|
|
—
|
|
|
|
57
|
|
|
|
—
|
|
|
|
57
|
|
|
Insurance general account
|
|
|
—
|
|
|
|
90
|
|
|
|
—
|
|
|
|
90
|
|
|
|
—
|
|
|
|
440
|
|
|
|
—
|
|
|
|
440
|
|
|
Investments in separate accounts — equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap growth (1)
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
68
|
|
|
Large cap value (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
176
|
|
|
|
—
|
|
|
|
176
|
|
|
Large cap core (3)
|
|
|
—
|
|
|
|
1,338
|
|
|
|
—
|
|
|
|
1,338
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
24
|
|
|
Small cap growth (4)
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Small cap core (5)
|
|
|
—
|
|
|
|
112
|
|
|
|
—
|
|
|
|
112
|
|
|
|
—
|
|
|
|
72
|
|
|
|
—
|
|
|
|
72
|
|
|
Developed international (6)
|
|
|
—
|
|
|
|
423
|
|
|
|
—
|
|
|
|
423
|
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total separate accounts — equity securities
|
|
|
—
|
|
|
|
2,137
|
|
|
|
—
|
|
|
|
2,137
|
|
|
|
—
|
|
|
|
415
|
|
|
|
—
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in separate accounts — fixed income
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long duration (government & credit) (7)
|
|
|
—
|
|
|
|
2,149
|
|
|
|
—
|
|
|
|
2,149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Core (8)
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
326
|
|
|
|
—
|
|
|
|
128
|
|
|
|
—
|
|
|
|
128
|
|
|
U.S. government and agencies
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
—
|
|
|
|
28
|
|
|
Short-term and cash
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total separate accounts — fixed income securities
|
|
|
—
|
|
|
|
2,555
|
|
|
|
—
|
|
|
|
2,555
|
|
|
|
—
|
|
|
|
192
|
|
|
|
—
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in separate accounts — alternatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-strategy hedge funds (9)
|
|
|
—
|
|
|
|
238
|
|
|
|
—
|
|
|
|
238
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
Real estate (10)
|
|
|
—
|
|
|
|
49
|
|
|
|
242
|
|
|
|
291
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Private equity (11)
|
|
|
—
|
|
|
|
—
|
|
|
|
373
|
|
|
|
373
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total separate accounts — alternatives
|
|
|
—
|
|
|
|
287
|
|
|
|
615
|
|
|
|
902
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23
|
|
|
$
|
5,132
|
|
|
$
|
615
|
|
|
$
|
5,770
|
|
|
$
|
11
|
|
|
$
|
1,110
|
|
|
$
|
—
|
|
|
$
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment portfolio includes U.S. equity securities with
relatively large market capitalization that exhibit signs of
above average sales and earnings growth. |
F-150
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
(2) |
|
Investment portfolio includes U.S. equity securities with
relatively large market capitalization and low price to book and
price to earnings ratios. |
| |
|
(3) |
|
Investment portfolio includes U.S. equity securities with
relatively large market capitalization and no particular bias
toward value or growth. |
| |
|
(4) |
|
Investment portfolio includes U.S. equity securities with
relatively small market capitalization that exhibit signs of
above average sales and earnings growth. |
| |
|
(5) |
|
Investment portfolio includes U.S. equity securities with
relatively small market capitalization and no particular bias
toward value or growth. |
| |
|
(6) |
|
Investment portfolio includes International equity securities
with relatively large market capitalization and no particular
bias toward value or growth. |
| |
|
(7) |
|
Investment portfolio includes longer-maturity investment-grade
fixed income securities invested across diverse asset sectors
such as government, corporate and structured finance. |
| |
|
(8) |
|
Investment portfolio includes investment-grade fixed income
securities with varying maturities invested across diverse asset
sectors such as government, corporate and structured finance. |
| |
|
(9) |
|
Investment portfolio includes multiple hedge funds with
strategies such as fixed income arbitrage, long-short equity,
tactical trading and global macro. |
|
|
|
|
(10) |
|
Investment portfolio includes domestic real estate equity
investments in both privately held commercial real estate and
publicly listed real estate investment trust securities. |
| |
|
(11) |
|
Investment portfolio includes domestic and foreign private
investments in companies not publicly traded on a stock exchange. |
The fair values of the Subsidiaries’ pension plan assets at
December 31, 2008 was $6,570 million.
The pension plan assets are categorized into the three-level
fair value hierarchy, as defined in Note 1, based upon the
priority of the inputs to the respective valuation technique.
The following summarizes the types of assets included within the
three-level fair value hierarchy presented in the table above.
|
|
|
| |
Level 1
|
This category includes investments in liquid securities, such as
cash, short-term money market and bank time deposits, expected
to mature within a year.
|
| |
| |
Level 2
|
This category includes certain separate accounts that are
primarily invested in liquid and readily marketable securities.
The estimated fair value of such separate account is based upon
reported NAV provided by fund managers and this value represents
the amount at which transfers in and out of the respective
separate account are effected. These separate accounts provide
reasonable levels of price transparency and can be corroborated
through observable market data.
|
Certain separate accounts are invested in investment
partnerships designated as hedge funds. The values for these
separate accounts is determined monthly based on the NAV of the
underlying hedge fund investment. Additionally, such hedge funds
generally contain lock out or other waiting period provisions
for redemption requests to be filled. While the reporting and
redemption restrictions may limit the frequency of trading
activity in separate accounts invested in hedge funds, the
reported NAV, and thus the referenced value of the separate
account, provides a reasonable level of price transparency that
can be corroborated through observable market data. Directly
held investments are primarily invested in U.S. and foreign
government and corporate securities.
|
|
|
| |
Level 3
|
This category includes separate accounts that are invested in
real estate and private equity investments provide little or no
price transparency due to the infrequency with which the
underlying assets trade and generally require additional time to
liquidate in an orderly manner. Accordingly, the values for
separate accounts invested in these alternative asset classes
are based on inputs that cannot be readily derived from or
corroborated by observable market data.
|
F-151
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
A rollforward of all assets measured at estimated fair value on
a recurring basis using significant unobservable
(Level 3) inputs for the year ended December 31,
2009 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using Significant
|
|
|
|
|
Unobservable Outputs (Level 3)
|
|
|
|
|
Private Equity Funds
|
|
|
Real Estate
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance January 1,
|
|
$
|
430
|
|
|
$
|
379
|
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
Assets held at reporting date
|
|
|
(55
|
)
|
|
|
(137
|
)
|
|
Assets sold during the period
|
|
|
(33
|
)
|
|
|
—
|
|
|
Purchases, sales and settlements
|
|
|
31
|
|
|
|
—
|
|
|
Transfers in and out of Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
373
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
The Subsidiaries provide employees with benefits under various
ERISA benefit plans. These include qualified pension plans,
postretirement medical plans and certain retiree life insurance
coverage. The assets of MetLife’s qualified pension plans
are held in insurance group annuity contracts, and the vast
majority of the assets of the postretirement medical plan and
backing the retiree life coverage are held in insurance
contracts. All of these contracts are issued by Company
insurance affiliates, and the assets under the contracts are
held in insurance separate accounts that have been established
by the Company. The insurance contract provider engages
investment management firms (“Managers”) to serve as
sub-advisors
for the separate accounts based on the specific investment needs
and requests identified by the plan fiduciary. These Managers
have portfolio management discretion over the purchasing and
selling of securities and other investment assets pursuant to
the respective investment management agreements and guidelines
established for each insurance separate account. The assets of
the qualified pension plans and postretirement medical plans
(the “Invested Plans”) are well diversified across
multiple asset categories and across a number of different
Managers, with the intent of minimizing risk concentrations
within any given asset category or with any given Manager.
The Invested Plans, other than those held in participant
directed investment accounts, are managed in accordance with
investment policies consistent with the longer-term nature of
related benefit obligations and within prudent risk parameters.
Specifically, investment policies are oriented toward
(i) maximizing the Invested Plan’s funded status;
(ii) minimizing the volatility of the Invested Plan’s
funded status; (iii) generating asset returns that exceed
liability increases; and (iv) targeting rates of return in
excess of a custom benchmark and industry standards over
appropriate reference time periods. These goals are expected to
be met through identifying appropriate and diversified asset
classes and allocations, ensuring adequate liquidity to pay
benefits and expenses when due and controlling the costs of
administering and managing the Invested Plan’s investments.
Independent investment consultants are periodically used to
evaluate the investment risk of Invested Plan’s assets
relative to liabilities, analyze the economic and portfolio
impact of various asset allocations and management strategies
and to recommend asset allocations.
Certain international subsidiaries sponsor defined benefit plans
that cover employees and sales representatives who meet
specified eligibility requirements. Pension benefits are
provided utilizing either a traditional formula or cash balance
formula, similar to the U.S. plans discussed above. The
investment objectives are also similar, subject to local
regulations. Generally, these international pension plans invest
directly in high quality equity and fixed maturity securities.
Derivative contracts may be used to reduce investment risk, to
manage duration and to replicate the risk/return profile of an
asset or asset class. Derivatives may not be used to leverage a
portfolio in any manner, such as to magnify exposure to an
asset, asset class, interest rates or any other financial
variable. Derivatives are also
F-152
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
prohibited for use in creating exposures to securities,
currencies, indices or any other financial variable that are
otherwise restricted.
The following tables summarize the actual weighted average asset
allocation by major asset class for the Invested Plans.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Asset Allocation
|
|
|
|
|
December 31, 2009
|
|
|
Asset Class
|
|
Defined Benefit Plan
|
|
|
Postretirement Medical
|
|
|
Postretirement Life
|
|
|
|
|
Equity (target range):
|
|
|
25% to 45
|
%
|
|
|
50% to 80
|
%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap growth
|
|
|
2
|
%
|
|
|
10
|
%
|
|
|
—
|
|
|
Large cap value
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
Large cap core
|
|
|
23
|
|
|
|
4
|
|
|
|
—
|
|
|
Small cap growth
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
Small cap core
|
|
|
2
|
|
|
|
11
|
|
|
|
—
|
|
|
Developed international
|
|
|
7
|
|
|
|
11
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
37
|
%
|
|
|
62
|
%
|
|
|
—
|
|
|
Fixed income (target range):
|
|
|
35% to 55
|
%
|
|
|
10% to 40
|
%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long duration (government and credit)
|
|
|
37
|
%
|
|
|
—%
|
|
|
|
—
|
|
|
Core
|
|
|
6
|
|
|
|
18
|
|
|
|
—
|
|
|
U.S. government and agencies
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
Directly held bonds
|
|
|
1
|
|
|
|
9
|
|
|
|
—
|
|
|
Insurance general account
|
|
|
2
|
|
|
|
—
|
|
|
|
100
|
%
|
|
Short-term and cash
|
|
|
1
|
|
|
|
3
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income
|
|
|
47
|
%
|
|
|
37
|
%
|
|
|
100
|
%
|
|
Alternatives (target range):
|
|
|
10% to 25
|
%
|
|
|
0% to 15
|
%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-strategy hedge funds
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
—
|
|
|
Real estate
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
Private equity
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total alternatives
|
|
|
16
|
%
|
|
|
1
|
%
|
|
|
—
|
|
|
Total investments
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Expected
Future Contributions and Benefit Payments
It is the Subsidiaries’ practice to make contributions to
the qualified pension plan to comply with minimum funding
requirements of ERISA. In accordance with such practice, no
contributions were required for the years ended
December 31, 2009 or 2008. No contributions will be
required for 2010. The Subsidiaries made no discretionary
contributions to the qualified pension plan during the year
ended December 31, 2009. The Subsidiaries made
discretionary contributions of $300 million to the
qualified pension plan during the year ended December 31,
2008. The Subsidiaries expect to make additional discretionary
contributions of $150 million in 2010.
Benefit payments due under the non-qualified pension plans are
funded from the Subsidiaries’ general assets as they become
due under the provision of the plans. These payments totaled
$57 million and $43 million for the
F-153
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
years ended December 31, 2009 and 2008, respectively. These
payments are expected to be at approximately the same level in
2010.
Postretirement benefits, other than those provided under
qualified pension plans, are either: (i) not vested under
law; (ii) a non-funded obligation of the Subsidiaries; or
(iii) both. Current regulations do not require funding for
these benefits. The Subsidiaries use their general assets, net
of participant’s contributions, to pay postretirement
medical claims as they come due in lieu of utilizing any plan
assets. Total payments equaled $158 million and
$149 million for the years ended December 31, 2009 and
2008, respectively.
The Subsidiaries expect to make contributions of
$119 million, net of participant’s contributions,
towards benefit obligations (other than those under qualified
pension plans) in 2010. As noted previously, the Subsidiaries
expect to receive subsidies under the Prescription Drug Act to
partially offset payment of such benefits.
Gross benefit payments for the next ten years, which reflect
expected future service where appropriate, and gross subsidies
to be received under the Prescription Drug Act are expected to
be as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
Prescription
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
Drug
|
|
|
|
|
|
|
|
Benefits
|
|
|
Gross
|
|
|
Subsidies
|
|
|
Net
|
|
|
|
|
(In millions)
|
|
|
|
|
2010
|
|
$
|
436
|
|
|
$
|
131
|
|
|
$
|
(12
|
)
|
|
$
|
119
|
|
|
2011
|
|
$
|
413
|
|
|
$
|
135
|
|
|
$
|
(12
|
)
|
|
$
|
123
|
|
|
2012
|
|
$
|
430
|
|
|
$
|
137
|
|
|
$
|
(13
|
)
|
|
$
|
124
|
|
|
2013
|
|
$
|
441
|
|
|
$
|
138
|
|
|
$
|
(13
|
)
|
|
$
|
125
|
|
|
2014
|
|
$
|
460
|
|
|
$
|
140
|
|
|
$
|
(14
|
)
|
|
$
|
126
|
|
|
2015-2019
|
|
$
|
2,536
|
|
|
$
|
733
|
|
|
$
|
(77
|
)
|
|
$
|
656
|
|
Additional
Information
As previously discussed, the assets of the pension and other
postretirement benefit plans are held in group annuity and life
insurance contracts issued by the Subsidiaries. Total revenue
from these contracts recognized in the consolidated statements
of operations was $45 million, $42 million and
$47 million for the years ended December 31, 2009,
2008 and 2007, respectively, and includes policy charges, net
investment income from investments backing the contracts and
administrative fees. Total investment income (loss), including
realized and unrealized gains and losses, credited to the
account balances were $725 million, ($1,090) million
and $603 million for the years ended December 31,
2009, 2008 and 2007, respectively. The terms of these contracts
are consistent in all material respects with those the
Subsidiaries offer to unaffiliated parties that are similarly
situated.
Savings
and Investment Plans
The Subsidiaries sponsor savings and investment plans for
substantially all Company employees under which a portion of
employee contributions are matched. The Subsidiaries contributed
$93 million, $70 million and $76 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
Preferred
Stock
In September 1999, the Holding Company adopted a stockholder
rights plan (the “rights plan”). Under the rights
plan, each outstanding share of common stock issued between
April 4, 2000 and the distribution date (as defined in the
rights plan) is coupled with a stockholder right. Each right
will entitle the holder to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock. Each one
one-hundredth of a share of Series A
F-154
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Junior Participating Preferred Stock will have economic and
voting terms equivalent to one share of common stock. Until it
is exercised, the right itself will not entitle the holder
thereof to any rights as a stockholder, including the right to
receive dividends or to vote at stockholder meetings.
Stockholder rights are not exercisable until the distribution
date. The rights plan will expire at the close of business on
April 4, 2010, unless the rights are earlier redeemed or
exchanged by the Holding Company. The Board of Directors of the
Holding Company does not currently intend to renew it.
The Holding Company has outstanding 24 million shares of
Floating Rate Non-Cumulative Preferred Stock, Series A (the
“Series A preferred shares”) with a
$0.01 par value per share, and a liquidation preference of
$25 per share, for aggregate proceeds of
$600 million.
The Holding Company has outstanding 60 million shares of
6.50% Non-Cumulative Preferred Stock, Series B (the
“Series B preferred shares”), with a
$0.01 par value per share, and a liquidation preference of
$25 per share, for aggregate proceeds of $1.5 billion.
The Series A and Series B preferred shares (the
“Preferred Shares”) rank senior to the common stock
with respect to dividends and liquidation rights. Dividends on
the Preferred Shares are not cumulative. Holders of the
Preferred Shares will be entitled to receive dividend payments
only when, as and if declared by the Holding Company’s
Board of Directors or a duly authorized committee of the board.
If dividends are declared on the Series A preferred shares,
they will be payable quarterly, in arrears, at an annual rate of
the greater of: (i) 1.00% above
3-month
LIBOR on the related LIBOR determination date; or
(ii) 4.00%. Any dividends declared on the Series B
preferred shares will be payable quarterly, in arrears, at an
annual fixed rate of 6.50%. Accordingly, in the event that
dividends are not declared on the Preferred Shares for payment
on any dividend payment date, then those dividends will cease to
accrue and be payable. If a dividend is not declared before the
dividend payment date, the Holding Company has no obligation to
pay dividends accrued for that dividend period whether or not
dividends are declared and paid in future periods. No dividends
may, however, be paid or declared on the Holding Company’s
common stock — or any other securities ranking junior
to the Preferred Shares — unless the full dividends
for the latest completed dividend period on all Preferred
Shares, and any parity stock, have been declared and paid or
provided for.
The Holding Company is prohibited from declaring dividends on
the Preferred Shares if it fails to meet specified capital
adequacy, net income and shareholders’ equity levels. In
addition, under Federal Reserve Bank of New York Board policy,
the Holding Company may not be able to pay dividends if it does
not earn sufficient operating income.
The Preferred Shares do not have voting rights except in certain
circumstances where the dividends have not been paid for an
equivalent of six or more dividend payment periods whether or
not those periods are consecutive. Under such circumstances, the
holders of the Preferred Shares have certain voting rights with
respect to members of the Board of Directors of the Holding
Company.
The Preferred Shares are not subject to any mandatory
redemption, sinking fund, retirement fund, purchase fund or
similar provisions. The Preferred Shares are redeemable, but not
prior to September 15, 2010. On and after that date,
subject to regulatory approval, the Preferred Shares will be
redeemable at the Holding Company’s option in whole or in
part, at a redemption price of $25 per Preferred Share, plus
declared and unpaid dividends.
In December 2008, the Holding Company entered into an RCC
related to the Preferred Shares. As a part of the RCC, the
Holding Company agreed that it will not repay, redeem or
purchase the Preferred Shares on or before December 31,
2018, unless such repayment, redemption or purchase is made from
the proceeds of the issuance of certain capital securities. The
RCC is for the benefit of holders of one or more series of its
indebtedness as designated from time to time by the Holding
Company. The RCC will terminate upon the occurrence of certain
events, including the date on which there are no series of
outstanding eligible debt securities.
F-155
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
In connection with the offering of the Preferred Shares, the
Holding Company incurred $57 million of issuance costs
which have been recorded as a reduction of additional paid-in
capital.
Information on the declaration, record and payment dates, as
well as per share and aggregate dividend amounts, for the
Preferred Shares is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series A
|
|
|
Series B
|
|
|
Series B
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Per Share
|
|
|
Aggregate
|
|
|
Per Share
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
|
|
|
November 16, 2009
|
|
November 30, 2009
|
|
December 15, 2009
|
|
$
|
0.2527777
|
|
|
$
|
7
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
|
August 17, 2009
|
|
August 31, 2009
|
|
September 15, 2009
|
|
$
|
0.2555555
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
May 15, 2009
|
|
May 31, 2009
|
|
June 15, 2009
|
|
$
|
0.2555555
|
|
|
|
7
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
March 5, 2009
|
|
February 28, 2009
|
|
March 16, 2009
|
|
$
|
0.2500000
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26
|
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 17, 2008
|
|
November 30, 2008
|
|
December 15, 2008
|
|
$
|
0.2527777
|
|
|
$
|
7
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
|
August 15, 2008
|
|
August 31, 2008
|
|
September 15, 2008
|
|
$
|
0.2555555
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
May 15, 2008
|
|
May 31, 2008
|
|
June 16, 2008
|
|
$
|
0.2555555
|
|
|
|
7
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
March 5, 2008
|
|
February 29, 2008
|
|
March 17, 2008
|
|
$
|
0.3785745
|
|
|
|
9
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29
|
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 15, 2007
|
|
November 30, 2007
|
|
December 17, 2007
|
|
$
|
0.4230476
|
|
|
$
|
11
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
|
August 15, 2007
|
|
August 31, 2007
|
|
September 17, 2007
|
|
$
|
0.4063333
|
|
|
|
10
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
May 15, 2007
|
|
May 31, 2007
|
|
June 15, 2007
|
|
$
|
0.4060062
|
|
|
|
10
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
March 5, 2007
|
|
February 28, 2007
|
|
March 15, 2007
|
|
$
|
0.3975000
|
|
|
|
10
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41
|
|
|
|
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 24 for further information.
Common
Stock
Issuances
In February 2009 the Holding Company delivered
24,343,154 shares of newly issued common stock for
$1,035 million, and in August 2008 the Holding Company
delivered 20,244,549 shares of its common stock from
treasury stock also for $1,035 million. Each issuance was
made in connection with the initial settlement of the stock
purchase contracts issued as part of the common equity units
sold in June 2005, as described in Note 13.
In October 2008 the Holding Company issued
86,250,000 shares of its common stock at a price of
$26.50 per share for gross proceeds of
$2,286 million. Of the shares issued,
75,000,000 shares, with a value of $4,040 million were
issued from treasury stock for consideration of
$1,988 million. In connection with the offering of common
stock, the Holding Company incurred $60 million of issuance
costs which have been recorded as a reduction of additional
paid-in capital.
During the years ended December 31, 2009, 2008 and 2007,
861,586 shares, 97,515,737 shares and
3,864,894 shares of common stock were issued from treasury
stock for $46 million, $5,221 million and
$172 million, respectively.
F-156
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Repurchases
The table below presents the common stock repurchase programs
authorized by the Holding Company’s Board of Directors and
the aggregate amount and number of shares of MetLife,
Inc.’s common stock purchased pursuant to these
authorizations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Amount
|
|
|
Repurchased
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2006
|
|
$
|
216
|
|
|
|
|
|
|
February 2007 and September 2007 additional authorizations
|
|
|
2,000
|
|
|
|
|
|
|
Accelerated share repurchases
|
|
|
(1,505
|
)
|
|
|
23,455,124
|
|
|
Open market repurchases
|
|
|
(200
|
)
|
|
|
3,171,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2007
|
|
|
511
|
|
|
|
|
|
|
January 2008 and April 2008 additional authorizations
|
|
|
2,000
|
|
|
|
|
|
|
Accelerated share repurchases
|
|
|
(1,162
|
)
|
|
|
19,716,418
|
|
|
Open market repurchases
|
|
|
(88
|
)
|
|
|
1,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2008
|
|
|
1,261
|
|
|
|
|
|
|
Additional authorizations
|
|
|
—
|
|
|
|
|
|
|
Accelerated share repurchases
|
|
|
—
|
|
|
|
|
|
|
Open market repurchases
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining authorization at December 31, 2009
|
|
$
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under these authorizations, the Holding Company may purchase its
common stock from the MetLife Policyholder Trust, in the open
market (including pursuant to the terms of a pre-set trading
plan meeting the requirements of
Rule 10b5-1
under the Exchange Act) and in privately negotiated
transactions. Future common stock repurchases will be dependent
upon several factors, including the Company’s capital
position, its financial strength and credit ratings, general
market conditions and the price of MetLife, Inc.’s common
stock. The Holding Company does not intend to make any purchases
under the common stock repurchase program in 2010.
Other
In September 2008, in connection with the split-off of RGA as
described in Note 2, the Holding Company received from
MetLife, Inc. stockholders 23,093,689 shares of MetLife,
Inc.’s common stock with a fair market value of
$1,318 million and, in exchange, delivered
29,243,539 shares of RGA Class B common stock with a
net book value of $1,716 million resulting in a loss on
disposition, including transaction costs, of $458 million.
Dividends
The table below presents declaration, record and payment dates,
as well as per share and aggregate dividend amounts, for the
common stock:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Per Share
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
(In millions, except
|
|
|
|
|
|
|
|
|
per share data)
|
|
|
|
|
October 29, 2009
|
|
November 9, 2009
|
|
December 14, 2009
|
|
$
|
0.74
|
|
|
$
|
610
|
|
|
October 28, 2008
|
|
November 10, 2008
|
|
December 15, 2008
|
|
$
|
0.74
|
|
|
$
|
592
|
|
|
October 23, 2007
|
|
November 6, 2007
|
|
December 14, 2007
|
|
$
|
0.74
|
|
|
$
|
541
|
|
F-157
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Stock-Based
Compensation Plans
Description
of Plans
The MetLife, Inc. 2000 Stock Incentive Plan, as amended (the
“Stock Incentive Plan”), authorized the granting of
awards to employees and agents in the form of options to buy
shares of the Holding Company’s common stock (“Stock
Options”) that either qualify as incentive Stock Options
under Section 422A of the Code or are
non-qualified.
The MetLife, Inc. 2000 Directors Stock Plan, as amended
(the “2000 Directors Stock Plan”), authorized the
granting of awards in the form of the Holding Company’s
common stock, non-qualified Stock Options, or a combination of
the foregoing to non-management Directors of the Holding
Company. Under the MetLife, Inc. 2005 Stock and Incentive
Compensation Plan, as amended (the “2005 Stock Plan”),
awards granted to employees and agents may be in the form of
Stock Options, Stock Appreciation Rights, Restricted Stock or
Restricted Stock Units, Performance Shares or Performance Share
Units, Cash-Based Awards and Stock-Based Awards (each as defined
in the 2005 Stock Plan). Under the MetLife, Inc. 2005
Non-Management Director Stock Compensation Plan (the
“2005 Directors Stock Plan”), awards granted may
be in the form of non-qualified Stock Options, Stock
Appreciation Rights, Restricted Stock or Restricted Stock Units,
or Stock-Based Awards (each as defined in the
2005 Directors Stock Plan) to non-management Directors of
the Holding Company. The Stock Incentive Plan,
2000 Directors Stock Plan, 2005 Stock Plan and the
2005 Directors Stock Plan are hereinafter collectively
referred to as the “Incentive Plans.”
The aggregate number of shares reserved for issuance under the
2005 Stock Plan is 68,000,000, plus those shares available but
not utilized under the Stock Incentive Plan and those shares
utilized under the Stock Incentive Plan that are recovered due
to forfeiture of Stock Options. Additional shares carried
forward from the Stock Incentive Plan and available for issuance
under the 2005 Stock Plan were 13,018,939 at December 31,
2009. There were no shares carried forward from the
2000 Directors Stock Plan. Each share issued under the 2005
Stock Plan in connection with a Stock Option or Stock
Appreciation Right reduces the number of shares remaining for
issuance under that plan by one, and each share issued under the
2005 Stock Plan in connection with awards other than Stock
Options or Stock Appreciation Rights reduces the number of
shares remaining for issuance under that plan by
1.179 shares. The number of shares reserved for issuance
under the 2005 Directors Stock Plan are 2,000,000. At
December 31, 2009, the aggregate number of shares remaining
available for issuance pursuant to the 2005 Stock Plan and the
2005 Directors Stock Plan were 47,903,044 and 1,838,594,
respectively.
Stock Option exercises and other stock-based awards to employees
settled in shares are satisfied through the issuance of shares
held in treasury by the Company. Under the current authorized
share repurchase program, as described previously, sufficient
treasury shares exist to satisfy foreseeable obligations under
the Incentive Plans.
Compensation expense related to awards under the Incentive Plans
is recognized based on the number of awards expected to vest,
which represents the awards granted less expected forfeitures
over the life of the award, as estimated at the date of grant.
Unless a material deviation from the assumed rate is observed
during the term in which the awards are expensed, any adjustment
necessary to reflect differences in actual experience is
recognized in the period the award becomes payable or
exercisable. Compensation expense of $69 million,
$123 million and $146 million, and income tax benefits
of $24 million, $43 million and $51 million,
related to the Incentive Plans was recognized for the years
ended December 31, 2009, 2008 and 2007, respectively.
Compensation expense is principally related to the issuance of
Stock Options, Performance Shares and Restricted Stock Units.
The majority of the awards granted by the Holding Company are
made in the first quarter of each year.
Stock
Options
All Stock Options granted had an exercise price equal to the
closing price of the Holding Company’s common stock as
reported on the New York Stock Exchange on the date of grant,
and have a maximum term of ten years. Certain Stock Options
granted under the Stock Incentive Plan and the 2005 Stock Plan
have or will become exercisable over a three year period
commencing with the date of grant, while other Stock Options
have or will
F-158
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
become exercisable three years after the date of grant. Stock
Options issued under the 2000 Directors Stock Plan were
exercisable immediately. The date at which a Stock Option issued
under the 2005 Directors Stock Plan becomes exercisable
would be determined at the time such Stock Option is granted.
A summary of the activity related to Stock Options for the year
ended December 31, 2009 is presented below. The aggregate
intrinsic value was computed using the closing share price on
December 31, 2009 of $35.35 and December 31, 2008 of
$34.86, as applicable.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Shares Under
|
|
|
Weighted Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Option
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
(In millions)
|
|
|
|
|
Outstanding at January 1, 2009
|
|
|
26,158,275
|
|
|
$
|
41.73
|
|
|
|
5.73
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,450,662
|
|
|
$
|
23.61
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(254,576
|
)
|
|
$
|
30.23
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Expired
|
|
|
(794,655
|
)
|
|
$
|
39.79
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(407,301
|
)
|
|
$
|
48.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
30,152,405
|
|
|
$
|
38.51
|
|
|
|
5.50
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate number of stock options expected to vest at
December 31, 2009
|
|
|
29,552,636
|
|
|
$
|
38.58
|
|
|
|
5.43
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
21,651,876
|
|
|
$
|
38.94
|
|
|
|
4.28
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of Stock Options is estimated on the date of
grant using a binomial lattice model. Significant assumptions
used in the Company’s binomial lattice model, which are
further described below, include: expected volatility of the
price of the Holding Company’s common stock; risk-free rate
of return; expected dividend yield on the Holding Company’s
common stock; exercise multiple; and the post-vesting
termination rate.
Expected volatility is based upon an analysis of historical
prices of the Holding Company’s common stock and call
options on that common stock traded on the open market. The
Company uses a weighted-average of the implied volatility for
publicly-traded call options with the longest remaining maturity
nearest to the money as of each valuation date and the
historical volatility, calculated using monthly closing prices
of the Holding Company’s common stock. The Company chose a
monthly measurement interval for historical volatility as it
believes this better depicts the nature of employee option
exercise decisions being based on longer-term trends in the
price of the underlying shares rather than on daily price
movements.
The binomial lattice model used by the Company incorporates
different risk-free rates based on the imputed forward rates for
U.S. Treasury Strips for each year over the contractual
term of the option. The table below presents the full range of
rates that were used for options granted during the respective
periods.
Dividend yield is determined based on historical dividend
distributions compared to the price of the underlying common
stock as of the valuation date and held constant over the life
of the Stock Option.
The binomial lattice model used by the Company incorporates the
contractual term of the Stock Options and then factors in
expected exercise behavior and a post-vesting termination rate,
or the rate at which vested options are exercised or expire
prematurely due to termination of employment, to derive an
expected life. Exercise behavior in the binomial lattice model
used by the Company is expressed using an exercise multiple,
which reflects the ratio of exercise price to the strike price
of Stock Options granted at which holders of the Stock Options
are expected to exercise. The exercise multiple is derived from
actual historical exercise activity. The post-vesting
termination rate is determined from actual historical exercise
experience and expiration activity under the Incentive Plans.
F-159
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following weighted average assumptions, with the exception
of risk-free rate, which is expressed as a range, were used to
determine the fair value of Stock Options issued during the:
| |
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Dividend yield
|
|
3.15%
|
|
1.21%
|
|
0.94%
|
|
Risk-free rate of return
|
|
0.73%-6.67%
|
|
1.91%-7.21%
|
|
4.30%-5.32%
|
|
Expected volatility
|
|
44.39%
|
|
24.85%
|
|
19.54%
|
|
Exercise multiple
|
|
1.76
|
|
1.73
|
|
1.66
|
|
Post-vesting termination rate
|
|
3.70%
|
|
3.05%
|
|
3.66%
|
|
Contractual term (years)
|
|
10
|
|
10
|
|
10
|
|
Expected life (years)
|
|
6
|
|
6
|
|
6
|
|
Weighted average exercise price of stock options granted
|
|
$23.61
|
|
$59.48
|
|
$62.86
|
|
Weighted average fair value of stock options granted
|
|
$8.37
|
|
$17.51
|
|
$17.76
|
Compensation expense related to Stock Option awards expected to
vest and granted prior to January 1, 2006 is recognized
ratably over the requisite service period, which equals the
vesting term. Compensation expense related to Stock Option
awards expected to vest and granted on or after January 1,
2006 is recognized ratably over the requisite service period or
the period to retirement eligibility, if shorter. Compensation
expense of $55 million, $51 million and
$55 million related to Stock Options was recognized for the
years ended December 31, 2009, 2008 and 2007, respectively.
At December 31, 2009, there was $40 million of total
unrecognized compensation costs related to Stock Options. It is
expected that these costs will be recognized over a weighted
average period of 1.67 years.
The following is a summary of Stock Option exercise activity for
the:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
(In millions)
|
|
|
|
Total intrinsic value of stock options exercised
|
|
$
|
1
|
|
|
$
|
36
|
|
|
$
|
122
|
|
|
Cash received from exercise of stock options
|
|
$
|
8
|
|
|
$
|
45
|
|
|
$
|
110
|
|
|
Tax benefit realized from stock options exercised
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
43
|
|
Performance
Shares
Beginning in 2005, certain members of management were awarded
Performance Shares under (and as defined in) the 2005 Stock
Plan. Participants are awarded an initial target number of
Performance Shares with the final number of Performance Shares
payable being determined by the product of the initial target
multiplied by a performance factor of 0.0 to 2.0. The
performance factor applied is based on measurements of the
Holding Company’s performance, including with respect to:
(i) the change in annual net operating earnings per share,
as defined; and (ii) the proportionate total shareholder
return, as defined, each with reference to the applicable
three-year performance period relative to other companies in the
S&P Insurance Index with reference to the same three-year
period. Beginning with awards made in 2009, in order for
Performance Shares to be payable, the Holding Company must
generate positive net income for either the third year of the
performance period or for the performance period as a whole.
Also beginning with awards made in 2009, if the Holding
Company’s Total Shareholder Return with reference to the
applicable three-year performance period is zero percent or
less, the performance factor will be multiplied by 75%.
Performance Share awards will normally vest in their entirety at
the end of the three-year performance period (subject to certain
contingencies) and will primarily be payable in shares of the
Holding Company’s common stock.
F-160
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following is a summary of Performance Share activity for the
year ended December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Performance
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Outstanding at January 1,
|
|
|
2,586,650
|
|
|
$
|
55.63
|
|
|
Granted
|
|
|
1,944,298
|
|
|
$
|
20.72
|
|
|
Forfeited
|
|
|
(224,538
|
)
|
|
$
|
25.75
|
|
|
Paid
|
|
|
(812,975
|
)
|
|
$
|
48.43
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
|
|
|
3,493,435
|
|
|
$
|
38.43
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Shares expected to vest at December 31, 2009
|
|
|
3,452,028
|
|
|
$
|
44.55
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share amounts above represent aggregate initial
target awards and do not reflect potential increases or
decreases resulting from the final performance factor to be
determined at the end of the respective performance period. At
December 31, 2009, the three year performance period for
the 2007 Performance Share grants was completed. Included in the
immediately preceding table are 801,750 outstanding Performance
Shares to which the final performance factor will be applied.
The calculation of the performance factor is expected to be
finalized during the second quarter of 2010 after all data
necessary to perform the calculation is publicly available.
Performance Share awards are accounted for as equity awards but
are not credited with dividend-equivalents for actual dividends
paid on the Holding Company’s common stock during the
performance period. Accordingly, the estimated fair value of
Performance Shares is based upon the closing price of the
Holding Company’s common stock on the date of grant,
reduced by the present value of estimated dividends to be paid
on that stock during the performance period.
Compensation expense related to initial Performance Shares
granted prior to January 1, 2006 and expected to vest is
recognized ratably during the performance period. Compensation
expense related to initial Performance Shares granted on or
after January 1, 2006 and expected to vest is recognized
ratably over the performance period or the period to retirement
eligibility, if shorter. Performance Shares expected to vest and
the related compensation expenses may be further adjusted by the
performance factor most likely to be achieved, as estimated by
management, at the end of the performance period. Compensation
expense of $11 million, $70 million and
$90 million, related to Performance Shares was recognized
for the years ended December 31, 2009, 2008 and 2007,
respectively.
At December 31, 2009, there was $29 million of total
unrecognized compensation costs related to Performance Share
awards. It is expected that these costs will be recognized over
a weighted average period of 1.52 years.
Restricted
Stock Units
Beginning in 2005, certain members of management were awarded
Restricted Stock Units under (and as defined in) the 2005 Stock
Plan. Restricted Stock Unit awards will normally vest on the
third or later anniversary of the date of the award (subject to
certain contingencies) and each unit will be primarily payable
entirely in shares of the Holding Company’s common stock.
During the year ended December 31, 2009, the Holding
Company granted 295,000 Restricted Stock Units for which the
total fair value on the date of grant was $6 million. The
number of Restricted Stock Units outstanding at
December 31, 2009 was 393,362 with a weighted average fair
value of $28.05 per unit.
F-161
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
The following is a summary of Restricted Stock Unit activity for
the year ended December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Restricted Stock
|
|
|
Grant Date
|
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
|
Outstanding at January 1,
|
|
|
149,374
|
|
|
$
|
51.46
|
|
|
Granted
|
|
|
295,000
|
|
|
$
|
20.83
|
|
|
Forfeited
|
|
|
(31,850
|
)
|
|
$
|
57.57
|
|
|
Paid
|
|
|
(19,162
|
)
|
|
$
|
50.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
|
|
|
393,362
|
|
|
$
|
28.05
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units expected to vest at December 31, 2009
|
|
|
393,362
|
|
|
$
|
28.05
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to Restricted Stock Units granted
on or after January 1, 2006 and expected to vest is
recognized ratably over a three year period or the period to
retirement eligibility, if shorter. Compensation expense of
$3 million, $2 million and $1 million related to
Restricted Stock Units was recognized for the year ended
December 31, 2009, 2008 and 2007 respectively.
At December 31, 2009, there was $5 million of total
unrecognized compensation costs related to Restricted Stock
Units. It is expected that these costs will be recognized over a
weighted average period of 1.83 years.
Long-Term
Performance Compensation Plan
Prior to January 1, 2005, the Holding Company granted
stock-based compensation awards to certain members of management
under the Long-Term Performance Compensation Plan
(“LTPCP”). The final LTPCP performance period
concluded during 2007. The awards for the final LTPCP
performance period, in the amount of 618,375 shares of the
Holding Company’s common stock and $16 million in
cash, were paid during 2007. No significant compensation expense
related to LTPCP was recognized during the year ended
December 31, 2007.
Statutory
Equity and Income
Each insurance company’s state of domicile imposes minimum
risk-based capital (“RBC”) requirements that were
developed by the NAIC. The formulas for determining the amount
of RBC specify various weighting factors that are applied to
financial balances or various levels of activity based on the
perceived degree of risk. Regulatory compliance is determined by
a ratio of total adjusted capital, as defined by the NAIC, to
authorized control level RBC, as defined by the NAIC.
Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified
corrective action. Each of the Holding Company’s
U.S. insurance subsidiaries exceeded the minimum RBC
requirements for all periods presented herein.
The NAIC has adopted the Codification of Statutory Accounting
Principles (“Statutory Codification”). Statutory
Codification is intended to standardize regulatory accounting
and reporting to state insurance departments. However, statutory
accounting principles continue to be established by individual
state laws and permitted practices. The New York Insurance
Department has adopted Statutory Codification with certain
modifications for the preparation of statutory financial
statements of insurance companies domiciled in New York.
Modifications by the various state insurance departments may
impact the effect of Statutory Codification on the statutory
capital and surplus of the Holding Company’s insurance
subsidiaries.
Statutory accounting principles differ from GAAP primarily by
charging policy acquisition costs to expense as incurred,
establishing future policy benefit liabilities using different
actuarial assumptions, reporting surplus notes as surplus
instead of debt and valuing securities on a different basis.
In addition, certain assets are not admitted under statutory
accounting principles and are charged directly to surplus. The
most significant assets not admitted by the Company are net
deferred income tax assets resulting from
F-162
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
temporary differences between statutory accounting principles
basis and tax basis not expected to reverse and become
recoverable within three years. Further, statutory accounting
principles do not give recognition to purchase accounting
adjustments.
Statutory net income (loss) of Metropolitan Life Insurance
Company, a New York domiciled insurer, was $1,221 million,
($338) million and $2,123 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Statutory
capital and surplus, as filed with the Department, was
$12.6 billion and $11.6 billion at December 31,
2009 and 2008, respectively.
Statutory net income of MetLife Insurance Company of
Connecticut, a Connecticut domiciled insurer, was
$81 million, $242 million and $1,101 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Statutory capital and surplus, as filed with the
Connecticut Insurance Department, was $4.9 billion and
$5.5 billion at December 31, 2009 and 2008,
respectively.
Statutory net income of MPC, a Rhode Island domiciled insurer,
was $266 million, $308 million and $400 million
for the years ended December 31, 2009, 2008 and 2007,
respectively. Statutory capital and surplus, as filed with the
Insurance Department of Rhode Island, was $1.8 billion at
both December 31, 2009 and 2008.
Statutory net income of Metropolitan Tower and Life Insurance
Company (“MTL”), a Delaware domiciled insurer, was
$57 million, $212 million and $103 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Statutory capital and surplus, as filed with the
Delaware Insurance Department was $867 million and
$885 million at December 31, 2009 and 2008,
respectively.
Dividend
Restrictions
The table below sets forth the dividends permitted to be paid by
the respective insurance subsidiary without insurance regulatory
approval and the respective dividends paid:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
Permitted w/o
|
|
|
|
Permitted w/o
|
|
|
|
Permitted w/o
|
|
Company
|
|
Approval (1)
|
|
Paid (2)
|
|
Approval (3)
|
|
Paid (2)
|
|
Approval (3)
|
|
|
|
(In millions)
|
|
|
|
Metropolitan Life Insurance Company
|
|
$
|
1,262
|
|
|
$
|
—
|
|
|
$
|
552
|
|
|
$
|
1,318
|
(4)
|
|
$
|
1,299
|
|
|
MetLife Insurance Company of Connecticut
|
|
$
|
659
|
|
|
$
|
—
|
|
|
$
|
714
|
|
|
$
|
500
|
|
|
$
|
1,026
|
|
|
Metropolitan Tower Life Insurance Company
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
277
|
(5)
|
|
$
|
113
|
|
|
Metropolitan Property and Casualty Insurance Company
|
|
$
|
—
|
|
|
$
|
300
|
|
|
$
|
9
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
|
|
|
(1) |
|
Reflects dividend amounts that may be paid during 2010 without
prior regulatory approval. However, if paid before a specified
date during 2010, some or all of such dividends may require
regulatory approval. |
| |
|
(2) |
|
All amounts paid, including those requiring regulatory approval. |
| |
|
(3) |
|
Reflects dividend amounts that could have been paid during the
relevant year without prior regulatory approval. |
| |
|
(4) |
|
As described in Note 2, consists of shares of RGA stock
distributed by MLIC to the Holding Company as an in-kind
dividend of $1,318 million. |
| |
|
(5) |
|
Includes shares of an affiliate distributed to the Holding
Company as an in-kind dividend in the amount of
$164 million. |
In addition to the amounts presented in the table above, for the
years ended December 31, 2009 and 2008, cash dividends in
the amount of $215 million and $235 million,
respectively, were paid to the Holding Company.
F-163
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Under New York State Insurance Law, MLIC is permitted, without
prior insurance regulatory clearance, to pay stockholder
dividends to the Holding Company as long as the aggregate amount
of all such dividends in any calendar year does not exceed the
lesser of: (i) 10% of its surplus to policyholders as of
the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year (excluding realized capital
gains). MLIC will be permitted to pay a dividend to the Holding
Company in excess of the lesser of such two amounts only if it
files notice of its intention to declare such a dividend and the
amount thereof with the Superintendent and the Superintendent
does not disapprove the distribution within 30 days of its
filing. Under New York State Insurance Law, the Superintendent
has broad discretion in determining whether the financial
condition of a stock life insurance company would support the
payment of such dividends to its shareholders. The New York
State Department of Insurance (the “Department”) has
established informal guidelines for such determinations. The
guidelines, among other things, focus on the insurer’s
overall financial condition and profitability under statutory
accounting practices.
Under Connecticut State Insurance Law, MICC is permitted,
without prior insurance regulatory clearance, to pay stockholder
dividends to its stockholders as long as the amount of such
dividends, when aggregated with all other dividends in the
preceding 12 months, does not exceed the greater of:
(i) 10% of its surplus to policyholders as of the end of
the immediately preceding calendar year; or (ii) its
statutory net gain from operations for the immediately preceding
calendar year. MICC will be permitted to pay a dividend in
excess of the greater of such two amounts only if it files
notice of its declaration of such a dividend and the amount
thereof with the Connecticut Commissioner of Insurance (the
“Connecticut Commissioner”) and the Connecticut
Commissioner does not disapprove the payment within 30 days
after notice. In addition, any dividend that exceeds earned
surplus (unassigned funds, reduced by 25% of unrealized
appreciation in value or revaluation of assets or unrealized
profits on investments) as of the last filed annual statutory
statement requires insurance regulatory approval. Under
Connecticut State Insurance Law, the Connecticut Commissioner
has broad discretion in determining whether the financial
condition of a stock life insurance company would support the
payment of such dividends to its shareholders.
Under Delaware State Insurance Law, MTL is permitted, without
prior insurance regulatory clearance, to pay a stockholder
dividend to the Holding Company as long as the amount of the
dividend when aggregated with all other dividends in the
preceding 12 months does not exceed the greater of:
(i) 10% of its surplus to policyholders as of the end of
the immediately preceding calendar year; or (ii) its
statutory net gain from operations for the immediately preceding
calendar year (excluding realized capital gains). MTL will be
permitted to pay a dividend to the Holding Company in excess of
the greater of such two amounts only if it files notice of the
declaration of such a dividend and the amount thereof with the
Delaware Commissioner of Insurance (the “Delaware
Commissioner”) and the Delaware Commissioner does not
disapprove the distribution within 30 days of its filing.
In addition, any dividend that exceeds earned surplus (defined
as unassigned funds) as of the last filed annual statutory
statement requires insurance regulatory approval. Under Delaware
State Insurance Law, the Delaware Commissioner has broad
discretion in determining whether the financial condition of a
stock life insurance company would support the payment of such
dividends to its shareholders.
Under Rhode Island State Insurance Law, MPC is permitted,
without prior insurance regulatory clearance, to pay a
stockholder dividend to the Holding Company as long as the
aggregate amount of all such dividends in any twelve-month
period does not exceed the lesser of: (i) 10% of its
surplus to policyholders as of the end of the immediately
preceding calendar year; or (ii) net income, not including
realized capital gains, for the immediately preceding calendar
year, which may include carry forward net income from the second
and third preceding calendar years excluding realized capital
gains and less dividends paid in the second and immediately
preceding calendar years. MPC will be permitted to pay a
dividend to the Holding Company in excess of the lesser of such
two amounts only if it files notice of its intention to declare
such a dividend and the amount thereof with the Rhode Island
Commissioner of Insurance (the “Rhode Island
Commissioner”) and the Rhode Island Commissioner does not
disapprove the distribution within 30 days of its filing.
Under Rhode Island State Insurance Code, the Rhode Island
Commissioner has broad discretion in determining whether the
financial condition of a stock property and casualty
F-164
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
insurance company would support the payment of such dividends to
its shareholders. MPC may not pay any dividends in 2010 without
prior regulatory approval from the Rhode Island Commissioner.
Other
Comprehensive Income (Loss)
The following table sets forth the reclassification adjustments
required for the years ended December 31, 2009, 2008 and
2007 in other comprehensive income (loss) that are included as
part of net income for the current year that have been reported
as a part of other comprehensive income (loss) in the current or
prior year:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Holding gains (losses) on investments arising during the year
|
|
$
|
18,548
|
|
|
$
|
(26,650
|
)
|
|
$
|
(1,494
|
)
|
|
Income tax effect of holding gains (losses)
|
|
|
(6,243
|
)
|
|
|
8,989
|
|
|
|
581
|
|
|
Reclassification adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized holding (gains) losses included in current year income
|
|
|
1,954
|
|
|
|
2,040
|
|
|
|
176
|
|
|
Amortization of premiums and accretion of discounts associated
with investments
|
|
|
(490
|
)
|
|
|
(926
|
)
|
|
|
(831
|
)
|
|
Income tax effect
|
|
|
(493
|
)
|
|
|
(377
|
)
|
|
|
254
|
|
|
Allocation of holding (gains) losses on investments relating to
other policyholder amounts
|
|
|
(2,979
|
)
|
|
|
4,809
|
|
|
|
676
|
|
|
Income tax effect of allocation of holding (gains) losses to
other policyholder amounts
|
|
|
1,002
|
|
|
|
(1,621
|
)
|
|
|
(264
|
)
|
|
Unrealized investment loss of subsidiary at date of sale
|
|
|
—
|
|
|
|
131
|
|
|
|
—
|
|
|
Deferred income tax on unrealized investment loss of subsidiary
at date of sale
|
|
|
—
|
|
|
|
(60
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses), net of income tax
|
|
|
11,299
|
|
|
|
(13,665
|
)
|
|
|
(902
|
)
|
|
Foreign currency translation adjustment, net of income tax
|
|
|
63
|
|
|
|
(700
|
)
|
|
|
346
|
|
|
Defined benefit plan adjustment, net of income tax
|
|
|
(102
|
)
|
|
|
(1,199
|
)
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
11,260
|
|
|
|
(15,564
|
)
|
|
|
8
|
|
|
Other comprehensive income (loss) attributable to noncontrolling
interests
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
1
|
|
|
Other comprehensive income (loss) attributable to noncontrolling
interests of subsidiary at date of disposal
|
|
|
—
|
|
|
|
150
|
|
|
|
8
|
|
|
Foreign currency translation adjustment attributable to
noncontrolling interests of subsidiary at date of disposal
|
|
|
—
|
|
|
|
107
|
|
|
|
(56
|
)
|
|
Defined benefit plans adjustment attributable to noncontrolling
interests of subsidiary at date of disposal
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to MetLife, Inc.,
excluding cumulative effect of change in accounting principle
|
|
|
11,271
|
|
|
|
(15,321
|
)
|
|
|
(40
|
)
|
|
Cumulative effect of change in accounting principle, net of
income tax of $40 million, effective April 1, 2009
(See Note 1)
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to MetLife,
Inc.
|
|
$
|
11,195
|
|
|
$
|
(15,321
|
)
|
|
$
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-165
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Information on other expenses is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Compensation
|
|
$
|
3,804
|
|
|
$
|
3,368
|
|
|
$
|
3,362
|
|
|
Commissions
|
|
|
3,433
|
|
|
|
3,384
|
|
|
|
3,207
|
|
|
Interest and debt issue costs
|
|
|
1,083
|
|
|
|
1,086
|
|
|
|
987
|
|
|
Interest credited to bank deposits
|
|
|
163
|
|
|
|
166
|
|
|
|
200
|
|
|
Amortization of DAC and VOBA
|
|
|
1,307
|
|
|
|
3,489
|
|
|
|
2,250
|
|
|
Capitalization of DAC
|
|
|
(3,019
|
)
|
|
|
(3,092
|
)
|
|
|
(3,064
|
)
|
|
Rent, net of sublease income
|
|
|
479
|
|
|
|
477
|
|
|
|
373
|
|
|
Insurance tax
|
|
|
550
|
|
|
|
497
|
|
|
|
503
|
|
|
Other
|
|
|
2,756
|
|
|
|
2,572
|
|
|
|
2,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
10,556
|
|
|
$
|
11,947
|
|
|
$
|
10,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Debt Issue Costs
See Notes 11, 12, 13 and 14 for attribution of interest
expense by debt issuance. Includes interest expense on tax
audits of $39 million, $35 million and
$90 million, respectively.
Amortization
and Capitalization of DAC and VOBA
See Note 6 for deferred acquisition costs by segment and a
rollforward of deferred acquisition costs including impacts of
amortization and capitalization. See also Note 10 for a
description of the DAC amortization impact associated with the
closed block.
Lease
Impairments
See Note 16 for description of lease impairments included
within other expenses.
Restructuring
Charges
In September 2008, the Company began an enterprise-wide cost
reduction and revenue enhancement initiative which is expected
to be fully implemented by December 31, 2010. This
initiative is focused on reducing complexity, leveraging scale,
increasing productivity and improving the effectiveness of the
Company’s operations, as well as providing a foundation for
future growth. These restructuring costs were included in other
expenses. As the expenses relate to an enterprise-wide
initiative, they were incurred within Banking,
F-166
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Corporate & Other. Estimated restructuring costs may
change as management continues to execute its restructuring
plans. Restructuring charges associated with this
enterprise-wide initiative are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Balance, beginning of period
|
|
$
|
86
|
|
|
$
|
—
|
|
|
Severance charges
|
|
|
84
|
|
|
|
109
|
|
|
Change in severance charge estimates
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
Cash payments
|
|
|
(126
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
36
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges incurred in current period
|
|
$
|
76
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges incurred since inception of program
|
|
$
|
177
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
For both years ended December 31, 2009 and 2008, the change
in severance charge estimates was $8 million due to lower
anticipated costs for lower variable incentive compensation,
COBRA benefits, employee outplacement services and for employees
whose severance status changed.
In 2009, the Company also recognized additional lease charges of
$28 million and made cash payments of $2 million
associated with the consolidation of office space.
Management anticipates further restructuring charges including
severance, lease and asset impairments will be incurred during
the year ending December 31, 2010. However, such
restructuring plans are not sufficiently developed to enable the
Company to make an estimate of such restructuring charges at
December 31, 2009.
In addition to the restructuring charges incurred in connection
with the aforementioned enterprise-wide initiative, the Company
also incurred severance costs in connection with the Argentine
government’s nationalization of its private pension
business. During the year ended December 31, 2008, the
Company recognized a restructuring charge of $15 million
within the International segment and made payments of
$12 million resulting in a restructuring liability of
$3 million at December 31, 2008. During the year ended
December 31, 2009, the Company made payments of
$3 million resulting in no restructuring liability at
December 31, 2009.
F-167
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
20.
|
Earnings
Per Common Share
|
The following table presents the weighted average shares used in
calculating basic earnings per common share and those used in
calculating diluted earnings per common share for each income
category presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions, except share and per share data)
|
|
|
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for basic earnings per
common share
|
|
|
818,462,150
|
|
|
|
735,184,337
|
|
|
|
744,153,514
|
|
|
Incremental common shares from assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock purchase contracts underlying common equity units (1)
|
|
|
—
|
|
|
|
2,043,553
|
|
|
|
7,138,900
|
|
|
Exercise or issuance of stock-based awards (2)
|
|
|
—
|
|
|
|
7,557,540
|
|
|
|
10,971,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for diluted earnings
per common share
|
|
|
818,462,150
|
|
|
|
744,785,430
|
|
|
|
762,263,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(2,318
|
)
|
|
$
|
3,481
|
|
|
$
|
4,105
|
|
|
Less: Income (loss) attributable to noncontrolling interests,
net of income tax
|
|
|
(32
|
)
|
|
|
(25
|
)
|
|
|
7
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.’s common shareholders
|
|
$
|
(2,408
|
)
|
|
$
|
3,381
|
|
|
$
|
3,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.94
|
)
|
|
$
|
4.60
|
|
|
$
|
5.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.94
|
)
|
|
$
|
4.54
|
|
|
$
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
40
|
|
|
$
|
(203
|
)
|
|
$
|
360
|
|
|
Less: Income from discontinued operations, net of income tax,
attributable to noncontrolling interests
|
|
|
—
|
|
|
|
94
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax,
available to MetLife, Inc.’s common shareholders
|
|
$
|
40
|
|
|
$
|
(297
|
)
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.41
|
)
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
(0.40
|
)
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,278
|
)
|
|
$
|
3,278
|
|
|
$
|
4,465
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(32
|
)
|
|
|
69
|
|
|
|
148
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(2,368
|
)
|
|
$
|
3,084
|
|
|
$
|
4,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.89
|
)
|
|
$
|
4.19
|
|
|
$
|
5.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(2.89
|
)
|
|
$
|
4.14
|
|
|
$
|
5.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 14 for a description of the Company’s common
equity units. |
| |
|
(2) |
|
For the year ended December 31, 2009, 4,213,700 shares
related to the exercise or issuance of stock-based awards have
been excluded from the calculation of diluted earnings per
common share as these shares are anti-dilutive. |
F-168
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
21.
|
Quarterly
Results of Operations (Unaudited)
|
The unaudited quarterly results of operations for 2009 and 2008
are summarized in the table below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
(In millions, except per share data)
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
10,214
|
|
|
$
|
8,265
|
|
|
$
|
10,238
|
|
|
$
|
12,341
|
|
|
Total expenses
|
|
$
|
11,176
|
|
|
$
|
10,640
|
|
|
$
|
11,413
|
|
|
$
|
12,162
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(585
|
)
|
|
$
|
(1,419
|
)
|
|
$
|
(624
|
)
|
|
$
|
310
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
37
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
3
|
|
|
Net income (loss)
|
|
$
|
(548
|
)
|
|
$
|
(1,418
|
)
|
|
$
|
(625
|
)
|
|
$
|
313
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
$
|
(4
|
)
|
|
$
|
(16
|
)
|
|
$
|
(5
|
)
|
|
$
|
(7
|
)
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
$
|
(544
|
)
|
|
$
|
(1,402
|
)
|
|
$
|
(620
|
)
|
|
$
|
320
|
|
|
Less: Preferred stock dividends
|
|
$
|
30
|
|
|
$
|
31
|
|
|
$
|
30
|
|
|
$
|
31
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(574
|
)
|
|
$
|
(1,433
|
)
|
|
$
|
(650
|
)
|
|
$
|
289
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to MetLife,
Inc.’s common shareholders
|
|
$
|
(0.76
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
0.35
|
|
|
Income (loss) from discontinued operations, net of income tax,
attributable to MetLife, Inc.
|
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
$
|
(0.67
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
0.39
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(0.71
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
0.35
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to MetLife,
Inc.’s common shareholders
|
|
$
|
(0.76
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
0.35
|
|
|
Income (loss) from discontinued operations, net of income tax,
attributable to MetLife, Inc.
|
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
$
|
(0.67
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
0.39
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
(0.71
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
11,622
|
|
|
$
|
12,049
|
|
|
$
|
13,351
|
|
|
$
|
13,962
|
|
|
Total expenses
|
|
$
|
10,792
|
|
|
$
|
10,828
|
|
|
$
|
11,772
|
|
|
$
|
12,531
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
624
|
|
|
$
|
879
|
|
|
$
|
1,050
|
|
|
$
|
928
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
36
|
|
|
$
|
117
|
|
|
$
|
(404
|
)
|
|
$
|
48
|
|
|
Net income (loss)
|
|
$
|
660
|
|
|
$
|
996
|
|
|
$
|
646
|
|
|
$
|
976
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
$
|
12
|
|
|
$
|
50
|
|
|
$
|
16
|
|
|
$
|
(9
|
)
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
$
|
648
|
|
|
$
|
946
|
|
|
$
|
630
|
|
|
$
|
985
|
|
|
Less: Preferred stock dividends
|
|
$
|
33
|
|
|
$
|
31
|
|
|
$
|
30
|
|
|
$
|
31
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
615
|
|
|
$
|
915
|
|
|
$
|
600
|
|
|
$
|
954
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to MetLife,
Inc.’s common shareholders
|
|
$
|
0.82
|
|
|
$
|
1.19
|
|
|
$
|
1.43
|
|
|
$
|
1.15
|
|
|
Income (loss) from discontinued operations, net of income tax,
attributable to MetLife, Inc.
|
|
$
|
0.03
|
|
|
$
|
0.09
|
|
|
$
|
(0.59
|
)
|
|
$
|
0.06
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
$
|
0.90
|
|
|
$
|
1.33
|
|
|
$
|
0.88
|
|
|
$
|
1.25
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
0.85
|
|
|
$
|
1.28
|
|
|
$
|
0.84
|
|
|
$
|
1.21
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to MetLife,
Inc.’s common shareholders
|
|
$
|
0.81
|
|
|
$
|
1.18
|
|
|
$
|
1.42
|
|
|
$
|
1.14
|
|
|
Income (loss) from discontinued operations, net of income tax,
attributable to MetLife, Inc.
|
|
$
|
0.03
|
|
|
$
|
0.08
|
|
|
$
|
(0.59
|
)
|
|
$
|
0.06
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
$
|
0.88
|
|
|
$
|
1.30
|
|
|
$
|
0.88
|
|
|
$
|
1.25
|
|
|
Net income (loss) available to MetLife, Inc.’s common
shareholders
|
|
$
|
0.84
|
|
|
$
|
1.26
|
|
|
$
|
0.83
|
|
|
$
|
1.20
|
|
|
|
|
|
(1) |
|
During the fourth quarter of 2008, the Company recorded a
cumulative
out-of-period
adjustment in connection with the exclusion of certain
derivative gains from the estimation of cumulative gross profits
used in the determination of DAC amortization. The adjustment
decreased DAC and increased DAC amortization by |
F-169
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
$124 million and decreased net income by $80 million
in the fourth quarter of 2008. Had the amounts been reflected
during the first, second and third quarters of 2008
— in the periods in which they arose — DAC
amortization would have increased (decreased) by
$100 million, ($61) million and $85 million,
respectively, resulting in an increase (decrease) of net income
by ($65) million, $40 million and ($55) million,
respectively. Net income available to common shareholders per
diluted common share would have been higher (lower) by ($0.09),
$0.06, ($0.08) and $0.10 during the first, second, third and
fourth quarters, respectively, of 2008 had the amounts been
reflected in the periods in which they arose. Based upon an
evaluation of all relevant quantitative and qualitative factors,
management believes this correcting adjustment was not material
to the Company’s full year results for 2008 or the trend of
earnings. |
|
|
|
22.
|
Business
Segment Information
|
As further described in Note 1, during 2009 MetLife
combined its former institutional and individual businesses, as
well as its auto & home unit, into a single
U.S. Business organization. U.S. Business consists of
Insurance Products, Retirement Products, Corporate Benefit
Funding and Auto & Home segments. The Company also has
an International segment. In addition, the Company reports
certain of its results of operations in Banking,
Corporate & Other.
Insurance Products offers a broad range of protection products
and services to individuals, corporations and other
institutions, and is organized into three distinct businesses:
Group Life, Individual Life and Non-Medical Health. Group Life
insurance products and services include variable life, universal
life and term life. Individual Life includes variable life,
universal life, term life and whole life insurance products.
Non-Medical Health includes short- and long-term disability,
long-term care, and dental insurance, and other insurance
products. Retirement Products offers asset accumulation and
income products, including a wide variety of annuities.
Corporate Benefit Funding offers pension risk solutions,
structured settlements, stable value & investment
products and other benefit funding products. Auto &
Home provides personal lines property and casualty insurance,
including private passenger automobile, homeowners and personal
excess liability insurance.
International provides life insurance, accident and health
insurance, annuities and retirement products to both individuals
and groups.
Banking, Corporate & Other contains the excess capital
not allocated to the business segments, the results of
operations of MetLife Bank, various
start-up
entities and run-off entities, as well as interest expense
related to the majority of the Company’s outstanding debt
and expenses associated with certain legal proceedings and
income tax audit issues. Banking, Corporate & Other
also includes the elimination of intersegment amounts, which
generally relate to intersegment loans, which bear interest
rates commensurate with related borrowings. The operations of
RGA are also reported in Banking, Corporate & Other as
discontinued operations. See Note 23 for disclosures
regarding discontinued operations, including real estate.
Operating earnings is the measure of segment profit or loss the
Company uses to evaluate segment performance and allocate
resources. Consistent with GAAP accounting guidance for segment
reporting, it is the Company’s measure of segment
performance reported below. Operating earnings is not determined
in accordance with GAAP and should not be viewed as a substitute
for GAAP income (loss) from continuing operations, net of income
tax. However, the Company believes the presentation of operating
earnings herein as we measure it for management purposes
enhances the understanding of segment performance by
highlighting the results from operations and the underlying
profitability drivers of the businesses.
Operating earnings is defined as operating revenues less
operating expenses, net of income tax.
Operating revenues is defined as GAAP revenues (i) less net
investment gains (losses), (ii) less amortization of
unearned revenue related to net investment gains (losses),
(iii) plus scheduled periodic settlement payments on
derivative instruments that are hedges of investments but do not
qualify for hedge accounting treatment, (iv) plus income
from discontinued real estate operations, and (v) plus, for
operating joint ventures reported under the equity
F-170
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
method of accounting, the aforementioned adjustments and those
identified in the definition of operating expenses, net of
income tax, if applicable to these joint ventures.
Operating expenses is defined as GAAP expenses (i) less
changes in experience-rated contractholder liabilities due to
asset value fluctuations, (ii) less costs related to
business combinations (since January 1, 2009) and
noncontrolling interests, (iii) less amortization of DAC
and VOBA and changes in the policyholder dividend obligation
related to net investment gains (losses), and (iv) plus
scheduled periodic settlement payments on derivative instruments
that are hedges of policyholder account balances but do not
qualify for hedge accounting treatment.
Set forth in the tables below is certain financial information
with respect to the Company’s segments as well as Banking,
Corporate & Other for the years ended
December 31, 2009, 2008 and 2007 and at December 31,
2009 and 2008. The accounting policies of the segments are the
same as those of the Company, except for the method of capital
allocation and the accounting for gains (losses) from
intercompany sales, which are eliminated in consolidation.
Economic capital is an internally developed risk capital model,
the purpose of which is to measure the risk in the business and
to provide a basis upon which capital is deployed. The economic
capital model accounts for the unique and specific nature of the
risks inherent in the Company’s businesses. As a part of
the economic capital process, a portion of net investment income
is credited to the segments based on the level of allocated
equity. The Company allocates certain non-recurring items, such
as expenses associated with certain legal proceedings, to
Banking, Corporate & Other.
F-171
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
|
Year Ended December 31, 2009:
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
& Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
17,168
|
|
|
$
|
623
|
|
|
$
|
2,561
|
|
|
$
|
2,902
|
|
|
$
|
23,254
|
|
|
$
|
3,187
|
|
|
$
|
19
|
|
|
$
|
26,460
|
|
|
$
|
—
|
|
|
$
|
26,460
|
|
|
Universal life and investment-type product policy fees
|
|
|
2,281
|
|
|
|
1,712
|
|
|
|
176
|
|
|
|
—
|
|
|
|
4,169
|
|
|
|
1,061
|
|
|
|
—
|
|
|
|
5,230
|
|
|
|
(27
|
)
|
|
|
5,203
|
|
|
Net investment income
|
|
|
5,614
|
|
|
|
2,859
|
|
|
|
4,766
|
|
|
|
180
|
|
|
|
13,419
|
|
|
|
1,193
|
|
|
|
477
|
|
|
|
15,089
|
|
|
|
(251
|
)
|
|
|
14,838
|
|
|
Other revenues
|
|
|
779
|
|
|
|
172
|
|
|
|
239
|
|
|
|
33
|
|
|
|
1,223
|
|
|
|
14
|
|
|
|
1,092
|
|
|
|
2,329
|
|
|
|
—
|
|
|
|
2,329
|
|
|
Net investment gains (losses)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,772
|
)
|
|
|
(7,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
25,842
|
|
|
|
5,366
|
|
|
|
7,742
|
|
|
|
3,115
|
|
|
|
42,065
|
|
|
|
5,455
|
|
|
|
1,588
|
|
|
|
49,108
|
|
|
|
(8,050
|
)
|
|
|
41,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
19,111
|
|
|
|
1,398
|
|
|
|
4,797
|
|
|
|
1,932
|
|
|
|
27,238
|
|
|
|
2,660
|
|
|
|
4
|
|
|
|
29,902
|
|
|
|
84
|
|
|
|
29,986
|
|
|
Interest credited to policyholder account balances
|
|
|
952
|
|
|
|
1,687
|
|
|
|
1,633
|
|
|
|
—
|
|
|
|
4,272
|
|
|
|
581
|
|
|
|
—
|
|
|
|
4,853
|
|
|
|
(4
|
)
|
|
|
4,849
|
|
|
Interest credited to bank deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
163
|
|
|
|
163
|
|
|
|
—
|
|
|
|
163
|
|
|
Capitalization of DAC
|
|
|
(873
|
)
|
|
|
(1,067
|
)
|
|
|
(14
|
)
|
|
|
(435
|
)
|
|
|
(2,389
|
)
|
|
|
(630
|
)
|
|
|
—
|
|
|
|
(3,019
|
)
|
|
|
—
|
|
|
|
(3,019
|
)
|
|
Amortization of DAC and VOBA
|
|
|
725
|
|
|
|
424
|
|
|
|
15
|
|
|
|
436
|
|
|
|
1,600
|
|
|
|
415
|
|
|
|
3
|
|
|
|
2,018
|
|
|
|
(711
|
)
|
|
|
1,307
|
|
|
Interest expense
|
|
|
6
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
9
|
|
|
|
8
|
|
|
|
1,027
|
|
|
|
1,044
|
|
|
|
—
|
|
|
|
1,044
|
|
|
Other expenses
|
|
|
4,206
|
|
|
|
2,405
|
|
|
|
484
|
|
|
|
764
|
|
|
|
7,859
|
|
|
|
1,797
|
|
|
|
1,336
|
|
|
|
10,992
|
|
|
|
69
|
|
|
|
11,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
24,127
|
|
|
|
4,847
|
|
|
|
6,918
|
|
|
|
2,697
|
|
|
|
38,589
|
|
|
|
4,831
|
|
|
|
2,533
|
|
|
|
45,953
|
|
|
|
(562
|
)
|
|
|
45,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
573
|
|
|
|
182
|
|
|
|
273
|
|
|
|
96
|
|
|
|
1,124
|
|
|
|
161
|
|
|
|
(617
|
)
|
|
|
668
|
|
|
|
(2,683
|
)
|
|
|
(2,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,142
|
|
|
$
|
337
|
|
|
$
|
551
|
|
|
$
|
322
|
|
|
$
|
2,352
|
|
|
$
|
463
|
|
|
$
|
(328
|
)
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,050
|
)
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,318
|
)
|
|
|
|
|
|
$
|
(2,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
Insurance
|
|
Retirement
|
|
Benefit
|
|
Auto
|
|
|
|
|
|
Corporate
|
|
|
|
At December 31, 2009:
|
|
Products
|
|
Products
|
|
Funding
|
|
& Home
|
|
Total
|
|
International
|
|
& Other
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
Total assets
|
|
$
|
132,717
|
|
|
$
|
148,756
|
|
|
$
|
159,270
|
|
|
$
|
5,517
|
|
|
$
|
446,260
|
|
|
$
|
33,923
|
|
|
$
|
59,131
|
|
|
$
|
539,314
|
|
|
Separate account assets
|
|
$
|
8,838
|
|
|
$
|
87,113
|
|
|
$
|
45,732
|
|
|
$
|
—
|
|
|
$
|
141,683
|
|
|
$
|
7,358
|
|
|
$
|
—
|
|
|
$
|
149,041
|
|
|
Separate account liabilities
|
|
$
|
8,838
|
|
|
$
|
87,113
|
|
|
$
|
45,732
|
|
|
$
|
—
|
|
|
$
|
141,683
|
|
|
$
|
7,358
|
|
|
$
|
—
|
|
|
$
|
149,041
|
|
F-172
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
|
Year Ended December 31, 2008:
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
16,402
|
|
|
$
|
361
|
|
|
$
|
2,683
|
|
|
$
|
2,971
|
|
|
$
|
22,417
|
|
|
$
|
3,470
|
|
|
$
|
27
|
|
|
$
|
25,914
|
|
|
$
|
—
|
|
|
$
|
25,914
|
|
|
Universal life and investment-type product policy fees
|
|
|
2,171
|
|
|
|
1,870
|
|
|
|
227
|
|
|
|
—
|
|
|
|
4,268
|
|
|
|
1,095
|
|
|
|
—
|
|
|
|
5,363
|
|
|
|
18
|
|
|
|
5,381
|
|
|
Net investment income
|
|
|
5,787
|
|
|
|
2,365
|
|
|
|
5,874
|
|
|
|
186
|
|
|
|
14,212
|
|
|
|
1,180
|
|
|
|
808
|
|
|
|
16,200
|
|
|
|
91
|
|
|
|
16,291
|
|
|
Other revenues
|
|
|
819
|
|
|
|
168
|
|
|
|
359
|
|
|
|
38
|
|
|
|
1,384
|
|
|
|
18
|
|
|
|
184
|
|
|
|
1,586
|
|
|
|
—
|
|
|
|
1,586
|
|
|
Net investment gains (losses)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,812
|
|
|
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
25,179
|
|
|
|
4,764
|
|
|
|
9,143
|
|
|
|
3,195
|
|
|
|
42,281
|
|
|
|
5,763
|
|
|
|
1,019
|
|
|
|
49,063
|
|
|
|
1,921
|
|
|
|
50,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
18,183
|
|
|
|
692
|
|
|
|
4,977
|
|
|
|
1,924
|
|
|
|
25,776
|
|
|
|
3,185
|
|
|
|
46
|
|
|
|
29,007
|
|
|
|
181
|
|
|
|
29,188
|
|
|
Interest credited to policyholder account balances
|
|
|
930
|
|
|
|
1,337
|
|
|
|
2,298
|
|
|
|
—
|
|
|
|
4,565
|
|
|
|
171
|
|
|
|
7
|
|
|
|
4,743
|
|
|
|
45
|
|
|
|
4,788
|
|
|
Interest credited to bank deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
166
|
|
|
|
166
|
|
|
|
—
|
|
|
|
166
|
|
|
Capitalization of DAC
|
|
|
(849
|
)
|
|
|
(980
|
)
|
|
|
(18
|
)
|
|
|
(444
|
)
|
|
|
(2,291
|
)
|
|
|
(798
|
)
|
|
|
(3
|
)
|
|
|
(3,092
|
)
|
|
|
—
|
|
|
|
(3,092
|
)
|
|
Amortization of DAC and VOBA
|
|
|
743
|
|
|
|
1,356
|
|
|
|
29
|
|
|
|
454
|
|
|
|
2,582
|
|
|
|
381
|
|
|
|
5
|
|
|
|
2,968
|
|
|
|
521
|
|
|
|
3,489
|
|
|
Interest expense
|
|
|
5
|
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
9
|
|
|
|
9
|
|
|
|
1,033
|
|
|
|
1,051
|
|
|
|
—
|
|
|
|
1,051
|
|
|
Other expenses
|
|
|
4,196
|
|
|
|
2,065
|
|
|
|
476
|
|
|
|
794
|
|
|
|
7,531
|
|
|
|
2,079
|
|
|
|
699
|
|
|
|
10,309
|
|
|
|
24
|
|
|
|
10,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
23,208
|
|
|
|
4,472
|
|
|
|
7,764
|
|
|
|
2,728
|
|
|
|
38,172
|
|
|
|
5,027
|
|
|
|
1,953
|
|
|
|
45,152
|
|
|
|
771
|
|
|
|
45,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
661
|
|
|
|
99
|
|
|
|
466
|
|
|
|
104
|
|
|
|
1,330
|
|
|
|
257
|
|
|
|
(495
|
)
|
|
|
1,092
|
|
|
|
488
|
|
|
|
1,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,310
|
|
|
$
|
193
|
|
|
$
|
913
|
|
|
$
|
363
|
|
|
$
|
2,779
|
|
|
$
|
479
|
|
|
$
|
(439
|
)
|
|
|
2,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(771
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,481
|
|
|
|
|
|
|
$
|
3,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
At December 31, 2008:
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
& Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
126,734
|
|
|
$
|
121,387
|
|
|
$
|
161,513
|
|
|
$
|
5,232
|
|
|
$
|
414,866
|
|
|
$
|
25,891
|
|
|
$
|
60,921
|
|
|
$
|
501,678
|
|
|
Separate account assets
|
|
$
|
8,290
|
|
|
$
|
62,264
|
|
|
$
|
45,814
|
|
|
$
|
—
|
|
|
$
|
116,368
|
|
|
$
|
4,471
|
|
|
$
|
—
|
|
|
$
|
120,839
|
|
|
Separate account liabilities
|
|
$
|
8,290
|
|
|
$
|
62,264
|
|
|
$
|
45,814
|
|
|
$
|
—
|
|
|
$
|
116,368
|
|
|
$
|
4,471
|
|
|
$
|
—
|
|
|
$
|
120,839
|
|
F-173
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
|
Year Ended December 31, 2007:
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
& Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
15,269
|
|
|
$
|
339
|
|
|
$
|
1,265
|
|
|
$
|
2,966
|
|
|
$
|
19,839
|
|
|
$
|
3,096
|
|
|
$
|
35
|
|
|
$
|
22,970
|
|
|
$
|
—
|
|
|
$
|
22,970
|
|
|
Universal life and investment-type product policy fees
|
|
|
2,061
|
|
|
|
2,005
|
|
|
|
189
|
|
|
|
—
|
|
|
|
4,255
|
|
|
|
995
|
|
|
|
—
|
|
|
|
5,250
|
|
|
|
(12
|
)
|
|
|
5,238
|
|
|
Net investment income
|
|
|
6,079
|
|
|
|
2,740
|
|
|
|
6,636
|
|
|
|
196
|
|
|
|
15,651
|
|
|
|
1,249
|
|
|
|
1,428
|
|
|
|
18,328
|
|
|
|
(271
|
)
|
|
|
18,057
|
|
|
Other revenues
|
|
|
810
|
|
|
|
181
|
|
|
|
335
|
|
|
|
43
|
|
|
|
1,369
|
|
|
|
24
|
|
|
|
72
|
|
|
|
1,465
|
|
|
|
—
|
|
|
|
1,465
|
|
|
Net investment gains (losses)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(578
|
)
|
|
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
24,219
|
|
|
|
5,265
|
|
|
|
8,425
|
|
|
|
3,205
|
|
|
|
41,114
|
|
|
|
5,364
|
|
|
|
1,535
|
|
|
|
48,013
|
|
|
|
(861
|
)
|
|
|
47,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
17,001
|
|
|
|
605
|
|
|
|
3,365
|
|
|
|
1,811
|
|
|
|
22,782
|
|
|
|
2,521
|
|
|
|
46
|
|
|
|
25,349
|
|
|
|
157
|
|
|
|
25,506
|
|
|
Interest credited to policyholder account balances
|
|
|
1,037
|
|
|
|
1,321
|
|
|
|
2,723
|
|
|
|
—
|
|
|
|
5,081
|
|
|
|
354
|
|
|
|
—
|
|
|
|
5,435
|
|
|
|
26
|
|
|
|
5,461
|
|
|
Interest credited to bank deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
|
|
200
|
|
|
|
—
|
|
|
|
200
|
|
|
Capitalization of DAC
|
|
|
(885
|
)
|
|
|
(932
|
)
|
|
|
(25
|
)
|
|
|
(471
|
)
|
|
|
(2,313
|
)
|
|
|
(743
|
)
|
|
|
(8
|
)
|
|
|
(3,064
|
)
|
|
|
—
|
|
|
|
(3,064
|
)
|
|
Amortization of DAC and VOBA
|
|
|
727
|
|
|
|
822
|
|
|
|
38
|
|
|
|
468
|
|
|
|
2,055
|
|
|
|
309
|
|
|
|
11
|
|
|
|
2,375
|
|
|
|
(125
|
)
|
|
|
2,250
|
|
|
Interest expense
|
|
|
10
|
|
|
|
3
|
|
|
|
6
|
|
|
|
—
|
|
|
|
19
|
|
|
|
3
|
|
|
|
875
|
|
|
|
897
|
|
|
|
—
|
|
|
|
897
|
|
|
Other expenses
|
|
|
4,241
|
|
|
|
2,088
|
|
|
|
477
|
|
|
|
832
|
|
|
|
7,638
|
|
|
|
2,180
|
|
|
|
328
|
|
|
|
10,146
|
|
|
|
(24
|
)
|
|
|
10,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
22,131
|
|
|
|
3,907
|
|
|
|
6,584
|
|
|
|
2,640
|
|
|
|
35,262
|
|
|
|
4,624
|
|
|
|
1,452
|
|
|
|
41,338
|
|
|
|
34
|
|
|
|
41,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
714
|
|
|
|
469
|
|
|
|
631
|
|
|
|
139
|
|
|
|
1,953
|
|
|
|
172
|
|
|
|
(157
|
)
|
|
|
1,968
|
|
|
|
(293
|
)
|
|
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1,374
|
|
|
$
|
889
|
|
|
$
|
1,210
|
|
|
$
|
426
|
|
|
$
|
3,899
|
|
|
$
|
568
|
|
|
$
|
240
|
|
|
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(861
|
)
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,105
|
|
|
|
|
|
|
$
|
4,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income and net investment gains (losses) are
based upon the actual results of each segment’s
specifically identifiable asset portfolio adjusted for allocated
equity. Other costs are allocated to each of the segments based
upon: (i) a review of the nature of such costs;
(ii) time studies analyzing the amount of employee
compensation costs incurred by each segment; and (iii) cost
estimates included in the Company’s product pricing.
Revenues derived from any customer did not exceed 10% of
consolidated revenues for the years ended December 31,
2009, 2008 and 2007. Revenues from U.S. operations were
$35.9 billion, $44.6 billion and $41.7 billion
for the years ended December 31, 2009, 2008 and 2007,
respectively, which represented 87%, 87% and 88%, respectively,
of consolidated revenues.
|
|
|
23.
|
Discontinued
Operations
|
Real
Estate
The Company actively manages its real estate portfolio with the
objective of maximizing earnings through selective acquisitions
and dispositions. Income related to real estate classified as
held-for-sale
or sold is presented in
F-174
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
discontinued operations. These assets are carried at the lower
of depreciated cost or estimated fair value less expected
disposition costs.
The following information presents the components of income from
discontinued real estate operations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
9
|
|
|
$
|
13
|
|
|
$
|
28
|
|
|
Investment expense
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(10
|
)
|
|
Net investment gains (losses)
|
|
|
8
|
|
|
|
8
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
15
|
|
|
|
17
|
|
|
|
31
|
|
|
Provision for income tax
|
|
|
5
|
|
|
|
6
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
10
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of real estate related to discontinued
operations was $44 million and $51 million at
December 31, 2009 and 2008, respectively.
Operations
Texas
Life Insurance Company
During the fourth quarter of 2008, the Holding Company entered
into an agreement to sell its wholly-owned subsidiary, Cova, the
parent company of Texas Life, to a
third-party
and the sale occurred in March 2009. (See also
F-175
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Note 2.) The following tables present the amounts related
to the operations of Cova that have been reflected as
discontinued operations in the consolidated statements of
operations and balance sheet:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3
|
|
|
$
|
17
|
|
|
$
|
15
|
|
|
Universal life and investment-type product policy fees
|
|
|
15
|
|
|
|
81
|
|
|
|
72
|
|
|
Net investment income
|
|
|
6
|
|
|
|
38
|
|
|
|
39
|
|
|
Other revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
Net investment gains (losses)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
25
|
|
|
|
134
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
10
|
|
|
|
70
|
|
|
|
56
|
|
|
Interest credited to policyholder account balances
|
|
|
3
|
|
|
|
17
|
|
|
|
17
|
|
|
Policyholder dividends
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
|
Other expenses
|
|
|
5
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
19
|
|
|
|
119
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
6
|
|
|
|
15
|
|
|
|
38
|
|
|
Provision for income tax
|
|
|
2
|
|
|
|
4
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued operations, net of income
tax
|
|
|
4
|
|
|
|
11
|
|
|
|
25
|
|
|
Gain on disposal, net of income tax
|
|
|
28
|
|
|
|
37
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
32
|
|
|
$
|
48
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-176
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Fixed maturity securities
|
|
$
|
514
|
|
|
Equity securities
|
|
|
1
|
|
|
Mortgage loans
|
|
|
41
|
|
|
Policy loans
|
|
|
35
|
|
|
Real estate and real estate joint ventures
held-for-investment
|
|
|
2
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
593
|
|
|
Cash and cash equivalents
|
|
|
32
|
|
|
Accrued investment income
|
|
|
7
|
|
|
Premiums and other receivables
|
|
|
19
|
|
|
DAC and VOBA
|
|
|
232
|
|
|
Deferred income tax asset
|
|
|
61
|
|
|
Other assets
|
|
|
2
|
|
|
|
|
|
|
|
|
Total assets
held-for-sale
|
|
$
|
946
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
180
|
|
|
Policyholder account balances
|
|
|
356
|
|
|
Other policyholder funds
|
|
|
181
|
|
|
Policyholder dividends payable
|
|
|
4
|
|
|
Current income tax payable
|
|
|
1
|
|
|
Other liabilities
|
|
|
26
|
|
|
|
|
|
|
|
|
Total liabilities
held-for-sale
|
|
$
|
748
|
|
|
|
|
|
|
|
F-177
MetLife,
Inc.
Notes to
the Consolidated Financial
Statements — (Continued)
Reinsurance
Group of America, Incorporated
As more fully described in Note 2, the Company completed a
tax-free split-off of its majority-owned subsidiary, RGA in
September 2008. The following table presents the amounts related
to the operations of RGA that have been reflected as
discontinued operations in the consolidated statements of
operations:
| |
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,535
|
|
|
$
|
4,910
|
|
|
Net investment income
|
|
|
597
|
|
|
|
908
|
|
|
Other revenues
|
|
|
69
|
|
|
|
77
|
|
|
Net investment gains (losses)
|
|
|
(249
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,952
|
|
|
|
5,718
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
2,989
|
|
|
|
3,989
|
|
|
Interest credited to policyholder account balances
|
|
|
108
|
|
|
|
262
|
|
|
Other expenses
|
|
|
699
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,796
|
|
|
|
5,477
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
156
|
|
|
|
241
|
|
|
Provision for income tax
|
|
|
53
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax,
available to MetLife, Inc.’s common shareholders
|
|
|
103
|
|
|
|
157
|
|
|
Income from discontinued operations, net of income tax,
attributable to noncontrolling interests
|
|
|
94
|
|
|
|
141
|
|
|
Loss on disposal, net of income tax
|
|
|
(458
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
(261
|
)
|
|
$
|
298
|
|
|
|
|
|
|
|
|
|
|
|
The operations of RGA included direct policies and reinsurance
agreements with MetLife and some of its subsidiaries. These
agreements are generally terminable by either party upon
90 days written notice with respect to future new business.
Agreements related to existing business generally are not
terminable, unless the underlying policies terminate or are
recaptured. These direct policies and reinsurance agreements do
not constitute significant continuing involvement by the Company
with RGA. Included in continuing operations in the
Company’s consolidated statements of operations are amounts
related to these transactions, including ceded amounts that
reduced premiums and fees by $158 million and
$251 million and ceded amounts that reduced policyholder
benefits and claims by $136 million and $290 million
for the years ended December 31, 2008 and 2007,
respectively, that have not been eliminated as these
transactions have continued after the RGA disposition.
The Company evaluated the recognition and disclosure of
subsequent events for its December 31, 2009 consolidated
financial statements.
On February 18, 2010, the Holding Company’s Board of
Directors announced dividends of $0.2500000 per share, for a
total of $6 million, on its Series A preferred shares,
and $0.4062500 per share, for a total of $24 million, on
its Series B preferred shares, subject to the final
confirmation that it has met the financial tests specified in
the Series A and Series B preferred shares, which the
Company anticipates will be made on or about March 5, 2010,
the earliest date permitted in accordance with the terms of the
securities. Both dividends will be payable March 15, 2010
to shareholders of record as of February 28, 2010.
F-178
Summary Of Investments Other Than Investments In Related Parties
MetLife,
Inc.
Schedule I
Consolidated
Summary of Investments —
Other Than Investments in Related Parties
December 31, 2009
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Which Shown on
|
|
|
Type of Investments
|
|
Amortized Cost (1)
|
|
|
Fair Value
|
|
|
Balance Sheet
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
$
|
25,712
|
|
|
$
|
25,447
|
|
|
$
|
25,447
|
|
|
Foreign government securities
|
|
|
11,010
|
|
|
|
11,947
|
|
|
|
11,947
|
|
|
Public utilities
|
|
|
10,156
|
|
|
|
10,365
|
|
|
|
10,365
|
|
|
State and political subdivision securities
|
|
|
7,468
|
|
|
|
7,208
|
|
|
|
7,208
|
|
|
All other corporate bonds
|
|
|
92,963
|
|
|
|
94,637
|
|
|
|
94,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds
|
|
|
147,309
|
|
|
|
149,604
|
|
|
|
149,604
|
|
|
Mortgage-backed and asset-backed securities
|
|
|
76,170
|
|
|
|
72,804
|
|
|
|
72,804
|
|
|
Redeemable preferred stock
|
|
|
6,210
|
|
|
|
5,215
|
|
|
|
5,215
|
|
|
Other fixed maturity securities
|
|
|
20
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
229,709
|
|
|
|
227,642
|
|
|
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
2,249
|
|
|
|
2,384
|
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
1,650
|
|
|
|
1,463
|
|
|
|
1,463
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public utilities
|
|
|
60
|
|
|
|
68
|
|
|
|
68
|
|
|
Industrial, miscellaneous and all other
|
|
|
1,473
|
|
|
|
1,548
|
|
|
|
1,548
|
|
|
Banks, trust and insurance companies
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
3,187
|
|
|
|
3,084
|
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
48,181
|
|
|
|
|
|
|
|
48,181
|
|
|
Held-for-sale
|
|
|
2,728
|
|
|
|
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
50,909
|
|
|
|
|
|
|
|
50,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy loans
|
|
|
10,061
|
|
|
|
|
|
|
|
10,061
|
|
|
Real estate and real estate joint ventures
|
|
|
6,769
|
|
|
|
|
|
|
|
6,769
|
|
|
Real estate acquired in satisfaction of debt
|
|
|
127
|
|
|
|
|
|
|
|
127
|
|
|
Other limited partnership interests
|
|
|
5,508
|
|
|
|
|
|
|
|
5,508
|
|
|
Short-term investments
|
|
|
8,374
|
|
|
|
|
|
|
|
8,374
|
|
|
Other invested assets
|
|
|
12,709
|
|
|
|
|
|
|
|
12,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
329,602
|
|
|
|
|
|
|
$
|
327,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company’s trading securities portfolio is mainly
comprised of fixed maturity and equity securities. Cost or
amortized cost for fixed maturity securities and mortgage loans
held-for-investment
represents original cost reduced by repayments, valuation
allowances and impairments from
other-than-temporary
declines in estimated fair value that are charged to earnings
and adjusted for amortization of premiums or discounts; for
equity securities, cost represents original cost reduced by
impairments from
other-than-temporary
declines in estimated fair value; for real estate, cost
represents original cost reduced by impairments and adjusted for
valuation allowances and depreciation; for real estate joint
ventures and other limited partnership interests cost represents
original cost reduced for
other-than-temporary
impairments or original cost adjusted for equity in earnings and
distributions. |
F-179
Condensed Financial Information Of Parent Company Only Disclosure
MetLife,
Inc.
Schedule II
Condensed
Financial Information of Registrant
December 31, 2009 and 2008
(In millions, except share and per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $3,173 and $1,504,
respectively)
|
|
$
|
3,187
|
|
|
$
|
1,391
|
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $20 and $20, respectively)
|
|
|
17
|
|
|
|
8
|
|
|
Short-term investments
|
|
|
303
|
|
|
|
1,073
|
|
|
Other invested assets
|
|
|
37
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
3,544
|
|
|
|
2,511
|
|
|
Cash and cash equivalents
|
|
|
679
|
|
|
|
678
|
|
|
Accrued investment income
|
|
|
36
|
|
|
|
29
|
|
|
Investment in subsidiaries
|
|
|
42,997
|
|
|
|
33,203
|
|
|
Loans to subsidiaries
|
|
|
1,575
|
|
|
|
1,200
|
|
|
Receivables from subsidiaries
|
|
|
11
|
|
|
|
1
|
|
|
Other assets
|
|
|
991
|
|
|
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
49,833
|
|
|
$
|
38,596
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Payables for collateral under securities loaned and other
transactions
|
|
$
|
427
|
|
|
$
|
343
|
|
|
Short-term debt
|
|
|
—
|
|
|
|
300
|
|
|
Long-term debt — unaffiliated
|
|
|
10,458
|
|
|
|
7,660
|
|
|
Long-term debt — affiliated
|
|
|
500
|
|
|
|
500
|
|
|
Collateral financing arrangements
|
|
|
2,797
|
|
|
|
2,692
|
|
|
Junior subordinated debt securities
|
|
|
1,748
|
|
|
|
2,315
|
|
|
Other liabilities
|
|
|
782
|
|
|
|
1,052
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
16,712
|
|
|
$
|
14,862
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share;
200,000,000 shares authorized; 84,000,000 shares
issued and outstanding; $2,100 aggregate liquidation preference
|
|
|
1
|
|
|
|
1
|
|
|
Common stock, par value $0.01 per share;
3,000,000,000 shares authorized; 822,359,818 and
798,016,664 shares issued at December 31, 2009 and
2008, respectively; 818,833,810 and 793,629,070 shares
outstanding at December 31, 2009 and 2008, respectively
|
|
|
8
|
|
|
|
8
|
|
|
Additional paid-in capital
|
|
|
16,859
|
|
|
|
15,811
|
|
|
Retained earnings
|
|
|
19,501
|
|
|
|
22,403
|
|
|
Treasury stock, at cost; 3,526,008 and 4,387,594 shares at
December 31, 2009 and 2008, respectively
|
|
|
(190
|
)
|
|
|
(236
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(3,058
|
)
|
|
|
(14,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
33,121
|
|
|
|
23,734
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
49,833
|
|
|
$
|
38,596
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed financial information.
F-180
MetLife,
Inc.
Schedule II
Condensed
Financial Information of Registrant — (Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
|
$
|
(1,811
|
)
|
|
$
|
3,666
|
|
|
$
|
4,632
|
|
|
Net investment income
|
|
|
153
|
|
|
|
167
|
|
|
|
274
|
|
|
Other income
|
|
|
155
|
|
|
|
149
|
|
|
|
84
|
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(23
|
)
|
|
|
(12
|
)
|
|
|
(9
|
)
|
|
Other net investment gains (losses), net
|
|
|
114
|
|
|
|
(260
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
91
|
|
|
|
(272
|
)
|
|
|
(41
|
)
|
|
Interest expense
|
|
|
(776
|
)
|
|
|
(736
|
)
|
|
|
(733
|
)
|
|
Other expenses
|
|
|
(202
|
)
|
|
|
(89
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income tax
|
|
|
(2,390
|
)
|
|
|
2,885
|
|
|
|
4,154
|
|
|
Provision for income tax benefit
|
|
|
(144
|
)
|
|
|
(324
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,246
|
)
|
|
|
3,209
|
|
|
|
4,317
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
125
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
(2,368
|
)
|
|
$
|
3,084
|
|
|
$
|
4,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed financial information.
F-181
MetLife,
Inc.
Schedule II
Condensed
Financial Information of Registrant — (Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,246
|
)
|
|
$
|
3,209
|
|
|
$
|
4,317
|
|
|
Earnings of subsidiaries
|
|
|
1,811
|
|
|
|
(3,666
|
)
|
|
|
(4,632
|
)
|
|
Dividends from subsidiaries
|
|
|
515
|
|
|
|
1,148
|
|
|
|
1,254
|
|
|
Other, net
|
|
|
(458
|
)
|
|
|
509
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(378
|
)
|
|
|
1,200
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of fixed maturity securities
|
|
|
1,005
|
|
|
|
3,970
|
|
|
|
5,203
|
|
|
Purchases of fixed maturity securities
|
|
|
(3,002
|
)
|
|
|
(2,983
|
)
|
|
|
(4,586
|
)
|
|
Sales of equity securities
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
Purchases of equity securities
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(32
|
)
|
|
Net change in short-term investments
|
|
|
772
|
|
|
|
(1,073
|
)
|
|
|
—
|
|
|
Purchase of businesses
|
|
|
—
|
|
|
|
(202
|
)
|
|
|
—
|
|
|
Sale of businesses
|
|
|
130
|
|
|
|
—
|
|
|
|
—
|
|
|
Expense paid on behalf of subsidiaries
|
|
|
(69
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Capital contributions to subsidiaries
|
|
|
(876
|
)
|
|
|
(1,284
|
)
|
|
|
(422
|
)
|
|
Returns of capital from subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
526
|
|
|
Repayments of loans to subsidiaries
|
|
|
—
|
|
|
|
400
|
|
|
|
800
|
|
|
Issuance of loans to subsidiaries
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
(700
|
)
|
|
Disposal of subsidiary
|
|
|
(19
|
)
|
|
|
(43
|
)
|
|
|
—
|
|
|
Other, net
|
|
|
(71
|
)
|
|
|
57
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,208
|
)
|
|
|
(1,159
|
)
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
84
|
|
|
|
(471
|
)
|
|
|
(282
|
)
|
|
Net change in short-term debt
|
|
|
(300
|
)
|
|
|
(10
|
)
|
|
|
(306
|
)
|
|
Long-term debt issued
|
|
|
1,647
|
|
|
|
—
|
|
|
|
—
|
|
|
Cash received in connection with collateral financing
arrangements
|
|
|
775
|
|
|
|
—
|
|
|
|
—
|
|
|
Cash paid in connection with collateral financing arrangements
|
|
|
(400
|
)
|
|
|
(800
|
)
|
|
|
—
|
|
|
Junior subordinated debt securities issued
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
Debt issuance costs
|
|
|
(30
|
)
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
Common stock issued, net of issuance costs
|
|
|
—
|
|
|
|
290
|
|
|
|
—
|
|
|
Common stock issued to settle stock forward contracts
|
|
|
1,035
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock options exercised
|
|
|
8
|
|
|
|
45
|
|
|
|
110
|
|
|
Treasury stock acquired in connection with share repurchase
agreements
|
|
|
—
|
|
|
|
(1,250
|
)
|
|
|
(1,705
|
)
|
|
Treasury stock issued in connection with common stock issuance,
net of issuance costs
|
|
|
—
|
|
|
|
1,936
|
|
|
|
—
|
|
|
Treasury stock issued to settle stock forward contracts
|
|
|
—
|
|
|
|
1,035
|
|
|
|
—
|
|
|
Dividends on preferred stock
|
|
|
(122
|
)
|
|
|
(125
|
)
|
|
|
(137
|
)
|
|
Dividends on common stock
|
|
|
(610
|
)
|
|
|
(592
|
)
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,587
|
|
|
|
50
|
|
|
|
(2,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
1
|
|
|
|
91
|
|
|
|
(939
|
)
|
|
Cash and cash equivalents, beginning of year
|
|
|
678
|
|
|
|
587
|
|
|
|
1,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
679
|
|
|
$
|
678
|
|
|
$
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
704
|
|
|
$
|
696
|
|
|
$
|
711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
104
|
|
|
$
|
(249
|
)
|
|
$
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of subsidiary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary disposed
|
|
$
|
—
|
|
|
$
|
1,716
|
|
|
$
|
—
|
|
|
Transaction costs, including cash paid of $19, $43 and $0,
respectively
|
|
|
2
|
|
|
|
60
|
|
|
|
—
|
|
|
Treasury stock received in common stock exchange
|
|
|
—
|
|
|
|
(1,318
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of subsidiary
|
|
$
|
2
|
|
|
$
|
458
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remarketing of debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities redeemed
|
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issued
|
|
$
|
1,035
|
|
|
$
|
1,035
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt securities redeemed
|
|
$
|
1,067
|
|
|
$
|
1,067
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of goodwill to subsidiaries
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of other intangible assets to subsidiaries, net of
deferred income tax
|
|
$
|
—
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of collateral financing arrangements
|
|
$
|
105
|
|
|
$
|
310
|
|
|
$
|
2,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution to subsidiary
|
|
$
|
105
|
|
|
$
|
310
|
|
|
$
|
2,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of interest expense to subsidiary
|
|
$
|
44
|
|
|
$
|
107
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of interest income to subsidiary
|
|
$
|
56
|
|
|
$
|
110
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of loan to subsidiary via transfer of fixed maturity
securities
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed financial information.
F-182
MetLife,
Inc.
Schedule II
Notes to
the Condensed Financial Information of Registrant
The condensed financial information of MetLife, Inc. (the
“Holding Company” or the “Registrant”)
should be read in conjunction with the Consolidated Financial
Statements of MetLife, Inc. and subsidiaries and the notes
thereto (the “Consolidated Financial Statements”).
These condensed unconsolidated financial statements reflect the
results of operations, financial position and cash flows for the
Holding Company. Investments in subsidiaries are accounted for
using the equity method of accounting.
The condensed unconsolidated financial statements are prepared
in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) except as stated
previously which also requires management to make certain
estimates and assumptions. The most important of these estimates
and assumptions relate to the fair value measurements, the
accounting for goodwill and identifiable intangible assets and
the provision for potential losses that may arise from
litigation and regulatory proceedings and tax audits, which may
affect the amounts reported in the condensed unconsolidated
financial statements and accompanying notes. Actual results
could differ materially from these estimates.
The Holding Company lends funds, as necessary, to its
subsidiaries, some of which are regulated, to meet their capital
requirements. Such loans are included in loans to subsidiaries
and consisted of the following at:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
Maturity
|
|
December 31,
|
|
|
Subsidiaries
|
|
Rate
|
|
Date
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Metropolitan Life Insurance Company
|
|
3-month LIBOR + 1.15%
|
|
December 31, 2009
|
|
$
|
—
|
|
|
$
|
700
|
|
|
Metropolitan Life Insurance Company
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
|
775
|
|
|
|
—
|
|
|
Metropolitan Life Insurance Company
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
|
300
|
|
|
|
—
|
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
December 15, 2032
|
|
|
400
|
|
|
|
400
|
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
January 15, 2033
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,575
|
|
|
$
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 31, 2009, the $700 million surplus note
issued to the Holding Company by Metropolitan Life Insurance
Company (“MLIC”) was renewed and increased to
$775 million, extending the maturity to December 31,
2011 with an interest rate of
6-month
LIBOR + 1.80%.
On December 28, 2009, MLIC issued a surplus note to the
Holding Company for $300 million maturing in 2011 with an
interest rate of
6-month
LIBOR + 1.80%. This transaction was settled by the transfer of
securities to MLIC.
In June 2008, MetLife Investors USA Insurance Company repaid the
$400 million surplus note with an interest rate of 7.35% to
the Holding Company.
In December 2007, MLIC repaid an $800 million surplus note
with an interest rate of 5.00% to the Holding Company and then
issued to the Holding Company a $700 million surplus note
with an interest rate of
3-month
LIBOR plus 1.15%.
Interest income earned on loans to subsidiaries of
$50 million, $81 million and $105 million for the
years ended December 31, 2009, 2008 and 2007, respectively,
is included within net investment income.
Payments of interest and principal on surplus notes, which are
subordinate to all other obligations of the issuing company, may
be made only with the prior approval of the insurance department
of the state of domicile.
F-183
MetLife,
Inc.
Schedule II
Notes to
the Condensed Financial Information of
Registrant — (Continued)
|
|
|
3.
|
Long-term
and Short-term Debt
|
Long-term
Debt
Long-term debt outstanding is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
December 31,
|
|
|
|
|
Range
|
|
Weighted Average
|
|
Maturity
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Senior notes — unaffiliated
|
|
0.57%-7.72%
|
|
5.94%
|
|
|
2011-2035
|
|
|
$
|
10,458
|
|
|
$
|
7,660
|
|
|
Affiliated debt
|
|
0.99%
|
|
1.57%
|
|
|
2015-2016
|
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
10,958
|
|
|
$
|
8,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There are no maturities of long-term debt in 2010. Aggregate
maturities of long-term debt for the subsequent four years are
$750 million in 2011, $797 million in 2012,
$498 million in 2013, $351 million in 2014 and
$8,562 million thereafter.
Short-term
Debt
Short-term debt with maturities less than one year is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In millions)
|
|
|
|
|
Commercial paper
|
|
$
|
—
|
|
|
$
|
300
|
|
|
Average daily balance
|
|
$
|
5
|
|
|
$
|
352
|
|
|
Average days outstanding
|
|
|
6 days
|
|
|
|
26 days
|
|
During the years ended December 31, 2009, 2008 and 2007,
the weighted average interest rate on short-term debt was 1.25%,
2.5% and 4.9%, respectively.
Interest
Expense
Interest expense is comprised of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In millions)
|
|
|
|
|
Short-term debt
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
33
|
|
|
Long-term debt — unaffiliated
|
|
|
589
|
|
|
|
412
|
|
|
|
401
|
|
|
Long-term debt — affiliated
|
|
|
16
|
|
|
|
28
|
|
|
|
30
|
|
|
Collateral financing arrangements
|
|
|
59
|
|
|
|
121
|
|
|
|
84
|
|
|
Junior subordinated debt securities
|
|
|
112
|
|
|
|
164
|
|
|
|
183
|
|
|
Stock purchase contracts
|
|
|
—
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
776
|
|
|
$
|
736
|
|
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Holding Company is party to various capital support
commitments and guarantees with certain of its subsidiaries and
a corporation in which it owns 50% of the equity. Under these
arrangements, the Holding Company has agreed to cause each such
entity to meet specified capital and surplus levels or has
guaranteed certain contractual obligations.
F-184
MetLife,
Inc.
Schedule II
Notes to
the Condensed Financial Information of
Registrant — (Continued)
In December 2009, the Holding Company, in connection with
MetLife Reinsurance Company of Vermont’s (“MRV”)
reinsurance of certain universal life and term life insurance
risks, committed to the Vermont Department of Banking,
Insurance, Securities and Health Care Administration to take
necessary action to cause the third protected cell of MRV to
maintain total adjusted capital equal to or greater than 200% of
such protected cell’s authorized control level risk-based
capital (“RBC”), as defined in state insurance
statutes. The details of this transaction are disclosed in
Note 11 of the Notes to the Consolidated Financial
Statements.
In October 2007, the Holding Company, in connection with
MRV’s reinsurance of certain universal life and term life
insurance risks, committed to the Vermont Department of Banking,
Insurance, Securities and Health Care Administration to take
necessary action to cause each of the two initial protected
cells of MRV to maintain total adjusted capital equal to or
greater than 200% of such protected cell’s authorized
control level RBC, as defined in state insurance statutes.
The details of this transaction are disclosed in Note 11 of
the Notes to the Consolidated Financial Statements.
In December 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MRC’s
reinsurance of a portion of the liabilities associated with the
closed block, committed to the South Carolina Department of
Insurance to make capital contributions, if necessary, to MRC so
that MRC may at all times maintain its total adjusted capital at
a level of not less than 200% of the company action
level RBC, as defined in state insurance statutes as in
effect on the date of determination or December 31, 2007,
whichever calculation produces the greater capital requirement,
or as otherwise required by the South Carolina Department of
Insurance. This collateral financing arrangement is more fully
described in Note 12 of the Notes to the Consolidated
Financial Statements.
In May 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MRSC’s
reinsurance of universal life secondary guarantees, committed to
the South Carolina Department of Insurance to take necessary
action to cause MRSC to maintain total adjusted capital equal to
the greater of $250,000 or 100% of MRSC’s authorized
control level RBC, as defined in state insurance statutes.
This collateral financing arrangement is more fully described in
Note 12 of the Notes to the Consolidated Financial
Statements.
The Holding Company has net worth maintenance agreements with
two of its insurance subsidiaries, MetLife Investors Insurance
Company and First MetLife Investors Insurance Company. Under
these agreements, as subsequently amended, the Holding Company
agreed, without limitation as to the amount, to cause each of
these subsidiaries to have a minimum capital and surplus of
$10 million, total adjusted capital at a level not less
than 150% of the company action level RBC, as defined by
state insurance statutes, and liquidity necessary to enable it
to meet its current obligations on a timely basis.
The Holding Company has a net worth maintenance agreement with
Mitsui Sumitomo MetLife Insurance Company Limited
(“MSMIC”), an investment in Japan of which the Holding
Company owns 50% of the equity. Under the agreement, the Holding
Company agreed, without limitation as to amount, to cause MSMIC
to have the amount of capital and surplus necessary for MSMIC to
maintain a solvency ratio of at least 400%, as calculated in
accordance with the Insurance Business Law of Japan, and to make
such loans to MSMIC as may be necessary to ensure that MSMIC has
sufficient cash or other liquid assets to meet its payment
obligations as they fall due.
The Holding Company has guaranteed the obligations of its
subsidiary, Exeter, under a reinsurance agreement with MSMIC
under which Exeter reinsures variable annuities written by MSMIC.
Based on management’s analysis and comparison of its
current and future cash inflows from the dividends it receives
from subsidiaries that are permitted to be paid without prior
insurance regulatory approval, its asset portfolio and other
cash flows and anticipated access to the capital markets,
management believes there will be sufficient liquidity and
capital to enable the Holding Company to make payments on debt,
make cash dividend payments on its common and preferred stock,
contribute capital to its subsidiaries, pay all operating
expenses and meet its cash needs.
F-185
Supplementary Insurance Information For Insurance Companies Disclosure
MetLife,
Inc.
Schedule III
Consolidated
Supplementary Insurance Information
December 31, 2009, 2008 and 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
Policyholder Funds
|
|
|
Policyholder
|
|
|
Policyholder
|
|
|
|
|
|
|
|
and
|
|
|
and Policyholder
|
|
|
Account
|
|
|
Dividends
|
|
|
Unearned
|
|
|
Segment
|
|
VOBA
|
|
|
Dividend Obligation
|
|
|
Balances
|
|
|
Payable
|
|
|
Revenue (1)
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
10,103
|
|
|
$
|
76,959
|
|
|
$
|
28,118
|
|
|
$
|
761
|
|
|
$
|
1,123
|
|
|
Retirement Products
|
|
|
6,023
|
|
|
|
4,081
|
|
|
|
46,821
|
|
|
|
—
|
|
|
|
79
|
|
|
Corporate Benefit Funding
|
|
|
75
|
|
|
|
41,830
|
|
|
|
55,556
|
|
|
|
—
|
|
|
|
62
|
|
|
Auto & Home
|
|
|
181
|
|
|
|
3,156
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
16,382
|
|
|
|
126,026
|
|
|
|
130,495
|
|
|
|
761
|
|
|
|
1,264
|
|
|
International
|
|
|
2,870
|
|
|
|
12,467
|
|
|
|
8,128
|
|
|
|
—
|
|
|
|
805
|
|
|
Banking, Corporate & Other
|
|
|
4
|
|
|
|
5,832
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,256
|
|
|
$
|
144,325
|
|
|
$
|
138,673
|
|
|
$
|
761
|
|
|
$
|
2,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
11,555
|
|
|
$
|
74,528
|
|
|
$
|
26,510
|
|
|
$
|
1,023
|
|
|
$
|
1,213
|
|
|
Retirement Products
|
|
|
5,888
|
|
|
|
3,743
|
|
|
|
44,282
|
|
|
|
—
|
|
|
|
54
|
|
|
Corporate Benefit Funding
|
|
|
75
|
|
|
|
40,931
|
|
|
|
66,409
|
|
|
|
—
|
|
|
|
73
|
|
|
Auto & Home
|
|
|
183
|
|
|
|
3,126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
17,701
|
|
|
|
122,328
|
|
|
|
137,201
|
|
|
|
1,023
|
|
|
|
1,340
|
|
|
International
|
|
|
2,436
|
|
|
|
10,468
|
|
|
|
5,654
|
|
|
|
—
|
|
|
|
583
|
|
|
Banking, Corporate & Other
|
|
|
7
|
|
|
|
5,521
|
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,144
|
|
|
$
|
138,317
|
|
|
$
|
142,921
|
|
|
$
|
1,023
|
|
|
$
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
9,327
|
|
|
$
|
73,396
|
|
|
$
|
26,192
|
|
|
$
|
991
|
|
|
$
|
1,200
|
|
|
Retirement Products
|
|
|
5,549
|
|
|
|
3,132
|
|
|
|
37,784
|
|
|
|
—
|
|
|
|
38
|
|
|
Corporate Benefit Funding
|
|
|
85
|
|
|
|
38,679
|
|
|
|
56,874
|
|
|
|
—
|
|
|
|
56
|
|
|
Auto & Home
|
|
|
193
|
|
|
|
3,324
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
15,154
|
|
|
|
118,531
|
|
|
|
120,850
|
|
|
|
991
|
|
|
|
1,294
|
|
|
International
|
|
|
2,648
|
|
|
|
11,121
|
|
|
|
4,961
|
|
|
|
—
|
|
|
|
544
|
|
|
Banking, Corporate & Other
|
|
|
8
|
|
|
|
4,991
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,810
|
|
|
$
|
134,643
|
|
|
$
|
125,808
|
|
|
$
|
991
|
|
|
$
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are included within the future policy benefits, other
policyholder funds and policyholder dividend obligation column. |
F-186
MetLife,
Inc.
Schedule III — (Continued)
Consolidated
Supplementary Insurance Information
December 31, 2009, 2008 and 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
Net
|
|
|
Policyholder
|
|
|
DAC and VOBA
|
|
|
Other
|
|
|
|
|
|
|
|
Revenue and
|
|
|
Investment
|
|
|
Benefits and
|
|
|
Charged to
|
|
|
Operating
|
|
|
Premiums Written
|
|
|
Segment
|
|
Policy Charges
|
|
|
Income
|
|
|
Interest Credited
|
|
|
Other Expenses
|
|
|
Expenses (1)
|
|
|
(Excluding Life)
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
19,422
|
|
|
$
|
5,540
|
|
|
$
|
18,431
|
|
|
$
|
753
|
|
|
$
|
4,981
|
|
|
$
|
5,936
|
|
|
Retirement Products
|
|
|
2,335
|
|
|
|
2,642
|
|
|
|
3,085
|
|
|
|
(315
|
)
|
|
|
1,338
|
|
|
|
—
|
|
|
Corporate Benefit Funding
|
|
|
2,737
|
|
|
|
4,953
|
|
|
|
6,495
|
|
|
|
15
|
|
|
|
472
|
|
|
|
—
|
|
|
Auto & Home
|
|
|
2,902
|
|
|
|
180
|
|
|
|
1,930
|
|
|
|
436
|
|
|
|
331
|
|
|
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
27,396
|
|
|
|
13,315
|
|
|
|
29,941
|
|
|
|
889
|
|
|
|
7,122
|
|
|
|
8,834
|
|
|
International
|
|
|
4,248
|
|
|
|
1,024
|
|
|
|
3,240
|
|
|
|
415
|
|
|
|
1,213
|
|
|
|
645
|
|
|
Banking, Corporate & Other
|
|
|
19
|
|
|
|
499
|
|
|
|
4
|
|
|
|
3
|
|
|
|
2,564
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,663
|
|
|
$
|
14,838
|
|
|
$
|
33,185
|
|
|
$
|
1,307
|
|
|
$
|
10,899
|
|
|
$
|
9,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
18,591
|
|
|
$
|
5,786
|
|
|
$
|
17,640
|
|
|
$
|
687
|
|
|
$
|
5,091
|
|
|
$
|
5,594
|
|
|
Retirement Products
|
|
|
2,231
|
|
|
|
2,330
|
|
|
|
2,029
|
|
|
|
1,933
|
|
|
|
1,087
|
|
|
|
—
|
|
|
Corporate Benefit Funding
|
|
|
2,910
|
|
|
|
5,919
|
|
|
|
7,246
|
|
|
|
29
|
|
|
|
460
|
|
|
|
—
|
|
|
Auto & Home
|
|
|
2,971
|
|
|
|
186
|
|
|
|
1,919
|
|
|
|
454
|
|
|
|
355
|
|
|
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
26,703
|
|
|
|
14,221
|
|
|
|
28,834
|
|
|
|
3,103
|
|
|
|
6,993
|
|
|
|
8,543
|
|
|
International
|
|
|
4,565
|
|
|
|
1,249
|
|
|
|
3,338
|
|
|
|
381
|
|
|
|
1,325
|
|
|
|
846
|
|
|
Banking, Corporate & Other
|
|
|
27
|
|
|
|
821
|
|
|
|
53
|
|
|
|
5
|
|
|
|
1,891
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,295
|
|
|
$
|
16,291
|
|
|
$
|
32,225
|
|
|
$
|
3,489
|
|
|
$
|
10,209
|
|
|
$
|
9,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
17,318
|
|
|
$
|
5,998
|
|
|
$
|
16,553
|
|
|
$
|
578
|
|
|
$
|
5,083
|
|
|
$
|
4,972
|
|
|
Retirement Products
|
|
|
2,344
|
|
|
|
2,709
|
|
|
|
1,926
|
|
|
|
846
|
|
|
|
1,136
|
|
|
|
—
|
|
|
Corporate Benefit Funding
|
|
|
1,454
|
|
|
|
6,488
|
|
|
|
6,098
|
|
|
|
38
|
|
|
|
456
|
|
|
|
—
|
|
|
Auto & Home
|
|
|
2,966
|
|
|
|
196
|
|
|
|
1,807
|
|
|
|
468
|
|
|
|
365
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Business
|
|
|
24,082
|
|
|
|
15,391
|
|
|
|
26,384
|
|
|
|
1,930
|
|
|
|
7,040
|
|
|
|
7,954
|
|
|
International
|
|
|
4,091
|
|
|
|
1,247
|
|
|
|
2,814
|
|
|
|
309
|
|
|
|
1,467
|
|
|
|
669
|
|
|
Banking, Corporate & Other
|
|
|
35
|
|
|
|
1,419
|
|
|
|
46
|
|
|
|
11
|
|
|
|
1,371
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,208
|
|
|
$
|
18,057
|
|
|
$
|
29,244
|
|
|
$
|
2,250
|
|
|
$
|
9,878
|
|
|
$
|
8,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes other expenses and policyholder dividends, excluding
amortization of DAC and VOBA charged to other expenses. |
F-187
Supplemental Schedule Of Reinsurance Premiums For Insurance Companies
MetLife,
Inc.
Schedule IV
Consolidated Reinsurance
December 31, 2009, 2008 and 2007
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
Ceded
|
|
|
Assumed
|
|
|
Net Amount
|
|
|
to Net
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
3,800,380
|
|
|
$
|
715,405
|
|
|
$
|
740,196
|
|
|
$
|
3,825,171
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
17,594
|
|
|
$
|
1,816
|
|
|
$
|
1,223
|
|
|
$
|
17,001
|
|
|
|
7.2
|
%
|
|
|
|
|
|
Accident and health
|
|
|
6,897
|
|
|
|
430
|
|
|
|
79
|
|
|
|
6,546
|
|
|
|
1.2
|
%
|
|
|
|
|
|
Property and casualty insurance
|
|
|
2,981
|
|
|
|
79
|
|
|
|
11
|
|
|
|
2,913
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
27,472
|
|
|
$
|
2,325
|
|
|
$
|
1,313
|
|
|
$
|
26,460
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
3,697,999
|
|
|
$
|
715,741
|
|
|
$
|
684,281
|
|
|
$
|
3,666,539
|
|
|
|
18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
17,252
|
|
|
$
|
2,066
|
|
|
$
|
1,224
|
|
|
$
|
16,410
|
|
|
|
7.5
|
%
|
|
|
|
|
|
Accident and health
|
|
|
6,741
|
|
|
|
444
|
|
|
|
226
|
|
|
|
6,523
|
|
|
|
3.5
|
%
|
|
|
|
|
|
Property and casualty insurance
|
|
|
3,065
|
|
|
|
100
|
|
|
|
16
|
|
|
|
2,981
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
27,058
|
|
|
$
|
2,610
|
|
|
$
|
1,466
|
|
|
$
|
25,914
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
3,368,637
|
|
|
$
|
566,998
|
|
|
$
|
489,340
|
|
|
$
|
3,290,979
|
|
|
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
15,184
|
|
|
$
|
1,819
|
|
|
$
|
965
|
|
|
$
|
14,330
|
|
|
|
6.7
|
%
|
|
|
|
|
|
Accident and health
|
|
|
5,900
|
|
|
|
436
|
|
|
|
201
|
|
|
|
5,665
|
|
|
|
3.5
|
%
|
|
|
|
|
|
Property and casualty insurance
|
|
|
3,065
|
|
|
|
116
|
|
|
|
26
|
|
|
|
2,975
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
24,149
|
|
|
$
|
2,371
|
|
|
$
|
1,192
|
|
|
$
|
22,970
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-188
|
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
|
Item 9A.
|
Controls
and Procedures
|
Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures as defined in Exchange Act
Rule 13a-15(e)
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and
procedures are effective.
There were no changes to the Company’s internal control
over financial reporting as defined in Exchange Act
Rule 13a-15(f)
during the quarter ended December 31, 2009 that have
materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Management’s
Annual Report on Internal Control Over Financial
Reporting
Management of MetLife, Inc. and subsidiaries is responsible for
establishing and maintaining adequate internal control over
financial reporting. In fulfilling this responsibility,
estimates and judgments by management are required to assess the
expected benefits and related costs of control procedures. The
objectives of internal control include providing management with
reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition,
and that transactions are executed in accordance with
management’s authorization and recorded properly to permit
the preparation of consolidated financial statements in
conformity with GAAP.
Financial management has documented and evaluated the
effectiveness of the internal control of the Company at
December 31, 2009 pertaining to financial reporting in
accordance with the criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
In the opinion of management, MetLife, Inc. maintained effective
internal control over financial reporting at December 31,
2009.
Deloitte & Touche LLP, an independent registered
public accounting firm, has audited the consolidated financial
statements and consolidated financial statement schedules
included in the Annual Report on
Form 10-K
for the year ended December 31, 2009. The Report of the
Independent Registered Public Accounting Firm on their audit of
the consolidated financial statements and consolidated financial
statement schedules is included at
page F-1.
Attestation
Report of the Company’s Registered Public Accounting
Firm
The Company’s independent registered public accounting
firm, Deloitte & Touche LLP, has issued their
attestation report on management’s internal control over
financial reporting which is set forth below.
174
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MetLife, Inc.:
We have audited the internal control over financial reporting of
MetLife, Inc. and subsidiaries (the “Company”) as of
December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedules as of and for the year ended December 31, 2009,
of the Company and our report dated February 26, 2010
expressed an unqualified opinion on those consolidated financial
statements and financial statement schedules and included an
explanatory paragraph regarding changes in the Company’s
method of accounting for the recognition and presentation of
other-than-temporary
impairment losses for certain investments as required by
accounting guidance adopted on April 1, 2009.
/s/ DELOITTE &
TOUCHE LLP
DELOITTE &
TOUCHE LLP
New York, New York
February 26, 2010
175
|
|
|
Item 9B.
|
Other
Information
|
On February 23, 2010 the Compensation Committee of the
Board of Directors of MetLife, Inc. approved payment of annual
incentive compensation awards, including awards in the following
amounts to the following executive officers (the
“Officers”):
| |
|
|
|
|
|
Name
|
|
Amount
|
|
|
|
|
C. Robert Henrikson
|
|
$
|
3,500,000
|
|
|
William J. Wheeler
|
|
$
|
1,300,000
|
|
|
William J. Toppeta
|
|
$
|
900,000
|
|
|
Steven A. Kandarian
|
|
$
|
1,100,000
|
|
The Committee exercised its judgment in approving these awards
taking into account the Company’s overall business and
financial performance, as well as business unit and individual
Officer performance for 2009. Under the leadership of
Mr. Henrikson and the Holding Company’s Executive
Group, including the Officers, the Company achieved in 2009
operating earnings available to common shareholders of
$2.4 billion, operating earnings available to common
shareholders per diluted share of $2.87, operating return on
common equity of 6.7% and December 31, 2009 book value per
diluted common share, excluding accumulated other comprehensive
income (loss), of $41.50. The Company’s premiums, fee and
other revenues increased to $34.0 billion from
$32.9 billion in 2008. The Company achieved strong results
on the Federal Reserve’s Supervisory Capital Assessment of
the 19 largest financial holding companies (the “stress
test”), and was the only one of the 19 companies that
did not participate in the Troubled Asset Relief Program.
The Committee also considered certain non-financial achievements
in making these awards. The Company held or gained market share
in U.S. Business, grew International’s premiums, fees
and other revenues, maintained risk management and product
pricing discipline, and exceeded 2009 targets in the Operational
Excellence initiative resulting in significant annual expense
savings and improvements in overall business processes.
The Committee recognized the fact that these results were
achieved in a difficult economic climate. It also considered
each Officer’s performance in light of the Officer’s
particular goals in determining the Officer’s annual
incentive award. The factors considered for each Officer will be
described in MetLife, Inc.’s definitive proxy statement for
the Annual Meeting of Shareholders to be held on April 27,
2010.
Section 162(m) of the Internal Revenue Code limits the
deductibility of compensation paid to four of the Holding
Company’s most highly-compensated executives, but exempts
certain “performance-based” compensation from those
limits. Earlier in 2009, the Committee established limits for
awards under the MetLife Annual Variable Incentive Plan
(“AVIP”) to the Holding Company’s Executive Group
members. These limits were established for the tax purpose of
qualifying AVIP awards for 2009 under Section 162(m), and
were based on the Company’s net income for 2009. Since the
Company had negative net income, the Committee was precluded
from making deductible AVIP awards to four of the Holding
Company’s most highly-compensated executives. The annual
incentive awards the Committee approved were not made under AVIP
and will not be deductible with respect to these executives. The
estimated value of the lost deduction is approximately
$2 million.
In making these awards, the Committee took into account all of
the above factors as well as the fact that the Company would
have derived positive net income but for a net investment loss
of $3.2 billion that was related largely to derivative
positions the Company held as part of its overall risk
management and asset-liability management strategies. The risk
management derivatives are part of the Company’s
risk-mitigation strategy to hedge interest rate, equity,
currency, and credit risks. If the Company had not used the risk
management derivatives, management believes the Company may have
been exposed to excessive risks and may not have been managing
its risks in a prudent manner. Accordingly, the Committee
concluded that these net losses were significantly related to
prudent risk management.
Benefit plans in which the Officers participate will be amended
effective February 22, 2010 so that the 2009 annual
incentive compensation awards will be included as part of the
compensation used to determine benefits on the same basis as
AVIP awards.
176
Each of the Officers’ benefits under the MetLife Auxiliary
Pension Plan (the “Auxiliary Pension Plan”) will be
determined based on a definition of compensation that includes
the 2009 annual incentive compensation awards. As a result of
the amendments, Mr. Wheeler’s and
Mr. Kandarian’s pension benefits will reflect a
company contribution equal to 10% of their 2009 annual incentive
compensation awards to their respective personal retirement
accounts. The amendments will increase the annual present value
of Mr. Henrikson’s traditional formula pension benefit
that will be accrued through 2010 (by approximately $180,000)
because the 2009 annual incentive compensation award is included
in the calculation of his traditional formula benefit. Each of
the Officers will also receive a company contribution equal to
4% of their 2009 annual incentive compensation awards in the
Metropolitan Life Auxiliary Savings and Investment Plan, a
nonqualified defined contribution plan.
Each Officer will receive disability benefits coverage from
March 15, 2010 through March 15, 2011, taking into
account the value of the 2009 annual incentive compensation
awards as part of the income that would be replaced should the
Officer qualify for benefits. In addition, Mr. Henrikson
and Mr. Toppeta will each receive survivor income benefits
coverage from January 1, 2011 through March 15, 2011,
taking into account the value of his 2009 annual incentive
compensation award as part of the income that would be replaced
as death benefits.
The above discussion includes references to our performance
measures operating earnings and operating earnings available to
common shareholders that are not based on GAAP. Operating
earnings is the measure of segment profit or loss we use to
evaluate segment performance and allocate resources and,
consistent with GAAP accounting guidance for segment reporting,
is our measure of segment performance. Operating earnings is
also a measure by which our senior management’s and many
other employees’ performance is evaluated for the purposes
of determining their compensation under applicable compensation
plans. Operating earnings available to common shareholders is
defined as operating earnings less preferred stock dividends.
Operating earnings per diluted share is determined by dividing
operating earnings available to common shareholders by the
number of weighted average diluted common shares outstanding.
Operating return on common equity is determined by dividing
operating earnings available to common shareholders by average
common equity excluding accumulated other comprehensive loss.
Book value per diluted common share, excluding accumulated other
comprehensive loss, is determined by dividing book value less
accumulated other comprehensive loss by the number of weighted
average diluted common shares outstanding. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for additional
information regarding how the Company calculates operating
earnings and operating earnings available to common shareholders.
| |
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
(In millions,
|
|
|
|
|
except share and
|
|
|
|
|
per share data)
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(2,318
|
)
|
|
Less: Net investment gains (losses)
|
|
|
(7,772
|
)
|
|
Less: Other adjustments to continuing operations
|
|
|
284
|
|
|
Less: Provision for income tax expense (benefit)
|
|
|
2,683
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
2,487
|
|
|
Less: Preferred stock dividends
|
|
|
122
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
2,365
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for basic operating
earnings available to common shareholders per common share
|
|
|
818,462,150
|
|
|
Incremental common shares from assumed:
|
|
|
|
|
|
Exercise or issuance of stock-based awards
|
|
|
4,213,700
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for diluted operating
earnings available to common shareholders per common share
|
|
|
822,675,850
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders per diluted
share
|
|
$
|
2.87
|
|
|
|
|
|
|
|
177
Part III
|
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information called for by this Item pertaining to Directors
is incorporated herein by reference to the sections entitled
“Proposal One — Election of Directors,”
“Corporate Governance — Information About the
Board of Directors,” “Corporate Governance —
Board Committees,” “Corporate Governance —
Membership on Board Committees” and “Security
Ownership of Directors and Executive Officers —
Section 16(a) Beneficial Ownership Reporting
Compliance” in MetLife, Inc.’s definitive proxy
statement for the Annual Meeting of Shareholders to be held on
April 27, 2010, to be filed by MetLife, Inc. with the
U.S. Securities and Exchange Commission (“SEC”)
pursuant to Regulation 14A within 120 days after the
year ended December 31, 2009 (the “2010 Proxy
Statement”).
The information called for by this Item pertaining to Executive
Officers appears in “Part I — Item 1.
Business — Executive Officers of the Registrant”
and “Security Ownership of Directors and Executive
Officers — Section 16(a) Beneficial Ownership
Reporting Compliance” in the 2010 Proxy Statement.
The Company has adopted the MetLife Financial Management Code of
Professional Conduct (the “Financial Management
Code”), a “code of ethics” as defined under the
rules of the SEC, that applies to the Holding Company’s
Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer, Corporate Controller and all professionals
in finance and finance-related departments. In addition, the
Company has adopted the Directors’ Code of Business Conduct
and Ethics (the “Directors’ Code”) which applies
to all members of the Holding Company’s Board of Directors,
including the Chief Executive Officer, and the Employee Code of
Business Conduct and Ethics (together with the Financial
Management Code and the Directors’ Code, collectively, the
“Ethics Codes”), which applies to all employees of the
Company, including the Holding Company’s Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer.
The Ethics Codes are available on the Company’s website at
http://www.metlife.com/about/corporate-profile/corporate-governance/corporate-conduct/index.html.
The Company intends to satisfy its disclosure obligations under
Item 5.05 of
Form 8-K
by posting information about amendments to, or waivers from a
provision of, the Ethics Codes that apply to the Holding
Company’s Chief Executive Officer, Chief Financial Officer
and Chief Accounting Officer on the Company’s website at
the address given above.
|
|
|
Item 11.
|
Executive
Compensation
|
The information called for by this Item is incorporated herein
by reference to the sections entitled “Corporate
Governance — Board Committees,” “Corporate
Governance — Compensation of Non-Management
Directors,” “Compensation Committee Report,”
“Compensation Discussion and Analysis,” “Summary
Compensation Table,” “Grants of Plan-Based Awards in
2009,” “Outstanding Equity Awards at 2009 Fiscal-Year
End,” “Option Exercises and Stock Vested in
2009,” “Pension Benefits,” “Nonqualified
Deferred Compensation” and “Potential Payments Upon
Termination or
Change-in-Control”
in the 2010 Proxy Statement.
|
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information called for by this Item pertaining to ownership
of the Holding Company’s common stock is incorporated
herein by reference to the sections entitled “Security
Ownership of Directors and Executive Officers” and
“Security Ownership of Certain Beneficial Owners” in
the 2010 Proxy Statement. The following table provides
178
information, at December 31, 2009, regarding the securities
authorized for issuance under the Holding Company’s equity
compensation plans:
Equity
Compensation Plan Information at December 31,
2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
|
Number of Securities to
|
|
|
Weighted-average
|
|
|
Equity Compensation
|
|
|
|
|
be Issued upon Exercise
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected
|
|
|
|
|
Warrants and Rights (2)
|
|
|
Warrants and Rights (2)
|
|
|
in Column (a))
(2)
|
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
Equity compensation plans approved by security holders (1)
|
|
|
41,985,632
|
|
|
$
|
38.51
|
|
|
|
61,820,029
|
|
|
Equity compensation plans not approved by security holders
|
|
|
None
|
|
|
|
—
|
|
|
|
None
|
|
|
Total
|
|
|
41,985,632
|
|
|
$
|
38.51
|
|
|
|
61,820,029
|
|
|
|
|
|
(1) |
|
Includes the MetLife, Inc. 2000 Stock Incentive Plan (the
“2000 Stock Plan”) and the MetLife, Inc.
2000 Directors Stock Plan (the “2000 Directors
Stock Plan”) each of which was approved by MLIC, the sole
shareholder of the Holding Company at the time of approval. The
policyholders of MLIC entitled to vote on its plan of
reorganization (the “Plan”) approved that the Plan,
which included both the 2000 Stock Plan and the
2000 Directors Stock Plan. The policyholders entitled to so
vote received a summary description of each plan, including the
applicable limits on the number of shares available for issuance
under each plan. |
| |
|
(2) |
|
The aggregate number of shares of common stock of the Holding
Company (“Shares”) reserved for issuance under the
MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the
“2005 Stock Plan”), is 68,000,000. In addition,
6,099,881 Shares that were available but had not been
utilized under the 2000 Stock Plan became available for issuance
under the 2005 Stock Plan at the time the 2005 Stock Plan became
effective. At December 31, 2009, 6,919,058 additional
Shares recovered due to forfeiture or expiration of awards under
the 2000 Stock Plan from the time the 2005 Stock Plan became
effective were also available for issuance under the 2005 Stock
Plan. |
| |
|
|
|
Under the 2005 Stock Plan, awards granted may be in the form of
Stock Options, Stock Appreciation Rights, Restricted Stock or
Restricted Stock Units, Performance Shares or Performance Share
Units, Cash-Based Awards, and Stock-Based Awards (each as
defined in the 2005 Stock Plan). At December 31, 2009,
Stock Options, Performance Shares, Restricted Stock Units and
Stock-Based Awards have been awarded under the 2005 Stock Plan. |
| |
|
|
|
Stock Options outstanding as December 31, 2009 are included
in column (a) and are included in column (b) at their
weighted average exercise price. |
| |
|
|
|
Under the award agreements that apply to the Performance Share
awards made as of December 31, 2009, Shares are payable to
eligible award recipients following the conclusion of the
performance period. The number of shares payable is determined
by multiplying the number of performance shares by a performance
factor (from 0% to 200%) based on the performance of the Holding
Company with respect to: (i) change in annual net operating
earnings per share; and (ii) proportionate total
shareholder return, as defined, as a percentile of the
performance of other companies in the Fortune
500®
companies in the Standard & Poor’s Insurance
Index, with regard to the performance period. With respect to
Performance Share awards made in 2009, no Performance Shares
will be payable unless the Holding Company generates positive
net income for either the third year of the performance period
or for the performance period as a whole. In addition, with
respect to Performance Share awards made in 2009, the
performance factor will be multiplied by 0.75 if the Holding
Company’s total shareholder return with regard to the
performance period is zero percent or less. Performance Shares
that were unvested on December 31, 2009, or that vested by
December 31, 2009 but whose performance factor has not yet
been determined and has not yet become payable, are included in
column (a) assuming the maximum performance factor, but are
not included in determining the weighted average in column
(b) because they have no exercise price. |
| |
|
|
|
Under the award agreements that apply to the Restricted Stock
Unit awards, Shares equal to the number of Restricted Stock
Units awarded are normally payable to eligible award recipients
on the third or later |
179
|
|
|
|
|
|
anniversary of the date the Restricted Stock Units were granted.
Restricted Stock Units that were unvested by December 31,
2009 are included in column (a), but are not included in
determining the weighted average in column (b) because they
have no exercise price. |
| |
|
|
|
Shares that had become payable from any awards but had been
deferred and remained unpaid as of December 31, 2009 are
included in column (a), but are not included in determining the
weighted average in column (b) because they have no
exercise price. |
| |
|
|
|
Each Share issued under the 2005 Stock Plan in connection with
awards other than Stock Options or Stock Appreciation Rights
(including Shares payable on account of Performance Shares,
Restricted Stock Units, and Stock-Based Awards) reduces the
number of Shares remaining for issuance under the 2005 Stock
Plan by 1.179 Shares. Accordingly, outstanding Performance
Shares are reflected as reducing the number of Shares remaining
for issuance by a factor of 1.179. Each Share issued under the
2005 Stock Plan in connection with a Stock Option or Stock
Appreciation Right reduces the number of Shares remaining for
issuance under the 2005 Stock Plan by 1.0. Accordingly,
outstanding Stock Options are reflected as reducing the number
of Shares remaining for issuance by a factor of 1.0. |
| |
|
|
|
Share awards to Directors were made under a separate Share award
authorization under the 2000 Directors Stock Plan. Those
awards have not reduced the number of Shares remaining available
for issuance as of December 31, 2009. Under the MetLife,
Inc. 2005 Non-Management Director Stock Compensation Plan (the
“2005 Directors Stock Plan”), awards granted may
be in the form of non-qualified Stock Options, Stock
Appreciation Rights, Restricted Stock or Restricted Stock Units,
or Stock-Based Awards (each as defined in the
2005 Directors Stock Plan). Stock-Based awards have been
made under the 2005 Directors Stock Plan. The number of
Shares reserved for issuance under the 2005 Directors Stock
Plan is 2,000,000. |
| |
|
|
|
Under both the 2005 Stock Plan and the 2005 Directors Stock
Plan, in the event of a corporate event or transaction
(including, but not limited to, a change in the Shares or the
capitalization of the Holding Company) such as a merger,
consolidation, reorganization, recapitalization, separation,
stock dividend, extraordinary dividend, stock split, reverse
stock split, split up, spin-off, or other distribution of stock
or property of the Holding Company, combination of securities,
exchange of securities, dividend in kind, or other like change
in capital structure or distribution (other than normal cash
dividends) to shareholders of the Holding Company, or any
similar corporate event or transaction, the appropriate
committee of the Board of Directors of the Holding Company
(each, a “Committee”), in order to prevent dilution or
enlargement of participants’ rights under the applicable
plan, shall in its sole discretion substitute or adjust, as
applicable, the number and kind of Shares that may be issued
under that plan and shall adjust the number and kind of Shares
subject to outstanding awards. Any Shares related to awards
under either plan which: (i) terminate by expiration,
forfeiture, cancellation, or otherwise without the issuance of
Shares; (ii) are settled in cash either in lieu of Shares
or otherwise; or (iii) are exchanged with the appropriate
Committee’s permission for awards not involving Shares, are
available again for grant under the applicable plan. If the
option price of any Stock Option granted under either plan or
the tax withholding requirements with respect to any award
granted under either plan are satisfied by tendering Shares to
the Holding Company (by either actual delivery or by
attestation), or if a Stock Appreciation Right is exercised,
only the number of Shares issued, net of the Shares tendered, if
any, will be deemed delivered for purposes of determining the
maximum number of Shares available for issuance under that plan.
The maximum number of Shares available for issuance under either
plan shall not be reduced to reflect any dividends or dividend
equivalents that are reinvested into additional Shares or
credited as additional Restricted Stock, Restricted Stock Units,
or Stock-Based Awards. |
180
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information called for by this Item is incorporated herein
by reference to the sections entitled “Corporate
Governance — Procedures for Reviewing Related Person
Transactions” and “Corporate Governance —
Information About the Board of Directors —
Responsibilities, Independence and Composition of the Board of
Directors” in the 2010 Proxy Statement.
|
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information called for by this item is incorporated herein
by reference to the section entitled
“Proposal Two — Ratification of Appointment
of the Independent Auditor” in the 2010 Proxy Statement.
181
Part IV
|
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated
Financial Statements and Schedules on page 173.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to
Consolidated Financial Statements and Schedules on page 173.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins
on
page E-1.
182
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
February 26, 2010
METLIFE, INC.
|
|
|
| |
By
|
/s/ C.
Robert Henrikson
|
Name: C. Robert Henrikson
|
|
|
| |
Title:
|
Chairman of the Board, President
|
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
/s/ Sylvia
Mathews Burwell
Sylvia
Mathews Burwell
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Eduardo
Castro-Wright
Eduardo
Castro-Wright
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Burton
A. Dole, Jr.
Burton
A. Dole, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Cheryl
W. Grisé
Cheryl
W. Grisé
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ R.
Glenn Hubbard
R.
Glenn Hubbard
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ John
M. Keane
John
M. Keane
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Alfred
F. Kelly, Jr.
Alfred
F. Kelly, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ James
M. Kilts
James
M. Kilts
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Catherine
R. Kinney
Catherine
R. Kinney
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Hugh
B. Price
Hugh
B. Price
|
|
Director
|
|
February 26, 2010
|
183
| |
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
/s/ David
Satcher, M.D.
David
Satcher, M.D.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Kenton
J. Sicchitano
Kenton
J. Sicchitano
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ William
C. Steere, Jr.
William
C. Steere, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Lulu
C. Wang
Lulu
C. Wang
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ C.
Robert Henrikson
C.
Robert Henrikson
|
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ William
J. Wheeler
William
J. Wheeler
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
February 26, 2010
|
|
|
|
|
|
|
|
/s/ Peter
M. Carlson
Peter
M. Carlson
|
|
Executive Vice President, Finance Operations and Chief
Accounting Officer (Principal Accounting Officer)
|
|
February 26, 2010
|
184
Exhibit Index
(Note Regarding Reliance on Statements in Our
Contracts: In reviewing the agreements included
as exhibits to this Annual Report on
Form 10-K,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife, Inc., its subsidiaries or the other parties to the
agreements. The agreements contain representations and
warranties by each of the parties to the applicable agreement.
These representations and warranties have been made solely for
the benefit of the other parties to the applicable agreement and
(i) should not in all instances be treated as categorical
statements of fact, but rather as a way of allocating the risk
to one of the parties if those statements prove to be
inaccurate; (ii) have been qualified by disclosures that
were made to the other party in connection with the negotiation
of the applicable agreement, which disclosures are not
necessarily reflected in the agreement; (iii) may apply
standards of materiality in a way that is different from what
may be viewed as material to investors; and (iv) were made
only as of the date of the applicable agreement or such other
date or dates as may be specified in the agreement and are
subject to more recent developments. Accordingly, these
representations and warranties may not describe the actual state
of affairs as of the date they were made or at any other time.
Additional information about MetLife, Inc. and its subsidiaries
may be found elsewhere in this Annual Report on
Form 10-K
and MetLife, Inc.’s other public filings, which are
available without charge through the SEC’s website at
www.sec.gov.)
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
2
|
.1
|
|
|
Plan of Reorganization (Incorporated by reference to Exhibit 2.1
to MetLife, Inc.’s Registration Statement on Form S-1 (No.
333-91517) (the “S-1 Registration Statement”)).
|
|
|
|
|
2
|
.2
|
|
|
Amendment to Plan of Reorganization dated as of March 9, 2000
(Incorporated by reference to Exhibit 2.2 to the S-1
Registration Statement).
|
|
|
|
|
2
|
.3
|
|
|
Acquisition Agreement between MetLife, Inc. and Citigroup Inc.,
dated as of January 31, 2005.
|
|
|
|
|
3
|
.1
|
|
|
Amended and Restated Certificate of Incorporation of MetLife,
Inc. (Incorporated by reference to Exhibit 3.1 to MetLife,
Inc.’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 (the “2006 Annual Report”)).
|
|
|
|
|
3
|
.2
|
|
|
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of MetLife, Inc., filed
with the Secretary of State of Delaware on April 7, 2000
(Incorporated by reference to Exhibit 3.2 to the 2006 Annual
Report).
|
|
|
|
|
3
|
.3
|
|
|
Certificate of Designations of Floating Rate Non-Cumulative
Preferred Stock, Series A, of MetLife, Inc., filed with the
Secretary of State of Delaware on June 10, 2005 (Incorporated by
reference to Exhibit 99.5 to MetLife, Inc.’s Registration
Statement on Form 8-A filed on June 10, 2005).
|
|
|
|
|
3
|
.4
|
|
|
Certificate of Designations of 6.50% Non-Cumulative Preferred
Stock, Series B, of MetLife, Inc., filed with the Secretary of
State of Delaware on June 14, 2005 (Incorporated by reference to
Exhibit 99.5 to MetLife, Inc.’s Registration Statement on
Form 8-A filed on June 15, 2005).
|
|
|
|
|
3
|
.5
|
|
|
MetLife, Inc. Amended and Restated By-Laws effective January 26,
2010 (Incorporated by reference to Exhibit 3.1 to MetLife,
Inc.’s Current Report on Form 8-K dated January 29, 2010).
|
|
|
|
|
4
|
.1(a)
|
|
|
Indenture dated as of November 9, 2001 between MetLife, Inc. and
Bank One Trust Company, N.A. (predecessor to The Bank of New
York Trust Company, N.A.) relating to Senior Debt Securities
(Incorporated by reference to Exhibit 4.1(a) to the 2006 Annual
Report).
|
|
|
|
|
4
|
.1(b)
|
|
|
Form of Indenture for Senior Debt Securities between MetLife,
Inc. and one or more banking institutions to be qualified as
Trustee pursuant to Section 305(b)(2) of the Trust Indenture Act
of 1939 (Included in Exhibit 4.1(a) incorporated by reference to
Exhibit 4.1(a) to the 2006 Annual Report, except for the name of
the trustee).
|
|
|
|
|
4
|
.2
|
|
|
Second Supplemental Indenture dated as of November 27, 2001
between MetLife, Inc. and Bank One Trust Company, N.A.
(predecessor to The Bank of New York Trust Company, N.A.)
relating to the 6.125% Senior Notes due December 1, 2011
(Incorporated by reference to Exhibit 4.3 to the 2006 Annual
Report).
|
|
|
E-1
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
4
|
.3
|
|
|
Third Supplemental Indenture dated as of December 10, 2002
between MetLife, Inc. and Bank One Trust Company, N.A.
(predecessor to The Bank of New York Trust Company, N.A.)
relating to the 5.375% Senior Notes due December 15, 2012
(Incorporated by reference to Exhibit 4.3 to MetLife,
Inc.’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2007 (the “2007 Annual Report”)).
|
|
|
|
|
4
|
.4
|
|
|
Fourth Supplemental Indenture dated as of December 10, 2002
between MetLife, Inc. and Bank One Trust Company, N.A.
(predecessor to The Bank of New York Trust Company, N.A.)
relating to the 6.50% Senior Notes due December 15, 2032
(Incorporated by reference to Exhibit 4.4 to the 2007 Annual
Report).
|
|
|
|
|
4
|
.5
|
|
|
Fifth Supplemental Indenture dated as of November 21, 2003
between MetLife, Inc. and J.P. Morgan Trust Company,
National Association (predecessor to The Bank of New York Trust
Company, N.A.) relating to the 5.875% Senior Notes due
November 21, 2033 (Incorporated by reference to Exhibit 4.5 to
MetLife, Inc.’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008 (the “2008 Annual
Report”)).
|
|
|
|
|
4
|
.6
|
|
|
Sixth Supplemental Indenture dated as of November 24, 2003
between MetLife, Inc. and J.P. Morgan Trust Company,
National Association (predecessor to The Bank of New York Trust
Company, N.A.) relating to the 5.00% Senior Notes due
November 24, 2013 (Incorporated by reference to Exhibit 4.6 to
the 2008 Annual Report).
|
|
|
|
|
4
|
.7
|
|
|
Seventh Supplemental Indenture dated as of June 3, 2004 between
MetLife, Inc. and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as trustee, relating to the 5.50% Senior Notes due
June 15, 2014.
|
|
|
|
|
4
|
.8
|
|
|
Eighth Supplemental Indenture dated as of June 3, 2004 between
MetLife, Inc. and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as trustee, relating to the 6.375% Senior Notes due
June 15, 2034.
|
|
|
|
|
4
|
.9
|
|
|
Ninth Supplemental Indenture dated as of July 23, 2004 between
MetLife, Inc. and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as trustee, relating to the 5.50% Senior Notes due
June 15, 2014.
|
|
|
|
|
4
|
.10
|
|
|
Tenth Supplemental Indenture dated as of July 23, 2004 between
MetLife, Inc. and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as trustee, relating to the 6.375% Senior Notes due
June 15, 2034.
|
|
|
|
|
4
|
.11
|
|
|
Eleventh Supplemental Indenture dated as of December 9, 2004
between MetLife, Inc. and J.P. Morgan Trust Company,
National Association (predecessor to The Bank of New York Trust
Company, N.A.), as trustee, relating to the 5.375% Senior
Notes due December 9, 2024.
|
|
|
|
|
4
|
.12
|
|
|
Twelfth Supplemental Indenture dated as of June 23, 2005 between
MetLife, Inc. and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as trustee, relating to the 5.00% Senior Notes due
June 15, 2015 (Incorporated by reference to Exhibit 4.1 to
MetLife, Inc.’s Current Report on Form 8-K dated June 23,
2005 (the “June 23, 2005 Form 8-K”)).
|
|
|
|
|
4
|
.13
|
|
|
Thirteenth Supplemental Indenture dated as of June 23, 2005
between MetLife, Inc. and J.P. Morgan Trust Company,
National Association (predecessor to The Bank of New York Trust
Company, N.A.), as trustee, relating to the 5.70% Senior
Notes due June 15, 2035 (Incorporated by reference to Exhibit
4.3 to the June 23, 2005 Form 8-K).
|
|
|
|
|
4
|
.14
|
|
|
Fourteenth Supplemental Indenture dated as of June 29, 2005
between MetLife, Inc. and J.P. Morgan Trust Company,
National Association (predecessor to The Bank of New York Trust
Company, N.A.), as trustee, relating to the 5.25% Senior
Notes due June 29, 2020 (Incorporated by reference to Exhibit
4.1 to MetLife, Inc.’s Current Report on Form 8-K dated
June 29, 2005 (the “June 29, 2005 Form 8-K”)).
|
|
|
|
|
4
|
.15
|
|
|
Fifteenth Supplemental Indenture, dated May 29, 2009, between
MetLife, Inc. and The Bank of New York Mellon Trust Company,
N.A. (as successor in interest to J.P. Morgan Trust
Company, National Association (as successor to Bank One Trust
Company, N.A.)), as trustee, relating to the 6.75% Senior
Notes due June 1, 2016 (Incorporated by reference to Exhibit 4.1
to MetLife, Inc.’s Current Report on Form 8-K dated May 29,
2009 (the “May 2009 Form 8-K”)).
|
|
|
E-2
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
4
|
.16
|
|
|
Form of 6.125% Senior Note due December 1, 2011 (Included
in Exhibit 4.2 incorporated by reference to Exhibit 4.3 to the
2006 Annual Report).
|
|
|
|
|
4
|
.17
|
|
|
Form of 5.375% Senior Note due December 15, 2012 (Included
in Exhibit 4.3 incorporated by reference to Exhibit 4.3 to the
2007 Annual Report).
|
|
|
|
|
4
|
.18
|
|
|
Form of 6.50% Senior Note due December 15, 2032 (Included
in Exhibit 4.4 incorporated by reference to Exhibit 4.4 to the
2007 Annual Report).
|
|
|
|
|
4
|
.19
|
|
|
Form of 5.875% Senior Note due November 21, 2033 (Included
in Exhibit 4.5 incorporated by reference to Exhibit 4.5 to the
2008 Annual Report).
|
|
|
|
|
4
|
.20
|
|
|
Form of 5.00% Senior Note due November 24, 2013 (Included
in Exhibit 4.6 incorporated by reference to Exhibit 4.6 to the
2008 Annual Report).
|
|
|
|
|
4
|
.21
|
|
|
Form of 5.50% Senior Note due June 15, 2014 (Included in
Exhibit 4.7).
|
|
|
|
|
4
|
.22
|
|
|
Form of 6.375% Senior Note due June 15, 2034 (Included in
Exhibit 4.8).
|
|
|
|
|
4
|
.23
|
|
|
Form of 5.50% Senior Note due June 15, 2014 (Included in
Exhibit 4.9).
|
|
|
|
|
4
|
.24
|
|
|
Form of 6.375% Senior Note due June 15, 2034 (Included in
Exhibit 4.10).
|
|
|
|
|
4
|
.25
|
|
|
Form of 5.375% Senior Note due December 9, 2024 (Included
in Exhibit 4.11).
|
|
|
|
|
4
|
.26
|
|
|
Form of 5.00% Senior Note due June 15, 2015 (Included in
Exhibit 4.12 incorporated by reference to Exhibit 4.1 to the
June 23, 2005 Form 8-K).
|
|
|
|
|
4
|
.27
|
|
|
Form of 5.70% Senior Note due June 15, 2035 (Included in
Exhibit 4.13 incorporated by reference to Exhibit 4.3 to the
June 23, 2005 Form 8-K).
|
|
|
|
|
4
|
.28
|
|
|
Form of 5.25% Senior Note due June 29, 2020 (Included in
Exhibit 4.14 incorporated by reference to Exhibit 4.1 to the
June 29, 2005 Form 8-K).
|
|
|
|
|
4
|
.29
|
|
|
Form of 6.75% Senior Note due June 1, 2016 (Included in
Exhibit 4.15 incorporated by reference to Exhibit 4.1 to the May
2009 Form 8-K).
|
|
|
|
|
4
|
.30(a)
|
|
|
Indenture dated as of June 21, 2005 between MetLife, Inc. and
J.P. Morgan Trust Company, National Association
(predecessor to The Bank of New York Trust Company, N.A.)
relating to Subordinated Debt Securities (the “Subordinated
Indenture”) (Incorporated by reference to Exhibit 4.5 to
MetLife, Inc.’s Current Report on Form 8-K dated June 22,
2005 (the “June 22, 2005 Form 8-K”)).
|
|
|
|
|
4
|
.30(b)
|
|
|
Form of Indenture for Subordinated Debt Securities between
MetLife, Inc. and one or more banking institutions to be
qualified as Trustee pursuant to Section 305(b)(2) of the Trust
Indenture Act of 1939 (Incorporated by reference to Exhibit
4.30(a), except for the name of the trustee).
|
|
|
|
|
4
|
.31
|
|
|
First Supplemental Indenture dated as of June 21, 2005 to the
Subordinated Indenture between MetLife, Inc. and
J.P. Morgan Trust Company, National Association
(predecessor to The Bank of New York Trust Company, N.A.)
(Incorporated by reference to Exhibit 4.6 to the June 22, 2005
Form 8-K).
|
|
|
|
|
4
|
.32
|
|
|
Second Supplemental Indenture dated as of June 21, 2005 to the
Subordinated Indenture between MetLife, Inc. and
J.P. Morgan Trust Company, National Association
(predecessor to The Bank of New York Trust Company, N.A.)
(Incorporated by reference to Exhibit 4.8 to the June 22, 2005
Form 8-K).
|
|
|
|
|
4
|
.33
|
|
|
Third Supplemental Indenture dated as of December 21, 2006 to
the Subordinated Indenture between MetLife, Inc. and The Bank of
New York Trust Company, N.A. (as successor to J.P. Morgan
Trust Company, National Association) (Incorporated by reference
to Exhibit 4.1 to MetLife, Inc.’s Current Report on Form
8-K dated December 22, 2006 (the “December 2006 Form
8-K”)).
|
|
|
|
|
4
|
.34
|
|
|
Sixth Supplemental Indenture dated as of August 7, 2008 to the
Subordinated Indenture between MetLife, Inc. and The Bank of New
York Mellon Trust Company, N.A. (as successor in interest to
J.P. Morgan Trust Company, National Association), as
trustee (Incorporated by reference to Exhibit 4.1 to MetLife,
Inc.’s Current Report on Form 8-K dated August 8, 2008).
|
|
|
E-3
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
4
|
.35
|
|
|
Seventh Supplemental Indenture dated February 6, 2009 for the
Subordinated Indenture between MetLife, Inc. and The Bank of New
York Mellon Trust Company, N.A. (as successor in interest to
J.P. Morgan Trust Company, National Association), as
trustee (Incorporated by reference to Exhibit 4.1 to MetLife,
Inc.’s Current Report on Form 8-K dated February 9, 2009).
|
|
|
|
|
4
|
.36
|
|
|
Eighth Supplemental Indenture dated July 8, 2009 to the
Subordinated Indenture between MetLife, Inc. and The Bank of New
York Mellon Trust Company, N.A. (as successor in interest to
J.P. Morgan Trust Company, National Association), as
trustee (Incorporated by reference to Exhibit 4.1 to MetLife,
Inc.’s Current Report on Form 8-K dated July 8, 2009 (the
“July 2009 Form 8-K”)).
|
|
|
|
|
4
|
.37
|
|
|
Form of Series A Debenture (Incorporated by reference to Exhibit
4.7 to the June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.38
|
|
|
Form of Series B Debenture (Incorporated by reference to Exhibit
4.9 to the June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.39
|
|
|
Form of junior subordinated debenture (Included in Exhibit 4.33
incorporated by reference to Exhibit 4.1 to the December 2006
Form 8-K).
|
|
|
|
|
4
|
.40
|
|
|
Form of security certificate representing MetLife, Inc.’s
6.817% Senior Debt Securities, Series A, due 2018
(Incorporated by reference to Exhibit 4.1 to MetLife,
Inc.’s Current Report on Form 8-K dated August 15, 2008).
|
|
|
|
|
4
|
.41
|
|
|
Form of security certificate representing MetLife, Inc.’s
7.717% Senior Debt Securities, Series B, due 2019
(Incorporated by reference to Exhibit 4.1 to MetLife Inc.’s
Current Report on
Form 8-K
dated February 18, 2009).
|
|
|
|
|
4
|
.42
|
|
|
Form of security certificate representing MetLife, Inc.’s
10.750% Fixed-to-Floating Rate Junior Subordinated Debentures
due 2069 (Included in Exhibit 4.36 incorporated by reference to
Exhibit 4.1 to the July 2009 Form 8-K).
|
|
|
|
|
4
|
.43
|
|
|
Certificate of Trust of MetLife Capital Trust III
(Incorporated by reference to Exhibit 4.7 to MetLife,
Inc.’s, MetLife Capital Trust II’s and MetLife Capital
Trust III’s Registration Statement on Form S-3 (Nos.
333-61282, 333-61282-01 and 333-61282-02) (the “2001 S-3
Registration Statement”)).
|
|
|
|
|
4
|
.44
|
|
|
Certificate of Amendment to Certificate of Trust of MetLife
Capital Trust III (Incorporated by reference to Exhibit 4.6
to MetLife, Inc.’s., MetLife Capital Trust II’s and
MetLife Capital Trust III’s Registration Statement on Form
S-3 (Nos. 333-112073, 333-112073-01 and
333-112073-02)
(the “2004 S-3 Registration Statement”)).
|
|
|
|
|
4
|
.45
|
|
|
Certificate of Trust of MetLife Capital Trust V (Incorporated by
reference to Exhibit 4.3 to MetLife, Inc.’s, MetLife
Capital Trust V’s, MetLife Capital Trust VI’s, MetLife
Capital Trust VII’s, MetLife Capital Trust VIII’s and
MetLife Capital Trust IX’s Registration Statement on Form
S-3 (Nos. 333-147180, 333-147180-01, 333-147180-02,
333-147180-03, 333-147180-04 and 333-147180-05) (the “2007
S-3 Registration Statement”)).
|
|
|
|
|
4
|
.46
|
|
|
Certificate of Trust of MetLife Capital Trust VI (Incorporated
by reference to Exhibit 4.4 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.47
|
|
|
Certificate of Trust of MetLife Capital Trust VII (Incorporated
by reference to Exhibit 4.5 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.48
|
|
|
Certificate of Trust of MetLife Capital Trust VIII (Incorporated
by reference to Exhibit 4.6 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.49
|
|
|
Certificate of Trust of MetLife Capital Trust IX (Incorporated
by reference to Exhibit 4.7 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.50
|
|
|
Amended and Restated Declaration of Trust of MetLife Capital
Trust III dated as of June 21, 2005 (Incorporated by
reference to Exhibit 4.17 to the June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.51
|
|
|
Declaration of Trust of MetLife Capital Trust V (Incorporated by
reference to Exhibit 4.8 to the 2007 S-3 Registration
Statement).
|
|
|
E-4
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
4
|
.52
|
|
|
Declaration of Trust of MetLife Capital Trust VI (Incorporated
by reference to Exhibit 4.9 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.53
|
|
|
Declaration of Trust of MetLife Capital Trust VII (Incorporated
by reference to Exhibit 4.10 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.54
|
|
|
Declaration of Trust of MetLife Capital Trust VIII (Incorporated
by reference to Exhibit 4.11 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.55
|
|
|
Declaration of Trust of MetLife Capital Trust IX (Incorporated
by reference to Exhibit 4.12 to the 2007 S-3 Registration
Statement).
|
|
|
|
|
4
|
.56
|
|
|
Form of Amended and Restated Declaration of Trust (substantially
identical, except for names and dates, for MetLife Capital
Trust V, MetLife Capital Trust VI, MetLife Capital Trust
VII, MetLife Capital Trust VIII and MetLife Capital Trust IX)
(Incorporated by reference to Exhibit 4.13 to the 2007 S-3
Registration Statement).
|
|
|
|
|
4
|
.57
|
|
|
Form of Trust Preferred Security Certificate (substantially
identical, except for names and dates, for MetLife Capital
Trust V, MetLife Capital Trust VI, MetLife Capital Trust
VII, MetLife Capital Trust VIII and MetLife Capital Trust IX)
(Included in Exhibit 4.56 incorporated by reference to Exhibit
4.13 to the 2007 S-3 Registration Statement).
|
|
|
|
|
4
|
.58
|
|
|
Guarantee Agreement dated June 21, 2005 by and between MetLife,
Inc., as Guarantor, and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as Guarantee Trustee, relating to MetLife Capital
Trust III (Incorporated by reference to Exhibit 4.19 to the
June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.59
|
|
|
Form of Trust Preferred Securities Guarantee Agreement
(substantially identical, except for names and dates, for
MetLife Capital Trust V, MetLife Capital Trust VI, MetLife
Capital Trust VII, MetLife Capital Trust VIII and MetLife
Capital Trust IX) (Incorporated by reference to Exhibit 4.15 to
the 2007 S-3 Registration Statement).
|
|
|
|
|
4
|
.60
|
|
|
Form of Common Securities Guarantee Agreement (substantially
identical, except for names and dates, for MetLife Capital
Trust V, MetLife Capital Trust VI, MetLife Capital Trust
VII, MetLife Capital Trust VIII and MetLife Capital Trust IX)
(Incorporated by reference to Exhibit 4.16 to the 2007 S-3
Registration Statement).
|
|
|
|
|
4
|
.61
|
|
|
Removal and Appointment of Trustees of MetLife Capital
Trust III (Incorporated by reference to Exhibit 4.10 to the
2004 S-3 Registration Statement).
|
|
|
|
|
4
|
.62
|
|
|
Form of Certificate for Common Stock, par value $0.01 per share
(Incorporated by reference to Exhibit 4.1 to the S-1
Registration Statement).
|
|
|
|
|
4
|
.63
|
|
|
Rights Agreement dated as of April 4, 2000 between MetLife, Inc.
and ChaseMellon Shareholder Services, L.L.C. (predecessor to
Mellon Investor Services LLC) (Incorporated by reference to
Exhibit 4.48 to the 2006 Annual Report).
|
|
|
|
|
4
|
.64
|
|
|
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of MetLife, Inc., filed
with the Secretary of State of Delaware on April 7, 2000 (See
Exhibit 3.2 above).
|
|
|
|
|
4
|
.65
|
|
|
Form of Right Certificate (Included as Exhibit B of Exhibit 4.63
incorporated by reference to Exhibit 4.48 to the 2006 Annual
Report).
|
|
|
|
|
4
|
.66
|
|
|
Form of Warrant Agreement (Incorporated by reference to Exhibit
4.21 to the 2007 S-3 Registration Statement)**.
|
|
|
|
|
4
|
.67
|
|
|
Form of Deposit Agreement (Incorporated by reference to Exhibit
4.22 to the 2007 S-3 Registration Statement)**.
|
|
|
|
|
4
|
.68
|
|
|
Form of Depositary Receipt (Included in Exhibit 4.67
incorporated by reference to Exhibit 4.22 to the 2007 S-3
Registration Statement)**.
|
|
|
|
|
4
|
.69
|
|
|
Form of Purchase Contract Agreement (Incorporated by reference
to Exhibit 4.24 to the 2007 S-3 Registration Statement)**.
|
|
|
|
|
4
|
.70
|
|
|
Form of Pledge Agreement (Incorporated by reference to Exhibit
4.25 to the 2007 S-3 Registration Statement)**.
|
|
|
E-5
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
4
|
.71
|
|
|
Form of Unit Agreement (Incorporated by reference to Exhibit
4.26 to the 2007 S-3 Registration Statement)**.
|
|
|
|
|
4
|
.72
|
|
|
Stock Purchase Contract Agreement dated June 21, 2005 between
MetLife, Inc. and J.P. Morgan Trust Company, National
Association (predecessor to The Bank of New York Trust Company,
N.A.), as Stock Purchase Contract Agent (Incorporated by
reference to Exhibit 4.1 to the June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.73
|
|
|
Form of Normal Common Equity Unit Certificate (Incorporated by
reference to Exhibit 4.2 to the June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.74
|
|
|
Form of Stripped Common Equity Unit Certificate (Incorporated by
reference to Exhibit 4.3 to the June 22, 2005 Form 8-K).
|
|
|
|
|
4
|
.75
|
|
|
Pledge Agreement dated as of June 21, 2005 among MetLife, Inc.,
JP Morgan Chase Bank, National Association (predecessor to The
Bank of New York Trust Company, N.A.), as Collateral Agent,
Custodial Agent and Securities Intermediary, and J.P Morgan
Trust Company, National Association (predecessor to The Bank of
New York Trust Company, N.A.), as Stock Purchase Contract Agent
(Incorporated by reference to Exhibit 4.4 to the June 22, 2005
Form 8-K).
|
|
|
|
|
4
|
.76
|
|
|
Certificate of Designations of Floating Rate Non-Cumulative
Preferred Stock, Series A, of MetLife, Inc., filed with the
Secretary of State of Delaware on June 10, 2005 (See Exhibit 3.3
above).
|
|
|
|
|
4
|
.77
|
|
|
Form of Stock Certificate, Floating Rate Non-Cumulative
Preferred Stock, Series A, of MetLife, Inc. (Incorporated by
reference of Exhibit 99.6 to MetLife, Inc.’s Registration
Statement on Form 8-A filed on June 10, 2005).
|
|
|
|
|
4
|
.78
|
|
|
Certificate of Designations of 6.50% Non-Cumulative Preferred
Stock, Series B, of MetLife, Inc., filed with the Secretary of
State of Delaware on June 14, 2005 (See Exhibit 3.4 above).
|
|
|
|
|
4
|
.79
|
|
|
Form of Stock Certificate, 6.50% Non-Cumulative Preferred Stock,
Series B, of MetLife, Inc. (Incorporated by reference to Exhibit
99.6 to MetLife, Inc.’s Registration Statement on
Form 8-A
filed on June 15, 2005).
|
|
|
|
|
4
|
.80
|
|
|
Replacement Capital Covenant, dated as of December 21, 2006
(Incorporated by reference to Exhibit 4.2 to the December 2006
Form 8-K).
|
|
|
|
|
4
|
.81
|
|
|
Replacement Capital Covenant, dated as of December 12, 2007
(Incorporated by reference to Exhibit 4.2 to MetLife,
Inc.’s Current Report on Form 8-K dated December 12, 2007).
|
|
|
|
|
4
|
.82
|
|
|
Replacement Capital Covenant, dated as of April 8, 2008
(Incorporated by reference to Exhibit 4.2 to MetLife,
Inc.’s Current Report on Form 8-K dated April 8, 2008).
|
|
|
|
|
4
|
.83
|
|
|
Replacement Capital Covenant, dated as of December 30, 2008
(Incorporated by reference to Exhibit 4.1 to MetLife,
Inc.’s Current Report on Form 8-K dated December 30, 2008
(the “December 2008 Form 8-K”)).
|
|
|
|
|
4
|
.84
|
|
|
Replacement Capital Covenant, dated as of July 8, 2009
(Incorporated by reference to Exhibit 4.2 to the July 2009
Form 8-K).
|
|
|
|
|
10
|
.1
|
|
|
MetLife Executive Severance Plan (effective as of December 17,
2007) (Incorporated by reference to Exhibit 10.2 to MetLife,
Inc.’s Current Report on Form 8-K dated December 13, 2007)*.
|
|
|
|
|
10
|
.2
|
|
|
MetLife Executive Severance Plan (as amended and restated
effective June 14, 2010) (Incorporated by reference to Exhibit
10.1 to MetLife, Inc.’s Current Report on Form 8-K dated
December 21, 2009 (the “December 2009 Form 8-K”))*.
|
|
|
|
|
10
|
.3
|
|
|
Separation Agreement, Waiver and General Release dated as of
February 27, 2009 between Ruth A. Fattori and MetLife Group,
Inc. (Incorporated by reference to Exhibit 10.1 to MetLife,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2009)*.
|
|
|
|
|
10
|
.4
|
|
|
Separation Agreement, Waiver and General Release dated August
17, 2009 between Lisa M. Weber and MetLife Group, Inc.
(Incorporated by reference to Exhibit 10.1 to MetLife,
Inc.’s Current Report on Form 8-K dated September 3,
2009).*
|
|
|
E-6
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
10
|
.5
|
|
|
MetLife, Inc. 2000 Stock Incentive Plan, as amended and restated
March 28, 2000 (Incorporated by reference to Exhibit 10.7 to the
S-1 Registration Statement)*.
|
|
|
|
|
10
|
.6
|
|
|
MetLife, Inc. 2000 Stock Incentive Plan, as amended, effective
February 8, 2002 (Incorporated by reference to Exhibit 10.13 to
the 2007 Annual Report)*.
|
|
|
|
|
10
|
.7
|
|
|
Form of Management Stock Option Agreement under the MetLife,
Inc. 2000 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.4 to the 2008 Annual Report)*.
|
|
|
|
|
10
|
.8
|
|
|
Form of Management Stock Option Agreement under the 2005 SIC
Plan (effective December 15, 2009) (Incorporated by
reference to Exhibit 10.3 to the December 2009
Form 8-K)*.
|
|
|
|
|
10
|
.9
|
|
|
MetLife, Inc. 2000 Directors Stock Plan, as amended and
restated March 28, 2000 (Incorporated by reference to Exhibit
10.8 to the S-1 Registration Statement)*.
|
|
|
|
|
10
|
.10
|
|
|
MetLife, Inc. 2000 Directors Stock Plan, as amended
effective February 8, 2002 (Incorporated by reference to Exhibit
10.17 to the 2007 Annual Report)*.
|
|
|
|
|
10
|
.11
|
|
|
Form of Director Stock Option Agreement under the MetLife, Inc.
2000 Directors Stock Plan (Incorporated by reference to
Exhibit 10.7 to the 2008 Annual Report)*.
|
|
|
|
|
10
|
.12
|
|
|
MetLife, Inc. 2005 Stock and Incentive Compensation Plan,
effective April 15, 2005 (the “2005 SIC Plan”)*.
|
|
|
|
|
10
|
.13
|
|
|
MetLife, Inc. 2005 Non-Management Director Stock Compensation
Plan, effective April 15, 2005*.
|
|
|
|
|
10
|
.14
|
|
|
Form of Management Stock Option Agreement under the 2005 SIC
Plan*.
|
|
|
|
|
10
|
.15
|
|
|
Form of Management Stock Option Agreement under the 2005 SIC
Plan (effective as of April 25, 2007) (Incorporated by reference
to Exhibit 10.4 to MetLife, Inc.’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2007 (the “First
Quarter 2007 10-Q”))*.
|
|
|
|
|
10
|
.16
|
|
|
Amendment to Stock Option Agreements under the 2005 SIC Plan
(effective as of April 25, 2007) (Incorporated by reference to
Exhibit 10.1 to the First Quarter 2007 10-Q)*.
|
|
|
|
|
10
|
.17
|
|
|
Form of Management Restricted Stock Unit Agreement under the
2005 SIC Plan (Incorporated by reference to Exhibit 10.19 to
MetLife, Inc.’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2004)*.
|
|
|
|
|
10
|
.18
|
|
|
Amendment to Management Restricted Stock Unit Agreement under
the 2005 SIC Plan (effective December 31, 2005) (Incorporated by
reference to Exhibit 10.2 to MetLife, Inc.’s Current Report
on Form 8-K dated January 10, 2006 (the “January 10, 2006
Form 8-K”))*.
|
|
|
|
|
10
|
.19
|
|
|
Form of Management Restricted Stock Unit Agreement under the
2005 SIC Plan (effective December 31, 2005) (Incorporated by
reference to Exhibit 10.4 to the January 10, 2006
Form 8-K)*.
|
|
|
|
|
10
|
.20
|
|
|
Form of Management Restricted Stock Unit Agreement under the
2005 SIC Plan (effective as of April 25, 2007) (Incorporated by
reference to Exhibit 10.6 to the First Quarter 2007 10-Q)*.
|
|
|
|
|
10
|
.21
|
|
|
Amendment to Restricted Stock Unit Agreements under the 2005 SIC
Plan (effective as of April 25, 2007) (Incorporated by reference
to Exhibit 10.3 to the First Quarter 2007 10-Q)*.
|
|
|
|
|
10
|
.22
|
|
|
Form of Management Restricted Stock Unit Agreement under the
2005 SIC Plan (effective December 11, 2007) (Incorporated by
reference to Exhibit 10.5 to MetLife, Inc.’s Current Report
on Form 8-K dated December 13, 2007 (the “December 13, 2007
Form 8-K”))*.
|
|
|
|
|
10
|
.23
|
|
|
Amendment to Restricted Stock Unit Agreements under the 2005 SIC
Plan (effective as of December 31, 2007) (Incorporated by
reference to Exhibit 10.29 to the 2007 Annual Report)*.
|
|
|
|
|
10
|
.24
|
|
|
Form of Management Restricted Stock Unit Agreement under the
2005 SIC Plan (effective December 15, 2009) (Incorporated by
reference to Exhibit 10.4 to the December 2009
Form 8-K)*.
|
|
|
|
|
10
|
.25
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective January 27, 2009) (Incorporated by reference
to Exhibit 10.1 to MetLife, Inc.’s Current Report on Form
8-K dated January 30, 2009)*.
|
|
|
E-7
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
10
|
.26
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective February 24, 2009) (Incorporated by
reference to Exhibit 10.1 to MetLife, Inc.’s Current Report
on Form 8-K dated March 13, 2009)*.
|
|
|
|
|
10
|
.27
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective December 15, 2009) (Incorporated by
reference to Exhibit 10.2 to the December 2009
Form 8-K)*.
|
|
|
|
|
10
|
.28
|
|
|
Clarification of Management Performance Share Agreement under
the 2005 SIC Plan (Incorporated by reference to Exhibit 10.3 to
MetLife, Inc.’s Current Report on Form 8-K dated December
19, 2005 (the “December 2005 Form 8-K”))*.
|
|
|
|
|
10
|
.29
|
|
|
Amendment to Management Performance Share Agreement under the
2005 SIC Plan (effective December 31, 2005) (Incorporated by
reference to Exhibit 10.1 to the January 10, 2006
Form 8-K))*.
|
|
|
|
|
10
|
.30
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective December 31, 2005) (Incorporated by
reference to Exhibit 10.3 to the January 10, 2006
Form 8-K)*.
|
|
|
|
|
10
|
.31
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective February 27, 2007) (Incorporated by
reference to Exhibit 10.27 to the 2006 Annual Report)*.
|
|
|
|
|
10
|
.32
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective as of April 25, 2007) (Incorporated by
reference to Exhibit 10.5 to the First Quarter 2007 10-Q)*.
|
|
|
|
|
10
|
.33
|
|
|
Amendment to Management Performance Share Agreements under the
2005 SIC Plan (effective as of April 25, 2007) (Incorporated by
reference to Exhibit 10.2 to the First Quarter 2007
10-Q)*.
|
|
|
|
|
10
|
.34
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective December 11, 2007) (Incorporated by
reference to Exhibit 10.4 to the December 13, 2007 Form 8-K)*.
|
|
|
|
|
10
|
.35
|
|
|
Amendment to Management Performance Share Agreements under the
2005 SIC Plan (effective as of December 31, 2007) (Incorporated
by reference to Exhibit 10.3 to the December 13, 2007 Form 8-K)*.
|
|
|
|
|
10
|
.36
|
|
|
Form of Management Performance Share Agreement under the 2005
SIC Plan (effective as of January 27, 2009) (Incorporated by
reference to Exhibit 10.1 to MetLife, Inc.’s Current Report
on Form 8-K dated January 30, 2009)*.
|
|
|
|
|
10
|
.37
|
|
|
MetLife Policyholder Trust Agreement (Incorporated by reference
to Exhibit 10.12 to the S-1 Registration Statement).
|
|
|
|
|
10
|
.38
|
|
|
Amendment to MetLife Policyholder Trust Agreement (Incorporated
by reference to Exhibit 3.2 to the MetLife Policyholder
Trust’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2007).
|
|
|
|
|
10
|
.39
|
|
|
Five-Year $3,000,000,000 Credit Agreement, dated as of June 20,
2007, among MetLife, Inc. and MetLife Funding, Inc., as
borrowers, and other parties signatory thereto (Incorporated by
reference to Exhibit 10.1 to MetLife, Inc.’s Current Report
on Form 8-K dated June 25, 2007).
|
|
|
|
|
10
|
.40
|
|
|
Amended and Restated $2,850,000 Five-Year Credit Agreement,
dated as of June 20, 2007 and amended and restated as of
December 23, 2008, among MetLife, Inc. and MetLife Funding,
Inc., as borrowers, and other parties signatory thereto
(Incorporated by reference to Exhibit 10.1 to the December 2008
Form 8-K).
|
|
|
|
|
10
|
.41
|
|
|
MetLife Annual Variable Incentive Plan (“AVIP”)*.
|
|
|
|
|
10
|
.42
|
|
|
Amendment Number One to the AVIP (Incorporated by reference to
Exhibit 10.2 to the December 2005 Form 8-K)*.
|
|
|
|
|
10
|
.43
|
|
|
Resolutions of the MetLife, Inc. Board of Directors (adopted
December 11, 2007) regarding the selection of performance
measures for 2008 awards under the AVIP (Incorporated by
reference to Exhibit 10.54 to the 2007 Annual Report)*.
|
|
|
|
|
10
|
.44
|
|
|
Resolutions of the MetLife, Inc. Board of Directors (adopted
January 27, 2009) regarding the selection of performance
measures for 2009 awards under the AVIP (Incorporated by
reference to Exhibit 10.1 to MetLife, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009)*.
|
|
|
E-8
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
10
|
.45
|
|
|
Metropolitan Life Auxiliary Savings and Investment Plan (as
amended and restated, effective January 1, 2008) (Incorporated
by reference to Exhibit 10.57 to the 2007 Annual Report)*.
|
|
|
|
|
10
|
.46
|
|
|
Amendment 1 to the Metropolitan Life Auxiliary Savings and
Investment Plan (as amended and restated, effective January 1,
2008)*.
|
|
|
|
|
10
|
.47
|
|
|
MetLife Deferred Compensation Plan for Officers, as amended and
restated, effective November 1, 2003 (Incorporated by
reference to Exhibit 10.41 to the 2008 Annual Report)*.
|
|
|
|
|
10
|
.48
|
|
|
Amendment Number One to the MetLife Deferred Compensation Plan
for Officers, dated May 4, 2005 (Incorporated by reference
to Exhibit 10.1 to MetLife, Inc.’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2005)*.
|
|
|
|
|
10
|
.49
|
|
|
Amendment Number Two to The MetLife Deferred Compensation Plan
for Officers, effective December 14, 2005 (Incorporated by
reference to Exhibit 10.7 to the December 2005 Form 8-K)*.
|
|
|
|
|
10
|
.50
|
|
|
Amendment Number Three to The MetLife Deferred Compensation Plan
for Officers (as amended and restated as of November 1, 2003,
effective February 26, 2007) (Incorporated by reference to
Exhibit 10.48 to the 2006 Annual Report)*.
|
|
|
|
|
10
|
.51
|
|
|
MetLife Leadership Deferred Compensation Plan, dated November 2,
2006 (as amended and restated effective with respect to salary
and cash incentive compensation, January 1, 2005, and with
respect to stock compensation, April 15, 2005) (Incorporated by
reference to Exhibit 10.3 to MetLife, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2006
(the “Third Quarter 2006 10-Q”))*.
|
|
|
|
|
10
|
.52
|
|
|
Amendment Number One to The MetLife Leadership Deferred
Compensation Plan, dated December 13, 2007 (effective as of
December 31, 2007) (Incorporated by reference to
Exhibit 10.63 to the 2007 Annual Report)*.
|
|
|
|
|
10
|
.53
|
|
|
Amendment Number Two to The MetLife Leadership Deferred
Compensation Plan, dated December 11, 2008 (effective December
31, 2008) (Incorporated by reference to Exhibit 10.47 to the
2008 Annual Report)*.
|
|
|
|
|
10
|
.54
|
|
|
Amendment Number Three to The MetLife Leadership Deferred
Compensation Plan, dated December 11, 2009 (effective January 1,
2010)*.
|
|
|
|
|
10
|
.55
|
|
|
Amendment Number Four to The MetLife Leadership Deferred
Compensation Plan, dated December 11, 2009 (effective December
31, 2009)*.
|
|
|
|
|
10
|
.56
|
|
|
MetLife Deferred Compensation Plan for Outside Directors
(effective December 9, 2003) (Incorporated by reference to
Exhibit 10.48 to the 2008 Annual Report)*.
|
|
|
|
|
10
|
.57
|
|
|
Amendment Number One to The MetLife Deferred Compensation Plan
for Outside Directors (as amended and restated as of December,
2003, effective February 26, 2007) (Incorporated by reference to
Exhibit 10.51 to the 2006 Annual Report)*.
|
|
|
|
|
10
|
.58
|
|
|
MetLife Non-Management Director Deferred Compensation Plan,
dated November 2, 2006 (as amended and restated, effective
January 1, 2005) (Incorporated by reference to Exhibit 10.4 to
the Third Quarter 2006 10-Q)*.
|
|
|
|
|
10
|
.59
|
|
|
Amendment Number One to The MetLife Non-Management Director
Deferred Compensation Plan (as amended and restated as of
December, 2006, effective February 26, 2007) (Incorporated by
reference to Exhibit 10.53 to the 2006 Annual Report)*.
|
|
|
|
|
10
|
.60
|
|
|
MetLife Non-Management Director Deferred Compensation Plan,
dated December 5, 2007 (as amended and restated, effective
January 1, 2005) (Incorporated by reference to Exhibit 10.68 to
the 2007 Annual Report)*.
|
|
|
|
|
10
|
.61
|
|
|
The MetLife Non-Management Director Deferred Compensation Plan,
dated December 9, 2008 (as amended and restated effective
January 1, 2005) (Incorporated by reference to Exhibit 10.53 to
the 2008 Annual Report)*.
|
|
|
|
|
10
|
.62
|
|
|
MetLife, Inc. Director Indemnity Plan (dated and effective July
22, 2008) (Incorporated by reference to Exhibit 10.1 to MetLife,
Inc.’s Current Report on Form 8-K dated July 25, 2008)*.
|
|
|
|
|
10
|
.63
|
|
|
MetLife Auxiliary Pension Plan dated August 7, 2006 (as amended
and restated, effective June 30, 2006) (Incorporated by
reference to Exhibit 10.3 to MetLife, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006 (the
“Second Quarter 2006 10-Q”))*.
|
|
|
E-9
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
10
|
.64
|
|
|
MetLife Auxiliary Pension Plan dated December 21, 2006 (amending
and restating Part I thereof, effective January 1, 2007)
(Incorporated by reference to Exhibit 10.57 to the 2006 Annual
Report)*.
|
|
|
|
|
10
|
.65
|
|
|
MetLife Auxiliary Pension Plan dated December 21, 2007 (amending
and restating Part I thereof, effective January 1, 2008)
(Incorporated by reference to Exhibit 10.1 to MetLife,
Inc.’s Current Report on Form 8-K dated December 28, 2007)*.
|
|
|
|
|
10
|
.66
|
|
|
Amendment #1 to the MetLife Auxiliary Pension Plan (as amended
and restated effective January 1, 2008) dated October 24, 2008
(effective October 1, 2008) (Incorporated by reference to
Exhibit 10.58 to the 2008 Annual Report)*.
|
|
|
|
|
10
|
.67
|
|
|
Amendment Number Two to the MetLife Auxiliary Pension Plan (as
amended and restated effective January 1, 2008) dated December
12, 2008 (effective December 31, 2008) (Incorporated by
reference to Exhibit 10.59 to the 2008 Annual Report)*.
|
|
|
|
|
10
|
.68
|
|
|
Amendment Number Three to the MetLife Auxiliary Pension Plan (as
amended and restated effective January 1, 2008) dated March 25,
2009 (effective January 1, 2009) (Incorporated by reference to
Exhibit 10.1 to MetLife, Inc.’s Current Report on Form 8-K
dated March 31, 2009)*.
|
|
|
|
|
10
|
.69
|
|
|
Amendment Number Four to the MetLife Auxiliary Pension Plan (as
amended and restated effective January 1, 2008) (effective
January 1, 2010) (Incorporated by reference to Exhibit 10.5 to
the December 2009 Form 8-K)*.
|
|
|
|
|
10
|
.70
|
|
|
MetLife Plan for Transition Assistance for Officers, dated
January 7, 2000, as amended (the “MPTA”)*.
|
|
|
|
|
10
|
.71
|
|
|
Amendment Number Ten to the MPTA, dated January 26, 2005*
(Incorporated by reference to Exhibit 10.55 to MetLife,
Inc.’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 (the “2005 Annual Report”))*.
|
|
|
|
|
10
|
.72
|
|
|
Amendment Number Eleven to the MPTA, dated February 28, 2006
(Incorporated by reference to Exhibit 10.56 to the 2005 Annual
Report)*.
|
|
|
|
|
10
|
.73
|
|
|
Amendment Number Twelve to the MPTA, dated August 7, 2006
(Incorporated by reference to Exhibit 10.1 to the Second Quarter
2006 10-Q)*.
|
|
|
|
|
10
|
.74
|
|
|
Amendment Number Thirteen to the MPTA, dated August 7, 2006
(Incorporated by reference to Exhibit 10.2 to the Second Quarter
2006 10-Q)*.
|
|
|
|
|
10
|
.75
|
|
|
Amendment Number Fourteen to the MPTA, dated January 26, 2007
(Incorporated by reference to Exhibit 10.63 to the 2006 Annual
Report)*.
|
|
|
|
|
10
|
.76
|
|
|
Amendment Number Fifteen to the MPTA, dated June 1, 2007
(Incorporated by reference to Exhibit 10.2 to MetLife,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007)*.
|
|
|
|
|
10
|
.77
|
|
|
Amendment Number Sixteen to the MPTA, dated December 12, 2007
(Incorporated by reference to Exhibit 10.81 to the 2007 Annual
Report)*.
|
|
|
|
|
10
|
.78
|
|
|
Amendment Number Seventeen to the MPTA, dated June 3, 2008
(Incorporated by reference to Exhibit 10.1 to MetLife,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008)*.
|
|
|
|
|
10
|
.79
|
|
|
Amendment Number Eighteen to the MPTA, dated August 13, 2008
(Incorporated by reference to Exhibit 10.69 to the 2008 Annual
Report)*.
|
|
|
|
|
10
|
.80
|
|
|
Amendment Number Nineteen to the MPTA, dated December 8, 2008
(Incorporated by reference to Exhibit 10.70 to the 2008 Annual
Report)*.
|
|
|
|
|
10
|
.81
|
|
|
Amendment Number Twenty to the MPTA, dated December 16, 2008
(Incorporated by reference to Exhibit 10.71 to the 2008 Annual
Report)*.
|
|
|
|
|
10
|
.82
|
|
|
Amendment Number Twenty-One to the MPTA, dated December 18, 2008
(Incorporated by reference to Exhibit 10.72 to the 2008 Annual
Report)*.
|
|
|
|
|
10
|
.83
|
|
|
Amendment Number Twenty-Two to the MPTA, dated December 21,
2009*.
|
|
|
E-10
| |
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
10
|
.84
|
|
|
MetLife Plan for Transition Assistance for Officers, dated
December 28, 2009 (as amended and restated, effective January 1,
2010)*.
|
|
|
|
|
10
|
.85
|
|
|
One Madison Avenue Purchase and Sale Agreement, dated as of
March 29, 2005, between Metropolitan Life Insurance Company, as
Seller, and 1 Madison Venture LLC and Column Financial, Inc.,
collectively, as Purchaser (Incorporated by reference to Exhibit
10.1 to MetLife, Inc.’s Current Report on Form 8-K dated
April 4, 2005 (the “April 4, 2005 Form 8-K”)).
|
|
|
|
|
10
|
.86
|
|
|
MetLife Building, 200 Park Avenue, New York, NY Purchase and
Sale Agreement, dated as of April 1, 2005, between Metropolitan
Tower Life Insurance Company, as Seller, and Tishman Speyer
Development, L.L.C., as Purchaser (Incorporated by reference to
Exhibit 10.2 to the April 4, 2005 Form 8-K).
|
|
|
|
|
10
|
.87
|
|
|
Stuyvesant Town, New York, New York, Purchase and Sale Agreement
between Metropolitan Tower Life Insurance Company, as Seller,
and Tishman Speyer Development Corp., as Purchaser, dated as of
October 17, 2006 (Incorporated by reference to Exhibit 10.1 to
the Third Quarter 2006 10-Q).
|
|
|
|
|
10
|
.88
|
|
|
Peter Cooper Village, New York, New York, Purchase and Sale
Agreement between Metropolitan Tower Life Insurance Company, as
Seller, and Tishman Speyer Development Corp., as Purchaser,
dated as of October 17, 2006 (Incorporated by reference to
Exhibit 10.2 to the Third Quarter 2006 10-Q).
|
|
|
|
|
10
|
.89
|
|
|
International Distribution Agreement dated as of July 1, 2005
between MetLife, Inc. and Citigroup Inc. (Incorporated by
reference to Exhibit 10.1 to MetLife, Inc.’s Current Report
on Form 8-K dated July 8, 2005 (the “July 8, 2005 Form
8-K”)).
|
|
|
|
|
10
|
.90
|
|
|
Domestic Distribution Agreement dated as of July 1, 2005 between
MetLife, Inc. and Citigroup Inc. (Incorporated by reference to
Exhibit 10.2 to the July 8, 2005 Form 8-K).
|
|
|
|
|
12
|
.1
|
|
|
Statement re: Computation of Ratios of Earnings to Fixed Charges.
|
|
|
|
|
21
|
.1
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
|
23
|
.1
|
|
|
Consent of Deloitte & Touche LLP.
|
|
|
|
|
31
|
.1
|
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
31
|
.2
|
|
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32
|
.1
|
|
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32
|
.2
|
|
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
| |
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
|
* |
|
Indicates management contracts or compensatory plans or
arrangements. |
| |
|
** |
|
Indicates document to be filed as an exhibit to a Current Report
on
Form 8-K
or Quarterly Report on
Form 10-Q
pursuant to Item 601 of
Regulation S-K
and incorporated herein by reference. |
E-11