e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED
JUNE 30,
2009
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OR
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o
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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
(State or other jurisdiction
of
incorporation or organization)
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13-4075851
(I.R.S. Employer
Identification No.)
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200 Park Avenue, New York, NY
(Address of principal
executive offices)
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10166-0188
(Zip
Code)
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(212) 578-2211
(Registrants telephone
number, including area code)
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 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
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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
At July 31, 2009, 818,638,951 shares of the
registrants common stock, $0.01 par value per share,
were outstanding.
Note
Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q,
including the Managements 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
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Note
Regarding Reliance on Statements in Our Contracts
In reviewing the agreements included as exhibits to this
Quarterly Report on
Form 10-Q,
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
Quarterly Report on
Form 10-Q
and MetLife, Inc.s other public filings, which are
available without charge through the SECs website at
www.sec.gov.
3
Part I
Financial Information
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Item 1.
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Financial
Statements
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June 30, 2009
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December 31, 2008
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Assets
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Investments:
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Fixed maturity securities available-for-sale, at estimated fair
value (amortized cost: $225,494 and $209,508, respectively)
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$
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211,563
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$
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188,251
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Equity securities available-for-sale, at estimated fair value
(cost: $3,679 and $4,131, respectively)
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3,045
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3,197
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Trading securities, at estimated fair value (cost: $1,523 and
$1,107, respectively)
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1,471
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946
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Mortgage and consumer loans:
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Held-for-investment, at amortized cost (net of valuation
allowances of $543 and $304, respectively)
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48,229
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49,352
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Held-for-sale, principally at estimated fair value
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4,271
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2,012
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Mortgage and consumer loans, net
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52,500
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51,364
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Policy loans
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9,907
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9,802
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Real estate and real estate joint ventures held-for-investment
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7,295
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7,585
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Real estate held-for-sale
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1
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1
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Other limited partnership interests
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5,193
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6,039
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Short-term investments
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8,117
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13,878
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Other invested assets
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13,071
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17,248
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Total investments
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312,163
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298,311
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Cash and cash equivalents
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13,213
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24,207
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Accrued investment income
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3,019
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3,061
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Premiums and other receivables
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16,730
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16,973
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Deferred policy acquisition costs and value of business acquired
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20,323
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20,144
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Current income tax recoverable
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253
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Deferred income tax assets
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3,856
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4,927
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Goodwill
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5,036
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5,008
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Other assets
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7,896
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7,262
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Assets of subsidiaries held-for-sale
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946
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Separate account assets
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126,968
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120,839
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Total assets
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$
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509,457
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$
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501,678
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Liabilities and Stockholders Equity
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Liabilities:
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Future policy benefits
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$
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132,823
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$
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130,555
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Policyholder account balances
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147,883
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149,805
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Other policyholder funds
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8,319
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7,762
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Policyholder dividends payable
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881
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1,023
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Short-term debt
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4,757
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2,659
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Long-term debt
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12,940
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9,667
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Collateral financing arrangements
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5,297
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5,192
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Junior subordinated debt securities
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2,691
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3,758
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Current income tax payable
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342
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Payables for collateral under securities loaned and other
transactions
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24,607
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31,059
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Other liabilities
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14,679
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14,284
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Liabilities of subsidiaries held-for-sale
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748
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Separate account liabilities
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126,968
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120,839
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Total liabilities
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481,845
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477,693
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Contingencies, Commitments and Guarantees (Note 11)
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Stockholders Equity:
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MetLife, Inc.s stockholders equity:
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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
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1
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1
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Common stock, par value $0.01 per share;
3,000,000,000 shares authorized; 822,359,818 shares
and 798,016,664 shares issued at June 30, 2009 and
December 31, 2008, respectively; 818,586,271 shares
and 793,629,070 shares outstanding at June 30, 2009
and December 31, 2008, respectively
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8
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8
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Additional paid-in capital
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16,849
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15,811
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Retained earnings
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20,472
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22,403
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Treasury stock, at cost; 3,773,547 shares and
4,387,594 shares at June 30, 2009 and
December 31, 2008, respectively
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(203
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)
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(236
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)
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Accumulated other comprehensive loss
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(9,834
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)
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(14,253
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)
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Total MetLife, Inc.s stockholders equity
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27,293
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23,734
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Noncontrolling interests
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319
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251
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Total equity
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27,612
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23,985
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Total liabilities and stockholders equity
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$
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509,457
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$
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501,678
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See accompanying notes to the interim condensed consolidated
financial statements.
4
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Three Months
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Six Months
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Ended
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Ended
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June 30,
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June 30,
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2009
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2008
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2009
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2008
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Revenues
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Premiums
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$
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6,576
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$
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6,340
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$
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12,698
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$
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12,631
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Universal life and investment-type product policy fees
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1,216
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1,396
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2,399
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2,793
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Net investment income
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3,731
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4,319
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6,994
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8,616
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Other revenues
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572
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351
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1,126
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720
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Net investment gains (losses):
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Other-than-temporary impairments on fixed maturity securities
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(566
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)
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(139
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)
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(1,119
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)
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(213
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)
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Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive loss
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234
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234
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Other net investment gains (losses), net
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(3,497
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)
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(218
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(3,850
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)
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(874
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)
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Total net investment gains (losses)
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(3,829
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)
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(357
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)
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(4,735
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)
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(1,087
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)
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Total revenues
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8,266
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12,049
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18,482
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23,673
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Expenses
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Policyholder benefits and claims
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6,946
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6,579
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13,528
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13,162
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Interest credited to policyholder account balances
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1,229
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1,196
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2,397
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2,429
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Policyholder dividends
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434
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446
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858
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875
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Other expenses
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2,031
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2,607
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5,033
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5,154
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Total expenses
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10,640
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10,828
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21,816
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21,620
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Income (loss) from continuing operations before provision for
income tax
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(2,374
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)
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1,221
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(3,334
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)
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2,053
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Provision for income tax expense (benefit)
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(956
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)
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342
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(1,332
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)
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549
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Income (loss) from continuing operations, net of income tax
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(1,418
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)
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879
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(2,002
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)
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1,504
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Income from discontinued operations, net of income tax
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117
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36
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152
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Net income (loss)
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(1,418
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)
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996
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(1,966
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)
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1,656
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Less: Net income (loss) attributable to noncontrolling interests
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(16
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)
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50
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|
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(20
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)
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62
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Net income (loss) attributable to MetLife, Inc.
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(1,402
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)
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|
946
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(1,946
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)
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1,594
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Less: Preferred stock dividends
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31
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|
|
31
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61
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64
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Net income (loss) available to MetLife, Inc.s common
shareholders
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$
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(1,433
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)
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$
|
915
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$
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(2,007
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)
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$
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1,530
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Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.s common shareholders per common
share:
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Basic
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$
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(1.74
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)
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$
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1.19
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$
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(2.50
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)
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$
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2.03
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Diluted
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$
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(1.74
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)
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$
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1.18
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$
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(2.50
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)
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$
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1.99
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Net income (loss) available to MetLife, Inc.s common
shareholders per common share:
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|
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Basic
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$
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(1.74
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)
|
|
$
|
1.28
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|
|
$
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(2.46
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)
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|
$
|
2.14
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|
|
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|
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|
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Diluted
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$
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(1.74
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)
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|
$
|
1.26
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|
$
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(2.46
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)
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|
$
|
2.10
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|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
See accompanying notes to the interim condensed consolidated
financial statements.
5
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Investment
|
|
|
Other-Than-
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.s
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock at
|
|
|
Gains
|
|
|
Temporary
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Cost
|
|
|
(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 changes 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
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
Deferral of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
(61
|
)
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
95
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,946
|
)
|
|
|
(20
|
)
|
|
|
(1,966
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
(57
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,624
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
4,479
|
|
|
|
(7
|
)
|
|
|
4,472
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
Defined benefit plans adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
79
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,495
|
|
|
|
(7
|
)
|
|
|
4,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,549
|
|
|
|
(27
|
)
|
|
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
16,849
|
|
|
$
|
20,472
|
|
|
$
|
(203
|
)
|
|
$
|
(7,997
|
)
|
|
$
|
(221
|
)
|
|
$
|
(252
|
)
|
|
$
|
(1,364
|
)
|
|
$
|
27,293
|
|
|
$
|
319
|
|
|
$
|
27,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the
interim condensed consolidated financial statements.
6
MetLife,
Inc.
Interim Condensed Consolidated Statement of
Stockholders Equity
For the Six Months Ended June 30, 2008
(Unaudited) (Continued)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Treasury stock transactions, net
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
(1,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(749
|
)
|
|
|
|
|
|
|
|
|
|
|
(749
|
)
|
Deferral of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
Dividends on subsidiary common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
(65
|
)
|
|
|
(51
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,594
|
|
|
|
71
|
|
|
|
(9
|
)
|
|
|
1,656
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,624
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,624
|
)
|
|
|
(128
|
)
|
|
|
(7
|
)
|
|
|
(3,759
|
)
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,577
|
)
|
|
|
(131
|
)
|
|
|
(7
|
)
|
|
|
(3,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,983
|
)
|
|
|
(60
|
)
|
|
|
(16
|
)
|
|
|
(2,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
17,647
|
|
|
$
|
21,441
|
|
|
$
|
(4,047
|
)
|
|
$
|
(2,696
|
)
|
|
$
|
427
|
|
|
$
|
(240
|
)
|
|
$
|
32,541
|
|
|
$
|
1,472
|
|
|
$
|
191
|
|
|
$
|
34,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the
interim condensed consolidated financial statements.
7
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,966
|
)
|
|
$
|
1,656
|
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
259
|
|
|
|
334
|
|
Amortization of premiums and accretion of discounts associated
with investments, net
|
|
|
(287
|
)
|
|
|
(526
|
)
|
Loss from sales of investments and businesses, net
|
|
|
4,687
|
|
|
|
1,226
|
|
Undistributed equity earnings of real estate joint ventures and
other limited partnership interests
|
|
|
857
|
|
|
|
(66
|
)
|
Interest credited to policyholder account balances
|
|
|
2,400
|
|
|
|
2,576
|
|
Interest credited to bank deposits
|
|
|
84
|
|
|
|
84
|
|
Universal life and investment-type product policy fees
|
|
|
(2,413
|
)
|
|
|
(2,838
|
)
|
Change in accrued investment income
|
|
|
43
|
|
|
|
309
|
|
Change in premiums and other receivables
|
|
|
(997
|
)
|
|
|
(569
|
)
|
Change in deferred policy acquisition costs, net
|
|
|
(914
|
)
|
|
|
(643
|
)
|
Change in insurance-related liabilities
|
|
|
2,434
|
|
|
|
2,727
|
|
Change in trading securities
|
|
|
(459
|
)
|
|
|
(167
|
)
|
Change in residential mortgage loans held-for-sale, net
|
|
|
(2,291
|
)
|
|
|
|
|
Change in mortgage servicing rights
|
|
|
(479
|
)
|
|
|
|
|
Change in income tax payable
|
|
|
(1,675
|
)
|
|
|
243
|
|
Change in other assets
|
|
|
(463
|
)
|
|
|
904
|
|
Change in other liabilities
|
|
|
(96
|
)
|
|
|
157
|
|
Other, net
|
|
|
49
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,227
|
)
|
|
|
5,418
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
31,711
|
|
|
|
46,828
|
|
Equity securities
|
|
|
1,154
|
|
|
|
786
|
|
Mortgage and consumer loans
|
|
|
3,015
|
|
|
|
3,066
|
|
Real estate and real estate joint ventures
|
|
|
7
|
|
|
|
119
|
|
Other limited partnership interests
|
|
|
640
|
|
|
|
380
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(47,052
|
)
|
|
|
(52,188
|
)
|
Equity securities
|
|
|
(1,102
|
)
|
|
|
(705
|
)
|
Mortgage and consumer loans
|
|
|
(2,076
|
)
|
|
|
(5,205
|
)
|
Real estate and real estate joint ventures
|
|
|
(213
|
)
|
|
|
(622
|
)
|
Other limited partnership interests
|
|
|
(413
|
)
|
|
|
(880
|
)
|
Net change in short-term investments
|
|
|
5,761
|
|
|
|
684
|
|
Net change in other invested assets
|
|
|
(59
|
)
|
|
|
(1,013
|
)
|
Net change in policy loans
|
|
|
(105
|
)
|
|
|
(345
|
)
|
Purchases of businesses, net of cash received of $0 and $44,
respectively
|
|
|
|
|
|
|
(350
|
)
|
Sales of businesses, net of cash disposed of $180 and $0,
respectively
|
|
|
(46
|
)
|
|
|
(4
|
)
|
Other, net
|
|
|
(103
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(8,881
|
)
|
|
$
|
(9,523
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
8
MetLife,
Inc.
Interim Condensed Consolidated Statements of Cash
Flows (Continued)
For the Six Months Ended June 30, 2009
and 2008 (Unaudited)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
62,300
|
|
|
$
|
29,146
|
|
Withdrawals
|
|
|
(62,086
|
)
|
|
|
(23,082
|
)
|
Net change in short-term debt
|
|
|
2,098
|
|
|
|
(44
|
)
|
Long-term debt issued
|
|
|
2,225
|
|
|
|
117
|
|
Long-term debt repaid
|
|
|
(134
|
)
|
|
|
(66
|
)
|
Collateral financing arrangements issued
|
|
|
105
|
|
|
|
115
|
|
Cash received in connection with collateral financing arrangement
|
|
|
400
|
|
|
|
|
|
Cash paid in connection with collateral financing arrangement
|
|
|
(400
|
)
|
|
|
|
|
Junior subordinated debt securities issued
|
|
|
|
|
|
|
750
|
|
Debt issuance costs
|
|
|
(17
|
)
|
|
|
(9
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
(6,452
|
)
|
|
|
1,843
|
|
Stock options exercised
|
|
|
1
|
|
|
|
31
|
|
Common stock issued to settle stock forward contracts
|
|
|
1,035
|
|
|
|
|
|
Treasury stock acquired
|
|
|
|
|
|
|
(1,250
|
)
|
Dividends on preferred stock
|
|
|
(61
|
)
|
|
|
(64
|
)
|
Other, net
|
|
|
(16
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,002
|
)
|
|
|
7,495
|
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash
balances
|
|
|
84
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(11,026
|
)
|
|
|
3,447
|
|
Cash and cash equivalents, beginning of period
|
|
|
24,239
|
|
|
|
10,368
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
13,213
|
|
|
$
|
13,815
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries held-for-sale, beginning
of period
|
|
$
|
32
|
|
|
$
|
407
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries held-for-sale, end of
period
|
|
$
|
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, beginning
of period
|
|
$
|
24,207
|
|
|
$
|
9,961
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, end of
period
|
|
$
|
13,213
|
|
|
$
|
13,414
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Net cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
475
|
|
|
$
|
572
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
195
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the period:
|
|
|
|
|
|
|
|
|
Business acquisitions:
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
|
|
|
$
|
1,411
|
|
Cash paid
|
|
|
|
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
|
|
|
$
|
1,017
|
|
|
|
|
|
|
|
|
|
|
Business disposition:
|
|
|
|
|
|
|
|
|
Assets disposed
|
|
$
|
841
|
|
|
$
|
|
|
Less: liabilities disposed
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets disposed
|
|
|
101
|
|
|
|
|
|
Less: cash disposed
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business disposition, net of cash disposed
|
|
$
|
(79
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Remarketing of debt securities:
|
|
|
|
|
|
|
|
|
Fixed maturity securities redeemed
|
|
$
|
32
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issued
|
|
$
|
1,035
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt securities redeemed
|
|
$
|
1,067
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and real estate joint ventures acquired in
satisfaction of debt
|
|
$
|
172
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
9
MetLife,
Inc.
|
|
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, Europe, and Asia Pacific 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.
Basis
of Presentation
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 interim condensed 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;
|
|
|
|
|
(iv)
|
the application of the consolidation rules to certain
investments;
|
|
|
(v)
|
the existence and estimated fair value of embedded derivatives
requiring bifurcation;
|
|
|
(vi)
|
the estimated fair value of and accounting for derivatives;
|
|
|
(vii)
|
the capitalization and amortization of deferred policy
acquisition costs (DAC) and the establishment and
amortization of value of business acquired (VOBA);
|
|
|
(viii)
|
the measurement of goodwill and related impairment, if any;
|
|
|
(ix)
|
the liability for future policyholder benefits;
|
|
|
(x)
|
accounting for income taxes and the valuation of deferred income
tax assets;
|
|
|
(xi)
|
accounting for reinsurance transactions;
|
|
|
(xii)
|
accounting for employee benefit plans; and
|
|
|
(xiii)
|
the liability for litigation and regulatory matters.
|
In applying the Companys accounting 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 Companys businesses and operations. Actual
results could differ from these estimates.
The accompanying interim condensed consolidated financial
statements include the accounts of the Holding Company and its
subsidiaries as well as partnerships and joint ventures in which
the Company has control. 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 8. Intercompany accounts and transactions
have been eliminated.
In addition, the Company has invested in certain structured
transactions that are variable interest entities
(VIEs) under Financial Accounting Standards Board
(FASB) Interpretation (FIN)
No. 46(r), Consolidation of Variable Interest
Entities An Interpretation of Accounting Research
Bulletin No. 51. These structured
10
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
transactions include reinsurance trusts, asset-backed
securitizations, trust preferred 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 Company reconsiders
whether it is the primary beneficiary for investments designated
as VIEs on a quarterly basis.
The Company uses the equity method of accounting for investments
in equity securities in which it has a significant influence or
more than a 20% interest and for real estate joint ventures and
other limited partnership interests in which it has more than a
minor equity interest or more than a minor influence over the
joint ventures or partnerships operations, but does
not have a controlling interest and is not the primary
beneficiary. 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
partnerships operations.
Certain amounts in the prior year periods interim
condensed consolidated financial statements have been
reclassified to conform with the 2009 presentation. Such
reclassifications include $57 million for the six months
ended June 30, 2008 relating to the effect of change in
foreign currency exchange rates on cash balances. These amounts
were reclassified from cash flows from operating activities in
the consolidated statements of cash flows for the six months
ended June 30, 2008. See also Note 17 for
reclassifications related to discontinued operations.
The accompanying interim condensed consolidated financial
statements reflect all adjustments (including normal recurring
adjustments) necessary to state fairly the consolidated
financial position of the Company at June 30, 2009, its
consolidated results of operations for the three months and six
months ended June 30, 2009 and 2008, its consolidated cash
flows for the six months ended June 30, 2009 and 2008, and
its consolidated statements of stockholders equity for the
six months ended June 30, 2009 and 2008, in conformity with
GAAP. Interim results are not necessarily indicative of full
year performance. The December 31, 2008 consolidated
balance sheet data was derived from audited consolidated
financial statements included in MetLifes Annual Report on
Form 10-K
for the year ended December 31, 2008, as amended on
Form 8-K
on June 12, 2009, (the 2008 Annual Report)
filed with the U.S. Securities and Exchange Commission
(SEC), which includes all disclosures required by
GAAP. Therefore, these interim condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements of the Company included in the 2008 Annual
Report.
Adoption
of New Accounting Pronouncements
Financial
Instruments
Effective April 1, 2009, the Company adopted FASB Staff
Position (FSP)
No. FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments
(FSP 115-2).
FSP 115-2
amends the recognition guidance for determining whether an
other-than-temporary impairment (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.
FSP 115-2
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 securitys amortized
cost and its fair value only when either (1) the Company
has the intent to sell the fixed maturity security or
(2) it is more likely than not that the Company will be
required to sell the fixed maturity security before recovery of
the decline in 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 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). When an unrealized loss on a fixed maturity
security is considered temporary, the Company continues to
record the unrealized loss in other comprehensive income (loss)
and not in earnings. There was no change for equity
11
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
securities which, when an OTTI has occurred, continue to be
impaired for the entire difference between the equity
securitys cost or amortized cost and its fair value with a
corresponding charge to earnings.
Prior to the adoption of this new 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 fair
value to the securitys amortized cost basis. Also prior to
the adoption of
FSP 115-2,
the entire difference between the fixed maturity securitys
amortized cost basis and its fair value was recognized in
earnings if it was determined to have an OTTI.
The Companys net cumulative effect adjustment of adopting
FSP 115-2
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 amortized
cost basis of fixed maturity securities of $126 million by
sector was as follows: $53 million - asset-backed
securities, $43 million residential
mortgage-backed securities, $17 million
U.S. corporate securities, and $13 million
commercial mortgage-backed securities.
As a result of the adoption of
FSP 115-2,
the Companys pre-tax earnings for the three months ended
June 30, 2009 increased by $216 million offset by an
increase in other comprehensive loss representing OTTI relating
to noncredit losses recognized in the three months period ended
June 30, 2009.
The enhanced financial statement presentation required by
FSP 115-2
of the total OTTI loss and the offset for the portion of non
credit OTTI loss transferred to and recognized in other
comprehensive loss is presented in the consolidated statements
of income and stockholders equity. The enhanced
disclosures required by
FSP 115-2
are included in Note 3.
Effective April 1, 2009, the Company adopted two FSPs
providing additional guidance relating to fair value measurement
and disclosure.
|
|
|
|
|
FSP
No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
(FSP 157-4),
provides guidance on (1) 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 (2) identifying transactions that are not
orderly. Further,
FSP 157-4
requires disclosure in interim financial statements of the
inputs and valuation techniques used to measure fair value. The
adoption of
FSP 157-4
did not have an impact on the Companys consolidated
financial statements. Additionally, the Company has provided all
of the material required disclosures in its consolidated
financial statements.
|
|
|
|
FSP
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, requires interim financial instrument fair
value disclosures similar to those included in annual financial
statements. The Company has provided all of the material
required disclosures in its consolidated financial statements.
|
Effective January 1, 2009, the Company adopted
prospectively FSP
No. FAS 140-3,
Accounting for Transfers of Financial Assets and Repurchase
Financing Transactions
(FSP 140-3).
FSP 140-3
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. At adoption,
FSP 140-3
did not have an impact on the Companys consolidated
financial statements.
Business
Combinations and Noncontrolling Interests
Effective January 1, 2009, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 141
(revised 2007), Business Combinations A
Replacement of FASB Statement No. 141
(SFAS 141(r)),
12
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
FSP 141(r)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies (FSP 141(r)-1) and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements An Amendment of
ARB No. 51 (SFAS 160). Under this new
guidance:
|
|
|
|
|
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.
|
|
|
|
Acquisition costs are generally expensed as incurred;
restructuring costs associated with a business combination are
generally expensed as incurred subsequent to the acquisition
date.
|
|
|
|
The fair value of the purchase price, including the issuance of
equity securities, is determined on the acquisition date.
|
|
|
|
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.
|
|
|
|
Changes in deferred income tax asset valuation allowances and
income tax uncertainties after the acquisition date generally
affect income tax expense.
|
|
|
|
Noncontrolling interests (formerly known as minority
interests) are valued at fair value at the acquisition
date and are presented as equity rather than liabilities.
|
|
|
|
Net income includes amounts attributable to noncontrolling
interests.
|
|
|
|
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.
|
|
|
|
Purchases or sales of equity interests that do not result in a
change in control are accounted for as equity transactions.
|
|
|
|
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 SFAS 141(r) and FSP 141(r)-1 on a
prospective basis did not have an impact on the Companys
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 SFAS 160.
Effective January 1, 2009, the Company adopted
prospectively Emerging Issues Task Force (EITF)
Issue
No. 08-6,
Equity Method Investment Accounting Considerations
(EITF 08-6).
EITF 08-6
addresses a number of issues associated with the impact that
SFAS 141(r) and SFAS 160 might have on the accounting
for equity method investments, including how an equity method
investment should initially be measured, how it should be tested
for impairment, and how changes in classification from equity
method to cost method should be treated. The adoption of
EITF 08-6
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted
prospectively EITF Issue
No. 08-7,
Accounting for Defensive Intangible Assets
(EITF 08-7).
EITF 08-7
requires that an acquired defensive intangible asset (i.e., an
asset an entity does not intend to actively use, but rather,
intends to prevent others from using) be accounted for as a
separate unit of accounting at time of acquisition, not combined
with the acquirers existing intangible assets. In
addition, the EITF concludes that a defensive intangible asset
may not be considered immediately abandoned following its
acquisition or have indefinite life. The adoption of
EITF 08-7
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted
prospectively FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in
13
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). This change is intended
to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the
asset under SFAS 141(r) and other GAAP. The Company will
determine useful lives and provide all of the material required
disclosures prospectively on intangible assets acquired on or
after January 1, 2009 in accordance with
FSP 142-3.
The adoption of
FSP 142-3
did not have an impact on the Companys consolidated
financial statements.
Other
Pronouncements
Effective April 1, 2009, the Company prospectively adopted
SFAS No. 165, Subsequent Events
(SFAS 165). SFAS 165 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. SFAS 165
also requires disclosure of the date through which management
has evaluated subsequent events and the basis for that date. The
Company has provided all of the material required disclosures in
its consolidated financial statements.
Effective January 1, 2009, the Company adopted
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities An Amendment of
FASB Statement No. 133 (SFAS 161).
SFAS 161 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
required disclosures in its consolidated financial statements.
Effective January 1, 2009, the Company implemented guidance
of SFAS No. 157, Fair Value Measurements
(SFAS 157), for certain nonfinancial assets
and liabilities that are recorded at fair value on a
nonrecurring basis. This guidance which 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, was previously
deferred under
FSP 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2).
The adoption of
FSP 157-2
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted
prospectively EITF Issue
No. 08-5,
Issuers Accounting for Liabilities Measured at Fair
Value with a Third-Party Credit Enhancement
(EITF 08-5).
EITF 08-5
concludes 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,
EITF 08-5
requires disclosures about the existence of any third-party
credit enhancement related to liabilities that are measured at
fair value. The adoption of
EITF 08-5
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted EITF Issue
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock
(EITF 07-5).
EITF 07-5
provides a framework for evaluating the terms of a particular
instrument and whether such terms qualify the instrument as
being indexed to an entitys own stock. The adoption of
EITF 07-5
did not have an impact on Companys consolidated financial
statements.
Future
Adoption of New Accounting Pronouncements
In June 2009, the FASB issued two standards providing additional
guidance on financial instrument transfers and evaluation of
special purpose entities for consolidation. The standards must
be adopted in the first quarter of 2010.
|
|
|
|
|
SFAS No. 166, Accounting for Transfers of Financial
Assets (SFAS 166) eliminates the concept of a
qualifying special purpose entity, eliminates the
guaranteed mortgage securitization exception, changes
|
14
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the criteria for achieving sale accounting when transferring a
financial asset and changes the initial recognition of retained
beneficial interests. SFAS 166 also requires additional
disclosures about transfers of financial assets, including
securitized transactions, as well as a companys continuing
involvement in transferred financial assets. The Company is
currently evaluating the impact of SFAS 166 on its
consolidated financial statements.
|
|
|
|
|
SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (SFAS 167) 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. SFAS 167 also changes when reassessment is needed,
as well as requires enhanced disclosures, including the effects
of a companys involvement with VIEs on its financial
statements. The Company is currently evaluating the impact of
SFAS 167 on its consolidated financial statements.
|
In December 2008, the FASB issued FSP
No. FAS 132(r)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets (FSP 132(r)-1). FSP 132(r)-1
amends SFAS No. 132(r), Employers Disclosures
about Pensions and Other Postretirement Benefits, to enhance
the transparency surrounding the types of assets and associated
risks in an employers defined benefit pension or other
postretirement benefit plan. The FSP requires an employer to
disclose information about the valuation of plan assets similar
to that required under SFAS 157.
FSP 132(r)-1
is effective for fiscal years ending after December 15,
2009. The Company will provide the required disclosures in the
appropriate future annual periods.
|
|
2.
|
Acquisitions
and Dispositions
|
Disposition
of Texas Life Insurance Company
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
$134 million in cash consideration, excluding
$1 million of transaction costs. The net assets sold were
$101 million, resulting in a gain on disposal of
$32 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
$36 million, net of income tax, during the first quarter of
2009. See also Note 17.
15
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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
Companys 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 June 30, 2009 include the noncredit loss
component of OTTI loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
70,682
|
|
|
$
|
1,350
|
|
|
$
|
6,016
|
|
|
$
|
35
|
|
|
$
|
65,981
|
|
|
|
31.2
|
%
|
Residential mortgage-backed securities
|
|
|
44,834
|
|
|
|
1,078
|
|
|
|
3,913
|
|
|
|
201
|
|
|
|
41,798
|
|
|
|
19.8
|
|
Foreign corporate securities
|
|
|
35,817
|
|
|
|
976
|
|
|
|
3,177
|
|
|
|
9
|
|
|
|
33,607
|
|
|
|
15.9
|
|
U.S. Treasury, agency and government guaranteed securities (1)
|
|
|
27,277
|
|
|
|
1,053
|
|
|
|
657
|
|
|
|
|
|
|
|
27,673
|
|
|
|
13.1
|
|
Commercial mortgage-backed securities
|
|
|
16,354
|
|
|
|
75
|
|
|
|
2,410
|
|
|
|
24
|
|
|
|
13,995
|
|
|
|
6.6
|
|
Asset-backed securities
|
|
|
14,619
|
|
|
|
97
|
|
|
|
2,206
|
|
|
|
96
|
|
|
|
12,414
|
|
|
|
5.8
|
|
Foreign government securities
|
|
|
9,987
|
|
|
|
834
|
|
|
|
261
|
|
|
|
|
|
|
|
10,560
|
|
|
|
5.0
|
|
State and political subdivision securities
|
|
|
5,905
|
|
|
|
119
|
|
|
|
507
|
|
|
|
|
|
|
|
5,517
|
|
|
|
2.6
|
|
Other fixed maturity securities
|
|
|
19
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2), (3)
|
|
$
|
225,494
|
|
|
$
|
5,582
|
|
|
$
|
19,148
|
|
|
$
|
365
|
|
|
$
|
211,563
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,730
|
|
|
$
|
59
|
|
|
$
|
71
|
|
|
$
|
|
|
|
$
|
1,718
|
|
|
|
56.4
|
%
|
Non-redeemable preferred stock (2)
|
|
|
1,949
|
|
|
|
28
|
|
|
|
650
|
|
|
|
|
|
|
|
1,327
|
|
|
|
43.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
3,679
|
|
|
$
|
87
|
|
|
$
|
721
|
|
|
$
|
|
|
|
$
|
3,045
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
72,211
|
|
|
$
|
994
|
|
|
$
|
9,902
|
|
|
$
|
63,303
|
|
|
|
33.6
|
%
|
Residential mortgage-backed securities
|
|
|
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
|
|
Commercial mortgage-backed securities
|
|
|
16,079
|
|
|
|
18
|
|
|
|
3,453
|
|
|
|
12,644
|
|
|
|
6.7
|
|
Asset-backed securities
|
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
4,131
|
|
|
$
|
44
|
|
|
$
|
978
|
|
|
$
|
3,197
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has classified within the U.S. Treasury, agency and
government guaranteed securities caption above certain corporate
fixed maturity securities issued by U.S. financial institutions
that are guaranteed by the Federal Deposit Insurance Corporation
(FDIC) pursuant to the FDICs Temporary
Liquidity Guarantee Program (FDIC Program) of
$1,023 million and $2 million at estimated fair value
with unrealized gains (losses) of $5 million and less than
($1) million at June 30, 2009 and December 31,
2008, respectively. |
|
(2) |
|
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 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. Perpetual hybrid securities classified as
non-redeemable preferred stock held by the Company at
June 30, 2009 and December 31, 2008 had an estimated
fair value of $1,063 million and $1,224 million,
respectively. In addition, the Company held $264 million
and $288 million at estimated fair value at June 30,
2009 and December 31, 2008, respectively, of other
perpetual hybrid securities, primarily of U.S. financial
institutions, also included in non-redeemable preferred stock.
Perpetual hybrid securities held by the Company and included
within fixed maturity securities (primarily within foreign
corporate securities) at June 30, 2009 and
December 31, 2008 had an estimated fair value of
$2,378 million and $2,110 million, respectively. In
addition, the Company held $52 million and $46 million
at estimated fair value at June 30, 2009 and
December 31, 2008, respectively, of other perpetual hybrid
securities, primarily U.S. financial institutions, included in
U.S. corporate securities. |
|
(3) |
|
At June 30, 2009 and December 31, 2008, the Company
also held $2,082 million and $2,052 million at
estimated fair value, respectively, of redeemable preferred
stock which have stated maturity dates. 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 U.S. corporate
securities within fixed maturity securities. |
17
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Below-Investment-Grade or Non-Rated Fixed Maturity
Securities. The Company held fixed maturity
securities at estimated fair values that were below investment
grade or not rated by an independent rating agency that totaled
$18.3 billion and $12.4 billion at June 30, 2009
and December 31, 2008, respectively. These securities had
net unrealized losses of $5.6 billion and $5.1 billion
at June 30, 2009 and December 31, 2008, respectively.
Non-Income Producing Fixed Maturity
Securities. Non-income producing fixed maturity
securities at estimated fair value were $206 million and
$75 million at June 30, 2009 and December 31,
2008, respectively. Net unrealized losses associated with
non-income producing fixed maturity securities were
$31 million and $19 million at June 30, 2009 and
December 31, 2008, respectively.
Fixed Maturity Securities Credit Enhanced by Financial
Guarantee Insurers. At June 30, 2009,
$4.6 billion of the estimated fair value of the
Companys fixed maturity securities were credit enhanced by
financial guarantee insurers of which $2.1 billion,
$1.7 billion and $0.8 billion are included within
state and political subdivision securities, U.S. corporate
securities and asset-backed securities, respectively, and 18%
and 39% were guaranteed by financial guarantee insurers who were
rated Aa and A, respectively. At December 31, 2008,
$4.9 billion of the estimated fair value of the
Companys fixed maturity securities were credit enhanced by
financial guarantee insurers of which $2.0 billion,
$2.0 billion and $0.9 billion are included within
state and political subdivision securities, U.S. corporate
securities, and asset-backed securities, respectively, and 15%
and 68% were guaranteed by financial guarantee insurers who were
rated Aa and Baa, respectively. Approximately 50% of the
asset-backed securities held at June 30, 2009 that are
credit enhanced by financial guarantee insurers are asset-backed
securities which are backed by sub-prime mortgage loans.
Concentrations of Credit Risk (Fixed Maturity
Securities). The following section contains a
summary of the concentrations of credit risk related to fixed
maturity securities holdings.
The Company is not exposed to any concentrations of credit risk
of any single issuer greater than 10% of the Companys
stockholders equity, other than securities of the
U.S. government, certain U.S. government agencies, and
certain securities guaranteed by the U.S. government. At
June 30, 2009 and December 31, 2008, the
Companys holdings in U.S. Treasury, agency and
government guaranteed fixed maturity securities at estimated
fair value were $27.7 billion and $21.3 billion,
respectively. As shown in the sector table above, at
June 30, 2009 the Companys three largest exposures in
its fixed maturity security portfolio were U.S. corporate
securities 31.2%, residential mortgage-backed securities 19.8%
and foreign corporate securities 15.9%; and at December 31,
2008 were U.S. corporate securities 33.6%, residential
mortgage-backed securities 19.2% and foreign corporate
securities 15.8%.
Concentrations of Credit Risk (Fixed Maturity
Securities) U.S. and Foreign Corporate
Securities. At June 30, 2009 and
December 31, 2008, the Companys holdings in
U.S. corporate and foreign corporate securities at
estimated fair value were $99.6 billion and
$93.0 billion, respectively. The Company maintains a
diversified portfolio of corporate securities across industries
and issuers. The portfolio does not have exposure to any single
issuer in excess of 1% of total investments. The largest
exposure to a single issuer of corporate securities held at
June 30, 2009 and December 31, 2008 was
$1.1 billion and $1.5 billion, respectively. At
June 30, 2009 and December 31, 2008, the
Companys combined holdings in the ten issuers to which it
had the greatest exposure totaled $7.7 billion and
$8.4 billion, respectively, the total of these ten issuers
being less than 3% of the Companys
18
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
total investments at such dates. The table below shows the major
industry types that comprise the corporate securities holdings
at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Estimated
|
|
|
% of
|
|
|
Estimated
|
|
|
% of
|
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Foreign (1)
|
|
$
|
33,607
|
|
|
|
33.7
|
%
|
|
$
|
29,679
|
|
|
|
32.0
|
%
|
Industrial
|
|
|
15,312
|
|
|
|
15.4
|
|
|
|
13,324
|
|
|
|
14.3
|
|
Consumer
|
|
|
14,948
|
|
|
|
15.0
|
|
|
|
13,122
|
|
|
|
14.1
|
|
Utility
|
|
|
13,697
|
|
|
|
13.8
|
|
|
|
12,434
|
|
|
|
13.4
|
|
Finance
|
|
|
13,482
|
|
|
|
13.5
|
|
|
|
14,996
|
|
|
|
16.1
|
|
Communications
|
|
|
5,898
|
|
|
|
5.9
|
|
|
|
5,714
|
|
|
|
6.1
|
|
Other
|
|
|
2,644
|
|
|
|
2.7
|
|
|
|
3,713
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
99,588
|
|
|
|
100.0
|
%
|
|
$
|
92,982
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. Dollar-denominated debt obligations of foreign
obligors, and other fixed maturity securities foreign
investments. |
Concentrations of Credit Risk (Fixed Maturity
Securities) Residential Mortgage-Backed
Securities. The Companys residential
mortgage-backed securities consist of the following holdings at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Estimated
|
|
|
% of
|
|
|
Estimated
|
|
|
% of
|
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
24,555
|
|
|
|
58.7
|
%
|
|
$
|
26,025
|
|
|
|
72.2
|
%
|
Pass-through securities
|
|
|
17,243
|
|
|
|
41.3
|
|
|
|
10,003
|
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage-backed securities
|
|
$
|
41,798
|
|
|
|
100.0
|
%
|
|
$
|
36,028
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations are a type of
mortgage-backed security that creates separate pools or tranches
of pass-through cash flows for different classes of bondholders
with varying maturities. 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.
The Companys residential mortgage-backed securities
portfolio consists of agency, prime and alternative residential
mortgage loans (Alt-A) securities of 75%, 18% and 7%
of the total holdings, respectively, at June 30, 2009 and
68%, 23% and 9% of the total holdings, respectively, at
December 31, 2008. At June 30, 2009 and
December 31, 2008, $34.5 billion and
$33.3 billion, respectively, or 83% and 92%, respectively,
of the residential mortgage-backed securities were rated Aaa/AAA
by Moodys Investors Service (Moodys),
Standard & Poors Ratings Services
(S&P) or Fitch Ratings (Fitch). The
majority of the agency residential mortgage-backed securities
are guaranteed or otherwise supported by the Federal National
Mortgage Association (FNMA), the Federal Home Loan
Mortgage Corporation (FHLMC) or the Government
National Mortgage Association. In September 2008, the
U.S. Treasury announced that FNMA and FHLMC had been placed
into conservatorship. Prime residential mortgage lending
includes the origination of residential mortgage loans to the
most credit-worthy customers with high quality credit profiles.
Alt-A residential mortgage loans are a classification of
mortgage loans where the risk profile of the borrower falls
between prime and sub-prime. At June 30, 2009 and
December 31, 2008,
19
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the Companys Alt-A residential mortgage-backed securities
holdings at estimated fair value was $3.1 billion and
$3.4 billion, respectively, with an unrealized loss of
$1.8 billion and $2.0 billion, respectively. At
June 30, 2009 and December 31, 2008, $0.5 billion
and $2.1 billion, respectively, or 16% and 63%,
respectively, of the Companys Alt-A residential
mortgage-backed securities were rated Aa/AA or better by
Moodys, S&P or Fitch. In January 2009, certain Alt-A
residential mortgage-backed securities experienced ratings
downgrades from investment grade to below investment grade,
contributing to the decrease cited above in the Companys
Alt-A securities holdings rated Aa/AA or better. At
June 30, 2009, the Companys Alt-A holdings are
distributed by vintage year as follows at estimated fair value:
2% in the 2009 vintage year, 25% in the 2007 vintage year, and
73% in the 2006 and prior vintage years. At December 31,
2008, the Companys Alt-A holdings are distributed by
vintage year as follows at estimated fair value: 23% in the 2007
vintage year, 25% in the 2006 vintage year and 52% in the 2005
and prior vintage years. Vintage year refers to the year of
origination and not to the year of purchase.
Concentrations of Credit Risk (Fixed Maturity
Securities) Commercial Mortgage-Backed
Securities. At June 30, 2009 and
December 31, 2008, the Companys holdings in
commercial mortgage-backed securities were $14.0 billion
and $12.6 billion, respectively, at estimated fair value.
At June 30, 2009 and December 31, 2008,
$13.0 billion and $11.8 billion, respectively, of the
estimated fair value, or 93% for both years, of commercial
mortgage-backed securities was rated Aaa/AAA by Moodys,
S&P, or Fitch. At both June 30, 2009 and
December 31, 2008, the rating distribution of the
Companys commercial mortgage-backed securities holdings
was as follows: 93% Aaa, 4% Aa, 1% A, 1% Baa, and 1% Ba or
below. At June 30, 2009 and December 31, 2008, 85% and
84%, respectively, of the holdings are in the 2005 and prior
vintage years. At June 30, 2009 and December 31, 2008,
the Company had no exposure to the Commercial Mortgage-Backed
Securities index securities and its holdings of commercial real
estate collateralized debt obligations securities were
$111 million and $121 million, respectively, at
estimated fair value.
Concentrations of Credit Risk (Fixed Maturity
Securities) Asset-Backed
Securities. At June 30, 2009 and
December 31, 2008, the Companys holdings in
asset-backed securities were $12.4 billion and
$10.5 billion, respectively, at estimated fair value. The
Companys asset-backed securities are diversified both by
sector and by issuer. At June 30, 2009 and
December 31, 2008, $9.5 billion and $7.9 billion,
respectively, or 77% and 75%, respectively, of total
asset-backed securities were rated Aaa/AAA by Moodys,
S&P or Fitch. At June 30, 2009, the largest exposures
in the Companys asset-backed securities portfolio were
credit card receivables, student loan receivables, residential
mortgage-backed securities backed by sub-prime mortgage loans,
and automobile receivables of 57%, 13%, 8% and 8% of the total
holdings, respectively. At December 31, 2008, the largest
exposures in the Companys asset-backed securities
portfolio were credit card receivables, student loan
receivables, automobile receivables and residential
mortgage-backed securities backed by sub-prime mortgage loans of
49%, 10%, 10% and 10% of the total holdings, respectively.
Sub-prime mortgage lending is the origination of residential
mortgage loans to customers with weak credit profiles. At
June 30, 2009 and December 31, 2008, the Company had
exposure to fixed maturity securities backed by sub-prime
mortgage loans with estimated fair values of $0.9 billion
and $1.1 billion, respectively, and unrealized losses of
$821 million and $730 million, respectively. At
June 30, 2009, 39% of the asset-backed securities backed by
sub-prime mortgage loans have been guaranteed by financial
guarantee insurers, of which 20% and 5% were guaranteed by
financial guarantee insurers who were Aa and A rated,
respectively. At December 31, 2008, 37% of the asset-backed
securities backed by sub-prime mortgage loans have been
guaranteed by financial guarantee insurers, of which 19% and 37%
were guaranteed by financial guarantee insurers who were Aa and
Baa rated, respectively.
Concentrations of Credit Risk (Equity
Securities). The Company is not exposed to any
concentrations of credit risk of any single issuer greater than
10% of the Companys stockholders equity in its
equity securities holdings.
20
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The amortized cost and estimated fair value of fixed maturity
securities, by contractual maturity date (excluding scheduled
sinking funds), are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Due in one year or less
|
|
$
|
5,866
|
|
|
$
|
5,820
|
|
|
$
|
5,556
|
|
|
$
|
5,491
|
|
Due after one year through five years
|
|
|
37,648
|
|
|
|
37,040
|
|
|
|
33,604
|
|
|
|
30,884
|
|
Due after five years through ten years
|
|
|
41,453
|
|
|
|
39,858
|
|
|
|
41,481
|
|
|
|
36,895
|
|
Due after ten years
|
|
|
64,720
|
|
|
|
60,638
|
|
|
|
58,547
|
|
|
|
55,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
149,687
|
|
|
|
143,356
|
|
|
|
139,188
|
|
|
|
129,056
|
|
Mortgage-backed and asset-backed securities
|
|
|
75,807
|
|
|
|
68,207
|
|
|
|
70,320
|
|
|
|
59,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
225,494
|
|
|
$
|
211,563
|
|
|
$
|
209,508
|
|
|
$
|
188,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities not due at a single maturity date have
been included in the above table in the year of final
contractual maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Evaluating
Investments for an Other-Than-Temporary Impairment
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2008 Annual
Report, the Company performs a regular evaluation, on a
security-by-security
basis, of its investment holdings in accordance with its
impairment policy in order to evaluate whether such investments
are other-than-temporarily impaired.
With respect to fixed maturity securities, the Company
considers, amongst other criteria, whether it has the intent to
sell a particular impaired fixed maturity security. The
assessment of the Companys intent to sell a particular
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
Companys 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 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, the
Company estimates the present value of the expected future cash
flows to be received from the security. If the present value of
the expected future cash flows to be received is less than the
amortized cost, the security will be deemed
other-than-temporarily impaired in the period that such present
value of the expected future cash flows falls below amortized
cost and this difference, referred to as the credit loss, will
be recognized in earnings. Any remaining difference between the
present value of the expected future cash flows to be received
and the estimated fair value of the security will be recognized
as a separate component of other comprehensive loss and is
referred to as the noncredit loss. Prior to April 1, 2009
the Companys
21
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
assessment of OTTI for fixed maturity securities was performed
in the same manner described below for equity securities.
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
or amortized 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. If a sale
decision is made with respect to a particular equity security
and that equity security is not expected to recover to an amount
at least equal to cost or amortized 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.
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive loss, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities that are temporarily impaired
|
|
$
|
(13,566
|
)
|
|
$
|
(21,246
|
)
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive loss
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
(13,931
|
)
|
|
|
(21,246
|
)
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(634
|
)
|
|
|
(934
|
)
|
Derivatives
|
|
|
(138
|
)
|
|
|
(2
|
)
|
Other
|
|
|
50
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(14,653
|
)
|
|
|
(22,129
|
)
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(116
|
)
|
|
|
42
|
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
28
|
|
|
|
|
|
DAC and VOBA
|
|
|
2,206
|
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,118
|
|
|
|
3,067
|
|
Deferred income tax benefit on which noncredit OTTI losses have
been recognized
|
|
|
116
|
|
|
|
|
|
Deferred income tax benefit
|
|
|
4,204
|
|
|
|
6,508
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
(8,215
|
)
|
|
|
(12,554
|
)
|
Net unrealized investment gains (losses) attributable to
noncontrolling interest
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses) attributable to
MetLife, Inc.
|
|
$
|
(8,218
|
)
|
|
$
|
(12,564
|
)
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive loss, as presented above, of $365 million
includes $126 million related to the transition adjustment,
$234 million ($216 million, net of DAC) of noncredit
losses recognized in the three months ended June 30, 2009
and $5 million of additional unrealized losses incurred
during the three months ended June 30, 2009 on such
securities for which a noncredit loss was previously recognized
in other comprehensive loss.
22
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The changes in net unrealized investment gains (losses) are as
follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, end of prior period
|
|
$
|
(12,564
|
)
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
(76
|
)
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
(239
|
)
|
Unrealized investment gains (losses) during the period
|
|
|
7,813
|
|
Unrealized investment loss of subsidiary at the date of disposal
|
|
|
28
|
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(158
|
)
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
18
|
|
DAC and VOBA
|
|
|
(809
|
)
|
DAC and VOBA of subsidiary at date of disposal
|
|
|
(10
|
)
|
Deferred income tax on which noncredit OTTI losses have been
recognized
|
|
|
76
|
|
Deferred income tax benefit
|
|
|
(2,298
|
)
|
Deferred income tax benefit of subsidiary at date of disposal
|
|
|
(6
|
)
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
|
(8,225
|
)
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interest
|
|
|
7
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(8,218
|
)
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
4,339
|
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interest
|
|
|
7
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses) attributable
to MetLife, Inc.s common shareholders
|
|
$
|
4,346
|
|
|
|
|
|
|
23
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 Companys fixed maturity and equity
securities in an unrealized loss position, aggregated by sector
and by length of time that the securities have been in a
continuous unrealized loss position. The unrealized loss amounts
presented below at June 30, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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)
|
|
|
U.S. corporate securities
|
|
$
|
10,129
|
|
|
$
|
998
|
|
|
$
|
28,658
|
|
|
$
|
5,053
|
|
|
$
|
38,787
|
|
|
$
|
6,051
|
|
Residential mortgage-backed securities
|
|
|
5,507
|
|
|
|
334
|
|
|
|
10,447
|
|
|
|
3,780
|
|
|
|
15,954
|
|
|
|
4,114
|
|
Foreign corporate securities
|
|
|
6,425
|
|
|
|
907
|
|
|
|
10,939
|
|
|
|
2,279
|
|
|
|
17,364
|
|
|
|
3,186
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
13,670
|
|
|
|
600
|
|
|
|
798
|
|
|
|
57
|
|
|
|
14,468
|
|
|
|
657
|
|
Commercial mortgage-backed securities
|
|
|
1,341
|
|
|
|
90
|
|
|
|
9,231
|
|
|
|
2,344
|
|
|
|
10,572
|
|
|
|
2,434
|
|
Asset-backed securities
|
|
|
3,263
|
|
|
|
200
|
|
|
|
6,195
|
|
|
|
2,102
|
|
|
|
9,458
|
|
|
|
2,302
|
|
Foreign government securities
|
|
|
2,229
|
|
|
|
101
|
|
|
|
372
|
|
|
|
160
|
|
|
|
2,601
|
|
|
|
261
|
|
State and political subdivision securities
|
|
|
830
|
|
|
|
59
|
|
|
|
2,038
|
|
|
|
448
|
|
|
|
2,868
|
|
|
|
507
|
|
Other fixed maturity securities
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
43,403
|
|
|
$
|
3,290
|
|
|
$
|
68,678
|
|
|
$
|
16,223
|
|
|
$
|
112,081
|
|
|
$
|
19,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
211
|
|
|
|
70
|
|
|
|
9
|
|
|
|
1
|
|
|
|
220
|
|
|
|
71
|
|
Non-redeemable preferred stock
|
|
|
263
|
|
|
|
144
|
|
|
|
868
|
|
|
|
506
|
|
|
|
1,131
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
474
|
|
|
$
|
214
|
|
|
$
|
877
|
|
|
$
|
507
|
|
|
$
|
1,351
|
|
|
$
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
2,124
|
|
|
|
|
|
|
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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)
|
|
|
U.S. corporate securities
|
|
$
|
30,076
|
|
|
$
|
4,479
|
|
|
$
|
18,011
|
|
|
$
|
5,423
|
|
|
$
|
48,087
|
|
|
$
|
9,902
|
|
Residential mortgage-backed securities
|
|
|
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
|
|
Commercial mortgage-backed securities
|
|
|
9,259
|
|
|
|
1,665
|
|
|
|
3,093
|
|
|
|
1,788
|
|
|
|
12,352
|
|
|
|
3,453
|
|
Asset-backed securities
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2009, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
27,591
|
|
|
$
|
6,804
|
|
|
$
|
940
|
|
|
$
|
1,973
|
|
|
|
739
|
|
|
|
315
|
|
Six months or greater but less than nine months
|
|
|
4,838
|
|
|
|
13,860
|
|
|
|
279
|
|
|
|
4,608
|
|
|
|
391
|
|
|
|
681
|
|
Nine months or greater but less than twelve months
|
|
|
9,909
|
|
|
|
8,978
|
|
|
|
599
|
|
|
|
3,724
|
|
|
|
589
|
|
|
|
464
|
|
Twelve months or greater
|
|
|
53,707
|
|
|
|
5,907
|
|
|
|
4,402
|
|
|
|
2,988
|
|
|
|
2,644
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96,045
|
|
|
$
|
35,549
|
|
|
$
|
6,220
|
|
|
$
|
13,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
61
|
|
|
$
|
400
|
|
|
$
|
5
|
|
|
$
|
143
|
|
|
|
89
|
|
|
|
54
|
|
Six months or greater but less than nine months
|
|
|
42
|
|
|
|
357
|
|
|
|
5
|
|
|
|
128
|
|
|
|
46
|
|
|
|
20
|
|
Nine months or greater but less than twelve months
|
|
|
46
|
|
|
|
525
|
|
|
|
6
|
|
|
|
221
|
|
|
|
29
|
|
|
|
19
|
|
Twelve months or greater
|
|
|
121
|
|
|
|
520
|
|
|
|
10
|
|
|
|
203
|
|
|
|
24
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270
|
|
|
$
|
1,802
|
|
|
$
|
26
|
|
|
$
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
At June 30, 2009 and December 31, 2008, the
Companys 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 June 30, 2009, of
$20.2 billion and $29.8 billion, respectively, were
concentrated, calculated as a percentage of gross unrealized
loss, by sector and industry as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
30
|
%
|
|
|
33
|
%
|
Residential mortgage-backed securities
|
|
|
20
|
|
|
|
16
|
|
Foreign corporate securities
|
|
|
16
|
|
|
|
19
|
|
Commercial mortgage-backed securities
|
|
|
12
|
|
|
|
11
|
|
Asset-backed securities
|
|
|
11
|
|
|
|
13
|
|
State and political subdivision securities
|
|
|
3
|
|
|
|
3
|
|
Foreign government securities
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
7
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
32
|
%
|
|
|
27
|
%
|
Finance
|
|
|
27
|
|
|
|
24
|
|
Asset-backed
|
|
|
11
|
|
|
|
13
|
|
Consumer
|
|
|
7
|
|
|
|
11
|
|
Utility
|
|
|
5
|
|
|
|
8
|
|
Communications
|
|
|
3
|
|
|
|
5
|
|
Industrial
|
|
|
2
|
|
|
|
4
|
|
Foreign government
|
|
|
5
|
|
|
|
1
|
|
Other
|
|
|
8
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
26
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Evaluating
Temporarily Impaired Investments
At June 30, 2009 and December 31, 2008,
$6.2 billion and $8.0 billion, respectively, of
unrealized losses related to fixed maturity securities with an
unrealized loss position of less than 20% of cost or amortized
cost, which represented 6% and 9%, respectively, of the cost or
amortized cost of such securities. At June 30, 2009 and
December 31, 2008, $26 million and $75 million,
respectively, of unrealized losses related to equity securities
with an unrealized loss position of less than 20% of cost, which
represented 10% and 13%, respectively, of the cost of such
securities.
At June 30, 2009, $13.3 billion and $695 million
of unrealized losses related to fixed maturity securities and
equity securities, respectively, with an unrealized loss
position of 20% or more of cost or amortized cost, which
represented 37% and 39% of the cost or amortized cost of such
fixed maturity and equity securities, respectively. Of such
unrealized losses of $13.3 billion and $695 million,
$2.0 billion and $143 million related to fixed
maturity and equity securities, respectively, that were in an
unrealized loss position for a period of less than six months.
At December 31, 2008, $20.8 billion and
$903 million of unrealized losses related to fixed maturity
and equity securities, respectively, with an unrealized loss
position of 20% or more of cost or amortized cost, which
represented 38% and 43% of the cost or amortized cost of such
fixed maturity and equity securities, respectively. Of such
unrealized losses of $20.8 billion and $903 million,
$17.2 billion and $519 million related to fixed
maturity and equity securities, respectively, that were in an
unrealized loss position for a period of less than six months.
The Company held 469 fixed maturity securities and 23 equity
securities, each with a gross unrealized loss at June 30,
2009 of greater than $10 million. These 469 fixed maturity
securities represented 50%, or $9.7 billion in the
aggregate, of the gross unrealized loss on fixed maturity
securities. These 23 equity securities represented 70%, or
$506 million in the aggregate, of the gross unrealized loss
on equity securities. The Company held 699 fixed maturity
securities and 33 equity securities, each with a gross
unrealized loss at December 31, 2008 of greater than
$10 million. These 699 fixed maturity securities
represented 50%, or $14.5 billion in the aggregate, of the
gross unrealized loss on fixed maturity securities. These 33
equity securities represented 71%, or $699 million in the
aggregate, of the gross unrealized loss on equity securities.
The fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$6.3 billion and $5.0 billion during the three months
and six months ended June 30, 2009, respectively. These
securities were included in the regular evaluation of whether
such investments are
other-than-temporarily
impaired. Based upon the Companys current evaluation of
these securities in accordance with its impairment policy, the
cause of the decline being primarily attributable to a rise in
market yields caused principally by an extensive widening of
credit spreads which resulted from a lack of market liquidity
and a short-term market dislocation versus a long-term
deterioration in credit quality, and its 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 Companys impairment review process, the duration
of, and severity of, an unrealized loss position, such as
unrealized losses of 20% or more for equity securities, which
was $695 million and $903 million at June 30,
2009 and December 31, 2008, respectively, 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
Companys 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.
Equity securities with an unrealized loss of 20% or more for
less than six months was $143 million at June 30,
2009, of which $82 million of the unrealized losses, or
57%, were for non-redeemable preferred securities, of which
$68 million, of the unrealized losses, or 83%, were for
investment grade non-redeemable preferred securities. Of the
$68 million of unrealized losses for investment grade
non-redeemable preferred securities, $61 million of the
27
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
unrealized losses, or 90%, was comprised of unrealized losses on
investment grade financial services industry non-redeemable
preferred securities, of which 97% were rated A or higher.
Equity securities with an unrealized loss of 20% or more for six
months or greater but less than twelve months was
$349 million at June 30, 2009, all of which were for
non-redeemable preferred securities, of which, $248 million
of the unrealized losses, or 71%, are investment grade
securities, and $243 million, or 98%, of which are within
the financial services industry non-redeemable preferred
securities, of which 56% were rated A or higher.
Equity securities with an unrealized loss of 20% or more for
twelve months or greater was $203 million at June 30,
2009, of which $197 million of the unrealized losses, or
97%, were for investment grade non-redeemable preferred
securities, within the financial services industry, of which 57%
were rated A or higher.
In connection with the equity securities impairment review
process at June 30, 2009, the Company evaluated its
holdings in non-redeemable preferred securities, 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 securities with a
severe or an extended unrealized loss. 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).
At June 30, 2009, there were $695 million of equity
securities with an unrealized loss of 20% or more, of which
$634 million of the unrealized losses, or 91%, were for
non-redeemable preferred securities. At June 30, 2009,
$513 million of the unrealized losses of 20% or more, or
81%, of the non-redeemable preferred securities were investment
grade securities, of which, $501 million of the unrealized
losses of 20% or more, or 98%, are investment grade financial
services industry non-redeemable preferred securities, of which
61% were rated A or higher. Also all non-redeemable preferred
securities with unrealized losses of 20% or more, regardless of
credit rating, have not deferred any dividend payments.
Future
other-than-temporary
impairments will depend primarily on economic fundamentals,
issuer performance including changes in the present value of
expected future cash flows 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 continue to deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming quarters.
Net
Investment Gains (Losses)
Effective April 1, 2009, the Company adopted
FSP 115-2.
With the adoption of
FSP 115-2,
for those fixed maturity securities that are intended to be sold
or for which it is more likely than not that the security will
be required to be sold before recovery of the decline in fair
value below amortized cost, the full OTTI loss from the fair
value being less than the amortized cost is recognized in
earnings. For those fixed maturity securities which the Company
has no intent to sell (i.e., has not made the decision to sell)
and the Company believes it is not more likely than not that it
will be required to sell prior to recovery of the decline in
fair value, and an assessment has been made that the amortized
cost will not be fully recovered, only the OTTI credit loss
component is recognized in earnings, while the remaining decline
in fair value is recognized in accumulated other comprehensive
income (loss), not in earnings, as a noncredit OTTI loss. Prior
to the adoption of this new guidance, the Company recognized an
OTTI loss in earnings 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 to allow for a recovery of fair value to the
securitys amortized cost basis. There was no change for
equity securities which, when an OTTI has occurred, continue to
be impaired for the entire difference between the equity
securitys cost and its fair value with a corresponding
charge to earnings.
28
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The discussion below describes the Companys methodology
and significant inputs used to determine the amount of the
credit loss effective April 1, 2009.
In order to determine the amount of the credit loss for a fixed
maturity security, the Company calculates the recovery value 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.
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 managements
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 securitys 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. Additional
considerations are made when assessing the unique features that
apply to certain structured securities such as residential
mortgage-backed securities, commercial mortgage-backed
securities and asset-backed securities. 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.
The components of net investment gains (losses) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total losses on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(566
|
)
|
|
$
|
(139
|
)
|
|
$
|
(1,119
|
)
|
|
$
|
(213
|
)
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive loss
|
|
|
234
|
|
|
|
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(332
|
)
|
|
|
(139
|
)
|
|
|
(885
|
)
|
|
|
(213
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
(46
|
)
|
|
|
(167
|
)
|
|
|
(102
|
)
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses on fixed maturity securities
|
|
|
(378
|
)
|
|
|
(306
|
)
|
|
|
(987
|
)
|
|
|
(509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(108
|
)
|
|
|
|
|
|
|
(377
|
)
|
|
|
(10
|
)
|
Mortgage and consumer loans
|
|
|
(125
|
)
|
|
|
(34
|
)
|
|
|
(271
|
)
|
|
|
(62
|
)
|
Real estate and real estate joint ventures
|
|
|
(68
|
)
|
|
|
4
|
|
|
|
(93
|
)
|
|
|
2
|
|
Other limited partnership interests
|
|
|
(247
|
)
|
|
|
(12
|
)
|
|
|
(344
|
)
|
|
|
(15
|
)
|
Freestanding derivatives
|
|
|
(3,637
|
)
|
|
|
(416
|
)
|
|
|
(4,687
|
)
|
|
|
(358
|
)
|
Embedded derivatives
|
|
|
793
|
|
|
|
366
|
|
|
|
2,010
|
|
|
|
(60
|
)
|
Other
|
|
|
(59
|
)
|
|
|
41
|
|
|
|
14
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
(3,829
|
)
|
|
$
|
(357
|
)
|
|
$
|
(4,735
|
)
|
|
$
|
(1,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
7,573
|
|
|
$
|
14,018
|
|
|
$
|
19,351
|
|
|
$
|
26,809
|
|
|
$
|
195
|
|
|
$
|
358
|
|
|
$
|
253
|
|
|
$
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
189
|
|
|
|
131
|
|
|
|
545
|
|
|
|
290
|
|
|
|
13
|
|
|
|
70
|
|
|
|
20
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(235
|
)
|
|
|
(298
|
)
|
|
|
(647
|
)
|
|
|
(586
|
)
|
|
|
(49
|
)
|
|
|
(14
|
)
|
|
|
(67
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(287
|
)
|
|
|
(136
|
)
|
|
|
(743
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (1)
|
|
|
(45
|
)
|
|
|
(3
|
)
|
|
|
(142
|
)
|
|
|
(3
|
)
|
|
|
(72
|
)
|
|
|
(56
|
)
|
|
|
(330
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(332
|
)
|
|
|
(139
|
)
|
|
|
(885
|
)
|
|
|
(213
|
)
|
|
|
(72
|
)
|
|
|
(56
|
)
|
|
|
(330
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(378
|
)
|
|
$
|
(306
|
)
|
|
$
|
(987
|
)
|
|
$
|
(509
|
)
|
|
$
|
(108
|
)
|
|
$
|
|
|
|
$
|
(377
|
)
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on non-redeemable preferred
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 fair value. |
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 fair value occurring in the
period of the disposition or are as a result of
managements decision to sell securities based on current
conditions, or the Companys 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.
OTTI losses recognized in earnings on fixed maturity and equity
securities, were $404 million and $1,215 million for
the three months and six months ended June 30, 2009 and
$195 million and $330 million for the three months and
six months ended June 30, 2008, respectively. The
substantial increase in the three months and six months ended
June 30, 2009 was driven in part by impairments totaling
$127 million and $478 million, respectively, on
financial services industry securities holdings, comprised of
$67 million and $188 million, respectively, of fixed
maturity securities and $60 million and $290 million,
respectively, of equity securities, as well as increased fixed
maturity security impairments across several industry sectors as
shown in the table below, which increased due to financial
restructurings, bankruptcy filings, ratings downgrades or
difficult underlying operating environments of the issuers.
These financial services industry impairments included
$68 million and $361 million, respectively, of
perpetual hybrid securities, some classified as fixed maturity
securities and some classified as non-redeemable preferred
stock, where there had been a deterioration in the credit rating
of the issuer to below investment grade and due to a severe and
extended unrealized loss position.
30
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fixed maturity security OTTI losses recognized in earnings of
$332 million and $139 million for the three months
ended June 30, 2009 and 2008, respectively, and
$885 million and $213 million for the six months ended
June 30, 2009 and 2008, respectively, related to the
following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
U.S. and foreign corporate securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
$
|
61
|
|
|
$
|
|
|
|
$
|
203
|
|
|
$
|
17
|
|
Finance
|
|
|
67
|
|
|
|
83
|
|
|
|
188
|
|
|
|
114
|
|
Consumer
|
|
|
74
|
|
|
|
48
|
|
|
|
164
|
|
|
|
48
|
|
Utility
|
|
|
43
|
|
|
|
1
|
|
|
|
76
|
|
|
|
1
|
|
Industrial
|
|
|
3
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
3
|
|
|
|
26
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
250
|
|
|
|
135
|
|
|
|
677
|
|
|
|
185
|
|
Asset-backed securities
|
|
|
28
|
|
|
|
4
|
|
|
|
94
|
|
|
|
28
|
|
Residential mortgage-backed securities
|
|
|
20
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
34
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
332
|
|
|
$
|
139
|
|
|
$
|
885
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI losses recognized in earnings on equity securities were
$72 million and $330 million for the three months and
six months ended June 30, 2009, respectively, which
included $60 million and $290 million of impairments
on financial services industry holdings and $12 million and
$40 million of impairments across several industries. Of
the financial services industry equity security impairments in
the three months and six months ended June 30, 2009 of
$60 million and $290 million, respectively,
$60 million and $260 million, respectively, related to
perpetual hybrid securities where there had been a deterioration
in the credit rating of the issuer to below investment grade and
due to a severe and extended unrealized loss position.
The $72 million and $56 million of equity security
impairments in the three months ended June 30, 2009 and
2008, respectively, and $330 million and $117 million
in the six months ended June 30, 2009 and 2008,
respectively, related to the following sectors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Common stock
|
|
$
|
12
|
|
|
$
|
55
|
|
|
$
|
50
|
|
|
$
|
79
|
|
Non-redeemable preferred stock
|
|
|
60
|
|
|
|
1
|
|
|
|
280
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72
|
|
|
$
|
56
|
|
|
$
|
330
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 is a 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 and are still held on
June 30, 2009:
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
June 30, 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
|
|
|
152
|
|
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
|
|
5
|
|
Reductions:
|
|
|
|
|
Due to sales (or maturities, pay downs or prepayments) of
securities previously credit loss OTTI impaired
|
|
|
(7
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
380
|
|
|
|
|
|
|
Net
Investment Income
The components of net investment income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
2,936
|
|
|
$
|
3,431
|
|
|
$
|
5,754
|
|
|
$
|
6,978
|
|
Equity securities
|
|
|
55
|
|
|
|
82
|
|
|
|
93
|
|
|
|
150
|
|
Trading securities (1)
|
|
|
130
|
|
|
|
9
|
|
|
|
147
|
|
|
|
(42
|
)
|
Mortgage and consumer loans
|
|
|
696
|
|
|
|
695
|
|
|
|
1,378
|
|
|
|
1,397
|
|
Policy loans
|
|
|
161
|
|
|
|
151
|
|
|
|
318
|
|
|
|
299
|
|
Real estate and real estate joint ventures (2)
|
|
|
(71
|
)
|
|
|
206
|
|
|
|
(156
|
)
|
|
|
380
|
|
Other limited partnership interests (3)
|
|
|
72
|
|
|
|
71
|
|
|
|
(181
|
)
|
|
|
203
|
|
Cash, cash equivalents and short-term investments
|
|
|
34
|
|
|
|
102
|
|
|
|
82
|
|
|
|
212
|
|
International joint ventures (4)
|
|
|
(77
|
)
|
|
|
(1
|
)
|
|
|
(70
|
)
|
|
|
(5
|
)
|
Other
|
|
|
44
|
|
|
|
71
|
|
|
|
119
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
3,980
|
|
|
|
4,817
|
|
|
|
7,484
|
|
|
|
9,719
|
|
Less: Investment expenses
|
|
|
249
|
|
|
|
498
|
|
|
|
490
|
|
|
|
1,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
3,731
|
|
|
$
|
4,319
|
|
|
$
|
6,994
|
|
|
$
|
8,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Net investment income from trading securities includes interest
and dividends earned on trading securities in addition to the
net realized gains (losses) and subsequent changes in estimated
fair value recognized on trading securities and the short sale
agreements liabilities. During the three months and six months
ended June 30, 2009, changes in estimated fair value were
recognized in net investment income on certain equity securities
within the trading securities portfolio, due to recovery in
certain equity markets, in addition to interest and dividends
earned and net realized gains (losses) on securities sold. |
|
(2) |
|
Net investment income from real estate joint ventures within the
real estate and real estate joint ventures caption represents
distributions for investments accounted for under the cost
method and equity in earnings for investments accounted for
under the equity method. Overall, for the three months and six
months ended June 30, 2009, the net amount recognized were
losses of $71 million and $156 million, respectively,
resulting primarily from declining property valuations on real
estate held by certain real estate investment funds that carry
their real estate at fair value and operating losses incurred on
real estate properties that were developed for sale by real
estate development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate properties
underlying real estate investment funds have experienced
declines in value driven by capital market factors and
deteriorating market conditions, which has led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. |
|
(3) |
|
Net investment income from other limited partnership interests,
including hedge funds, represents distributions from other
limited partnership interests accounted for under the cost
method and equity in earnings from other limited partnership
interests accounted for under the equity method. Overall for the
six months ended June 30, 2009, the net amount recognized
were losses of $181 million, resulting principally from
losses on equity method investments. Such earnings and losses
recognized for other limited partnership interests are impacted
by volatility in the equity and credit markets. |
|
(4) |
|
Net of changes in estimated fair value of derivatives related to
economic hedges of these equity method investments that do not
qualify for hedge accounting of ($92) million and
($116) million for the three months and six months ended
June 30, 2009, respectively, and ($33) million and
$8 million for the three months and six months ended
June 30, 2008, respectively. |
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 major 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 with a cost or amortized cost of $20.7 billion
and $20.8 billion and an estimated fair value of
$20.9 billion and $22.9 billion were on loan under the
program at June 30, 2009 and December 31, 2008,
respectively. Securities loaned under such transactions may be
sold or repledged by the transferee. The Company was liable for
cash collateral under its control of $21.5 billion and
$23.3 billion at June 30, 2009 and December 31,
2008, respectively. Of this $21.5 billion of cash
collateral at June 30, 2009, $2.4 billion was on open
terms, meaning that the related loaned security could be
returned to the Company on the next business day requiring
return of cash collateral, and $11.0 billion,
$4.0 billion, $2.4 billion and $1.7 billion,
respectively, were due within 30 days, 60 days,
90 days and over 90 days. Substantially all (99%) of
the $2.3 billion of estimated fair value of the securities
related to the cash collateral on open terms at June 30,
2009, 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 are primarily U.S. Treasury, agency and
government guaranteed securities, and very liquid residential
mortgage-backed securities. The estimated fair value of the
reinvestment portfolio acquired with the cash collateral was
$19.6 billion at June 30, 2009, and consisted
principally of fixed maturity securities (including residential
mortgage-backed, asset-backed, U.S. corporate and foreign
corporate securities).
33
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Security collateral of $29 million and $279 million on
deposit from counterparties in connection with the securities
lending transactions at June 30, 2009 and December 31,
2008, respectively, may not be sold or repledged, unless the
counterparty is in default, and is not reflected in the
consolidated financial statements.
Assets
on Deposit, Held in Trust and Pledged as
Collateral
The assets on deposit, assets held in trust and assets pledged
as collateral are summarized in the table below. The amounts
presented in the table below are at estimated fair value for
cash, fixed maturity and equity securities and at carrying value
for mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
1,279
|
|
|
$
|
1,282
|
|
Assets held in trust:
|
|
|
|
|
|
|
|
|
Collateral financing arrangements (2)
|
|
|
5,750
|
|
|
|
4,754
|
|
Reinsurance arrangements (3)
|
|
|
1,244
|
|
|
|
1,714
|
|
Assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Debt and funding agreements FHLB of NY (4)
|
|
|
22,065
|
|
|
|
20,880
|
|
Debt and funding agreements FHLB of Boston (4)
|
|
|
434
|
|
|
|
1,284
|
|
Funding agreements Farmer MAC(5)
|
|
|
2,870
|
|
|
|
2,875
|
|
Federal Reserve Bank of New York (6)
|
|
|
2,961
|
|
|
|
1,577
|
|
Collateral financing arrangements Holding Company (7)
|
|
|
123
|
|
|
|
316
|
|
Derivative transactions (8)
|
|
|
1,257
|
|
|
|
1,744
|
|
Short sale agreements (9)
|
|
|
545
|
|
|
|
346
|
|
Other
|
|
|
190
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
Total assets on deposit, held in trust and pledged as collateral
|
|
$
|
38,718
|
|
|
$
|
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. The Company has also pledged certain fixed
maturity securities in support of the collateral financing
arrangements described in Note 10. |
|
(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 the
Federal Home Loan Bank arrangements is described in Note 7
of the Notes to the Consolidated Financial Statements included
in the 2008 Annual Report. |
|
(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 7 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report. |
34
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(6) |
|
The Company has pledged qualifying mortgage loans and securities
in connection with collateralized borrowings from the Federal
Reserve Bank of New Yorks Term Auction Facility. The
nature of the Federal Reserve Bank of New York arrangements is
described in Note 9. |
|
(7) |
|
The Holding Company has pledged certain collateral in support of
the collateral financing arrangements described in Note 10. |
|
(8) |
|
Certain of the Companys invested assets are pledged as
collateral for various derivative transactions as described in
Note 4. |
|
(9) |
|
Certain of the Companys trading securities 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 Companys 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. Trading securities and short sale
agreement liabilities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income.
At June 30, 2009 and December 31, 2008, trading
securities at estimated fair value were $1,471 million and
$946 million, respectively, and liabilities associated with
the short sale agreements in the trading securities portfolio,
which were included in other liabilities, were $201 million
and $57 million, respectively. The Company had pledged
$545 million and $346 million of its assets, at
estimated fair value, consisting of trading securities and cash
and cash equivalents, as collateral to secure the liabilities
associated with the short sale agreements in the trading
securities portfolio at June 30, 2009 and December 31,
2008, respectively.
Interest and dividends earned on trading securities in, addition
to the net realized gains (losses) and subsequent changes in
estimated fair value recognized on the trading securities and
the related short sale agreement liabilities included within net
investment income, totaled $130 million and
$147 million for the three months and six months ended
June 30, 2009, respectively, and $9 million and
($42) million for the three months and six months ended
June 30, 2008, respectively. Changes in estimated fair
value in net investment income of such trading securities and
short sale agreement liabilities were $141 million and
$143 million for the three months and six months ended
June 30, 2009, respectively, and ($4) million and
($47) million for the three months and six months ended
June 30, 2008, respectively.
35
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Mortgage
Servicing Rights
The following table presents the changes in capitalized mortgage
servicing rights (MSRs), which are included in other
invested assets, for the six months ended June 30, 2009:
|
|
|
|
|
|
|
Carrying Value
|
|
|
|
(In millions)
|
|
|
Fair value, beginning of period
|
|
$
|
191
|
|
Acquisition of mortgage servicing rights
|
|
|
117
|
|
Origination of mortgage servicing rights
|
|
|
289
|
|
Reduction due to loan payments
|
|
|
(61
|
)
|
Changes in fair value due to:
|
|
|
|
|
Changes in valuation model inputs or assumptions
|
|
|
133
|
|
Other changes in fair value
|
|
|
1
|
|
|
|
|
|
|
Fair value, end of period
|
|
$
|
670
|
|
|
|
|
|
|
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 18 for further information about how
the estimated fair value of MSRs is determined and other related
information.
Variable
Interest Entities
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 Companys financial statements at June 30, 2009
and December 31, 2008. Generally, creditors or beneficial
interest holders of VIEs where the Company is the primary
beneficiary have no recourse to the general credit of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
MRSC collateral financing arrangement (1)
|
|
$
|
3,073
|
|
|
$
|
|
|
|
$
|
2,361
|
|
|
$
|
|
|
Real estate joint ventures (2)
|
|
|
23
|
|
|
|
13
|
|
|
|
26
|
|
|
|
15
|
|
Other limited partnership interests (3)
|
|
|
135
|
|
|
|
33
|
|
|
|
20
|
|
|
|
3
|
|
Other invested assets (4)
|
|
|
31
|
|
|
|
2
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,262
|
|
|
$
|
48
|
|
|
$
|
2,417
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 10 for a description of the MetLife Reinsurance
Company of South Carolina (MRSC) collateral
financing arrangement. At June 30, 2009 and
December 31, 2008, these assets are reflected at estimated
fair value and consist of the following: |
36
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
977
|
|
|
$
|
948
|
|
Asset-backed securities
|
|
|
848
|
|
|
|
409
|
|
Residential mortgage-backed securities
|
|
|
601
|
|
|
|
561
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
262
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
168
|
|
|
|
98
|
|
Foreign corporate securities
|
|
|
93
|
|
|
|
95
|
|
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)
|
|
|
98
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,073
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Real estate joint ventures include partnerships and other
ventures which engage in the acquisition, development,
management and disposal of real estate investments. Upon
consolidation, the assets and liabilities are reflected at the
VIEs carrying amounts. At June 30, 2009 and
December 31, 2008, the assets consist of $18 million
and $20 million, respectively, of real estate and real
estate joint ventures
held-for-investment,
$4 million and $5 million, respectively, of cash and
cash equivalents and $1 million and $1 million,
respectively, of other assets. At June 30, 2009 and
December 31, 2008, liabilities consist of $13 million
and $15 million of other liabilities, respectively. |
|
(3) |
|
Other limited partnership interests include partnerships
established for the purpose of investing in public and private
debt and equity securities. Upon consolidation, the assets and
liabilities are reflected at the VIEs carrying amounts. At
June 30, 2009 and December 31, 2008, the assets of
$135 million and $20 million, respectively, are
included within other limited partnership interests while the
liabilities of $33 million and $3 million,
respectively, are included within other liabilities. |
|
(4) |
|
Other invested assets includes tax-credit partnerships and other
investments 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. Upon
consolidation, the assets and liabilities are reflected at the
VIEs carrying amounts. At June 30, 2009 and
December 31, 2008, the assets of $31 million and
$10 million, respectively, are included within other
invested assets. At June 30, 2009 and December 31,
2008, the liabilities consist of $1 million and
$2 million, respectively, of long-term debt and less than
$1 million and $1 million, respectively, of other
liabilities. |
37
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
June 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
Amount (1)
|
|
|
to Loss (2)
|
|
|
Amount(1)
|
|
|
to Loss (2)
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
$
|
892
|
|
|
$
|
892
|
|
|
$
|
1,080
|
|
|
$
|
1,080
|
|
U.S. corporate securities
|
|
|
711
|
|
|
|
711
|
|
|
|
992
|
|
|
|
992
|
|
Real estate joint ventures
|
|
|
31
|
|
|
|
31
|
|
|
|
32
|
|
|
|
32
|
|
Other limited partnership interests
|
|
|
2,243
|
|
|
|
2,578
|
|
|
|
3,496
|
|
|
|
4,004
|
|
Other invested assets
|
|
|
383
|
|
|
|
257
|
|
|
|
318
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,260
|
|
|
$
|
4,469
|
|
|
$
|
5,918
|
|
|
$
|
6,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 1 of the Notes to the Consolidated Financial
Statements included in the 2008 Annual Report for further
discussion of the Companys accounting policies with
respect to the basis for determining carrying value of these
investments. |
|
(2) |
|
The maximum exposure to loss relating to the fixed maturity
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 Companys 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 tax credits guaranteed by third
parties of $254 million and $278 million at
June 30, 2009 and December 31, 2008, respectively. |
As described in Note 11, the Company makes commitments to
fund partnership investments in the normal course of business.
Excluding these commitments, MetLife did not provide financial
or other support to investees designated as VIEs during the six
months ended June 30, 2009.
|
|
4.
|
Derivative
Financial Instruments
|
Accounting
for 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 the
risk associated with variability in cash flows or changes in
estimated fair values related to the Companys financial
instruments. The Company also uses derivative instruments to
hedge its currency exposure associated with net investments in
certain foreign 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 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 Companys
consolidated balance sheet 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 residential mortgage backed securities or
through the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair
38
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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 consistent with what other market
participants would use when pricing such instruments. 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 Companys derivatives
and could materially affect net income.
The credit risk of both the counterparty and the Company are
considered in determining the estimated fair value for all
over-the-counter
derivatives after taking into account the effects of netting
agreements and collateral arrangements. Credit risk is monitored
and consideration of any potential credit adjustment is based on
a net exposure by counterparty. This is due to the existence of
netting agreements and collateral arrangements which effectively
serve to mitigate credit risk. The Company values its derivative
positions using the standard swap curve which includes a credit
risk adjustment. This credit risk adjustment 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 need for such
additional credit risk adjustments is monitored by the Company.
The Companys 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 an additional credit risk adjustments is
performed by the Company each reporting period.
Pursuant to FIN No. 39, Offsetting of Amounts
Related to Certain Contracts, the Companys policy is
to 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 liabilities embedded in certain variable annuity
products offered by the Company, (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 and (iii) in other revenues for derivatives held
in connection with the Companys mortgage banking
activities. The fluctuations in estimated fair value of
derivatives which have not been designated for hedge accounting
can result in significant volatility in net income.
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 or an unrecognized firm commitment (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
39
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 instruments 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 standards continue to evolve in practice.
Judgment is applied in determining the availability and
application of hedge accounting designations and the appropriate
accounting treatment under these accounting standards. 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.
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 income within interest income or interest expense
to match the location of the hedged item. However, balances that
are not scheduled to settle until maturity are included in the
estimated fair value of derivatives.
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 income when the Companys 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 income within interest income or
interest expense to match the location of the hedged item.
However, balances that are not scheduled to settle until
maturity are included in the estimated fair value of derivatives.
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; (iv) a hedged firm commitment no longer meets the
definition of a firm commitment; or (v) 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 on the consolidated
balance sheet 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
40
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
consolidated statement of income when the Companys
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 by the end
of the specified time period or the hedged item no longer meets
the definition of a firm commitment, the derivative continues to
be carried on the consolidated balance sheet at its estimated
fair value, with changes in estimated fair value recognized
currently in net investment gains (losses). Any asset or
liability associated with a recognized firm commitment is
derecognized from the consolidated balance sheet, and recorded
currently in net investment gains (losses). Deferred gains and
losses of a derivative recorded in other comprehensive income
(loss) pursuant to the cash flow hedge of a forecasted
transaction 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 on the consolidated balance sheet, 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 on the
consolidated balance sheet at estimated fair value with the host
contract and changes in their estimated fair value are reported
currently in net investment gains (losses) or in policyholder
benefits and claims. 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.
See Note 18 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
41
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
fair value, and primary underlying risk exposure of the
Companys derivative financial instruments, excluding
embedded derivatives held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
Current Market
|
|
|
|
|
|
Current Market
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
or Fair Value (1)
|
|
|
Notional
|
|
|
or Fair Value (1)
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
(In millions)
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
35,613
|
|
|
$
|
1,887
|
|
|
$
|
1,336
|
|
|
$
|
34,060
|
|
|
$
|
4,617
|
|
|
$
|
1,468
|
|
|
|
Interest rate floors
|
|
|
26,191
|
|
|
|
544
|
|
|
|
51
|
|
|
|
48,517
|
|
|
|
1,748
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
22,635
|
|
|
|
183
|
|
|
|
|
|
|
|
24,643
|
|
|
|
11
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
8,711
|
|
|
|
14
|
|
|
|
11
|
|
|
|
13,851
|
|
|
|
44
|
|
|
|
117
|
|
|
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
2,365
|
|
|
|
939
|
|
|
|
35
|
|
|
|
Interest rate forwards
|
|
|
19,577
|
|
|
|
191
|
|
|
|
39
|
|
|
|
16,616
|
|
|
|
49
|
|
|
|
70
|
|
|
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
4,260
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
17,527
|
|
|
|
1,438
|
|
|
|
1,222
|
|
|
|
19,438
|
|
|
|
1,953
|
|
|
|
1,866
|
|
|
|
Foreign currency forwards
|
|
|
6,292
|
|
|
|
61
|
|
|
|
142
|
|
|
|
5,167
|
|
|
|
153
|
|
|
|
129
|
|
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
932
|
|
|
|
73
|
|
|
|
|
|
|
|
Non-derivative hedging instruments (2)
|
|
|
351
|
|
|
|
|
|
|
|
344
|
|
|
|
351
|
|
|
|
|
|
|
|
323
|
|
Credit
|
|
Swap spreadlocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,338
|
|
|
|
|
|
|
|
99
|
|
|
|
Credit default swaps
|
|
|
6,867
|
|
|
|
166
|
|
|
|
108
|
|
|
|
5,219
|
|
|
|
152
|
|
|
|
69
|
|
|
|
Other
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity market
|
|
Equity futures
|
|
|
6,345
|
|
|
|
20
|
|
|
|
10
|
|
|
|
6,057
|
|
|
|
1
|
|
|
|
88
|
|
|
|
Equity options
|
|
|
23,438
|
|
|
|
2,083
|
|
|
|
659
|
|
|
|
5,153
|
|
|
|
2,150
|
|
|
|
|
|
|
|
Variance swaps
|
|
|
11,969
|
|
|
|
283
|
|
|
|
13
|
|
|
|
9,222
|
|
|
|
416
|
|
|
|
|
|
|
|
Other
|
|
|
250
|
|
|
|
|
|
|
|
98
|
|
|
|
250
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
191,279
|
|
|
$
|
6,912
|
|
|
$
|
4,033
|
|
|
$
|
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. |
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.
42
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
Companys 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 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 value of
interest rate futures is substantially impacted by changes in
interest rates and they can be used to modify or hedge existing
interest rate risk. 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 Companys 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 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
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 derivatives pursuant to SFAS No. 133,
Accounting for Derivative Instruments and Hedging
(SFAS 133). 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 guaranteed interest contract (GIC) is a
contract that simulates the performance of a traditional GIC
through the use of financial instruments. Under a synthetic GIC,
the policyholder owns the underlying assets.
43
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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, 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
utilizes currency options in non-qualifying hedging
relationships.
The Company uses certain of its foreign currency denominated
GICs 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
insure 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.
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-
44
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
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 total return swaps to hedge
its equity market guarantees in certain of its insurance
products. TRRs can be used as hedges or to synthetically create
investments. TRRs are included in the other classification in
the preceding table. 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
under SFAS 133 by type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Derivatives Designated as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
5,665
|
|
|
$
|
744
|
|
|
$
|
159
|
|
|
$
|
6,093
|
|
|
$
|
467
|
|
|
$
|
550
|
|
Interest rate swaps
|
|
|
4,507
|
|
|
|
599
|
|
|
|
89
|
|
|
|
4,141
|
|
|
|
1,338
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
10,172
|
|
|
|
1,343
|
|
|
|
248
|
|
|
|
10,234
|
|
|
|
1,805
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
3,558
|
|
|
|
164
|
|
|
|
251
|
|
|
|
3,782
|
|
|
|
463
|
|
|
|
381
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
6
|
|
Interest rate forwards
|
|
|
4,691
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,259
|
|
|
|
237
|
|
|
|
251
|
|
|
|
4,068
|
|
|
|
463
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Operations Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
1,787
|
|
|
|
8
|
|
|
|
60
|
|
|
|
1,670
|
|
|
|
32
|
|
|
|
50
|
|
Foreign currency swaps
|
|
|
102
|
|
|
|
|
|
|
|
5
|
|
|
|
164
|
|
|
|
1
|
|
|
|
|
|
Non-derivative hedging instruments
|
|
|
351
|
|
|
|
|
|
|
|
344
|
|
|
|
351
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,240
|
|
|
|
8
|
|
|
|
409
|
|
|
|
2,185
|
|
|
|
33
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
20,671
|
|
|
$
|
1,588
|
|
|
$
|
908
|
|
|
$
|
16,487
|
|
|
$
|
2,301
|
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 under SFAS 133 by derivative
type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Derivatives Not Designated or Not Qualifying as Hedging
Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Interest rate swaps
|
|
$
|
31,106
|
|
|
$
|
1,288
|
|
|
$
|
1,247
|
|
|
$
|
29,633
|
|
|
$
|
3,279
|
|
|
$
|
1,309
|
|
Interest rate floors
|
|
|
26,191
|
|
|
|
544
|
|
|
|
51
|
|
|
|
48,517
|
|
|
|
1,748
|
|
|
|
|
|
Interest rate caps
|
|
|
22,635
|
|
|
|
183
|
|
|
|
|
|
|
|
24,643
|
|
|
|
11
|
|
|
|
|
|
Interest rate futures
|
|
|
8,711
|
|
|
|
14
|
|
|
|
11
|
|
|
|
13,851
|
|
|
|
44
|
|
|
|
117
|
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
2,365
|
|
|
|
939
|
|
|
|
35
|
|
Interest rate forwards
|
|
|
14,886
|
|
|
|
118
|
|
|
|
39
|
|
|
|
16,616
|
|
|
|
49
|
|
|
|
70
|
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
4,260
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
8,202
|
|
|
|
530
|
|
|
|
807
|
|
|
|
9,399
|
|
|
|
1,022
|
|
|
|
935
|
|
Foreign currency forwards
|
|
|
4,505
|
|
|
|
53
|
|
|
|
82
|
|
|
|
3,497
|
|
|
|
121
|
|
|
|
79
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
932
|
|
|
|
73
|
|
|
|
|
|
Swaps spreadlocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,338
|
|
|
|
|
|
|
|
99
|
|
Credit default swaps
|
|
|
6,867
|
|
|
|
166
|
|
|
|
108
|
|
|
|
5,219
|
|
|
|
152
|
|
|
|
69
|
|
Equity futures
|
|
|
6,345
|
|
|
|
20
|
|
|
|
10
|
|
|
|
6,057
|
|
|
|
1
|
|
|
|
88
|
|
Equity options
|
|
|
23,438
|
|
|
|
2,083
|
|
|
|
659
|
|
|
|
5,153
|
|
|
|
2,150
|
|
|
|
|
|
Variance swaps
|
|
|
11,969
|
|
|
|
283
|
|
|
|
13
|
|
|
|
9,222
|
|
|
|
416
|
|
|
|
|
|
Other
|
|
|
250
|
|
|
|
|
|
|
|
98
|
|
|
|
250
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
170,608
|
|
|
$
|
5,324
|
|
|
$
|
3,125
|
|
|
$
|
181,952
|
|
|
$
|
10,005
|
|
|
$
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the settlement payments recorded in
income for the:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
10
|
|
|
$
|
4
|
|
|
$
|
27
|
|
|
$
|
2
|
|
Interest credited to policyholder account balances
|
|
|
55
|
|
|
|
42
|
|
|
|
97
|
|
|
|
63
|
|
Other expenses
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net investment gains (losses)
|
|
|
33
|
|
|
|
(27
|
)
|
|
|
63
|
|
|
|
(19
|
)
|
Other revenues
|
|
|
14
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115
|
|
|
$
|
19
|
|
|
$
|
207
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
The Company designates and accounts for the following as fair
value hedges when they have met the requirements of
SFAS 133: (i) interest rate swaps to convert fixed
rate investments to floating rate
investments; (ii) interest rate swaps to convert fixed
rate liabilities to floating rate liabilities; and
(iii) foreign
46
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 three
months and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
Net Investment Gains
|
|
|
Net Investment Gains
|
|
|
Recognized in
|
|
Derivatives in Fair Value
|
|
Hedge Items in Fair Value
|
|
(Losses) Recognized
|
|
|
(Losses) Recognized
|
|
|
Net Investment
|
|
Hedging Relationships
|
|
Hedging Relationships
|
|
for Derivatives
|
|
|
for Hedged Items
|
|
|
Gains (Losses)
|
|
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
33
|
|
|
$
|
(29
|
)
|
|
$
|
4
|
|
|
|
Policyholder account balances (1)
|
|
|
(518
|
)
|
|
|
509
|
|
|
|
(9
|
)
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
(16
|
)
|
|
|
15
|
|
|
|
(1
|
)
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
427
|
|
|
|
(421
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(74
|
)
|
|
$
|
74
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(323
|
)
|
|
$
|
313
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
47
|
|
|
$
|
(41
|
)
|
|
$
|
6
|
|
|
|
Policyholder account balances (1)
|
|
|
(812
|
)
|
|
|
801
|
|
|
|
(11
|
)
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
(13
|
)
|
|
|
11
|
|
|
|
(2
|
)
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
320
|
|
|
|
(308
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(458
|
)
|
|
$
|
463
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22
|
|
|
$
|
(27
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fixed rate liabilities |
|
(2) |
|
Fixed rate or floating rate liabilities |
All components of each derivatives gain or loss were
included in the assessment of hedge effectiveness. There were no
instances in which the Company discontinued fair value hedge
accounting due to a hedged firm commitment no longer qualifying
as a fair value hedge.
Cash
Flow Hedges
The Company designates and accounts for the following as cash
flow hedges when they have met the requirements of
SFAS 133: (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; and (iv) interest
rate forwards to lock in the price to be paid for forward
purchases of fixed rate investments.
For the three months and six months ended June 30, 2009,
the Company recognized insignificant net investment losses which
represented the ineffective portion of all cash flow hedges. For
the three months and six months ended June 30, 2008, the
Company did not recognize any net investment gains (losses)
which represented
47
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the ineffective portion of all cash flow hedges. All components
of each derivatives 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
in the additional time period permitted by SFAS 133. The
net amounts reclassified into net investment gains (losses) for
the three months and six months ended June 30, 2009 related
to such discontinued cash flow hedges were gains (losses) of $0
and $1 million, respectively, and for the three months and
six months ended June 30, 2008, related to such
discontinued cash flow hedges were gains (losses) of
($3) million and ($7) million, respectively. With the
exception of certain cash flow hedges involving interest rate
forwards, there were no hedged forecasted transactions, other
than the variable payments or receipts on existing assets and
liabilities, for the three months and six months ended
June 30, 2009. In connection with certain interest rate
forwards, 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 one year. There were no
hedged forecasted transactions, other than the variable payments
or receipts on existing assets and liabilities, for the three
months and six months ended June 30, 2008.
The following table presents the components of other
comprehensive loss, before income tax, related to cash flow
hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Other comprehensive income (loss), beginning of period
|
|
$
|
113
|
|
|
$
|
(361
|
)
|
|
$
|
82
|
|
|
$
|
(270
|
)
|
Gains (losses) deferred in other comprehensive loss on the
effective portion of cash flow hedges
|
|
|
(97
|
)
|
|
|
(11
|
)
|
|
|
(105
|
)
|
|
|
(46
|
)
|
Amounts reclassified to net investment gains (losses)
|
|
|
(6
|
)
|
|
|
51
|
|
|
|
33
|
|
|
|
(7
|
)
|
Amounts reclassified to net investment income
|
|
|
4
|
|
|
|
3
|
|
|
|
6
|
|
|
|
5
|
|
Amounts reclassified to other expenses
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Amortization of transition adjustment
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), end of period
|
|
$
|
13
|
|
|
$
|
(318
|
)
|
|
$
|
13
|
|
|
$
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009, $40 million of deferred net losses
on derivatives accumulated in other comprehensive loss is
expected to be reclassified to earnings within the next
12 months.
48
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the effects of derivatives in cash
flow hedging relationships on the consolidated statements of
income and the consolidated statements of stockholders
equity for the three months and six months ended June 30,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Location
|
|
|
|
Amount of Gains
|
|
|
Amount and Location
|
|
|
of Gains (Losses)
|
|
|
|
(Losses) Deferred
|
|
|
of Gains (Losses)
|
|
|
Recognized in Income
|
|
|
|
in Accumulated
|
|
|
Reclassified from
|
|
|
on Derivatives
|
|
Derivatives in Cash Flow
|
|
Other Comprehensive
|
|
|
Accumulated Other
|
|
|
(Ineffective Portion and
|
|
Hedging Relationships
|
|
Loss on Derivatives
|
|
|
Comprehensive Loss into Income
|
|
|
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 Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(170
|
)
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest rate forwards
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(97
|
)
|
|
$
|
6
|
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(6
|
)
|
|
|
(51
|
)
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(11
|
)
|
|
$
|
(51
|
)
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(179
|
)
|
|
|
(33
|
)
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest rate forwards
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(105
|
)
|
|
$
|
(33
|
)
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(44
|
)
|
|
|
7
|
|
|
|
(6
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(46
|
)
|
|
$
|
7
|
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedges
of Net Investments in Foreign Operations
The Company uses forward exchange contracts, foreign currency
swaps, options and non-derivative financial instruments to hedge
portions of its net investments in foreign operations against
adverse movements in exchange rates. The Company measures
ineffectiveness on the forward exchange contracts based upon the
change in forward rates. When net investments in foreign
operations are sold or substantially liquidated, the amounts in
accumulated other comprehensive loss are reclassified to the
consolidated statements of income, while a pro rata portion will
be reclassified upon partial sale of the net investments in
foreign operations.
49
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the effects of derivatives and
non-derivative financial instruments in net investment hedging
relationships on the consolidated statements of income and the
consolidated statements of stockholders equity for the
three months and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
Amount of Gains (Losses)
|
|
|
|
Deferred in Accumulated
|
|
|
|
Other Comprehensive Loss
|
|
Derivatives and Non-Derivative Hedging Instruments in Net
Investment Hedging Relationships (1),(2)
|
|
(Effective Portion)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(154
|
)
|
Foreign currency swaps
|
|
|
(14
|
)
|
Non-derivative hedging instruments
|
|
|
(26
|
)
|
|
|
|
|
|
Total
|
|
$
|
(194
|
)
|
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
|
|
|
Foreign currency forwards
|
|
$
|
14
|
|
Foreign currency swaps
|
|
|
(22
|
)
|
Non-derivative hedging instruments
|
|
|
(4
|
)
|
|
|
|
|
|
Total
|
|
$
|
(12
|
)
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(149
|
)
|
Foreign currency swaps
|
|
|
(10
|
)
|
Non-derivative hedging instruments
|
|
|
(20
|
)
|
|
|
|
|
|
Total
|
|
$
|
(179
|
)
|
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(38
|
)
|
Foreign currency swaps
|
|
|
10
|
|
Non-derivative hedging instruments
|
|
|
11
|
|
|
|
|
|
|
Total
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
(1) |
|
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 income during the periods presented. |
|
(2) |
|
There was no ineffectiveness recognized for the Companys
hedges of net investments in foreign operations. |
At June 30, 2009 and December 31, 2008, the cumulative
foreign currency translation gain (loss) recorded in accumulated
other comprehensive loss related to hedges of net investments in
foreign operations was ($53) 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 under SFAS 133 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
50
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
futures 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) synthetic guaranteed interest contracts;
(viii) credit default swaps and total rate of return swaps
to synthetically create investments; (ix) basis swaps to
better match the cash flows of assets and related liabilities;
(x) credit default swaps held in relation to trading
portfolios; (xi) swaptions to hedge interest rate risk;
(xii) inflation swaps to reduce risk generated from
inflation-indexed liabilities; and (xiii) interest rate
lock commitments.
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 under
SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
Policyholder
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(880
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(155
|
)
|
Interest rate floors
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
(366
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
|
(782
|
)
|
|
|
(38
|
)
|
|
|
(210
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(85
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
(784
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Interest rate forwards
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Variance swaps
|
|
|
(106
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Swap spreadlocks
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
(208
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
Synthetic GICs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,636
|
)
|
|
$
|
(95
|
)
|
|
$
|
(210
|
)
|
|
$
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
$
|
(351
|
)
|
|
$
|
(37
|
)
|
|
$
|
2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
Policyholder
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(1,472
|
)
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
(146
|
)
|
Interest rate floors
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
(484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
|
(349
|
)
|
|
|
(11
|
)
|
|
|
(97
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(84
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
(732
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Interest rate forwards
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Variance swaps
|
|
|
(129
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Swap spreadlocks
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
(119
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Synthetic GICs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,732
|
)
|
|
$
|
(123
|
)
|
|
$
|
(97
|
)
|
|
$
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
$
|
(283
|
)
|
|
$
|
39
|
|
|
$
|
59
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value related to economic hedges of
equity method investments in joint ventures that do not qualify
for hedge accounting 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
liabilities embedded in certain variable annuity products
offered by the Company. |
|
(3) |
|
Changes in estimated fair value related to derivatives held in
connection with the Companys mortgage banking activities. |
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
Companys maximum amount at risk, assuming the value of all
referenced credit obligations is zero, was $2,406 million
and $1,875 million at June 30, 2009 and
December 31, 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 June 30, 2009, the Company
would have received $13 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.
52
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
$2,406 million and $1,875 million from the table below
were $0 and $13 million at June 30, 2009 and
December 31, 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 June 30, 2009 and December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 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)
|
|
$
|
3
|
|
$
|
135
|
|
|
4.5
|
|
$
|
1
|
|
$
|
143
|
|
|
5.0
|
Credit default swaps referencing indices
|
|
|
9
|
|
|
2,156
|
|
|
3.7
|
|
|
(33)
|
|
|
1,372
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
12
|
|
|
2,291
|
|
|
3.8
|
|
|
(32)
|
|
|
1,515
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
1
|
|
|
70
|
|
|
2.7
|
|
|
2
|
|
|
110
|
|
|
2.6
|
Credit default swaps referencing indices
|
|
|
|
|
|
25
|
|
|
0.2
|
|
|
(5)
|
|
|
215
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1
|
|
|
95
|
|
|
2.0
|
|
|
(3)
|
|
|
325
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ba
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
1.6
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
20
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
10
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
20
|
|
|
0.2
|
|
|
(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
|
|
$
|
13
|
|
$
|
2,406
|
|
|
3.7
|
|
$
|
(37)
|
|
$
|
1,875
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The rating agency designations are based on availability and the
midpoint of the applicable ratings among Moodys, 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. |
53
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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
Companys 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 24
of the Notes to the Consolidated Financial Statements included
in the 2008 Annual Report 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 June 30,
2009 and December 31, 2008, the Company was obligated to
return cash collateral under its control of $3,123 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
June 30, 2009 and December 31, 2008, the Company had
also accepted collateral consisting of various securities with a
fair market value of $406 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 June 30, 2009, none of the collateral
had been sold or repledged.
The Companys 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
counterpartys 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 Companys 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 Companys 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.
The following table presents the estimated fair value of the
Companys
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 Companys credit
rating at the reporting date
54
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
or if the Companys credit rating sustained a downgrade to
a level that triggered full overnight collateralization or
termination of the derivative position at the reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (1) of
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
Derivatives in Net
|
|
|
Collateral
|
|
|
|
|
|
|
|
|
|
Liability Position
|
|
|
Provided
|
|
|
Fair Value of Incremental Collateral
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
Provided Upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
|
|
|
|
|
One Notch
|
|
|
Companys Credit Rating
|
|
|
|
|
|
|
|
|
|
Downgrade
|
|
|
to a Level that Triggers
|
|
|
|
|
|
|
|
|
|
in the
|
|
|
Full Overnight
|
|
|
|
|
|
|
|
|
|
Companys
|
|
|
Collateralization or
|
|
|
|
|
|
|
Fixed Maturity
|
|
|
Credit
|
|
|
Termination
|
|
|
|
|
|
|
Securities (2)
|
|
|
Rating
|
|
|
of the Derivative Position
|
|
|
|
(In millions)
|
|
|
Derivatives subject to credit-contingent provisions
|
|
$
|
660
|
|
|
$
|
469
|
|
|
$
|
77
|
|
|
$
|
177
|
|
Derivatives not subject to credit-contingent provisions
|
|
|
98
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
758
|
|
|
$
|
567
|
|
|
$
|
77
|
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After taking into consideration the existence of netting
agreements. |
|
(2) |
|
Included in fixed maturity securities in the consolidated
balance sheet. The counterparties are permitted by contract to
sell or repledge this collateral. At June 30, 2009, the
Company did not provide any cash collateral. |
Without considering the effect of netting agreements, the
estimated fair value of the Companys
over-the-counter
derivatives with credit-contingent provisions that were in a
gross liability position at June 30, 2009 was
$3,504 million. At June 30, 2009, the Company provided
securities collateral of $469 million in connection with
these derivatives. In the unlikely event that both (i) the
Companys credit rating is downgraded to a level that
triggers full overnight collateralization or termination of all
derivative positions, and (ii) the Companys 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 June 30, 2009 would be
$3,035 million. This amount does not consider gross
derivative assets of $2,844 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 June 30, 2009 and
December 31, 2008, the Company pledged securities
collateral for exchange-traded futures of $100 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 June 30,
2009 and December 31, 2008, the Company provided cash
collateral for exchange-traded futures of $590 million and
$686 million, respectively, which is included in premiums
and other receivables.
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 withdrawal, guaranteed minimum
accumulation and certain guaranteed minimum income riders; ceded
reinsurance contracts related to guaranteed minimum accumulation
and certain guaranteed minimum income riders; and guaranteed
interest contracts with equity or bond indexed crediting rates.
55
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the estimated fair value of the
Companys embedded derivatives at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefit riders
|
|
$
|
122
|
|
|
$
|
205
|
|
Call options in equity securities
|
|
|
(33
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
89
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefit riders
|
|
$
|
1,219
|
|
|
$
|
3,134
|
|
Other
|
|
|
(68
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
1,151
|
|
|
$
|
3,051
|
|
|
|
|
|
|
|
|
|
|
The following table presents changes in estimated fair value
related to embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net investment gains (losses) (1)
|
|
$
|
793
|
|
|
$
|
366
|
|
|
$
|
2,010
|
|
|
$
|
(60
|
)
|
Policyholder benefits and claims
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
|
|
|
|
|
(1) |
|
Effective January 1, 2008, upon adoption of SFAS 157,
the valuation of the Companys guaranteed minimum benefit
riders includes an adjustment for the Companys own credit.
Included in net investment gains (losses) for the three months
and six months ended June 30, 2009 were gains (losses) of
($1,538) million and ($710) million, respectively, in
connection with this adjustment, and for the three months and
six months ended June 30, 2008, in connection with this
adjustment, were gains (losses) of ($79) million and
$275 million, respectively. |
|
|
5.
|
Deferred
Policy Acquisition Costs and Value of Business
Acquired
|
Information regarding DAC and VOBA at June 30, 2009 and
December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
16,653
|
|
|
$
|
3,491
|
|
|
$
|
20,144
|
|
Capitalizations
|
|
|
1,543
|
|
|
|
|
|
|
|
1,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
18,196
|
|
|
|
3,491
|
|
|
|
21,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(385
|
)
|
|
|
(56
|
)
|
|
|
(441
|
)
|
Other expenses
|
|
|
927
|
|
|
|
150
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
542
|
|
|
|
94
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
568
|
|
|
|
233
|
|
|
|
801
|
|
Less: Other
|
|
|
(31
|
)
|
|
|
(42
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
17,117
|
|
|
$
|
3,206
|
|
|
$
|
20,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense allocated to other
expenses for the next five years for VOBA is $337 million
in 2009, $353 million in 2010, $322 million in 2011,
$289 million in 2012, and $250 million in
56
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
2013. For the six months ended June 30, 2009,
$150 million has been amortized resulting in
$187 million estimated to be amortized for the remainder of
2009.
Amortization of VOBA and DAC is attributed to both investment
gains and losses and other expenses which are the amount of
gross margins or profits originating from transactions other
than investment gains and losses. Unrealized investment gains
and losses provide information regarding 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
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Institutional:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
68
|
|
|
$
|
74
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
73
|
|
|
$
|
83
|
|
Retirement & savings
|
|
|
32
|
|
|
|
31
|
|
|
|
1
|
|
|
|
1
|
|
|
|
33
|
|
|
|
32
|
|
Non-medical health & other
|
|
|
921
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
921
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,021
|
|
|
|
1,003
|
|
|
|
6
|
|
|
|
10
|
|
|
|
1,027
|
|
|
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
|
5,624
|
|
|
|
5,813
|
|
|
|
111
|
|
|
|
154
|
|
|
|
5,735
|
|
|
|
5,967
|
|
Variable & universal life
|
|
|
3,623
|
|
|
|
3,682
|
|
|
|
961
|
|
|
|
968
|
|
|
|
4,584
|
|
|
|
4,650
|
|
Annuities
|
|
|
4,518
|
|
|
|
3,971
|
|
|
|
1,675
|
|
|
|
1,917
|
|
|
|
6,193
|
|
|
|
5,888
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
13,765
|
|
|
|
13,466
|
|
|
|
2,747
|
|
|
|
3,039
|
|
|
|
16,512
|
|
|
|
16,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America region
|
|
|
483
|
|
|
|
432
|
|
|
|
359
|
|
|
|
341
|
|
|
|
842
|
|
|
|
773
|
|
European region
|
|
|
366
|
|
|
|
303
|
|
|
|
21
|
|
|
|
22
|
|
|
|
387
|
|
|
|
325
|
|
Asia Pacific region
|
|
|
1,300
|
|
|
|
1,263
|
|
|
|
71
|
|
|
|
75
|
|
|
|
1,371
|
|
|
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,149
|
|
|
|
1,998
|
|
|
|
451
|
|
|
|
438
|
|
|
|
2,600
|
|
|
|
2,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto & Home
|
|
|
179
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & Other
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
|
|
4
|
|
|
|
5
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,117
|
|
|
$
|
16,653
|
|
|
$
|
3,206
|
|
|
$
|
3,491
|
|
|
$
|
20,323
|
|
|
$
|
20,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Information regarding goodwill is as
follows:
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
5,008
|
|
Other, net (1)
|
|
|
28
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
5,036
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consisting principally of foreign currency translation
adjustments. |
57
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding goodwill by segment and reporting unit is
as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Institutional:
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
15
|
|
|
$
|
15
|
|
Retirement & savings
|
|
|
887
|
|
|
|
887
|
|
Non-medical health & other
|
|
|
149
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,051
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
Individual:
|
|
|
|
|
|
|
|
|
Traditional life
|
|
|
73
|
|
|
|
73
|
|
Variable & universal life
|
|
|
1,172
|
|
|
|
1,174
|
|
Annuities
|
|
|
1,692
|
|
|
|
1,692
|
|
Other
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,955
|
|
|
|
2,957
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
Latin America region
|
|
|
205
|
|
|
|
184
|
|
European region
|
|
|
41
|
|
|
|
37
|
|
Asia Pacific region
|
|
|
157
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
403
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
Auto & Home
|
|
|
157
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Corporate & Other (1)
|
|
|
470
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,036
|
|
|
$
|
5,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The allocation of the goodwill to the reporting units was
performed at the time of the respective acquisition. The
$470 million of goodwill within Corporate & Other
relates to goodwill acquired as a part of the Travelers
acquisition of $405 million, as well as acquisitions by
MetLife Bank, National Association (MetLife Bank)
which resides within Corporate & Other. For purposes
of goodwill impairment testing at March 31, 2009 and
December 31, 2008, the $405 million of
Corporate & Other goodwill has been attributed to the
Individual and Institutional segment reporting units. The
Individual segment was attributed $210 million (traditional
life $23 million, variable &
universal life $11 million and
annuities $176 million), and the Institutional
segment was attributed $195 million (group life
$2 million, retirement & savings
$186 million, and non-medical health &
other $7 million) at both March 31, 2009
and December 31, 2008. |
The Company performs its annual goodwill impairment tests during
the third quarter based upon data at June 30th and
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.
In performing its goodwill impairment tests, when management
believes 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 are particularly sensitive to market
assumptions, such as the annuities and variable &
universal life reporting units within the Individual segment,
the Company may corroborate its estimated fair values by using
additional valuation methodologies.
58
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The key inputs, judgments and assumptions necessary in
determining estimated fair value include projected earnings,
current book value (with and without accumulated other
comprehensive loss), the 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 management believes appropriate to the risk
associated with the respective reporting unit. The estimated
fair value of the annuity and variable & universal
life reporting units are particularly sensitive to the equity
market levels.
Management applies significant judgment when determining the
estimated fair value of the Companys reporting. 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
managements 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 Companys reporting units
could result in goodwill impairments in future periods which
could materially adversely affect the Companys results of
operations or financial position.
The Companys annual tests indicated that goodwill was not
impaired at September 30, 2008. Due to economic conditions,
the sustained low level of equity markets, declining market
capitalizations in the insurance industry and lower operating
earnings projections, particularly for the Individual segment,
management determined it was appropriate to perform 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 Companys 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 Companys
reporting units to assess whether any goodwill impairment exists
and concluded that there were no triggering events in the second
quarter that would require further detailed goodwill impairment
testing. However, additional deterioration 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.
59
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Insurance
Liabilities
Insurance liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy Benefits
|
|
|
Policyholder Account Balances
|
|
|
Other Policyholder Funds
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Institutional:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
3,370
|
|
|
$
|
3,346
|
|
|
$
|
14,517
|
|
|
$
|
14,044
|
|
|
$
|
2,713
|
|
|
$
|
2,532
|
|
Retirement & savings
|
|
|
40,288
|
|
|
|
40,320
|
|
|
|
53,320
|
|
|
|
60,787
|
|
|
|
29
|
|
|
|
58
|
|
Non-medical health & other
|
|
|
12,078
|
|
|
|
11,619
|
|
|
|
501
|
|
|
|
501
|
|
|
|
603
|
|
|
|
609
|
|
Individual:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
|
53,435
|
|
|
|
52,968
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1,545
|
|
|
|
1,423
|
|
Variable & universal life
|
|
|
1,288
|
|
|
|
1,129
|
|
|
|
15,403
|
|
|
|
15,062
|
|
|
|
1,432
|
|
|
|
1,452
|
|
Annuities
|
|
|
3,855
|
|
|
|
3,655
|
|
|
|
47,373
|
|
|
|
44,282
|
|
|
|
99
|
|
|
|
88
|
|
Other
|
|
|
6
|
|
|
|
2
|
|
|
|
2,783
|
|
|
|
2,524
|
|
|
|
1
|
|
|
|
1
|
|
International
|
|
|
10,200
|
|
|
|
9,241
|
|
|
|
6,123
|
|
|
|
5,654
|
|
|
|
1,462
|
|
|
|
1,227
|
|
Auto & Home
|
|
|
3,011
|
|
|
|
3,083
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
43
|
|
Corporate & Other
|
|
|
5,292
|
|
|
|
5,192
|
|
|
|
7,862
|
|
|
|
6,950
|
|
|
|
389
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,823
|
|
|
$
|
130,555
|
|
|
$
|
147,883
|
|
|
$
|
149,805
|
|
|
$
|
8,319
|
|
|
$
|
7,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
60
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the types of guarantees relating to
annuity contracts and universal and variable life contracts is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 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
|
|
$
|
19,837
|
|
|
|
N/A
|
|
|
$
|
15,882
|
|
|
|
N/A
|
|
Net amount at risk (2)
|
|
$
|
3,456
|
(3)
|
|
|
N/A
|
|
|
$
|
4,384
|
(3)
|
|
|
N/A
|
|
Average attained age of contractholders
|
|
|
63 years
|
|
|
|
N/A
|
|
|
|
62 years
|
|
|
|
N/A
|
|
Anniversary Contract Value or Minimum Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
71,925
|
|
|
$
|
31,266
|
|
|
$
|
62,345
|
|
|
$
|
24,328
|
|
Net amount at risk (2)
|
|
$
|
15,610
|
(3)
|
|
$
|
10,438
|
(4)
|
|
$
|
18,637
|
(3)
|
|
$
|
11,312
|
(4)
|
Average attained age of contractholders
|
|
|
60 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 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)
|
|
$
|
8,760
|
|
|
$
|
4,185
|
|
|
$
|
7,825
|
|
|
$
|
4,135
|
|
Net amount at risk (2)
|
|
$
|
153,902
|
(3)
|
|
$
|
29,994
|
(3)
|
|
$
|
145,927
|
(3)
|
|
$
|
31,274
|
(3)
|
Average attained age of policyholders
|
|
|
52 years
|
|
|
|
57 years
|
|
|
|
50 years
|
|
|
|
56 years
|
|
|
|
|
(1) |
|
The Companys 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 guaranteed minimum death benefit
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. |
61
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the liabilities for guarantees (excluding
base policy liabilities) relating to annuity and universal and
variable life contracts at June 30, 2009 and
December 31, 2008 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, beginning of period
|
|
$
|
251
|
|
|
$
|
403
|
|
|
$
|
271
|
|
|
$
|
140
|
|
|
$
|
1,065
|
|
Incurred guaranteed benefits
|
|
|
69
|
|
|
|
42
|
|
|
|
144
|
|
|
|
9
|
|
|
|
264
|
|
Paid guaranteed benefits
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
209
|
|
|
$
|
445
|
|
|
$
|
415
|
|
|
$
|
149
|
|
|
$
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
80
|
|
|
$
|
90
|
|
|
$
|
178
|
|
Incurred guaranteed benefits
|
|
|
16
|
|
|
|
|
|
|
|
75
|
|
|
|
14
|
|
|
|
105
|
|
Paid guaranteed benefits
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
155
|
|
|
$
|
104
|
|
|
$
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
243
|
|
|
$
|
403
|
|
|
$
|
191
|
|
|
$
|
50
|
|
|
$
|
887
|
|
Incurred guaranteed benefits
|
|
|
53
|
|
|
|
42
|
|
|
|
69
|
|
|
|
(5
|
)
|
|
|
159
|
|
Paid guaranteed benefits
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
202
|
|
|
$
|
445
|
|
|
$
|
260
|
|
|
$
|
45
|
|
|
$
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account balances of contracts with insurance guarantees are
invested in separate account asset classes as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Mutual Fund Groupings:
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
39,664
|
|
|
$
|
39,842
|
|
Balanced
|
|
|
23,732
|
|
|
|
14,548
|
|
Bond
|
|
|
6,078
|
|
|
|
5,671
|
|
Money Market
|
|
|
2,410
|
|
|
|
2,456
|
|
Specialty
|
|
|
1,480
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,364
|
|
|
$
|
63,005
|
|
|
|
|
|
|
|
|
|
|
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 approving MLICs 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.
62
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Recent experience within the closed block, in particular
mortality and investment yields, as well as realized and
unrealized losses, has resulted in a policyholder dividend
obligation of zero at both June 30, 2009 and
December 31, 2008. The policyholder dividend obligation of
zero and the Companys decision to revise the expected
policyholder dividend scales, which are based upon statutory
results, has resulted in 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 Companys net income to
movements in closed block results.
Information regarding the closed block liabilities and assets
designated to the closed block is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Closed Block Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
43,451
|
|
|
$
|
43,520
|
|
Other policyholder funds
|
|
|
300
|
|
|
|
315
|
|
Policyholder dividends payable
|
|
|
749
|
|
|
|
711
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
2,365
|
|
|
|
2,852
|
|
Other liabilities
|
|
|
498
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
Total closed block liabilities
|
|
|
47,363
|
|
|
|
47,652
|
|
|
|
|
|
|
|
|
|
|
Assets Designated to the Closed Block
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $27,924 and $27,947,
respectively)
|
|
|
26,497
|
|
|
|
26,205
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $259 and $280, respectively)
|
|
|
229
|
|
|
|
210
|
|
Mortgage loans
|
|
|
7,068
|
|
|
|
7,243
|
|
Policy loans
|
|
|
4,476
|
|
|
|
4,426
|
|
Real estate and real estate joint ventures
held-for-investment
|
|
|
358
|
|
|
|
381
|
|
Short-term investments
|
|
|
|
|
|
|
52
|
|
Other invested assets
|
|
|
678
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
39,306
|
|
|
|
39,469
|
|
Cash and cash equivalents
|
|
|
517
|
|
|
|
262
|
|
Accrued investment income
|
|
|
467
|
|
|
|
484
|
|
Premiums and other receivables
|
|
|
141
|
|
|
|
98
|
|
Current income tax recoverable
|
|
|
50
|
|
|
|
|
|
Deferred income tax assets
|
|
|
1,398
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
Total assets designated to the closed block
|
|
|
41,879
|
|
|
|
41,945
|
|
|
|
|
|
|
|
|
|
|
Excess of closed block liabilities over assets designated to the
closed block
|
|
|
5,484
|
|
|
|
5,707
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses), net of income tax of
($515) and ($633), respectively
|
|
|
(961
|
)
|
|
|
(1,174
|
)
|
Unrealized gains (losses) on derivative instruments, net of
income tax of ($1) and ($8), respectively
|
|
|
(2
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Total amounts included in accumulated other comprehensive loss
|
|
|
(963
|
)
|
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
Maximum future earnings to be recognized from closed block
assets and liabilities
|
|
$
|
4,521
|
|
|
$
|
4,518
|
|
|
|
|
|
|
|
|
|
|
63
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the closed block revenues and expenses is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
669
|
|
|
$
|
686
|
|
|
$
|
1,304
|
|
|
$
|
1,337
|
|
Net investment income and other revenues
|
|
|
553
|
|
|
|
577
|
|
|
|
1,086
|
|
|
|
1,141
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(21
|
)
|
|
|
(2
|
)
|
|
|
(57
|
)
|
|
|
(3
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(82
|
)
|
|
|
(6
|
)
|
|
|
108
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(95
|
)
|
|
|
(8
|
)
|
|
|
59
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,127
|
|
|
|
1,255
|
|
|
|
2,449
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
826
|
|
|
|
844
|
|
|
|
1,612
|
|
|
|
1,647
|
|
Policyholder dividends
|
|
|
373
|
|
|
|
379
|
|
|
|
739
|
|
|
|
750
|
|
Other expenses
|
|
|
52
|
|
|
|
54
|
|
|
|
104
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,251
|
|
|
|
1,277
|
|
|
|
2,455
|
|
|
|
2,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses before income tax
|
|
|
(124
|
)
|
|
|
(22
|
)
|
|
|
(6
|
)
|
|
|
(102
|
)
|
Income tax
|
|
|
(44
|
)
|
|
|
(9
|
)
|
|
|
(3
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses and income tax
|
|
$
|
(80
|
)
|
|
$
|
(13
|
)
|
|
$
|
(3
|
)
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the maximum future earnings of the closed block is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
4,441
|
|
|
$
|
4,478
|
|
|
$
|
4,518
|
|
|
$
|
4,429
|
|
Change during period
|
|
|
80
|
|
|
|
13
|
|
|
|
3
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
4,521
|
|
|
$
|
4,491
|
|
|
$
|
4,521
|
|
|
$
|
4,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
9.
|
Long-term
and Short-term Debt
|
The following represent significant changes in debt from the
amounts reported in Note 10 of the Notes to the
Consolidated Financial Statements included in the 2008 Annual
Report.
64
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Senior
Notes
On May 29, 2009, the Holding Company issued
$1,250 million 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.
On March 26, 2009, the Holding Company issued
$397 million aggregate principal amount 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.
On February 17, 2009, the Holding Company closed the
successful remarketing of the $1,035 million Series B
portion of the junior subordinated debt securities constituting
part of its common equity units issued in June 2005. The common
equity units consisted of a debt security and a stock purchase
contract under which the holders of the units would be required
to purchase common stock. The remarketing of the Series A
portion of the junior subordinated debt securities and the
associated stock purchase contract settlement occurred in August
2008. In the February 2009 remarketing, the 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 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 stock purchase
contracts. 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
contracts, the terms of the debt they received are the same as
the terms of the remarketed debt. The subsequent settlement of
the stock purchase contracts provided proceeds to the Holding
Company of $1,035 million in exchange for shares of the
Holding Companys common stock. The Holding Company
delivered 24,343,154 shares of its newly issued common
stock to settle the stock purchase contracts on
February 17, 2009.
Repurchase
Agreements with the Federal Home Loan Bank of New
York
MetLife Bank is a member of the FHLB of NY and holds
$187 million and $89 million of common stock of the
FHLB of NY at June 30, 2009 and December 31, 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 Banks residential
mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities to
collateralize MetLife Banks 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 NYs recovery is limited to the
amount of MetLife Banks liability under the outstanding
repurchase agreements. The amount of MetLife Banks
liability for repurchase agreements entered into with the FHLB
of NY was $3.8 billion and $1.8 billion at
June 30, 2009 and December 31, 2008, respectively,
which is included in long-term debt and short-term debt
depending upon the original tenor of the advance. During the six
months ended June 30, 2009 and 2008, MetLife Bank received
advances related to long-term borrowings totaling
$550 million and $170 million, respectively, from the
FHLB of NY. MetLife Bank made repayments to the FHLB of NY of
$120 million and $171 million related to long-term
borrowings for the six months ended June 30, 2009 and 2008,
respectively. The advances on the repurchase agreements related
to both long-term and short-term debt are collateralized by
residential mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities with
estimated fair values of $5.0 billion and $3.1 billion
at June 30, 2009 and December 31, 2008, respectively.
65
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 June 30, 2009 and December 31, 2008,
MetLife Banks liability for advances from the Federal
Reserve Bank of New York under these facilities was
$1.8 billion and $950 million, respectively, which is
included in short-term debt. The estimated fair value of loan
and investment security collateral pledged by MetLife Bank to
the Federal Reserve Bank of New York at June 30, 2009 and
December 31, 2008 was $3.0 billion and
$1.6 billion, respectively. During the six months ended
June 30, 2009, the weighted average interest rate on these
advances was 0.13%. During the six months ended June 30,
2009, the average daily balance of these advances was
$1.6 billion and these advances were outstanding for an
average of 32 days. The Company did not participate in
these programs during the six months ended June 30, 2008.
Short-term
Debt
Short-term debt was $4.8 billion and $2.7 billion at
June 30, 2009 and December 31, 2008, respectively. At
June 30, 2009, short-term debt consisted of
$580 million of commercial paper, $1.8 billion related
to the aforementioned collateralized borrowings from the Federal
Reserve Bank of New York and $2.4 billion related to
MetLife Banks liability under the aforementioned
repurchase agreements with the FHLB of NY with original
maturities of less than one year. At December 31, 2008,
short-term debt consisted of $714 million of commercial
paper, $950 million related to the aforementioned
collateralized borrowing from the Federal Reserve Bank of New
York, $695 million related to MetLife Banks liability
under the aforementioned repurchase agreements with the FHLB of
NY with original maturities of less than one year and
$300 million related to MetLife Insurance Company of
Connecticuts liability for borrowings from the FHLB of
Boston with original maturities of less than one year. During
the six months ended June 30, 2009 and 2008, the weighted
average interest rate on short-term debt was 0.5% and 3.0%,
respectively. During the six months ended June 30, 2009 and
2008, the average daily balance of short-term debt was
$3.4 billion and $878 million, respectively, and
short-term debt was outstanding for an average of 16 days
and 31 days, respectively.
Credit
and Committed Facilities and Letters of Credit
Credit Facilities. The Company maintains
committed and unsecured credit facilities aggregating
$3.2 billion at June 30, 2009. When drawn upon, these
facilities bear interest at varying rates in accordance with the
respective agreements. The facilities can be used for general
corporate purposes and, at June 30, 2009, $2.9 billion
of the facilities also served as
back-up
lines of credit for the Companys commercial paper
programs. These facilities contain various administrative,
reporting, legal and financial covenants, including a
requirement for the Company to maintain a specified minimum
consolidated net worth. Management has no reason to believe that
its lending counterparties are unable to fulfill their
respective contractual obligations.
Total fees associated with these credit facilities were
$14 million and $30 million for the three months and
six months ended June 30, 2009, respectively, and
$1 million and $3 million for the three months and six
months ended June 30, 2008, respectively. Information on
these credit facilities at June 30, 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
|
|
|
$
|
534
|
|
|
$
|
|
|
|
$
|
2,316
|
|
MetLife Bank, N.A
|
|
|
July 2009
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,150
|
|
|
$
|
534
|
|
|
$
|
|
|
|
$
|
2,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 Company maintains
committed facilities aggregating $11.5 billion at
June 30, 2009. When drawn upon, these facilities bear
interest at varying rates in accordance with the respective
agreements. The facilities are used for collateral for certain
of the Companys reinsurance liabilities. These facilities
contain various administrative, reporting, legal and financial
covenants, including a requirement for the Company to maintain a
specified minimum consolidated net worth. Management has no
reason to believe that its lending counterparties are unable to
fulfill their respective contractual obligations.
Total fees associated with these committed facilities were
$14 million and $25 million for the three months and
six months ended June 30, 2009, respectively, and
$4 million and $7 million for the three months and six
months ended June 30, 2008, respectively. Information on
committed facilities at June 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
|
|
Unused
|
|
|
Maturity
|
|
Account Party/Borrower(s)
|
|
Expiration
|
|
Capacity
|
|
|
Issuances
|
|
|
Drawdowns
|
|
|
Commitments
|
|
|
(Years)
|
|
|
|
|
|
(In millions)
|
|
|
MetLife, Inc.
|
|
August 2009 (1)
|
|
$
|
500
|
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri
Reinsurance (Barbados), Inc.
|
|
June 2016 (2)
|
|
|
500
|
|
|
|
490
|
|
|
|
|
|
|
|
10
|
|
|
|
7
|
|
Exeter Reassurance Company Ltd.
|
|
December 2027 (3)
|
|
|
650
|
|
|
|
410
|
|
|
|
|
|
|
|
240
|
|
|
|
18
|
|
MetLife Reinsurance Company of South Carolina &
MetLife, Inc.
|
|
June 2037
|
|
|
3,500
|
|
|
|
|
|
|
|
2,797
|
|
|
|
703
|
|
|
|
28
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
December 2037 (3)
|
|
|
2,896
|
|
|
|
1,421
|
|
|
|
|
|
|
|
1,475
|
|
|
|
28
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
September 2038 (3)
|
|
|
3,500
|
|
|
|
1,261
|
|
|
|
|
|
|
|
2,239
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
11,546
|
|
|
$
|
4,082
|
|
|
$
|
2,797
|
|
|
$
|
4,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On July 31, 2009, MetLife, Inc. entered into an agreement
to extend the availability of $300 million of this
committed facility to August 2010. |
|
(2) |
|
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. |
|
(3) |
|
The Holding Company is a guarantor under this agreement. |
Letters of Credit. At June 30, 2009, the
Company had outstanding $4.7 billion in letters of credit
from various financial institutions, of which $4.1 billion
and $534 million were part of committed and credit
facilities, respectively. As commitments associated with letters
of credit and financing arrangements may expire unused, these
amounts do not necessarily reflect the Companys actual
future cash funding requirements.
Covenants. Certain of the Companys debt
instruments, credit facilities and committed facilities contain
various administrative, reporting, legal and financial
covenants. The Company believes it is in compliance with all
covenants at June 30, 2009.
|
|
10.
|
Collateral
Financing Arrangements
|
Associated
with the Closed Block
In December 2007, MLIC reinsured a portion of its closed block
liabilities to MetLife Reinsurance Company of Charleston
(MRC), a wholly-owned subsidiary of the Company. In
connection with this transaction, MRC issued to investors,
placed by an unaffiliated financial institution, a
$2.5 billion,
35-year
surplus note to provide statutory reserve support for the
assumed closed block liabilities. Interest on the surplus note
accrues at an annual rate of
3-month
LIBOR plus 0.55%, payable quarterly. The ability of MRC to make
interest and principal payments
67
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
on the surplus note is contingent upon South Carolina regulatory
approval. At both June 30, 2009 and December 31, 2008,
the amount of the surplus note outstanding was $2.5 billion.
Simultaneous with the issuance of the surplus note, 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 note 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. 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 note. Any such payments
would be accounted for as a receivable and included under other
assets on the Companys consolidated financial statements
and would not reduce the principal amount outstanding of the
surplus note. Such payments would reduce the amount of interest
payments due from the Holding Company under the agreement. At
December 31, 2008, the Company had paid $800 million
to the unaffiliated financial institution related to the decline
in the estimated fair value of the surplus note. In April 2009,
the Holding Company paid an additional $400 million to the
unaffiliated financial institution as a result of the continued
decline in the estimated fair value of the surplus note. In June
2009, the Holding Company received $400 million from the
unaffiliated financial institution as a result of the increase
in the estimated fair value of the surplus note since April
2009. In addition, the Holding Company had pledged collateral
with an estimated fair value of $48 million and
$230 million to the unaffiliated financial institution at
June 30, 2009 and December 31, 2008, respectively. In
addition, 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 note
was placed in trust, which is consolidated by the Company, to
support MRCs statutory obligations associated with the
assumed closed block liabilities.
At June 30, 2009 and December 31, 2008, the estimated
fair value of assets held in trust by the Company was
$2.3 billion and $2.1 billion, respectively. The
assets are principally invested in fixed maturity securities and
are presented as such within the Companys interim
condensed consolidated balance sheets, with the related income
included within net investment income in the Companys
consolidated statements of income. Interest on the collateral
financing arrangement is included as a component of other
expenses. Total interest expense was $15 million and
$31 million for the three months and six months ended
June 30, 2009, respectively, and $24 million and
$61 million for the three months and six months ended
June 30, 2008, respectively.
Associated
with Secondary Guarantees
In May 2007, the Holding Company and MetLife Reinsurance Company
of South Carolina, 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 June 30, 2009 and December 31, 2008,
$2.8 billion and $2.7 billion had been drawn upon
under the collateral financing arrangement, respectively. 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 trust to support MRSCs statutory obligations associated
with the reinsurance of secondary guarantees. The trust is a VIE
which is consolidated by the Company. The unaffiliated financial
institution is entitled to the return on the investment
portfolio held by the trust.
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 trust established in connection with this collateral
financing arrangement in
68
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 trust, related to any decline
in the estimated fair value of the assets held by the trust, as
well as amounts outstanding upon maturity or early termination
of the collateral financing arrangement. In January 2009, the
Holding Company paid $360 million to the unaffiliated
financial institution as a result of the decline in the
estimated fair value of the assets in the trust. Cumulatively,
the Holding Company has contributed $680 million as a
result of declines in the estimated fair value of the assets in
the trust. All of the $680 million was deposited into the
trust.
In addition, the Holding Company may be required to pledge
collateral to the unaffiliated financial institution under this
agreement. At June 30, 2009 and December 31, 2008, the
Holding Company had pledged $75 million and
$86 million under the agreement, respectively.
At June 30, 2009 and December 31, 2008, the Company
held assets in trust with an estimated fair value of
$3.1 billion and $2.4 billion, respectively,
associated with this transaction. The assets are principally
invested in fixed maturity securities and are presented as such
within the Companys consolidated balance sheet, with the
related income included within net investment income in the
Companys consolidated statements of income. Interest on
the collateral financing arrangement is included as a component
of other expenses. Total interest expense was $13 million
and $28 million for the three months and six months ended
June 30, 2009, respectively, and $21 million and
$54 million for the three months and six months ended
June 30, 2008, respectively.
|
|
11.
|
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 Companys consolidated financial
statements. 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. It is possible that some of the matters
could require the
69
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Company to pay damages or make other expenditures or establish
accruals in amounts that could not be estimated at June 30,
2009.
Demutualization
Actions
Several lawsuits were brought in 2000 challenging the fairness
of the Plan and the adequacy and accuracy of MLICs
disclosure to policyholders regarding the Plan. The actions
discussed below name as defendants some or all of MLIC, the
Holding Company, and individual directors. MLIC, the Holding
Company, and the individual directors believe they have
meritorious defenses to the plaintiffs claims and are
contesting vigorously all of the plaintiffs claims in
these actions.
Fiala, et al. v. Metropolitan Life Ins. Co., et al. (Sup.
Ct., N.Y. County, filed March 17, 2000). The
plaintiffs in the consolidated state court class action seek
compensatory relief and punitive damages against MLIC, the
Holding Company, and individual directors. The court has
certified a litigation class of present and former policyholders
on plaintiffs claim that defendants violated
section 7312 of the New York Insurance Law. Pursuant to the
courts order, plaintiffs have given notice to the class of
the pendency of this action. Defendants motion for summary
judgment is pending.
In re MetLife Demutualization Litig. (E.D.N.Y., filed
April 18, 2000). In this class action
against MLIC and the Holding Company, plaintiffs served a second
consolidated amended complaint in 2004. Plaintiffs assert
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. They seek rescission and
compensatory damages. By orders dated July 19, 2005 and
August 29, 2006, the federal trial court certified a
litigation class of present and former policyholders. Pursuant
to the courts order, plaintiffs have given notice to the
class of the pendency of this action. On March 30, 2009,
the court denied MLICs and the Holding Companys
motion for summary judgment and plaintiffs motion for
partial summary judgment. On July 17, 2009, the court
entered an order setting the trial to begin on September 8,
2009.
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 MLICs employees during the
period from the 1920s through approximately the
1950s 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. MLICs 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) MLICs conduct was not the
cause of the plaintiffs injuries;
(iv) plaintiffs
70
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 MLICs 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.
As reported in the 2008 Annual Report, MLIC received
approximately 5,063 asbestos-related claims in 2008. During the
six months ended June 30, 2009 and 2008, MLIC received
approximately 1,726 and 2,863 new asbestos-related claims,
respectively. See Note 16 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report for
historical information concerning asbestos claims and
MLICs increase in its recorded liability at
December 31, 2002. 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 Companys judgment, there is
a future point after which losses cease to be probable and
reasonably estimable. It is reasonably possible that the
Companys 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 Companys 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 Companys
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
71
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
MLICs 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 MLICs 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. Based upon its regular reevaluation of its
exposure from asbestos litigation, MLIC has updated its
liability analysis for asbestos-related claims through
June 30, 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 Companys 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. Regulators also
have requested information relating to market timing and late
trading of mutual funds and variable insurance products and,
generally, the marketing of products. 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
Company has been cooperating fully.
Regulatory authorities in a small number of states have had
investigations or inquiries relating to sales of individual life
insurance policies or annuities or other products by MLIC; New
England Mutual Life Insurance Company, New England Life
Insurance Company and New England Securities Corporation
(collectively New England); General American Life
Insurance Company; Walnut Street Securities, Inc. and MetLife
Securities, Inc. (MSI). 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 affiliates mutual funds and
representative compensation with respect to proprietary
products. A response has been submitted and in January 2008, MSI
received notice of the commencement of an administrative action
by the Illinois Department of Securities. In May 2008,
MSIs 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
72
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 is considering recommending that a
disciplinary action be brought against MSI. FINRA contends that
during the period from March 1999 through December 2006,
MSIs 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. Under FINRA procedures, MSI can avail itself of
the opportunity to respond to the FINRA staff before it makes a
formal recommendation regarding whether any disciplinary action
should be considered.
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.
Other
Litigation
Jacynthe Evoy-Larouche v. Metropolitan Life Ins. Co.
(Que. Super. Ct., filed March 1998). This
putative class action lawsuit involving sales practices claims
was filed against MLIC in Canada. Plaintiff alleged
misrepresentations regarding dividends and future payments for
life insurance policies and sought unspecified damages. Pursuant
to a judgment dated March 11, 2009, this lawsuit was
dismissed.
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 defendants 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
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. A third putative
nationwide class action relating to the payment of medical
providers, Innovative Physical Therapy, Inc. v. MetLife
Auto & Home, et ano (D. N.J., filed November 12,
2007), was filed against Metropolitan Property and Casualty
Insurance Company in federal court in New Jersey. The court
granted the defendants motion to dismiss, and the
U.S. Court of Appeals for the Third Circuit issued an order
on July 22, 2009 affirming the dismissal. Simon v.
Metropolitan Property and Casualty Ins. Co. (W.D. Okla., filed
September 23, 2008), a fourth 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.
73
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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. On
February 10, 2009, the district court granted the
Companys motion to dismiss plaintiffs second amended
complaint, dismissing all of plaintiffs claims except for
breach of contract claims. Plaintiffs were provided with an
opportunity to re-plead the dismissed claims by
February 26, 2009. Since plaintiffs never amended these
claims, they 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 Companys customers and recruit the
Companys 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.
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. This group of tenants claim that the Company, and since
the sale of the properties, Tishman Speyer as current owner,
improperly charged market rents when only lower regulated rents
were permitted. The allegations are based on the impact of
so-called J-51 tax abatements. The lawsuit seeks declaratory
relief and damages for rent overcharges. In August 2007, the
trial court granted the Companys motion to dismiss and
dismissed the complaint in its entirety. In March 2009, New
Yorks intermediate appellate court reversed the trial
courts decision and held that apartments could not be
deregulated during the time that a building owner is receiving
J-51 tax abatements and reinstated the lawsuit. Tishman Speyer
and the Company have been granted permission to appeal this
decision to the New York Court of Appeals, where the Company
will continue to vigorously defend against the claims in this
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 assert 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 Companys
agency distribution group. Plaintiffs seek rescission,
compensatory damages, interest, punitive damages and
attorneys fees and expenses. In January and May 2008, the
court issued orders granting the defendants motion to
dismiss in part, dismissing all of plaintiffs claims
except for claims under the Investment Advisers Act.
74
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Defendants motion to dismiss claims under the Investment
Advisers Act was denied. In March 2009, the defendants filed a
motion for summary judgment. The Company is vigorously defending
against the remaining claims in this matter.
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 June 30, 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 Companys consolidated financial
statements, have arisen in the course of the Companys
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 Companys
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 Companys financial
position, based on information currently known by the
Companys 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 Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
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.
Upon acquisition of Citigroups insurance operations in
Argentina, the Company established insurance and contingent
liabilities, most significantly related to death and disability
policy coverages and to litigation against the governments
2002 Pesification Law. These liabilities were established based
upon the Companys interpretation of Argentine law at the
time and the Companys best estimate of its obligations
under laws applicable at the time.
In 2006, a decree was issued by the Argentine Government
regarding the taxability of pesification related gains resulting
in the $8 million, net of income tax, reduction of certain
tax liabilities during the year ended December 31, 2006.
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
governments pension plan system and allowed for pension
participants to transfer their future contributions to the
government pension plan system.
75
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 Companys
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 the first quarter of 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 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 investments of participants which were
being managed by the Company (Nationalization). With
this action, the Companys 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.
In September 2008, the Argentine Supreme Court issued a ruling
in an individual lawsuit that was contrary to the 2002
Pesification Law enacted by the Argentine government. This
ruling relates to certain social security pension annuity
contractholders who had filed lawsuits challenging 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. Contingent liabilities that were
established at acquisition in 2005 in connection with the
outstanding lawsuits have been adjusted and refined to be
consistent with the 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 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 Law, the Company reassessed the
corresponding contingent liability established at acquisition in
2005. The impact of this reassessment is an increase to net
income of $95 million, net of income tax, due to the
reduction of the contingent liability established in 2005 of
$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, during
the quarter ended March 31, 2009.
Commitments
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 $4.2 billion and $4.5 billion at
June 30, 2009 and December 31, 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
$4.4 billion and $8.0 billion at June 30, 2009
and December 31, 2008, respectively. The Company intends to
76
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 SFAS 133, 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
$2.5 billion and $2.7 billion at June 30, 2009
and December 31, 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 $847 million and
$971 million at June 30, 2009 and December 31,
2008, respectively.
Guarantees
During the six months ended June 30, 2009, the Company did
not record additional liabilities for indemnities, guarantees
and commitments. The Companys recorded liabilities were
$6 million at both June 30, 2009 and December 31,
2008.
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12.
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Employee
Benefit Plans
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Pension
and Other Postretirement Benefit Plans
Certain subsidiaries of the Holding Company (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. The Subsidiaries also provide certain
postemployment benefits and certain postretirement medical and
life insurance benefits for retired employees. The Subsidiaries
have issued group annuity and life insurance contracts
supporting approximately 99% of all pension and postretirement
employee benefit plan assets sponsored by the Subsidiaries. A
December 31 measurement date is used for all of the
Subsidiaries defined benefit pension and other
postretirement benefit plans.
The components of net periodic benefit cost were as follows:
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Other
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Pension Benefits
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Postretirement Benefits
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Three Months
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Six Months
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Three Months
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Six Months
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Ended
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Ended
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Ended
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Ended
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June 30,
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June 30,
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June 30,
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June 30,
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2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Service cost
|
|
$
|
43
|
|
|
$
|
40
|
|
|
$
|
86
|
|
|
$
|
82
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
11
|
|
|
$
|
10
|
|
Interest cost
|
|
|
98
|
|
|
|
94
|
|
|
|
198
|
|
|
|
191
|
|
|
|
31
|
|
|
|
26
|
|
|
|
63
|
|
|
|
52
|
|
Expected return on plan assets
|
|
|
(108
|
)
|
|
|
(130
|
)
|
|
|
(220
|
)
|
|
|
(263
|
)
|
|
|
(18
|
)
|
|
|
(21
|
)
|
|
|
(37
|
)
|
|
|
(44
|
)
|
Amortization of prior service cost (credit)
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
|
|
8
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
(18
|
)
|
|
|
(18
|
)
|
Amortization of net actuarial (gains) losses
|
|
|
56
|
|
|
|
6
|
|
|
|
113
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
91
|
|
|
$
|
14
|
|
|
$
|
181
|
|
|
$
|
29
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The components of net periodic benefit cost amortized from
accumulated other comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Amortization of prior service cost (credit)
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
(9
|
)
|
|
$
|
(9
|
)
|
|
$
|
(18
|
)
|
|
$
|
(18
|
)
|
Amortization of net actuarial (gains) losses
|
|
|
56
|
|
|
|
6
|
|
|
|
113
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
58
|
|
|
|
10
|
|
|
|
117
|
|
|
|
19
|
|
|
|
2
|
|
|
|
(9
|
)
|
|
|
3
|
|
|
|
(18
|
)
|
Deferred income tax expense (benefit)
|
|
|
(19
|
)
|
|
|
(3
|
)
|
|
|
(40
|
)
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost amortized from
accumulated other comprehensive loss, net of income tax
|
|
$
|
39
|
|
|
$
|
7
|
|
|
$
|
77
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
2
|
|
|
$
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As disclosed in Note 17 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report, no
contributions are required to be made to the Subsidiaries
qualified pension plans during 2009; however, the Subsidiaries
expected to make discretionary contributions of up to
$150 million to the plans during 2009. At June 30,
2009, the Subsidiaries no longer expect to make this
contribution to the Subsidiaries qualified pension plans in
2009. The Subsidiaries fund benefit payments for their
non-qualified pension and other postretirement plans as due
through their general assets.
Preferred
Stock
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)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16
|
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
Repurchases
At June 30, 2009, the Company had $1,261 million
remaining under its common stock repurchase program
authorizations. In April 2008, the Companys Board of
Directors authorized a $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 June 30, 2009.
Under these authorizations, the Company may
78
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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. The Company does not intend to make any purchases
under the common stock repurchase programs in 2009.
Issuances
As described in Note 9, the Company delivered
24,343,154 shares of newly issued common stock on
February 17, 2009 with proceeds of $1,035 million to
settle the remaining stock purchase contracts issued as part of
the common equity units sold in June 2005.
During the three months and six months ended June 30, 2009,
500,001 shares and 614,047 shares of common stock were
issued from treasury stock for $27 million and
$33 million, respectively.
Dividends
Future common stock dividend decisions will be determined by the
Holding Companys Board of Directors after taking into
consideration factors such as the Companys current
earnings, expected medium- and long-term earnings, financial
condition, regulatory capital position, and applicable
governmental regulations and policies.
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 in the form of options to buy shares of the
Companys common stock (Stock Options) that
either qualify as incentive Stock Options under
Section 422A of the Internal Revenue Code or are
non-qualified. The MetLife, Inc. 2000 Directors Stock Plan,
as amended (the Directors Stock Plan), authorized
the granting of awards in the form of the Companys common
stock, non-qualified Stock Options, or a combination of the
foregoing to outside Directors of the Company. Under the
MetLife, Inc. 2005 Stock and Incentive Compensation Plan, as
amended (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). 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). The Stock Incentive Plan,
Directors Stock Plan, 2005 Stock Plan and the
2005 Directors Stock Plan, are hereinafter collectively
referred to as the Incentive Plans.
At June 30, 2009, the aggregate number of shares remaining
available for issuance pursuant to the 2005 Stock Plan and the
2005 Directors Stock Plan was 46,897,752 and 1,838,594,
respectively.
Compensation expense of $23 million and $44 million,
and income tax benefits of $8 million and $15 million,
related to the Incentive Plans was recognized for the three
months and six months ended June 30, 2009, respectively.
Compensation expense of $22 million and $76 million,
and income tax benefits of $8 million and $27 million,
related to the Incentive Plans was recognized for the three
months and six months ended June 30, 2008, respectively.
Compensation expense is principally related to the issuance of
Stock Options and Performance Shares. The majority of awards
granted by the Company are made in the first quarter of each
year. As a result of the Companys policy of recognizing
stock-based compensation over the shorter of the stated
requisite service period or period until attainment of
retirement eligibility, a greater proportion of the aggregate
fair value for awards granted on or after January 1, 2007
is recognized immediately on the grant date.
79
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Stock
Options
All Stock Options granted had an exercise price equal to the
closing price of the Companys 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 become
exercisable three years after the date of grant. Stock Options
issued under the Directors Stock Plan are exercisable
immediately. The date at which a Stock Option issued under the
2005 Directors Stock Plan becomes exercisable is determined
at the time such Stock Option is granted.
During the six months ended June 30, 2009, the Company
granted 5,328,662 Stock Option awards with a weighted average
exercise price of $23.33 for which the total fair value on the
date of grant was $44 million. The number of Stock Options
outstanding at June 30, 2009 was 30,913,142 with a weighted
average exercise price of $38.46.
Compensation expense of $11 million and $35 million
related to Stock Options was recognized for the three months and
six months ended June 30, 2009, respectively, and
$10 million and $31 million related to Stock Options
was recognized for the three months and six months ended
June 30, 2008, respectively.
At June 30, 2009, there was $59 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 1.95 years.
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
Companys 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 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 Companys 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 and will be settled entirely in shares of the
Companys common stock.
During the six months ended June 30, 2009, the Company
granted 1,944,298 Performance Share awards for which the total
fair value on the date of grant was $40 million. The number
of Performance Shares outstanding at June 30, 2009 was
3,664,723 with a weighted average fair value of $38.50 per
share. These amounts represent aggregate initial target awards
and do not reflect potential increases or decreases resulting
from the final performance factor to be determined following the
end of the respective performance period. The three-year
performance period associated with the Performance Shares
awarded in 2006 was completed effective December 31, 2008.
The final performance factor has been applied to the 812,975
Performance Shares associated with the 2006 grant outstanding at
December 31, 2008 and resulted in the issuance of
894,273 shares of the Companys common stock during
the second quarter of 2009.
Compensation expense of $12 million and $7 million
related to Performance Shares was recognized for the three
months and six months ended June 30, 2009, respectively,
and $12 million and $44 million related to Performance
Shares was recognized for the three months and six months ended
June 30, 2008, respectively.
80
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
At June 30, 2009, there was $54 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 1.68 years.
Restricted
Stock Units
Restricted Stock Units will normally vest in their entirety on
the third anniversary of their grant date and will be settled in
an equal number of shares of the Companys common stock.
During the six months ended June 30, 2009, the 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 June 30, 2009 was
419,487 with a weighted average fair value of $29.82 per unit.
Compensation expense of less than $1 million and
$2 million related to Restricted Stock Units was recognized
for the three months and six months ended June 30, 2009,
respectively. Compensation expense of less than $1 million
and $1 million related to Restricted Stock Units was
recognized for the three months and six months ended
June 30, 2008, respectively.
At June 30, 2009, there was $7 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 2.22 years.
Information on other expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Compensation
|
|
$
|
1,045
|
|
|
$
|
894
|
|
|
$
|
1,993
|
|
|
$
|
1,744
|
|
Commissions
|
|
|
867
|
|
|
|
843
|
|
|
|
1,723
|
|
|
|
1,693
|
|
Interest and debt issue costs
|
|
|
260
|
|
|
|
269
|
|
|
|
515
|
|
|
|
557
|
|
Amortization of DAC and VOBA
|
|
|
(293
|
)
|
|
|
504
|
|
|
|
636
|
|
|
|
1,082
|
|
Capitalization of DAC
|
|
|
(757
|
)
|
|
|
(775
|
)
|
|
|
(1,543
|
)
|
|
|
(1,536
|
)
|
Rent, net of sublease income
|
|
|
103
|
|
|
|
110
|
|
|
|
216
|
|
|
|
216
|
|
Insurance tax
|
|
|
143
|
|
|
|
128
|
|
|
|
268
|
|
|
|
251
|
|
Other (1)
|
|
|
663
|
|
|
|
634
|
|
|
|
1,225
|
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
2,031
|
|
|
$
|
2,607
|
|
|
$
|
5,033
|
|
|
$
|
5,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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
Companys operations, as well as providing a foundation for
future growth. At June 30, 2009 and December 31, 2008,
the Company had a liability for severance-related restructuring
costs of $36 million and $86 million, respectively.
Restructuring charges incurred in connection with this
enterprise-wide initiative during the three months and six
months ended June 30, 2009 were $16 million and
$37 million, respectively, and are included in other
expense. As the expenses relate to an enterprise-wide
initiative, they were incurred within Corporate &
Other. Estimated restructuring costs may change as
81
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
management continues to execute its restructuring plans.
Restructuring charges associated with this enterprise-wide
initiative were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
39
|
|
|
$
|
86
|
|
Severance charges
|
|
|
16
|
|
|
|
38
|
|
Change in severance charge estimates
|
|
|
|
|
|
|
(1
|
)
|
Cash payments
|
|
|
(19
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
36
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges incurred in current period
|
|
$
|
16
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges incurred since inception of program
|
|
$
|
138
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
Management anticipates further restructuring charges including
severance, lease and asset impairments will be incurred during
the years ended December 31, 2009 and 2010. However, such
restructuring plans are not sufficiently developed to enable the
Company to make an estimate of such restructuring charges at
June 30, 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
governments nationalization of its private pension
business. At June 30, 2009 and December 31, 2008, the
Company had a liability for severance-related restructuring
costs of $1 million and $3 million, respectively. For
the three months and six months ended June 30, 2009, the
Company made payments of $1 million and $2 million,
respectively, within the International segment.
82
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
15.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except share and per common share data)
|
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for basic earnings per
common share
|
|
|
821,594,380
|
|
|
|
712,837,796
|
|
|
|
815,068,638
|
|
|
|
716,011,791
|
|
Incremental common shares from assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock purchase contracts underlying common equity
units (1)
|
|
|
|
|
|
|
4,334,366
|
|
|
|
|
|
|
|
3,966,168
|
|
Exercise or issuance of stock-based awards
|
|
|
3,505,464
|
|
|
|
9,362,352
|
|
|
|
2,592,460
|
|
|
|
8,874,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for diluted earnings
per common share
|
|
|
825,099,844
|
|
|
|
726,534,514
|
|
|
|
817,661,098
|
|
|
|
728,852,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(1,418
|
)
|
|
$
|
879
|
|
|
$
|
(2,002
|
)
|
|
$
|
1,504
|
|
Less: Income (loss) attributable to noncontrolling interests,
net of income tax
|
|
|
(16
|
)
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
(9
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.s common shareholders
|
|
$
|
(1,433
|
)
|
|
$
|
854
|
|
|
$
|
(2,043
|
)
|
|
$
|
1,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.74
|
)
|
|
$
|
1.19
|
|
|
$
|
(2.50
|
)
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.74
|
)
|
|
$
|
1.18
|
|
|
$
|
(2.50
|
)
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
|
|
|
$
|
117
|
|
|
$
|
36
|
|
|
$
|
152
|
|
Less: Income from discontinued operations, net of income tax,
attributable to noncontrolling interests
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax,
available to MetLife, Inc.s common shareholders
|
|
$
|
|
|
|
$
|
61
|
|
|
$
|
36
|
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
|
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,418
|
)
|
|
$
|
996
|
|
|
$
|
(1,966
|
)
|
|
$
|
1,656
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(16
|
)
|
|
|
50
|
|
|
|
(20
|
)
|
|
|
62
|
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(1,433
|
)
|
|
$
|
915
|
|
|
$
|
(2,007
|
)
|
|
$
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.74
|
)
|
|
$
|
1.28
|
|
|
$
|
(2.46
|
)
|
|
$
|
2.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.74
|
)
|
|
$
|
1.26
|
|
|
$
|
(2.46
|
)
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 13 of the Notes to the Consolidated Financial
Statements included in the 2008 Annual Report for a description
of the common equity units. The stock purchase contracts
underlying the common equity units as described therein were
settled upon the initial stock purchase in August 2008 and the
subsequent stock purchase |
83
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
in February 2009. During the period ended June 30, 2008,
the average closing price of the Companys common stock
exceeded the threshold appreciation price on the stock purchase
contracts underlying the common equity units, and, accordingly,
increased the weighted average shares outstanding presented
above. During the period ended June 30, 2009, the average
closing price of the Companys common stock never exceeded
the threshold appreciation price on the stock purchase contracts
underlying the common equity units prior to the settlement in
February 2009. |
|
|
16.
|
Business
Segment Information
|
The Company is a leading provider of individual insurance,
employee benefits and financial services with operations
throughout the United States and the Latin America, Europe, and
Asia Pacific regions. The Companys business is currently
divided into four operating segments: Institutional, Individual,
International, and Auto & Home, as well as
Corporate & Other. These segments are managed
separately because they either provide different products and
services, require different strategies or have different
technology requirements. Corporate & Other contains
the excess capital not allocated to the business segments,
various
start-up
entities, MetLife Bank and run-off entities, as well as interest
expense related to the majority of the Companys
outstanding debt and expenses associated with certain legal
proceedings and income tax audit issues. Corporate &
Other also includes the elimination of all intersegment amounts,
which generally relate to intersegment loans, which bear
interest rates commensurate with related borrowings, as well as
intersegment transactions. The operations of Reinsurance Group
of America, Incorporated (RGA) are also reported in
Corporate & Other as discontinued operations. See
Note 17 for disclosures regarding discontinued operations,
including real estate.
Set forth in the tables below is certain financial information
with respect to the Companys segments, as well as
Corporate & Other, for the three months and six months
ended June 30, 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. The Company allocates equity to each segment
based upon the economic capital model that allows the Company to
effectively manage its 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
MetLifes 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
evaluates the performance of each segment based upon net income
excluding net investment gains (losses) of consolidated entities
and operating joint ventures reported under the equity method of
accounting, net of income tax, adjustments related to net
investment gains (losses), net of income tax, the impact from
the cumulative effect of changes in accounting, net of income
tax, costs related to business combinations, net of income tax,
and discontinued operations, other than discontinued real
estate, net of income tax, less preferred stock dividends. The
Company allocates certain non-recurring items, such as expenses
associated with certain legal proceedings, to
Corporate & Other.
84
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
Corporate
|
|
|
|
|
For the Three Months Ended June 30, 2009:
|
|
Institutional
|
|
|
Individual
|
|
|
International
|
|
|
& Home
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Statement of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,904
|
|
|
$
|
1,165
|
|
|
$
|
777
|
|
|
$
|
726
|
|
|
$
|
4
|
|
|
$
|
6,576
|
|
Universal life and investment-type product policy fees
|
|
|
226
|
|
|
|
764
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
1,216
|
|
Net investment income
|
|
|
1,585
|
|
|
|
1,704
|
|
|
|
258
|
|
|
|
49
|
|
|
|
135
|
|
|
|
3,731
|
|
Other revenues
|
|
|
166
|
|
|
|
116
|
|
|
|
2
|
|
|
|
5
|
|
|
|
283
|
|
|
|
572
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(325
|
)
|
|
|
(135
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(96
|
)
|
|
|
(566
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
113
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
234
|
|
Other net investment gains (losses), net
|
|
|
(1,116
|
)
|
|
|
(1,394
|
)
|
|
|
(491
|
)
|
|
|
(8
|
)
|
|
|
(488
|
)
|
|
|
(3,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(1,328
|
)
|
|
|
(1,490
|
)
|
|
|
(501
|
)
|
|
|
(8
|
)
|
|
|
(502
|
)
|
|
|
(3,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,553
|
|
|
|
2,259
|
|
|
|
762
|
|
|
|
772
|
|
|
|
(80
|
)
|
|
|
8,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
4,333
|
|
|
|
1,559
|
|
|
|
559
|
|
|
|
491
|
|
|
|
4
|
|
|
|
6,946
|
|
Interest credited to policyholder account balances
|
|
|
460
|
|
|
|
609
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
1,229
|
|
Policyholder dividends
|
|
|
|
|
|
|
431
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
434
|
|
Other expenses
|
|
|
627
|
|
|
|
176
|
|
|
|
404
|
|
|
|
192
|
|
|
|
632
|
|
|
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,420
|
|
|
|
2,775
|
|
|
|
1,125
|
|
|
|
684
|
|
|
|
636
|
|
|
|
10,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(867
|
)
|
|
|
(516
|
)
|
|
|
(363
|
)
|
|
|
88
|
|
|
|
(716
|
)
|
|
|
(2,374
|
)
|
Provision for income tax expense (benefit)
|
|
|
(312
|
)
|
|
|
(184
|
)
|
|
|
(149
|
)
|
|
|
17
|
|
|
|
(328
|
)
|
|
|
(956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(555
|
)
|
|
|
(332
|
)
|
|
|
(214
|
)
|
|
|
71
|
|
|
|
(388
|
)
|
|
|
(1,418
|
)
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(555
|
)
|
|
|
(332
|
)
|
|
|
(214
|
)
|
|
|
71
|
|
|
|
(388
|
)
|
|
|
(1,418
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
(555
|
)
|
|
|
(332
|
)
|
|
|
(205
|
)
|
|
|
71
|
|
|
|
(381
|
)
|
|
|
(1,402
|
)
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(555
|
)
|
|
$
|
(332
|
)
|
|
$
|
(205
|
)
|
|
$
|
71
|
|
|
$
|
(412
|
)
|
|
$
|
(1,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
Corporate
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
Institutional
|
|
|
Individual
|
|
|
International
|
|
|
& Home
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Statement of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,599
|
|
|
$
|
1,067
|
|
|
$
|
920
|
|
|
$
|
742
|
|
|
$
|
12
|
|
|
$
|
6,340
|
|
Universal life and investment-type product policy fees
|
|
|
208
|
|
|
|
895
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
1,396
|
|
Net investment income
|
|
|
1,973
|
|
|
|
1,696
|
|
|
|
356
|
|
|
|
50
|
|
|
|
244
|
|
|
|
4,319
|
|
Other revenues
|
|
|
171
|
|
|
|
154
|
|
|
|
6
|
|
|
|
10
|
|
|
|
10
|
|
|
|
351
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(95
|
)
|
|
|
(25
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(17
|
)
|
|
|
(139
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
193
|
|
|
|
(236
|
)
|
|
|
(135
|
)
|
|
|
(12
|
)
|
|
|
(28
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
98
|
|
|
|
(261
|
)
|
|
|
(136
|
)
|
|
|
(13
|
)
|
|
|
(45
|
)
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,049
|
|
|
|
3,551
|
|
|
|
1,439
|
|
|
|
789
|
|
|
|
221
|
|
|
|
12,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
4,016
|
|
|
|
1,392
|
|
|
|
618
|
|
|
|
539
|
|
|
|
14
|
|
|
|
6,579
|
|
Interest credited to policyholder account balances
|
|
|
613
|
|
|
|
494
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
1,196
|
|
Policyholder dividends
|
|
|
|
|
|
|
442
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
446
|
|
Other expenses
|
|
|
591
|
|
|
|
933
|
|
|
|
476
|
|
|
|
205
|
|
|
|
402
|
|
|
|
2,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,220
|
|
|
|
3,261
|
|
|
|
1,185
|
|
|
|
746
|
|
|
|
416
|
|
|
|
10,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income tax
|
|
|
829
|
|
|
|
290
|
|
|
|
254
|
|
|
|
43
|
|
|
|
(195
|
)
|
|
|
1,221
|
|
Provision for income tax expense
|
|
|
280
|
|
|
|
92
|
|
|
|
87
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of income tax
|
|
|
549
|
|
|
|
198
|
|
|
|
167
|
|
|
|
43
|
|
|
|
(78
|
)
|
|
|
879
|
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
549
|
|
|
|
199
|
|
|
|
167
|
|
|
|
43
|
|
|
|
38
|
|
|
|
996
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
56
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MetLife, Inc.
|
|
|
549
|
|
|
|
199
|
|
|
|
173
|
|
|
|
43
|
|
|
|
(18
|
)
|
|
|
946
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to MetLife, Inc.s common shareholders
|
|
$
|
549
|
|
|
$
|
199
|
|
|
$
|
173
|
|
|
$
|
43
|
|
|
$
|
(49
|
)
|
|
$
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
Corporate
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
Institutional
|
|
|
Individual
|
|
|
International
|
|
|
& Home
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Statement of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
7,444
|
|
|
$
|
2,302
|
|
|
$
|
1,498
|
|
|
$
|
1,448
|
|
|
$
|
6
|
|
|
$
|
12,698
|
|
Universal life and investment-type product policy fees
|
|
|
434
|
|
|
|
1,529
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
2,399
|
|
Net investment income
|
|
|
3,050
|
|
|
|
3,220
|
|
|
|
451
|
|
|
|
89
|
|
|
|
184
|
|
|
|
6,994
|
|
Other revenues
|
|
|
337
|
|
|
|
221
|
|
|
|
4
|
|
|
|
14
|
|
|
|
550
|
|
|
|
1,126
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(600
|
)
|
|
|
(242
|
)
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
(255
|
)
|
|
|
(1,119
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
113
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
234
|
|
Other net investment gains (losses), net
|
|
|
(2,628
|
)
|
|
|
(1,222
|
)
|
|
|
(26
|
)
|
|
|
24
|
|
|
|
2
|
|
|
|
(3,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(3,115
|
)
|
|
|
(1,425
|
)
|
|
|
(47
|
)
|
|
|
23
|
|
|
|
(171
|
)
|
|
|
(4,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,150
|
|
|
|
5,847
|
|
|
|
2,342
|
|
|
|
1,574
|
|
|
|
569
|
|
|
|
18,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
8,280
|
|
|
|
3,146
|
|
|
|
1,128
|
|
|
|
971
|
|
|
|
3
|
|
|
|
13,528
|
|
Interest credited to policyholder account balances
|
|
|
971
|
|
|
|
1,189
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
2,397
|
|
Policyholder dividends
|
|
|
|
|
|
|
855
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
858
|
|
Other expenses
|
|
|
1,228
|
|
|
|
1,512
|
|
|
|
697
|
|
|
|
385
|
|
|
|
1,211
|
|
|
|
5,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,479
|
|
|
|
6,702
|
|
|
|
2,065
|
|
|
|
1,356
|
|
|
|
1,214
|
|
|
|
21,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(2,329
|
)
|
|
|
(855
|
)
|
|
|
277
|
|
|
|
218
|
|
|
|
(645
|
)
|
|
|
(3,334
|
)
|
Provision for income tax expense (benefit)
|
|
|
(823
|
)
|
|
|
(302
|
)
|
|
|
56
|
|
|
|
51
|
|
|
|
(314
|
)
|
|
|
(1,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(1,506
|
)
|
|
|
(553
|
)
|
|
|
221
|
|
|
|
167
|
|
|
|
(331
|
)
|
|
|
(2,002
|
)
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,506
|
)
|
|
|
(529
|
)
|
|
|
221
|
|
|
|
167
|
|
|
|
(319
|
)
|
|
|
(1,966
|
)
|
Less: Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
(1,506
|
)
|
|
|
(529
|
)
|
|
|
235
|
|
|
|
167
|
|
|
|
(313
|
)
|
|
|
(1,946
|
)
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(1,506
|
)
|
|
$
|
(529
|
)
|
|
$
|
235
|
|
|
$
|
167
|
|
|
$
|
(374
|
)
|
|
$
|
(2,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
Corporate
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
Institutional
|
|
|
Individual
|
|
|
International
|
|
|
& Home
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Statement of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
7,172
|
|
|
$
|
2,130
|
|
|
$
|
1,824
|
|
|
$
|
1,487
|
|
|
$
|
18
|
|
|
$
|
12,631
|
|
Universal life and investment-type product policy fees
|
|
|
432
|
|
|
|
1,778
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
2,793
|
|
Net investment income
|
|
|
4,001
|
|
|
|
3,387
|
|
|
|
626
|
|
|
|
101
|
|
|
|
501
|
|
|
|
8,616
|
|
Other revenues
|
|
|
361
|
|
|
|
303
|
|
|
|
13
|
|
|
|
21
|
|
|
|
22
|
|
|
|
720
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(123
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(52
|
)
|
|
|
(213
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(510
|
)
|
|
|
(329
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
(12
|
)
|
|
|
(874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(633
|
)
|
|
|
(365
|
)
|
|
|
(1
|
)
|
|
|
(24
|
)
|
|
|
(64
|
)
|
|
|
(1,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
11,333
|
|
|
|
7,233
|
|
|
|
3,045
|
|
|
|
1,585
|
|
|
|
477
|
|
|
|
23,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
7,927
|
|
|
|
2,751
|
|
|
|
1,443
|
|
|
|
1,017
|
|
|
|
24
|
|
|
|
13,162
|
|
Interest credited to policyholder account balances
|
|
|
1,297
|
|
|
|
996
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
2,429
|
|
Policyholder dividends
|
|
|
|
|
|
|
868
|
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
|
|
875
|
|
Other expenses
|
|
|
1,164
|
|
|
|
1,915
|
|
|
|
911
|
|
|
|
408
|
|
|
|
756
|
|
|
|
5,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,388
|
|
|
|
6,530
|
|
|
|
2,494
|
|
|
|
1,428
|
|
|
|
780
|
|
|
|
21,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income tax
|
|
|
945
|
|
|
|
703
|
|
|
|
551
|
|
|
|
157
|
|
|
|
(303
|
)
|
|
|
2,053
|
|
Provision for income tax expense
|
|
|
311
|
|
|
|
228
|
|
|
|
203
|
|
|
|
23
|
|
|
|
(216
|
)
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of income tax
|
|
|
634
|
|
|
|
475
|
|
|
|
348
|
|
|
|
134
|
|
|
|
(87
|
)
|
|
|
1,504
|
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
634
|
|
|
|
475
|
|
|
|
348
|
|
|
|
134
|
|
|
|
65
|
|
|
|
1,656
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
1
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
72
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MetLife, Inc.
|
|
|
633
|
|
|
|
475
|
|
|
|
359
|
|
|
|
134
|
|
|
|
(7
|
)
|
|
|
1,594
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to MetLife, Inc.s common shareholders
|
|
$
|
633
|
|
|
$
|
475
|
|
|
$
|
359
|
|
|
$
|
134
|
|
|
$
|
(71
|
)
|
|
$
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents total assets with respect to the
Companys segments, as well as Corporate & Other,
at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
(In millions)
|
|
Institutional
|
|
$
|
188,153
|
|
|
$
|
195,191
|
|
Individual
|
|
|
228,469
|
|
|
|
214,476
|
|
International
|
|
|
28,652
|
|
|
|
25,891
|
|
Auto & Home
|
|
|
5,239
|
|
|
|
5,232
|
|
Corporate & Other
|
|
|
58,944
|
|
|
|
60,888
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
509,457
|
|
|
$
|
501,678
|
|
|
|
|
|
|
|
|
|
|
Revenues derived from any customer did not exceed 10% of
consolidated revenues for the three months and six months ended
June 30, 2009 and 2008. Revenues from U.S. operations
were $7.1 billion and $15.7 billion for the three
months and six months ended June 30, 2009, respectively,
which represented 86% and 85%, respectively, of consolidated
revenues. Revenues from U.S. operations were
$10.6 billion and $20.5 billion for the three months
and six months ended June 30, 2008, respectively, which
represented 88% and 87%, respectively, of consolidated revenues.
|
|
17.
|
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 discontinued operations. These assets
are carried at the lower of depreciated cost or estimated fair
value less expected disposition costs. The Company had no income
from discontinued operations for both the three months and six
months ended June 30, 2009.
The following information presents the components of income from
discontinued real estate operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30, 2008
|
|
June 30, 2008
|
|
|
(In millions)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
2
|
|
|
$
|
3
|
|
Investment expense
|
|
|
|
|
|
|
(2
|
)
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2
|
|
|
|
1
|
|
Provision for income tax
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of real estate related to discontinued
operations was $1 million at both June 30, 2009 and
December 31, 2008.
89
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the discontinued real estate
operations by segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
|
(In millions)
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
Institutional
|
|
$
|
2
|
|
|
$
|
2
|
|
Individual
|
|
|
|
|
|
|
(1
|
)
|
Corporate & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment income
|
|
$
|
2
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
Institutional
|
|
$
|
|
|
|
$
|
|
|
Individual
|
|
|
|
|
|
|
|
|
Corporate & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
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 Insurance Company, to a third party
and the sale was completed in March 2009. (See also
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 income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
8
|
|
Universal life and investment-type product policy fees
|
|
|
|
|
|
|
25
|
|
|
|
15
|
|
|
|
45
|
|
Net investment income
|
|
|
|
|
|
|
9
|
|
|
|
6
|
|
|
|
19
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
38
|
|
|
|
25
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
17
|
|
|
|
10
|
|
|
|
36
|
|
Interest credited to policyholder account balances
|
|
|
|
|
|
|
6
|
|
|
|
3
|
|
|
|
10
|
|
Policyholder dividends
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Other expenses
|
|
|
|
|
|
|
8
|
|
|
|
5
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
31
|
|
|
|
19
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
|
|
|
|
7
|
|
|
|
6
|
|
|
|
10
|
|
Provision for income tax
|
|
|
|
|
|
|
4
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued operations, net of income
tax
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
Gain on disposal, net of income tax
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
36
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
514
|
|
Equity securities
|
|
|
1
|
|
Mortgage and consumer 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
|
|
|
|
|
|
|
Reinsurance
Group of America, Incorporated
As more fully described in Note 2 of the Notes to the
Consolidated Financial Statements included in the 2008 Annual
Report, the Company completed a tax-free split-off of its
majority-owned subsidiary, RGA, in September 2008. As a result
of the disposition, the Reinsurance segment was eliminated and
RGAs operating results were reclassified to discontinued
operations of Corporate & Other for all periods
presented. Interest on economic capital associated with the
Reinsurance segment has been reclassified to the continuing
operations of Corporate & Other.
91
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the amounts related to the
operations of RGA that have been reflected as discontinued
operations in the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,357
|
|
|
$
|
2,655
|
|
Net investment income
|
|
|
255
|
|
|
|
455
|
|
Other revenues
|
|
|
20
|
|
|
|
46
|
|
Net investment gains (losses)
|
|
|
(5
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,627
|
|
|
|
2,995
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
1,119
|
|
|
|
2,260
|
|
Interest credited to policyholder account balances
|
|
|
63
|
|
|
|
137
|
|
Other expenses
|
|
|
353
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,535
|
|
|
|
2,875
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
92
|
|
|
|
120
|
|
Provision for income tax
|
|
|
34
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax,
available to MetLife, Inc.s common shareholders
|
|
|
58
|
|
|
|
76
|
|
Income from discontinued operations, net of income tax,
attributable to noncontrolling interests
|
|
|
56
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
114
|
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
The operations of RGA include 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
Companys consolidated statements of income are amounts
related to these transactions, including ceded amounts that
reduced premiums and fees and ceded amounts that reduced
policyholder benefits and claims by $60 million and
$58 million, respectively, for the three months ended
June 30, 2008, and by $116 million and
$113 million, respectively, for the six months ended
June 30, 2008, that have not been eliminated as these
transactions have continued after the RGA disposition.
As described in Note 1 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report, the
Company prospectively adopted the provisions of SFAS 157
effective January 1, 2008. 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.
92
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fair
Value of Financial Instruments
Amounts related to the Companys financial instruments are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Estimated
|
|
June 30, 2009
|
|
Amount
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
211,563
|
|
|
$
|
211,563
|
|
Equity securities
|
|
|
|
|
|
$
|
3,045
|
|
|
$
|
3,045
|
|
Trading securities
|
|
|
|
|
|
$
|
1,471
|
|
|
$
|
1,471
|
|
Mortgage and consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
$
|
48,229
|
|
|
$
|
46,027
|
|
Held-for-sale
|
|
|
|
|
|
|
4,271
|
|
|
|
4,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and consumer loans, net
|
|
|
|
|
|
$
|
52,500
|
|
|
$
|
50,298
|
|
Policy loans
|
|
|
|
|
|
$
|
9,907
|
|
|
$
|
11,297
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
133
|
|
|
$
|
132
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
1,614
|
|
|
$
|
1,671
|
|
Short-term investments
|
|
|
|
|
|
$
|
8,117
|
|
|
$
|
8,117
|
|
Other invested assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (2)
|
|
$
|
123,533
|
|
|
$
|
6,912
|
|
|
$
|
6,912
|
|
Mortgage servicing rights
|
|
|
|
|
|
$
|
670
|
|
|
$
|
670
|
|
Other
|
|
|
|
|
|
$
|
1,217
|
|
|
$
|
1,262
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
13,213
|
|
|
$
|
13,213
|
|
Accrued investment income
|
|
|
|
|
|
$
|
3,019
|
|
|
$
|
3,019
|
|
Premiums and other receivables (1)
|
|
|
|
|
|
$
|
2,731
|
|
|
$
|
2,965
|
|
Other assets (1)
|
|
|
|
|
|
$
|
800
|
|
|
$
|
777
|
|
Separate account assets
|
|
|
|
|
|
$
|
126,968
|
|
|
$
|
126,968
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
122
|
|
|
$
|
122
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
107,059
|
|
|
$
|
96,884
|
|
Short-term debt
|
|
|
|
|
|
$
|
4,757
|
|
|
$
|
4,757
|
|
Long-term debt (1)
|
|
|
|
|
|
$
|
12,898
|
|
|
$
|
12,604
|
|
Collateral financing arrangements
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
2,321
|
|
Junior subordinated debt securities
|
|
|
|
|
|
$
|
2,691
|
|
|
$
|
2,115
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
24,607
|
|
|
$
|
24,607
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
67,395
|
|
|
$
|
3,689
|
|
|
$
|
3,689
|
|
Trading liabilities
|
|
|
|
|
|
$
|
201
|
|
|
$
|
201
|
|
Other
|
|
|
|
|
|
$
|
1,648
|
|
|
$
|
1,648
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
28,591
|
|
|
$
|
28,591
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
1,151
|
|
|
$
|
1,151
|
|
Commitments: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
2,532
|
|
|
$
|
|
|
|
$
|
(82
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
847
|
|
|
$
|
|
|
|
$
|
(104
|
)
|
93
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Estimated
|
|
December 31, 2008
|
|
Amount
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
188,251
|
|
|
$
|
188,251
|
|
Equity securities
|
|
|
|
|
|
$
|
3,197
|
|
|
$
|
3,197
|
|
Trading securities
|
|
|
|
|
|
$
|
946
|
|
|
$
|
946
|
|
Mortgage and consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
$
|
49,352
|
|
|
$
|
48,133
|
|
Held-for-sale
|
|
|
|
|
|
|
2,012
|
|
|
|
2,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and consumer 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)
|
|
|
|
|
|
$
|
110,174
|
|
|
$
|
102,902
|
|
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
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
31,059
|
|
|
$
|
31,059
|
|
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
|
)
|
94
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Carrying values presented herein differ from those presented on
the consolidated balance sheet because certain items within the
respective financial statement caption are not considered
financial instruments. Financial statement captions omitted from
the table above are not considered financial instruments. |
|
(2) |
|
Derivative assets are presented within other invested assets and
derivatives liabilities are presented within other liabilities.
At June 30, 2009 and December 31, 2008, certain
non-derivative hedging instruments of $344 million and
$323 million, respectively, which are carried at amortized
cost, are included with the liabilities total in Note 4 but
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 June 30,
2009 and December 31, 2008, equity securities also includes
embedded derivatives of ($33) 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 Companys 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 Companys 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
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
managements assumptions regarding liquidity and estimated
future cash flows. Accordingly, the estimated fair values are
based on available market information and managements
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 use of different methodologies, assumptions and inputs may
have a material effect on the estimated fair values of the
Companys securities holdings.
Mortgage and Consumer Loans The Company
originates mortgage and consumer loans for both investment
purposes and with the intention to sell them to third parties.
Commercial and agricultural loans are originated for investment
purposes and are primarily carried at amortized cost. Loans
classified as consumer loans are generally
95
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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
loans are determined as follows:
Mortgage and Consumer Loans
Held-for-Investment
For mortgage and consumer loans
held-for-investment
and carried at amortized cost, fair value was primarily
determined by estimating expected future cash flows and
discounting them using current interest rates for similar loans
with similar credit risk.
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 loans, adjusted to convert
the securities prices to 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 mortgages previously classified as
held-for-investment
have also been designated as
held-for-sale.
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 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 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 table
consist of those investments accounted for using the cost
method. The remaining carrying value recognized in the
consolidated balance sheet 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 Companys share of
the net asset value (NAV) as provided in the
financial statements of the investees. In certain circumstances,
management may adjust the net asset value 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 sheet. 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
96
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
consolidated balance sheet 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 sheet is principally comprised of
freestanding derivatives with positive estimated fair values,
leveraged leases, investments in tax credit partnerships, joint
venture investments, mortgage servicing rights, investment in a
funding agreement, funds withheld at interest and various
interest-bearing assets held in foreign subsidiaries. Leveraged
leases and investments in tax credit partnerships and joint
ventures, which are accounted for under the equity 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.
Although mortgage servicing rights are not financial
instruments, the Company has included them in the preceding
table as a result of its election to carry mortgage servicing
rights at fair value pursuant to SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, as amended by
SFAS No. 156, Accounting for Servicing of Financial
Assets. As sales of mortgage servicing rights 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 mortgage servicing rights. 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 pre-payment, and
servicing costs.
The fair value of the investment in a funding agreement is
estimated 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 sheet 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
riders.
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
97
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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 riders 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 sheet is principally comprised of prepaid expenses,
amounts held under corporate owned life insurance, fixed assets,
capitalized software, deferred sales inducements, value of
distribution agreements, value of customer relationships
acquired, and a receivable for cash collateral pledged under the
MRC collateral financing arrangement as described in
Note 10. With the exception of the receivable for
collateral pledged, other assets are not considered financial
instruments subject to disclosure. Accordingly, the amount
presented in the preceding table represents the receivable for
collateral pledged 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 financial
institution.
Separate Account Assets Separate account
assets are carried at estimated fair value and reported as a
summarized total on the consolidated balance sheet in accordance
with Statement of Position (SOP)
03-1,
Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts
(SOP 03-1).
The estimated fair values of separate account assets are based
on the estimated fair value of the underlying assets owned by
the separate account. Assets within the Companys 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 net assets values
provided by the fund manager. 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
and customer bank deposits. Embedded derivatives on investment
contracts and certain variable annuity riders accounted for as
embedded derivatives are included in this caption in the
consolidated financial statements but excluded from this caption
in the table 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 sheet represents those
amounts due under contracts that satisfy the definition of
insurance contracts and are not considered financial instruments.
The investment contracts primarily include guaranteed interest
contracts, certain funding arrangements, 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 Companys own credit determined
using market standard
98
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
swap valuation models and observable market inputs that take
into consideration publicly available information relating to
the Companys debt, as well as its claims paying ability.
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 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 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 sheet 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 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 sheet is 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 Companys 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 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
arrangement 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 sheet represents those contracts
classified as insurance contracts which do not satisfy the
criteria of financial instruments for which fair value is to be
disclosed.
99
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 arrangements related to
institutional group life contracts; and certain contracts that
provide for benefit funding under Institutional
retirement & savings products.
Separate account liabilities, whether related to investment or
insurance contracts, are recognized in the consolidated balance
sheet at an equivalent summary total of the separate account
assets as prescribed by
SOP 03-1.
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 residential mortgage-backed 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 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 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 after taking into account the effects of netting
agreements and collateral arrangements. Credit risk is monitored
and consideration of any potential credit adjustment is based on
net exposure by counterparty. This is due to the existence of
netting agreements and collateral arrangements which effectively
serve to mitigate risk. The Company values its derivative
positions using the standard swap curve which includes a credit
risk adjustment. This credit risk adjustment 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 need for such
additional credit risk adjustments is monitored by the Company.
The Companys 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.
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 Companys
derivatives and could materially affect net income.
100
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Embedded Derivatives within Asset and Liability Host
Contracts Embedded derivatives principally
include certain direct, assumed and ceded variable annuity
riders and certain guaranteed investment contracts 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 adjusted through net income.
The Company issues certain variable annuity products with
guaranteed minimum benefit riders. Guaranteed minimum withdrawal
benefit, guaranteed minimum accumulation benefit
(GMAB) and certain guaranteed minimum income benefit
(GMIB) riders 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 riders is 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 riders are projected under multiple capital
market scenarios using observable risk free rates. The valuation
of these riders includes an adjustment for the Companys
own credit and risk margins for non-capital market inputs. The
Companys own credit adjustment is determined taking into
consideration publicly available information relating to the
Companys 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 riders 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 Companys 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 riders that could materially
affect net income.
The Company ceded the risk associated with certain of the GMIB
and GMAB riders 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 investments gains (losses)
or policyholder benefit and claims depending on the income
statement 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
riders 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
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 guaranteed interest contracts
is determined using market standard swap valuation models and
observable market inputs, including an adjustment for the
Companys own credit that takes into consideration publicly
available information relating to the Companys debt, as
well as its claims paying ability. The estimated fair value of
these embedded derivatives are included, along with their
guaranteed investment contract 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 Companys credit standing may result
in significant fluctuations in the estimated fair value of these
embedded derivatives that could materially affect net income.
101
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
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.
102
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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:
|
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|
|
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|
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|
|
|
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|
|
|
June 30, 2009
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Estimated
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
59,318
|
|
|
$
|
6,663
|
|
|
$
|
65,981
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
40,304
|
|
|
|
1,494
|
|
|
|
41,798
|
|
Foreign corporate securities
|
|
|
|
|
|
|
28,878
|
|
|
|
4,729
|
|
|
|
33,607
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
11,042
|
|
|
|
16,594
|
|
|
|
37
|
|
|
|
27,673
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
13,744
|
|
|
|
251
|
|
|
|
13,995
|
|
Asset-backed securities
|
|
|
|
|
|
|
10,254
|
|
|
|
2,160
|
|
|
|
12,414
|
|
Foreign government securities
|
|
|
291
|
|
|
|
9,923
|
|
|
|
346
|
|
|
|
10,560
|
|
State and political subdivision securities
|
|
|
|
|
|
|
5,413
|
|
|
|
104
|
|
|
|
5,517
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
10
|
|
|
|
8
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
11,333
|
|
|
|
184,438
|
|
|
|
15,792
|
|
|
|
211,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
387
|
|
|
|
1,213
|
|
|
|
118
|
|
|
|
1,718
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
260
|
|
|
|
1,067
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
387
|
|
|
|
1,473
|
|
|
|
1,185
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
1,134
|
|
|
|
265
|
|
|
|
72
|
|
|
|
1,471
|
|
Short-term investments (1)
|
|
|
5,411
|
|
|
|
2,388
|
|
|
|
5
|
|
|
|
7,804
|
|
Mortgage and consumer loans (2)
|
|
|
|
|
|
|
4,122
|
|
|
|
136
|
|
|
|
4,258
|
|
Derivative assets (3)
|
|
|
126
|
|
|
|
4,265
|
|
|
|
2,521
|
|
|
|
6,912
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
122
|
|
Mortgage servicing rights (5)
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
670
|
|
Separate account assets (6)
|
|
|
96,050
|
|
|
|
29,364
|
|
|
|
1,554
|
|
|
|
126,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
114,441
|
|
|
$
|
226,315
|
|
|
$
|
22,057
|
|
|
$
|
362,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (3)
|
|
$
|
49
|
|
|
$
|
2,885
|
|
|
$
|
755
|
|
|
$
|
3,689
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
|
|
|
|
(79
|
)
|
|
|
1,230
|
|
|
|
1,151
|
|
Trading liabilities (7)
|
|
|
142
|
|
|
|
|
|
|
|
59
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
191
|
|
|
$
|
2,806
|
|
|
$
|
2,044
|
|
|
$
|
5,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Estimated
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
55,805
|
|
|
$
|
7,498
|
|
|
$
|
63,303
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
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
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
12,384
|
|
|
|
260
|
|
|
|
12,644
|
|
Asset-backed securities
|
|
|
|
|
|
|
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 and consumer 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 sheet
because certain short-term investments are not measured at
estimated fair value (e.g. time deposits, money market funds,
etc.). |
104
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(2) |
|
Mortgage and consumer loans as presented in the tables above
differ from the amount presented in the consolidated balance
sheet 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 June 30, 2009 and December 31, 2008,
certain non-derivative hedging instruments of $344 million
and $323 million, respectively, which carried at amortized
cost, are included with the liabilities total in Note 4 but
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 June 30,
2009 and December 31, 2008, equity securities also includes
embedded derivatives of ($33) 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 as
prescribed by
SOP 03-1. |
|
(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; 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 residential mortgage-backed securities.
Separate account assets classified within this level principally
include mutual funds. Also included are assets held within
separate accounts which 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, residential
mortgage-backed securities, commercial mortgage-backed
securities, state and political subdivision securities, foreign
government securities, and asset-backed securities. 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 and consumer
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 residential mortgage-backed
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. Hedge funds owned by separate
accounts are also included within this level. Embedded
derivatives
|
105
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
classified within this level include embedded equity derivatives
contained in certain guaranteed interest contracts.
|
|
|
|
|
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 less price transparency exists
around the inputs to the valuation methodologies including:
U.S. and foreign corporate securities including
below investment grade private placements; residential
mortgage-backed securities; and asset-backed
securities 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 and
consumer 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 broker
quotes. 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 quotes; 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; 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 riders. 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.
|
106
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 three months
ended June 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
Balance,
|
|
|
|
Beginning
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
End of
|
|
|
|
of Period
|
|
|
Earnings (2, 3)
|
|
|
Income (Loss)
|
|
|
Settlements (4)
|
|
|
of Level 3(5)
|
|
|
Period
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6,867
|
|
|
$
|
(40
|
)
|
|
$
|
400
|
|
|
$
|
(67
|
)
|
|
$
|
(497
|
)
|
|
$
|
6,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
513
|
|
|
|
53
|
|
|
|
11
|
|
|
|
1,184
|
|
|
|
(267
|
)
|
|
|
1,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
|
4,051
|
|
|
|
(77
|
)
|
|
|
1,003
|
|
|
|
(8
|
)
|
|
|
(240
|
)
|
|
|
4,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
63
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
243
|
|
|
|
(12
|
)
|
|
|
21
|
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
2,048
|
|
|
|
25
|
|
|
|
147
|
|
|
|
(91
|
)
|
|
|
31
|
|
|
|
2,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign government securities
|
|
|
273
|
|
|
|
8
|
|
|
|
(22
|
)
|
|
|
57
|
|
|
|
30
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivision securities
|
|
|
100
|
|
|
|
|
|
|
|
8
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
8
|
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
14,166
|
|
|
$
|
(43
|
)
|
|
$
|
1,569
|
|
|
$
|
1,040
|
|
|
$
|
(940
|
)
|
|
$
|
15,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
104
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
902
|
|
|
|
(55
|
)
|
|
|
295
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
1,006
|
|
|
$
|
(55
|
)
|
|
$
|
300
|
|
|
$
|
(66
|
)
|
|
$
|
|
|
|
$
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
105
|
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
(39
|
)
|
|
$
|
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and consumer loans
|
|
$
|
211
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(69
|
)
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives (6)
|
|
$
|
2,585
|
|
|
$
|
(987
|
)
|
|
$
|
20
|
|
|
$
|
123
|
|
|
$
|
25
|
|
|
$
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights (7),(8)
|
|
$
|
405
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account assets (9)
|
|
$
|
1,500
|
|
|
$
|
(61
|
)
|
|
$
|
|
|
|
$
|
114
|
|
|
$
|
1
|
|
|
$
|
1,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives (10)
|
|
$
|
(1,812
|
)
|
|
$
|
743
|
|
|
$
|
(16
|
)
|
|
$
|
(23
|
)
|
|
$
|
|
|
|
$
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(59
|
)
|
|
$
|
|
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7,383
|
|
|
$
|
(41
|
)
|
|
$
|
85
|
|
|
$
|
53
|
|
|
$
|
(8
|
)
|
|
$
|
7,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
1,776
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
378
|
|
|
|
(963
|
)
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
|
7,511
|
|
|
|
16
|
|
|
|
(338
|
)
|
|
|
(123
|
)
|
|
|
957
|
|
|
|
8,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
62
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
22
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
493
|
|
|
|
(3
|
)
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
(17
|
)
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
3,844
|
|
|
|
(15
|
)
|
|
|
(36
|
)
|
|
|
(156
|
)
|
|
|
(10
|
)
|
|
|
3,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign government securities
|
|
|
860
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
(154
|
)
|
|
|
(112
|
)
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivision securities
|
|
|
82
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
36
|
|
|
|
7
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
273
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
22,284
|
|
|
$
|
(35
|
)
|
|
$
|
(358
|
)
|
|
$
|
30
|
|
|
$
|
(124
|
)
|
|
$
|
21,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
197
|
|
|
$
|
4
|
|
|
$
|
(14
|
)
|
|
$
|
12
|
|
|
$
|
(13
|
)
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
1,949
|
|
|
|
(8
|
)
|
|
|
(10
|
)
|
|
|
(41
|
)
|
|
|
(19
|
)
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
2,146
|
|
|
$
|
(4
|
)
|
|
$
|
(24
|
)
|
|
$
|
(29
|
)
|
|
$
|
(32
|
)
|
|
$
|
2,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
179
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
129
|
|
|
$
|
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
156
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives (6)
|
|
$
|
1,215
|
|
|
$
|
(368
|
)
|
|
$
|
|
|
|
$
|
25
|
|
|
$
|
(19
|
)
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account assets (9)
|
|
$
|
1,581
|
|
|
$
|
(54
|
)
|
|
$
|
|
|
|
$
|
375
|
|
|
$
|
(208
|
)
|
|
$
|
1,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives (10)
|
|
$
|
(764
|
)
|
|
$
|
337
|
|
|
$
|
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
(444
|
)
|
107
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 six months ended
June 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
|
|
|
Other
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS 157 and
|
|
|
Balance,
|
|
|
|
|
|
Comprehensive
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
Balance,
|
|
|
|
Balance,
|
|
|
SFAS 159
|
|
|
Beginning
|
|
|
Earnings
|
|
|
Income
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
End of
|
|
|
|
December 31, 2007
|
|
|
Adoption (1)
|
|
|
of Period
|
|
|
(2,3)
|
|
|
(Loss)
|
|
|
Settlements (4)
|
|
|
of Level 3 (5)
|
|
|
Period
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
|
|
|
|
|
|
|
$
|
7,498
|
|
|
$
|
(208
|
)
|
|
$
|
30
|
|
|
$
|
(204
|
)
|
|
$
|
(453
|
)
|
|
$
|
6,663
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
595
|
|
|
|
47
|
|
|
|
12
|
|
|
|
903
|
|
|
|
(63
|
)
|
|
|
1,494
|
|
Foreign corporate securities
|
|
|
|
|
|
|
|
|
|
|
5,944
|
|
|
|
(237
|
)
|
|
|
680
|
|
|
|
(221
|
)
|
|
|
(1,437
|
)
|
|
|
4,729
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(29
|
)
|
|
|
(20
|
)
|
|
|
37
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
(12
|
)
|
|
|
17
|
|
|
|
(16
|
)
|
|
|
2
|
|
|
|
251
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
2,452
|
|
|
|
(36
|
)
|
|
|
(114
|
)
|
|
|
(205
|
)
|
|
|
63
|
|
|
|
2,160
|
|
Foreign government securities
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
(47
|
)
|
|
|
24
|
|
|
|
(17
|
)
|
|
|
(22
|
)
|
|
|
346
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
6
|
|
|
|
17
|
|
|
|
(42
|
)
|
|
|
104
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
|
|
|
|
|
|
|
$
|
17,408
|
|
|
$
|
(492
|
)
|
|
$
|
654
|
|
|
$
|
194
|
|
|
$
|
(1,972
|
)
|
|
$
|
15,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
$
|
105
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
118
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
1,274
|
|
|
|
(259
|
)
|
|
|
133
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
|
|
|
|
|
|
|
$
|
1,379
|
|
|
$
|
(259
|
)
|
|
$
|
138
|
|
|
$
|
(73
|
)
|
|
$
|
|
|
|
$
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
$
|
175
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
(104
|
)
|
|
$
|
(6
|
)
|
|
$
|
72
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
(83
|
)
|
|
$
|
5
|
|
Mortgage and consumer loans
|
|
|
|
|
|
|
|
|
|
$
|
177
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
(66
|
)
|
|
$
|
136
|
|
Net derivatives(6)
|
|
|
|
|
|
|
|
|
|
$
|
2,547
|
|
|
$
|
(965
|
)
|
|
$
|
(62
|
)
|
|
$
|
221
|
|
|
$
|
25
|
|
|
$
|
1,766
|
|
Mortgage servicing rights(7),(8)
|
|
|
|
|
|
|
|
|
|
$
|
191
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
345
|
|
|
$
|
|
|
|
$
|
670
|
|
Separate account assets(9)
|
|
|
|
|
|
|
|
|
|
$
|
1,758
|
|
|
$
|
(270
|
)
|
|
$
|
|
|
|
$
|
55
|
|
|
$
|
11
|
|
|
$
|
1,554
|
|
Net embedded derivatives(10)
|
|
|
|
|
|
|
|
|
|
$
|
(2,929
|
)
|
|
$
|
1,844
|
|
|
$
|
25
|
|
|
$
|
(48
|
)
|
|
$
|
|
|
|
$
|
(1,108
|
)
|
Trading liabilities
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
$
|
|
|
$
|
(59
|
)
|
|
$
|
|
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
8,368
|
|
|
$
|
|
|
|
$
|
8,368
|
|
|
$
|
(59
|
)
|
|
$
|
(195
|
)
|
|
$
|
(166
|
)
|
|
$
|
(476
|
)
|
|
$
|
7,472
|
|
Residential mortgage-backed securities
|
|
|
1,423
|
|
|
|
|
|
|
|
1,423
|
|
|
|
3
|
|
|
|
(87
|
)
|
|
|
311
|
|
|
|
(492
|
)
|
|
|
1,158
|
|
Foreign corporate securities
|
|
|
7,228
|
|
|
|
(8
|
)
|
|
|
7,220
|
|
|
|
17
|
|
|
|
(288
|
)
|
|
|
(372
|
)
|
|
|
1,446
|
|
|
|
8,023
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
5
|
|
|
|
82
|
|
Commercial mortgage-backed securities
|
|
|
539
|
|
|
|
|
|
|
|
539
|
|
|
|
(3
|
)
|
|
|
(60
|
)
|
|
|
(9
|
)
|
|
|
(17
|
)
|
|
|
450
|
|
Asset-backed securities
|
|
|
4,490
|
|
|
|
|
|
|
|
4,490
|
|
|
|
(52
|
)
|
|
|
(348
|
)
|
|
|
(434
|
)
|
|
|
(29
|
)
|
|
|
3,627
|
|
Foreign government securities
|
|
|
785
|
|
|
|
|
|
|
|
785
|
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
(155
|
)
|
|
|
(45
|
)
|
|
|
594
|
|
State and political subdivision securities
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
30
|
|
|
|
(28
|
)
|
|
|
122
|
|
Other fixed maturity securities
|
|
|
289
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
3
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
23,326
|
|
|
$
|
(8
|
)
|
|
$
|
23,318
|
|
|
$
|
(81
|
)
|
|
$
|
(1,009
|
)
|
|
$
|
(795
|
)
|
|
$
|
364
|
|
|
$
|
21,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
183
|
|
|
$
|
|
|
|
$
|
183
|
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
|
$
|
16
|
|
|
$
|
(13
|
)
|
|
$
|
186
|
|
Non-redeemable preferred stock
|
|
|
2,188
|
|
|
|
|
|
|
|
2,188
|
|
|
|
(43
|
)
|
|
|
(195
|
)
|
|
|
(49
|
)
|
|
|
(30
|
)
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
2,371
|
|
|
$
|
|
|
|
$
|
2,371
|
|
|
$
|
(40
|
)
|
|
$
|
(198
|
)
|
|
$
|
(33
|
)
|
|
$
|
(43
|
)
|
|
$
|
2,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
183
|
|
|
$
|
8
|
|
|
$
|
191
|
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
$
|
131
|
|
|
$
|
(9
|
)
|
|
$
|
312
|
|
Short-term investments
|
|
$
|
179
|
|
|
$
|
|
|
|
$
|
179
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(44
|
)
|
|
$
|
|
|
|
$
|
134
|
|
Net derivatives(6)
|
|
$
|
789
|
|
|
$
|
(1
|
)
|
|
$
|
788
|
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
1
|
|
|
$
|
853
|
|
Separate account assets(9)
|
|
$
|
1,464
|
|
|
$
|
|
|
|
$
|
1,464
|
|
|
$
|
(49
|
)
|
|
$
|
|
|
|
$
|
387
|
|
|
$
|
(108
|
)
|
|
$
|
1,694
|
|
Net embedded derivatives(10)
|
|
$
|
(278
|
)
|
|
$
|
24
|
|
|
$
|
(254
|
)
|
|
$
|
(138
|
)
|
|
$
|
|
|
|
$
|
(52
|
)
|
|
$
|
|
|
|
$
|
(444
|
)
|
108
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Impact of SFAS 157 adoption represents the amount
recognized in earnings as a change in estimate upon the adoption
of SFAS 157 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 adoption of SFAS 157 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, results in a total net
impact of adoption of SFAS 157 of $30 million as
described in Note 1 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report. |
|
(2) |
|
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. |
|
(3) |
|
Interest and dividend accruals, as well as cash interest coupons
and dividends received, are excluded from the rollforward. |
|
(4) |
|
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 from the rollforward. For embedded
derivatives, attributed fees are included within this caption
along with settlements, if any. |
|
(5) |
|
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/or out in the same period are excluded from
the rollforward. |
|
(6) |
|
Freestanding derivative assets and liabilities are presented net
for purposes of the rollforward. |
|
(7) |
|
The additions and reductions (due to loan payments) affecting
MSRs were $170 million and ($36) million,
respectively, for the three months ended June 30, 2009 and
$406 million and ($61) million, respectively, and for
the six months ended June 30, 2009. There were no MSRs at
June 30, 2008. |
|
(8) |
|
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 $131 million and $0,
respectively, for the three months ended June 30, 2009, and
$133 million and $1 million, respectively, for the six
months ended June 30, 2009. There were no MSRs at
June 30, 2008. |
|
(9) |
|
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. |
|
|
|
(10) |
|
Embedded derivative assets and liabilities are presented net for
purposes of the rollforward. |
|
(11) |
|
Amounts presented do not reflect any associated hedging
activities. Actual earnings associated with Level 3,
inclusive of hedging activities, could differ materially. |
109
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The table below summarizes both realized and unrealized gains
and losses for the three months ended June 30, 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
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Other
|
|
|
Benefits and
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For The Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(43
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(40
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign corporate securities
|
|
|
(2
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Asset-backed securities
|
|
|
1
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Foreign government securities
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(49
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(55
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6
|
|
Mortgage and consumer loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivatives
|
|
$
|
(51
|
)
|
|
$
|
(885
|
)
|
|
$
|
(51
|
)
|
|
$
|
|
|
|
$
|
(987
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
131
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
827
|
|
|
$
|
|
|
|
$
|
(84
|
)
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
4
|
|
|
$
|
(45
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(41
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
|
46
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
16
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Commercial mortgage-backed securities
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Asset-backed securities
|
|
|
4
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
Foreign government securities
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
7
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
66
|
|
|
$
|
(101
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives
|
|
$
|
(13
|
)
|
|
$
|
(355
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(368
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
337
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
337
|
|
110
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The table below summarizes both realized and unrealized gains
and losses for the six months ended June 30, 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
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Other
|
|
|
Benefits and
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For The Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7
|
|
|
$
|
(215
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(208
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
(237
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Asset-backed securities
|
|
|
2
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Foreign government securities
|
|
|
5
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
15
|
|
|
$
|
(507
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(259
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
Mortgage and consumer loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivatives
|
|
$
|
(71
|
)
|
|
$
|
(874
|
)
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
(965
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
134
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
1,912
|
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
1,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7
|
|
|
$
|
(66
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(59
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Foreign corporate securities
|
|
|
76
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
17
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Commercial mortgage-backed securities
|
|
|
2
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Asset-backed securities
|
|
|
6
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
Foreign government securities
|
|
|
15
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
12
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
109
|
|
|
$
|
(190
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(40
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
Short-term investments
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives
|
|
$
|
9
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
46
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(138
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(138
|
)
|
111
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The table below summarizes the portion of unrealized gains and
losses recorded in earnings for the three months ended
June 30, 2009 and 2008 for Level 3 assets and
liabilities that are still held at June 30, 2009 and 2008,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets Held at June 30, 2009 and 2008
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Other
|
|
|
Benefits and
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For The Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
4
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(61
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign corporate securities
|
|
|
(2
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
Asset-backed securities
|
|
|
1
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
Foreign government securities
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
8
|
|
|
$
|
(126
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Mortgage and consumer loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivatives
|
|
$
|
(51
|
)
|
|
$
|
(895
|
)
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
(932
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
109
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
823
|
|
|
$
|
|
|
|
$
|
(84
|
)
|
|
$
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1
|
|
|
$
|
(24
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(23
|
)
|
Residential mortgage-backed securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign corporate securities
|
|
|
46
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
15
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Asset-backed securities
|
|
|
5
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Foreign government securities
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
60
|
|
|
$
|
(74
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives
|
|
$
|
(13
|
)
|
|
$
|
(299
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(312
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
332
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
332
|
|
112
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The table below summarizes the portion of unrealized gains and
losses recorded in earnings for the six months ended
June 30, 2009 and 2008 for Level 3 assets and
liabilities that are still held at June 30, 2009 and 2008,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets Held at June 30, 2009 and 2008
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Other
|
|
|
Benefits and
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For The Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7
|
|
|
$
|
(226
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(219
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
(216
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
1
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
Asset-backed securities
|
|
|
2
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
Foreign government securities
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
14
|
|
|
$
|
(506
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(113
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
(2
|
)
|
Mortgage and consumer loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
(8
|
)
|
Net derivatives
|
|
$
|
(71
|
)
|
|
$
|
(822
|
)
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
(876
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
121
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
1,899
|
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
1,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(24
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(21
|
)
|
Residential mortgage-backed securities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Foreign corporate securities
|
|
|
74
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
13
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Commercial mortgage-backed securities
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Asset-backed securities
|
|
|
6
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
Foreign government securities
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
99
|
|
|
$
|
(127
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(30
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives
|
|
$
|
9
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(146
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(146
|
)
|
113
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fair
Value Option Mortgage and Consumer
Loans
The Company has elected fair value accounting under
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities for certain residential
mortgage loans held-for-sale. At June 30, 2009, the
estimated fair value carrying amount of $4,258 million is
greater than the aggregate unpaid principal amount of
$4,220 million by $38 million. Less than
$1 million of the loans where the fair value option has
been elected were in non-accrual status and $1 million of
the loans were more than 90 days past due at June 30,
2009.
At December 31, 2008, the estimated fair value carrying
amount of $1,975 million was greater than the aggregate
unpaid principal amount of $1,920 million by
$55 million. None of the loans where the fair value option
has been elected were more than 90 days past due or in
non-accrual status at December 31, 2008.
Residential mortgage loans held-for-sale accounted for under the
fair value option are initially measured at estimated fair
value. Gains and losses from initial measurement, subsequent
changes in estimated fair value, and gains or losses on sales
are recognized in other revenues. 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.
Changes in estimated fair value due to instrument-specific
credit risk are estimated based on changes in credit spreads for
non-agency loans and adjustments in individual loan quality, of
which a $0 and $1 million decrease in fair value were
included in the statement of income for residential mortgage
loans held-for-sale for the three months and six months ended
June 30, 2009.
Changes in estimated fair value due to other changes in fair
value of $122 million and $307 million have been
included in the statement of income for residential mortgage
loans held-for-sale for the three months and six months ended
June 30, 2009, respectively.
At June 30, 2008, the Company did not have any residential
mortgage loans held-for-sale accounted for under the fair value
option; therefore, there was no impact for the three months and
six months ended June 30, 2008.
Non-Recurring
Fair Value Measurements
At June 30, 2009, the Company held $124 million in
impaired mortgage loans of which $111 million was related
to mortgage loans held-for-investment and $13 million
related to certain mortgage loans held-for-sale. At
December 31, 2008, the Company held $220 million in
impaired mortgage loans, of which $188 million was related
to mortgage loans held-for-investment and $32 million to
certain mortgage loans held-for-sale. These impaired mortgage
loans are carried at their estimated fair values at the time
such impairments were recognized. Estimated fair values for
impaired mortgage loans are based on independent broker
quotations or, if the loans are in foreclosure or are otherwise
determined to be collateral dependent, on the value of the
underlying collateral. Impairments to estimated fair value of
less than $1 million and $13 million for the three
months ended June 30, 2009 and 2008, respectively, and
$26 million and $42 million for the six months ended
June 30, 2009 and 2008, respectively, were recognized
within net investment gains (losses). These impairments to
estimated fair value represent nonrecurring 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.
At June 30, 2009 and December 31, 2008, the Company
held $410 million and $137 million, respectively, of
impaired other limited partnership interests which are accounted
for using the cost basis. Impairments on cost basis other
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. Impairments
to estimated fair value for such other limited partnership
interests of $245 million and $12 million for the
three months ended June 30, 2009 and 2008, respectively,
and $341 million and $16 million for the six months
ended June 30, 2009 and 2008, respectively, were recognized
within net investment gains (losses). These impairments to
estimated fair value represent nonrecurring 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.
114
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
At June 30, 2009, the Company held $69 million in cost
basis real estate joint ventures which were impaired based on
the underlying real estate joint venture financial statements.
These real estate joint ventures were recorded at estimated fair
value and represent a nonrecurring fair value measurement. The
estimated fair value was categorized as Level 3. Included
within net investment gains (losses) for such real estate joint
ventures are impairments of $68 million for the three
months and six months ended June 30, 2009, respectively.
On July 8, 2009, the Holding Company issued
$500 million aggregate principal amount of junior
subordinated debt securities. The debt securities are scheduled
for redemption on August 1, 2039 and the final maturity of
the debt securities is August 1, 2069.
On August 3, 2009, the date the June 30, 2009 interim
condensed consolidated financial statements of MetLife, Inc.
were issued, the Company evaluated the recognition and
disclosure of subsequent events.
115
|
|
Item 2.
|
Managements
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 MetLife, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2008, as amended on
Form 8-K
on June 12, 2009, (2008 Annual Report) filed
with the U.S. Securities and Exchange Commission
(SEC), the forward-looking statement information
included below, the Risk Factors set forth in
Part II, Item 1A and the additional risk factors
referred to therein, and the Companys interim condensed
consolidated financial statements included elsewhere herein.
This Managements 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.
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 MetLifes 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 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 Companys ability to seek
financing or access its credit facilities;
(iii) uncertainty about the effectiveness of the
U.S. governments 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) the impairment of other financial institutions;
(v) potential liquidity and other risks resulting from
MetLifes participation in a securities lending program and
other transactions; (vi) exposure to financial and capital
market risk; (vii) changes in general economic conditions,
including the performance of financial markets and interest
rates, which may affect the Companys 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; (viii) defaults on
the Companys mortgage and consumer loans;
(ix) investment losses and defaults, and changes to
investment valuations; (x) impairments of goodwill and
realized losses or market value impairments to illiquid assets;
(xi) unanticipated changes in industry trends;
(xii) 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;
(xiii) discrepancies between actual claims experience and
assumptions used in setting prices for the Companys
products and establishing the liabilities for the Companys
obligations for future policy benefits and claims;
(xiv) discrepancies between actual experience and
assumptions used in establishing liabilities related to other
contingencies or obligations; (xv) ineffectiveness of risk
management policies and procedures, including with respect to
guaranteed benefit riders (which may be affected by fair value
adjustments arising from changes in our own credit spread) on
certain of the Companys variable annuity products;
(xvi) increased expenses relating to pension and
post-retirement benefit plans, (xvii) catastrophe losses;
(xviii) changes in assumptions related to deferred policy
acquisition costs (DAC), value of business acquired
(VOBA) or goodwill; (xix) downgrades in
MetLife, Inc.s and its affiliates claims paying
ability, financial strength or credit ratings;
(xx) economic, political, currency and other risks relating
to the Companys international operations;
(xxi) availability and effectiveness of reinsurance or
indemnification arrangements; (xxii) regulatory,
116
legislative or tax changes that may affect the cost of, or
demand for, the Companys products or services;
(xxiii) changes in accounting standards, practices
and/or
policies; (xxiv) adverse results or other consequences from
litigation, arbitration or regulatory investigations;
(xxv) deterioration in the experience of the closed
block established in connection with the
reorganization of MLIC; (xxvi) the effects of business
disruption or economic contraction due to terrorism, other
hostilities, or natural catastrophes;
(xxvii) MetLifes ability to identify and consummate
on successful terms any future acquisitions, and to successfully
integrate acquired businesses with minimal disruption;
(xxviii) 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; and
(xxix) 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.
Executive
Summary
MetLife is a leading provider of insurance, employee benefits
and financial services with operations throughout the United
States and the Latin America, Europe, and Asia Pacific 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. MetLife is
currently organized into four operating segments: Institutional,
Individual, Auto & Home and International, as well as
Corporate & Other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(In millions, except per share data)
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(1,433
|
)
|
|
$
|
915
|
|
|
$
|
(2,348
|
)
|
|
$
|
(2,007
|
)
|
|
$
|
1,530
|
|
|
$
|
(3,537
|
)
|
Net income (loss) available to MetLife, Inc.s common
shareholders per diluted common share
|
|
$
|
(1.74
|
)
|
|
$
|
1.26
|
|
|
$
|
(3.00
|
)
|
|
$
|
(2.46
|
)
|
|
$
|
2.10
|
|
|
$
|
(4.56
|
)
|
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008
The continued volatility in the financial markets during the
second quarter half of 2009 weighed heavily on the
Companys results and drove the $1.4 billion net loss
for the three months ended June 30, 2009, compared to net
income of $0.9 billion in the same period of 2008. This net
loss reflects $2.5 billion in net investment losses,
compared to $0.2 billion of net investment losses in the
second quarter of 2008, and a 14% decline in net investment
income to $2.4 billion, all net of income tax.
Premiums, fees and other revenues of $8.4 billion increased
by 4% primarily due to higher sales in the Institutional segment
and the impact of MetLife Bank, National Association
(MetLife Bank) acquisitions in 2008, partially
offset by the impact of currency changes on the international
businesses. Total revenues of $8.3 billion, a decrease of
$3.8 billion from 2008, reflected the negative investment
results. A 6% increase in policyholder benefits and claims to
$6.9 billion was offset by a decrease in other expenses.
Management continues to achieve cost reductions under its
enterprise-wide cost reduction and revenue enhancement
initiative, although these were offset by higher pension and
post-retirement benefit costs in the second quarter of 2009.
Total expenses were $10.6 billion in the second quarter of
2009, a decrease of 2% from 2008.
The adverse change in net investment losses of
$2.3 billion, net of income tax, was primarily due to an
increase in losses of $2.1 billion, net of income tax, on
freestanding derivatives including interest rate swaps, options
and futures, as well as equity futures and options. These
instruments were impacted by rising interest rates and improving
equity markets, respectively. The narrowing of MetLifes
own credit spread also contributed an increased loss on embedded
derivatives of $0.9 billion, net of income tax. Additional
losses of $0.4 billion, net
117
of income tax, were incurred across other asset classes
including other limited partnership interests, fixed maturity
and equity securities, mortgage and consumer loans, as well as
real estate and real estate joint ventures. These losses were
attributable primarily to an increase in impairments across
several industry sectors and in valuation allowances, both
driven by difficult underlying operating environments, capital
market factors, and weakening of economic fundamentals. These
decreases were partially offset by gains on embedded derivatives
of $1.2 billion, net of income tax, principally associated
with variable annuity riders. The gains were due to the positive
impact of interest rate and equity market movements.
The decline in net investment income impacted Company results by
$0.4 billion, net of income tax. Management attributes this
decline primarily to a decrease in yields, slightly offset by
growth in average invested assets. The decrease in net
investment income attributable to lower yields was primarily due
to lower returns on real estate joint ventures, international
joint ventures, cash, cash equivalents and short-term
investments, fixed maturity securities and mortgage loans,
partially offset by increased returns on trading securities. The
increase in average invested assets on the cost basis of less
than $0.1 billion occurred primarily within mortgage loans,
cash, cash equivalents, short-term investments and fixed
maturity securities excluding securities lending.
These decreases were offset by an improvement of
$0.4 billion, net of income tax, in other expenses,
primarily due to a decrease in the Individual segment due to
lower DAC amortization driven by net derivative losses and
separate account balance increases, which increase expected
future gross profits, as a result of market improvement. The
decrease was also driven by higher DAC capitalization resulting
primarily from increases in annuity deposits. The impact of
foreign currency exchange rates further lowered expenses in the
International segment. These decreases were substantially offset
by the impact of higher MetLife Bank costs for compensation,
rent, and mortgage loan origination and servicing expenses
primarily related to acquisitions in 2008, higher post
employment related costs in the current period associated with
the implementation of an enterprise-wide cost reduction and
revenue enhancement initiative, higher pension and
post-retirement benefits and commission expenses, and higher
deferred compensation expenses.
Increases in premiums, fees and other revenues of
$0.2 billion, net of income tax, were attributable to
MetLife Bank loan origination and servicing fees from
acquisitions in 2008 and income from counterparties on
collateral pledged in 2008, offset by the impact of changes in
foreign currency exchange rates in the International segment.
The increase in premiums, fees and other revenues was almost
entirely offset by an increase in policyholder benefits and
claims due to business growth in the Institutional segment and
by the impact of equity markets improvements on hedge losses net
of lower guaranteed annuity benefit costs in the Individual
segment. These increases in policyholder benefits and claims
were offset by the impact of changes in foreign currency
exchange rates in the International segment.
An increase in interest credited to policyholder account
balances of less than $0.1 billion, net of income tax,
resulted from higher average general account balances and higher
crediting rates within the Individual segment. This was offset
by a decline in crediting rates in the Institutional segment,
which was largely due to the impact of lower short-term interest
rates in the current period, offset by an increase solely from
growth in the average policyholder account balance.
The remainder of the change in net income (loss) available to
MetLife, Inc.s common shareholders is principally
attributable to changes in the effective tax rate due to the
impact of tax preference items and the ratio of permanent
differences to income from continuing operations before
provision for income tax as well as the impact of valuation
allowances associated with our international operations.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008
The continued volatility in the financial markets during the
first half of 2009 weighed heavily on the Companys results
and drove the $2.0 billion net loss for the six months
ended June 30, 2009, compared to net income of
$1.5 billion in the same period of 2008. This net loss
reflects $3.1 billion in net investment losses, compared to
$0.7 billion of net investment losses in the first six
months of 2008, and a 19% decline in net investment income to
$4.5 billion, all net of income tax.
118
Premiums, fees and other revenues of $16.2 billion were
relatively unchanged, as sales activity remained solid despite
the recessionary environment and growth in international
businesses was offset by currency changes. Total revenues of
$18.5 billion, a decrease of $5.2 billion from 2008,
reflected the negative investment results. A 3% increase in
policyholder benefits and claims to $13.5 billion was
offset by lower interest and dividends paid to policyholders,
reflecting lower investment yields, and a decrease in other
expenses. Management continues to achieve cost reductions under
its enterprise-wide cost reduction and revenue enhancement
initiative, although these were offset by higher pension and
post-retirement benefit costs in 2009. Total expenses were
$21.8 billion in 2009, an increase of less than 1% from
2008.
The adverse change in net investment losses of
$2.4 billion, net of income tax, was primarily due to an
increase in losses of $2.8 billion, net of income tax, on
freestanding derivatives including interest rate swaps, floors,
options and futures, as well as equity futures and options.
These instruments were impacted by rising interest rates and
improving equity markets, respectively. The narrowing of
MetLifes own credit spread in the current period also
contributed an increased loss on embedded derivatives of
$0.6 billion, net of income tax. Additional losses of
$0.9 billion, net of income tax, were incurred across other
asset classes including fixed maturity and equity securities,
other limited partnership interests, mortgage and consumer
loans, as well as real estate and real estate joint ventures.
These losses were attributable primarily to an increase in
impairments across several industries and in valuation
allowances, both driven by difficult underlying operating
environments, market volatility, and weakening of economic
fundamentals. These decreases were partially offset by gains on
embedded derivatives of $2.0 billion, net of income tax,
principally associated with variable annuity riders. The gains
were due to the positive impact of interest rate, foreign
currency and equity market movements. Losses were also mitigated
by the impact of sales of fixed maturity securities and by
foreign currency transaction gains.
The decline in net investment income impacted Company results by
$1.1 billion, net of income tax. Management attributes
$1.2 billion, net of income tax, of this change to a
decrease in yields, partially offset by an increase of
$0.1 billion, net of income tax, attributable to growth in
average invested assets. The decrease in net investment income
attributable to lower yields was primarily due to lower returns
on real estate joint ventures, fixed maturity securities, cash
equivalents and short-term investments, other limited
partnership interests and mortgage loans, partially offset by
increased returns on trading securities. The increase in average
invested assets on the cost basis occurred primarily within
mortgage loans, cash, cash equivalents, short-term investments
and fixed maturity securities excluding securities lending.
These decreases were offset by an improvement of
$0.1 billion, net of income tax, in other expenses,
primarily due to a decrease in the Individual segment due to
lower DAC amortization driven by net investment losses and due
to higher DAC capitalization resulting primarily from increases
in annuity deposits. The impact of foreign currency exchange
rates further lowered expenses in the International segment.
These decreases were substantially offset by the impact of
higher MetLife Bank costs for compensation, rent, and mortgage
loan origination and servicing expenses primarily related to
acquisitions in 2008, higher post employment related costs in
the current period associated with the implementation of an
enterprise-wide cost reduction and revenue enhancement
initiative, higher pension and post-retirement benefits and
commission expenses, and higher deferred compensation expenses.
Increases in premiums, fees and other revenues of
$0.1 billion, net of income tax, were attributable to
MetLife Bank loan origination and servicing fees from
acquisitions in 2008 and income from counterparties on
collateral pledged in 2008, offset by the impact of changes in
foreign currency exchange rates in the International segment.
The increase in premiums, fees and other revenues was more than
offset by an increase in policyholder benefits and claims of
$0.2 billion, net of income tax, due to business growth in
the Institutional segment and by the impact of weaker equity
markets on hedge losses and guaranteed annuity benefit costs in
the Individual segment. These increases in policyholder benefits
and claims were also largely offset by the impact of changes in
foreign currency exchange rates in the International segment.
A decrease in interest credited to policyholder account balances
of less than $0.1 billion, net of income tax, resulted from
the decline in average crediting rates, which was largely due to
the impact of lower short-term interest rates in the current
period, offset by an increase solely from growth in the average
policyholder account balance all of which occurred within the
Institutional segment. Partially offsetting this decrease,
interest credited increased within the Individual segment due to
higher average general account balances and marginally higher
crediting rates.
119
The remainder of the change in net income (loss) available to
MetLife, Inc.s common shareholders is principally
attributable to changes in the effective tax rate due to the
impact of tax preference items and the ratio of permanent
differences to income from continuing operations before
provision for income tax as well as the impact of valuation
allowances associated with our international operations.
Consolidated
Company Outlook
The marketplace continues to react and adapt to the economic
crisis and the unusual financial market events that began in
2008 and have moderated in the second quarter of 2009.
Management expects the volatility in the financial markets to
persist throughout the remainder of 2009. As a result,
management anticipates a modest increase, on a constant exchange
rate basis, in premiums, fees and other revenues in 2009, with
mixed results across the various businesses. While the Company
continues to gain market share in certain product lines, as
management expected, premiums, fees and other revenues have
been, and may continue to be, impacted by the U.S. and
global recession, which may be reflected in, but is not limited
to:
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Lower fee income from separate account businesses, including
variable annuity and life products in Individual Business.
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|
A potential reduction in payroll linked revenue from
Institutional group insurance customers.
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|
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A decline in demand for certain International and Institutional
retirement & savings products.
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A decrease in Auto & Home premiums resulting from a
depressed housing market and auto industry.
|
With the expectation of the turbulent financial markets
continuing in 2009, management believes there will be continued
downward pressure on net income, specifically net investment
income, resulting from lower returns from other limited
partnerships, real estate joint ventures, and securities
lending. Management also anticipates that its decision to
maintain a slightly higher than normal level of short-term
liquidity will adversely impact net investment income in 2009.
In addition, the resulting impact of the financial markets and
the recession on net investment gains (losses) and unrealized
investment gains (losses) can and will vary greatly and
therefore, is difficult to predict. Also difficult to determine
is the impact of changes in our own credit standing,
particularly on our net investment gains and losses, as it
varies significantly and this exposure is not hedged.
Certain insurance-related liabilities, specifically those
associated with guarantees, are tied to market performance,
which in times of depressed investment markets may require
management to establish additional liabilities. However, many of
the risks associated with these guarantees are hedged. The
turbulent financial markets, sustained over a period of time,
may also necessitate management to strengthen insurance
liabilities that are not associated with guarantees. Management
does not anticipate significant changes in the underlying trends
that drive underwriting results, with the possible exception of
certain trends in the disability business.
Certain expenses may increase due to initiatives such as
Operational Excellence. Other charges are also possible as the
combination of the downward pressure on net income coupled with
the expectations of the financial markets, may necessitate a
review of goodwill impairment, specifically within Individual
Business. The unusual financial market conditions have caused,
and may continue to cause an increase in DAC amortization. As
expected, the Companys pension-related expense for 2009
has increased.
In response to the challenges presented by the unusual economic
environment, management continues to focus on disciplined
underwriting, pricing, hedging strategies, as well as focused
expense management.
Acquisitions
and Dispositions
Disposition
of Texas Life Insurance Company
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
$134 million in cash consideration, excluding
$1 million of transaction costs. The net assets sold were
$101 million, resulting in a gain on disposal of
$32 million, net of income tax. The Company has 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
$36 million, net of income tax, during the first quarter of
2009.
120
Industry
Trends
The Companys segments continue to be influenced by a
variety of trends that affect 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 stress
experienced by global capital markets that began in the second
half of 2007 continued and substantially increased through 2008.
Beginning in mid- September 2008, the global financial markets
experienced unprecedented disruption, adversely affecting the
business environment in general, as well as the financial
services industry, in particular. This disruption has since
moderated, but the financial markets remain fragile and
volatile. The U.S. economy entered a recession in January
2008 and most economists believe this recession is approaching
its later stages.
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. We cannot predict whether the U.S. or
foreign governments will establish additional governmental
programs or the impact any additional measures or existing
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 in the 2008
Annual Report.
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 the
Company. The declining financial markets and economic conditions
have negatively impacted our investment income, our net
investment gains (losses), and the demand for and the cost and
profitability of certain of our products, including variable
annuities and guarantee riders. See Results of
Operations and Liquidity and Capital
Resources.
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 interim condensed consolidated
financial statements. The most critical estimates include those
used in determining:
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(i)
|
the estimated fair value of investments in the absence of quoted
market values;
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(ii)
|
investment impairments;
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(iii)
|
the recognition of income on certain investment entities;
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(iv)
|
the application of the consolidation rules to certain
investments;
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(v)
|
the existence and estimated fair value of embedded derivatives
requiring bifurcation;
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(vi)
|
the estimated fair value of and accounting for derivatives;
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(vii)
|
the capitalization and amortization of DAC and the establishment
and amortization of VOBA;
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(viii)
|
the measurement of goodwill and related impairment, if any;
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(ix)
|
the liability for future policyholder benefits;
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(x)
|
accounting for income taxes and the valuation of deferred income
tax assets;
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121
|
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(xi)
|
accounting for reinsurance transactions;
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(xii)
|
accounting for employee benefit plans; and
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(xiii)
|
the liability for litigation and regulatory matters.
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In applying the Companys accounting policies, which are
more fully described in the 2008 Annual Report, 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 Companys businesses and operations. Actual
results could differ from these estimates.
The above critical accounting estimates are described in
Managements Discussion and Analysis of Financial Condition
and Results of Operations Summary of Critical
Accounting Estimates and Note 1 of our 2008 Annual Report.
We have updated the disclosures below due to the adoption of
Financial Accounting Standards Board (FASB) Staff
Position (FSP)
No. FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments
(FSP 115-2),
which affects the recognition and measurement of impaired
securities and significant changes in DAC estimates due to
market volatility.
Investment
Impairments
One of the significant estimates related to available-for-sale
securities is the evaluation of investments for
other-than-temporary impairments. The assessment of whether
impairments have occurred is based on managements
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Companys 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 Companys
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, 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 managements 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:
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(i)
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the length of time and the extent to which the estimated fair
value has been below cost or amortized cost;
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(ii)
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the potential for impairments of securities when the issuer is
experiencing significant financial difficulties;
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(iii)
|
the potential for impairments in an entire industry sector or
sub-sector;
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(iv)
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the potential for impairments in certain economically depressed
geographic locations;
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(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;
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(vi)
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with respect to equity securities, whether the Companys
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 or amortized cost;
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122
|
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(vii)
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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
fair value below amortized cost;
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(viii)
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unfavorable changes in forecasted cash flows on mortgage-backed
and asset-backed securities; and
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(ix)
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other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
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The cost of fixed maturity and equity securities is adjusted for
impairments in value deemed to be other-than-temporary and
charged to earnings in the period in which the determination is
made. For equity securities, the carrying value of the equity
security is impaired to its fair value, with a corresponding
charge to earnings. When an other-than-temporary impairment of a
fixed maturity security has occurred, the amount of the
other-than-temporary impairment 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
other-than-temporary impairment recognized in earnings is equal
to the entire difference between the securitys amortized
cost basis and its 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 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). 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 Companys 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.
Management updates its evaluations regularly and reflects
changes in allowances and impairments in operations as such
evaluations are revised.
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
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 business in-force at the
acquisition date. 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.
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
Companys long-term expectation produce higher account
balances, which increases the Companys future fee
expectations and decreases future benefit payment expectations
on minimum death and living benefit guarantees, resulting in
higher expected future gross profits and lower current period
DAC amortization. The opposite result occurs when returns are
lower than the Companys long-term expectation. The
Companys 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/(decrease) by
100 basis points in the assumed future rate of return is
reasonably likely to result in a decrease/(increase) in DAC and
VOBA amortization of approximately $110 million with an
offset to the Companys
123
unearned revenue liability of approximately $25 million for
this factor. During the current quarter, the Company did not
change its long-term expectation of equity market appreciation.
Over the last several years, the Companys 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
Individual segment. During late 2008 and in 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 the
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 5 of the Notes to the Interim Condensed Consolidated
Financial Statements provides a rollforward of DAC and VOBA for
the Company for the six months ended June 30, 2009, as well
as a breakdown of DAC and VOBA by segment and reporting unit at
June 30, 2009 and December 31, 2008. At June 30,
2009, DAC and VOBA for the Company was $20.3 billion. A
substantial portion, approximately 81%, of the Companys
DAC and VOBA is associated with the Individual segment, which
had DAC and VOBA of $16.5 billion at June 30, 2009.
Amortization of DAC and VOBA associated with the
variable & universal life and the annuities reporting
units within the Individual segment are significantly impacted
by movements in equity markets. The following chart illustrates
the effect on DAC and VOBA within the Companys Individual
segment of changing each of the respective assumptions, as well
as updating estimated gross margins or profits with actual gross
margins or profits for the three months and six months ended
June 30, 2009 and 2008, respectively. Increases (decreases)
in DAC and VOBA balances, as presented below, result in a
corresponding decrease (increase) in amortization.
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|
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Three Months
|
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|
Six Months
|
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Ended
|
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|
Ended
|
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|
June 30,
|
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|
June 30,
|
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|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Investment return
|
|
$
|
49
|
|
|
$
|
(4
|
)
|
|
$
|
50
|
|
|
$
|
(32
|
)
|
Separate account balances
|
|
|
117
|
|
|
|
(48
|
)
|
|
|
(106
|
)
|
|
|
(116
|
)
|
Net investment gain (loss) related
|
|
|
624
|
|
|
|
145
|
|
|
|
441
|
|
|
|
259
|
|
Expense
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
4
|
|
In-force/Persistency
|
|
|
6
|
|
|
|
(7
|
)
|
|
|
8
|
|
|
|
(19
|
)
|
Policyholder dividends and other
|
|
|
44
|
|
|
|
(26
|
)
|
|
|
68
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
839
|
|
|
$
|
62
|
|
|
$
|
453
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to late 2008, fluctuations in the amounts presented in the
table above arose principally from normal assumption reviews
during the period. The following represents significant items
contributing to the changes to DAC and VOBA amortization in 2009.
For the Three Months Ended June 30, 2009:
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|
|
|
|
The increase in equity markets during the quarter increased
separate account balances resulting in an increase in expected
future gross profits on variable universal life contracts and
variable deferred annuity contracts resulting in a decrease of
$117 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 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 $604 million. 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 $447 million.
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|
|
-
|
A change in valuation of guarantee liabilities, resulting from
the adoption of Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements
(SFAS 157) during 2008, also
|
124
|
|
|
|
|
impacted the computation of actual gross profits and the related
amortization of DAC and VOBA. Lower risk margins decreased the
guarantee liability valuations, increased actual gross profits
and increased amortization by $20 million. However, the
narrowing of own credit spreads increased the valuation of
guarantee liabilities, decreased actual gross profits and
decreased amortization by $537 million. The inclusion of
the Companys own credit in the valuation of these
guarantee liabilities increases the volatility of these
valuations, the related DAC and VOBA amortization, and the net
income of the Company.
|
|
|
|
|
-
|
The remainder of the impact of net investment gains (losses),
which decreased DAC amortization by $264 million, was
primarily attributable to current period investment activities.
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|
|
|
|
|
Included in policyholder dividends and other is a decrease of
amortization of $13 million due to lower actual closed
block earnings resulting in lower actual gross margins in the
current period. The remainder of the decrease is due to various
immaterial items. Note 8 of the Notes to the Interim
Condensed Consolidated Financial Statements provides additional
information on closed block business.
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
The decrease in amortization due to the increase in equity
markets during the second quarter did not fully offset the
increase in amortization from the decrease in the equity markets
during the first quarter of 2009. As a result, the net decrease
in separate account balances resulted in a decrease in expected
future gross profits on variable universal life contracts and
variable deferred annuity contracts resulting in an increase of
$106 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 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 $630 million. 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 $398 million.
|
|
|
-
|
A change in valuation of guarantee liabilities, resulting from
the adoption of SFAS 157 during 2008, also impacted the
computation of actual gross profits and the related amortization
of DAC and VOBA. Lower risk margins decreased the guarantee
liability valuations, increased actual gross profits and
increased amortization by $32 million. However, the
narrowing of MetLifes own credit spread increased the
valuation of guarantee liabilities, decreased actual gross
profits and decreased amortization by $302 million. The
inclusion of the Companys own credit in the valuation of
these guarantee liabilities increases the volatility of these
valuations, the related DAC and VOBA amortization, and the net
income of the Company.
|
|
|
-
|
The remainder of the impact of net investment gains (losses),
which decreased DAC amortization by $403 million, was
primarily attributable to current period investment activities.
|
|
|
|
|
|
Included in policyholder dividends and other is a decrease of
amortization of $28 million due to lower actual closed
block earnings resulting in lower actual gross margins in the
current period. The remainder of the decrease is due to various
immaterial items. Note 8 of the Notes to the Interim
Condensed Consolidated Financial Statements provides additional
information on closed block business.
|
The Companys 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 decrease in unrealized
investment losses for the three months and six months ended
June 30, 2009 resulted in a decrease in DAC and VOBA of
$1.6 billion and $801 million, respectively.
Notes 3 and 5 of the Notes to the Interim Condensed
Consolidated Financial Statements include the DAC and VOBA
offset to unrealized investment losses.
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
125
unique and specific nature of the risks inherent in
MetLifes 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
formula, which is not as refined in its risk calculations with
respect to the nuances of the Companys businesses.
Results
of Operations
Discussion
of Results
The following table presents consolidated financial information
for the Company for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
6,576
|
|
|
$
|
6,340
|
|
|
$
|
12,698
|
|
|
$
|
12,631
|
|
Universal life and investment-type product policy fees
|
|
|
1,216
|
|
|
|
1,396
|
|
|
|
2,399
|
|
|
|
2,793
|
|
Net investment income
|
|
|
3,731
|
|
|
|
4,319
|
|
|
|
6,994
|
|
|
|
8,616
|
|
Other revenues
|
|
|
572
|
|
|
|
351
|
|
|
|
1,126
|
|
|
|
720
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(566
|
)
|
|
|
(139
|
)
|
|
|
(1,119
|
)
|
|
|
(213
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
234
|
|
|
|
|
|
|
|
234
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(3,497
|
)
|
|
|
(218
|
)
|
|
|
(3,850
|
)
|
|
|
(874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(3,829
|
)
|
|
|
(357
|
)
|
|
|
(4,735
|
)
|
|
|
(1,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,266
|
|
|
|
12,049
|
|
|
|
18,482
|
|
|
|
23,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
6,946
|
|
|
|
6,579
|
|
|
|
13,528
|
|
|
|
13,162
|
|
Interest credited to policyholder account balances
|
|
|
1,229
|
|
|
|
1,196
|
|
|
|
2,397
|
|
|
|
2,429
|
|
Policyholder dividends
|
|
|
434
|
|
|
|
446
|
|
|
|
858
|
|
|
|
875
|
|
Other expenses
|
|
|
2,031
|
|
|
|
2,607
|
|
|
|
5,033
|
|
|
|
5,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,640
|
|
|
|
10,828
|
|
|
|
21,816
|
|
|
|
21,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(2,374
|
)
|
|
|
1,221
|
|
|
|
(3,334
|
)
|
|
|
2,053
|
|
Provision for income tax expense (benefit)
|
|
|
(956
|
)
|
|
|
342
|
|
|
|
(1,332
|
)
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(1,418
|
)
|
|
|
879
|
|
|
|
(2,002
|
)
|
|
|
1,504
|
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
117
|
|
|
|
36
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,418
|
)
|
|
|
996
|
|
|
|
(1,966
|
)
|
|
|
1,656
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(16
|
)
|
|
|
50
|
|
|
|
(20
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
(1,402
|
)
|
|
|
946
|
|
|
|
(1,946
|
)
|
|
|
1,594
|
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(1,433
|
)
|
|
$
|
915
|
|
|
$
|
(2,007
|
)
|
|
$
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008 The Company
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$2,297 million to a loss of $1,418 million for the
three months ended June 30, 2009 from income of
$879 million for the comparable 2008 period.
The following table provides the change from the prior period in
income (loss) from continuing operations by segment:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Institutional
|
|
$
|
(1,104
|
)
|
Individual
|
|
|
(530
|
)
|
International
|
|
|
(381
|
)
|
Auto & Home
|
|
|
28
|
|
Corporate & Other
|
|
|
(310
|
)
|
|
|
|
|
|
Total change, net of income tax
|
|
$
|
(2,297
|
)
|
|
|
|
|
|
The primary driver of change in income (loss) from continuing
operations was an increase in net investment losses. This
increase in losses was primarily due to freestanding
derivatives, other limited partnership interests, fixed maturity
securities, mortgage loans, equity securities, and real estate
and real estate joint ventures. The narrowing of MetLifes
own credit spread also contributed to the increase in losses and
was partially offset by other increases in gains on embedded
derivatives. Excluding the impact of net investment gains
(losses), changes in income (loss) from continuing operations
were driven by factors identified below.
The Institutional segments income (loss) from continuing
operations was adversely impacted by a decrease in interest
margin within the retirement & savings, non-medical
health & other, and group life businesses. In
addition, higher other expenses contributed to the decrease in
income from continuing operations, mainly due to an increase in
higher non-deferrable volume related expenses, primarily pension
and post-retirement benefit expense. These decreases were
partially offset by the impact of higher underwriting results in
the retirement & savings business.
The Individual segments income (loss) from continuing
operations decreased primarily due to lower universal life and
investment-type product policy fees combined with other
revenues, higher annuity benefits, lower net investment income
on blocks of business not driven by interest margins, a decrease
in interest margins, higher expenses, and an increase in
interest credited to policyholder account balances. These
factors were partially offset by lower DAC amortization
primarily due to net derivative losses and separate account
balance increases as a result of market improvement, favorable
underwriting results in life products, and a decrease in
policyholder dividends.
The International segments income (loss) from continuing
operations decreased primarily due to the operation in Mexico
which experienced an increase in certain policyholder
liabilities, higher claims experience, as well as an increase in
sales-related expenses, partially offset by a decrease in
policyholder liabilities resulting from a policy cancellation, a
revision to certain dollar-denominated policyholder liabilities
and business growth, as well as a lower effective tax rate. The
Companys earnings from its investment in Japan decreased
due to hedging activities associated with Japans
guaranteed annuity benefits, the adverse impact from the
utilization of the fair value option for certain fixed annuities
offset by a decrease in the costs of guaranteed annuity
benefits, as well as an increase from assumed reinsurance due to
a decrease in liabilities resulting from a refinement in
methodology on certain annuity guarantee liabilities. Results
were also negatively impacted by movements in foreign exchange
rates.
The increase in income from continuing operations in the
Auto & Home segment was primarily attributable to
decreases in policyholder benefits and claims driven primarily
by a decrease in catastrophe losses, offset mainly by less
favorable development of prior year non-catastrophe losses. In
addition, other expenses decreased due to information technology
infrastructure charges and other operational efficiencies. A
reduction in premiums related to decreased exposures partially
offset these factors.
127
Corporate & Others loss from continuing
operations increased primarily due lower net investment income.
This was partially offset by higher other revenues and corporate
expenses, both of which were principally due to MetLife Bank
acquisitions in 2008. In addition, tax benefits increased over
the comparable 2008 period due to the actual and the estimated
tax rate allocated to the various segments, as well as the ratio
of tax preference items to income before income tax on an
annualized basis.
Revenues
and Expenses
Premiums,
Fees and Other Revenues
Premiums, fees and other revenues increased by
$277 million, or 3%, to $8,364 million for the three
months ended June 30, 2009 from $8,087 million for the
comparable 2008 period. The following table provides the change
from the prior period in premiums, fees and other revenues by
segment:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Institutional
|
|
$
|
318
|
|
Individual
|
|
|
(71
|
)
|
International
|
|
|
(214
|
)
|
Auto & Home
|
|
|
(21
|
)
|
Corporate & Other
|
|
|
265
|
|
|
|
|
|
|
Total change
|
|
$
|
277
|
|
|
|
|
|
|
The increase in the Institutional segment was driven by
increases in the retirement & savings business, group
life and non-medical health & other businesses. The
increase in the retirement & savings business was
primarily due to increases in the group institutional annuity
and structured settlement businesses, both of which were
primarily due to higher sales. The increase was offset by lower
sales in the income annuity business and across several other
products. The increase in group life business was primarily due
to an increase in term life, which was largely attributable to
an increase in net reinsurance activity. In addition, the impact
of lower experience rated refunds in the current period also
contributed to this increase. In addition, an increase in the
corporate owned life insurance (COLI) business was
largely attributable to higher fees in the current period.
Partially offsetting these increases was a decrease in the
universal life business, primarily due to lower experience rated
refunds in the prior period. The growth in the non-medical
health & other business was largely due to increases
in the dental and long-term care (LTC) businesses,
both attributable to continued growth. Partially offsetting
these increases were declines in the disability and accidental
death and dismemberment (AD&D) businesses which
were attributable to higher reserve buyout activity in the prior
period and higher experience rated refunds in the current
period, respectively.
The decrease in the Individual segment was primarily due to a
decrease in universal life and investment-type product policy
fees combined with other revenues primarily resulting from lower
average separate account balances due to recent unfavorable
equity market performance. Partially offsetting these items was
an increase in premiums primarily due to an increase in
immediate annuity premiums and increased renewals of traditional
life business. These increases were partially offset by a
decline in premiums associated with the run-off of the
Companys closed block of business.
The decrease in the International segment was primarily due to
an adverse impact of changes in foreign currency exchange rates.
In addition, there were decreases in Chile primarily due to
lower annuity sales resulting from a contraction of the annuity
market and in Argentina primarily due to the nationalization of
the pension business in the fourth quarter of 2008, which
eliminated the revenue from this business. Partially offsetting
these decreases was business growth in premiums, fees and other
revenues in Mexico, Australia and South Korea. Contributions
from the other countries account for the remainder of the change
in premiums, fees and other revenues.
The change in the Auto & Home segment was primarily
due to the impact on premiums of a decrease in exposures and a
reduction in average earned premium per policy. Other revenues
decreased primarily related to less income from COLI. Partially
offsetting these decreases in revenue was a decrease in
catastrophe reinsurance costs.
128
Partially offsetting these decreases in premiums, fees and other
revenues is an increase in Corporate & Other primarily
due to an increase in other revenues related to MetLife Bank
loan origination and servicing fees from acquisitions in 2008
and income from counterparties on collateral pledged in 2008,
partially offset by lower revenue on COLI policies. Premiums
decreased as a result of an increase in indemnity reinsurance on
certain run-off products.
Net
Investment Income
Net investment income decreased by $588 million, or 14%, to
$3,731 million for the three months ended June 30,
2009 from $4,319 million for the comparable 2008 period.
The following table provides the change from the prior period in
net investment income. The following table provides the change
from the prior period in net investment income by invested asset
class.
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
(495
|
)
|
Equity securities
|
|
|
(27
|
)
|
Trading securities
|
|
|
121
|
|
Mortgage and consumer loans
|
|
|
1
|
|
Policy loans
|
|
|
10
|
|
Real estate and real estate joint ventures
|
|
|
(277
|
)
|
Other limited partnership interests
|
|
|
1
|
|
Cash, cash equivalents and short-term investments
|
|
|
(68
|
)
|
International joint ventures
|
|
|
(76
|
)
|
Other
|
|
|
(27
|
)
|
|
|
|
|
|
Total investment income
|
|
|
(837
|
)
|
Investment expenses
|
|
|
249
|
|
|
|
|
|
|
Net investment income
|
|
$
|
(588
|
)
|
|
|
|
|
|
Management attributes $648 million of this change to a
decrease in yields, partially offset by an increase of
$60 million due to growth in average invested assets.
Average invested assets are calculated on the cost basis without
unrealized gains and losses. The decrease in net investment
income attributable to lower yields was primarily due to lower
returns on real estate joint ventures, International joint
ventures, cash, cash equivalents and short-term investments,
fixed maturity securities and mortgage loans, partially offset
by increased returns on trading securities. The decrease in
yields and the negative returns in the second quarter of 2009
realized on real estate joint ventures was primarily from
continued declining property valuations on real estate held by
certain real estate investment funds that carry their real
estate at fair value and operating losses incurred on real
estate properties that were developed for sale by real estate
development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate properties
underlying real estate investment funds have experienced
declines in value driven by capital market factors and
deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. The reduction in
yields and the negative returns in the second quarter of 2009
realized on the International joint ventures were driven by
hedging losses associated with Japans guaranteed annuity
business. The decrease in short-term investment yields was
primarily attributable to declining short-term interest rates.
The decrease in fixed maturity securities yields was primarily
due to lower yields on floating rate securities due to declines
in short-term interest rates and an increased allocation to high
quality, lower yielding U.S. Treasury, agency and
government guaranteed securities, including the Federal Deposit
Insurance Corporations (FDIC) Temporary
Liquidity Guarantee Program (FDIC Program) bonds,
and from decreased securities lending results due to the smaller
size of the program, offset slightly by improved spreads. The
increase in yields from the decrease in investment expenses was
primarily attributable to lower cost of funds expense on the
securities lending program and this decreased cost partially
offset the decrease in net investment income. The decrease in
yields associated with our mortgage loan
129
portfolio was primarily attributable to lower prepayments on
commercial mortgage loans and lower yields on variable rate
loans due to declines in short-term interest rates. Trading
securities results increased primarily due to increased
estimated fair value on equity securities within the trading
securities portfolio. Trading securities and short sale
agreement liabilities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income. The decrease in net investment income
attributable to lower yields was partially offset by increased
net investment income attributable to an increase in average
invested assets on the cost basis, primarily within mortgages
loans, cash, cash equivalents, short-term investments and fixed
maturity securities excluding securities lending. The increases
in mortgage loans were driven by an increased allocation to
residential mortgage loans, primarily loans originated with the
intent to sell. The increase in cash, cash equivalents and
short-term investments has been accumulated to provide
additional flexibility to address potential variations in cash
needs while credit markets continue to stabilize. The decrease
in fixed maturity securities was driven by a decrease in the
size of the securities lending program. Excluding securities
lending, fixed maturity securities increased, driven by the
reinvestment of operating cash flows and accumulated liquidity
balances into longer duration investments.
Interest
Margin
Interest margin, which represents the difference between
interest earned and interest credited to policyholder account
balances, decreased in the Individual segment for the three
months ended June 30, 2009 as compared to the 2008 period
due to decreases in the deferred annuity business and other
investment-type products. Interest margins decreased in
retirement & savings, group life and non-medical
health & other, all within the Institutional segment.
Interest earned approximates net investment income on investable
assets attributed to the segment with minor adjustments related
to the consolidation of certain separate accounts and other
minor non-policyholder elements. Interest credited is the amount
attributed to insurance products, recorded in policyholder
benefits and claims, and the amount credited to policyholder
account balances for investment-type products, recorded in
interest credited to policyholder account balances. Interest
credited on insurance products reflects the current period
impact of the interest rate assumptions established at issuance
or acquisition. Interest credited to policyholder account
balances is subject to contractual terms, including some minimum
guarantees. This tends to move gradually over time to reflect
market interest rate movements and may reflect actions by
management to respond to competitive pressures and, therefore,
generally does not introduce volatility in expense.
130
Net
Investment Gains (Losses)
Net investment losses increased by $3,472 million, to a
loss of $3,829 million for the three months ended
June 30, 2009 from a loss of $357 million for the
comparable 2008 period. The following table provides the change
from the prior period in net investment gains (losses) by
invested asset class.
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Losses on fixed maturity securities:
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(427
|
)
|
Less: Noncredit portion of OTTI loss transferred to and
recognized in other comprehensive loss
|
|
|
234
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(193
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
121
|
|
|
|
|
|
|
Fixed maturity securities net
|
|
|
(72
|
)
|
Equity securities
|
|
|
(108
|
)
|
Mortgage and consumer loans
|
|
|
(91
|
)
|
Real estate and real estate joint ventures
|
|
|
(72
|
)
|
Other limited partnership interests
|
|
|
(235
|
)
|
Freestanding derivatives
|
|
|
(3,221
|
)
|
Embedded derivatives
|
|
|
427
|
|
Other
|
|
|
(100
|
)
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(3,472
|
)
|
|
|
|
|
|
The increase in net investment losses was primarily due to
increased losses on freestanding derivatives, other limited
partnership interests, fixed maturity securities, mortgage
loans, equity securities, and real estate and real estate joint
ventures, partially offset by increased gains on embedded
derivatives. The increase in losses on freestanding derivatives
of $3,221 million was primarily attributable to rising
interest rates and improving equity markets in the current
period. Rising interest rates drove losses on interest rate
swaps, options and futures. Improving equity markets drove
losses on equity futures and options. The increase in
freestanding derivative losses was partially offset by increased
gains on embedded derivatives principally associated with
variable annuity riders. The positive change in embedded
derivatives of $427 million was driven by gains on embedded
derivatives in the current period of $793 million as
compared with gains in the prior period of $366 million. As
it relates to hedged risks associated with variable annuity
riders, the year over year increase in gains of
$1,780 million was due to the positive impact of interest
rate and equity market movements. Hedged risks associated with
variable annuity riders include interest rate risk, equity
market risk and foreign currency risk. As it relates to unhedged
risks associated with variable annuity embedded derivatives,
there was a year over year increase in losses of
$1,276 million. The increased losses associated with
unhedged risks were driven by the narrowing of MetLifes
own credit spread in the current period. Losses on own credit
were $1,538 million in the current period, compared to
losses of $79 million in the prior period contributing to a
$1,459 million unfavorable year over year change related to
own credit. The increase in losses on other limited partnership
interests of $235 million was principally due to
impairments of certain cost method investments which experienced
a reduction in net asset values due to the revaluation of the
underlying portfolio companies. The underlying valuations of the
portfolio companies have decreased due to the current economic
environment. The increase in fixed maturity securities OTTI
credit losses of $193 million and equity securities losses
of $108 million was attributable to an increase in
impairments across several industry sectors due to increased
financial restructurings, bankruptcy filings, ratings downgrades
or difficult underlying operating environments of the issuer,
including impairments on perpetual hybrid securities as a result
of deterioration of the credit rating of the issuer to below
investment grade and due to a severe and extended unrealized
loss position. The increased impairments were partially offset
by decreased losses on the sale of fixed maturity securities of
$121 million. The increase in losses on mortgage loans of
$91 million was principally due to increases in the
valuation allowances and strengthening of the allowances, which
resulted from weakening of the real estate market and other
economic fundamentals. The increase in losses on real estate and
real estate joint
131
ventures of $72 million was principally due to higher
impairments on cost method real estate joint venture investments
resulting from declines in value driven by capital market
factors and from the weakening of real estate market
fundamentals.
Underwriting
Underwriting results are generally the difference between the
portion of premium and fee income intended to cover mortality,
morbidity or other insurance costs, less claims incurred, and
the change in insurance-related liabilities. Underwriting
results are significantly influenced by mortality, morbidity or
other insurance-related experience trends, as well as the
reinsurance activity related to certain blocks of business.
Consequently, results can fluctuate from period to period.
Underwriting results in Auto & Home, including
catastrophes, were favorable for the three months ended
June 30, 2009 compared to the corresponding 2008 period, as
the combined ratio, including catastrophes, decreased to 93.5%
from 99.5% for the three months ended June 30, 2008.
Underwriting results in Auto & Home, excluding
catastrophes, were unfavorable for the three months ended
June 30, 2009, as the combined ratio, excluding
catastrophes, increased to 88.0% from 81.9% for the three months
ended June 30, 2008. Underwriting results were higher in
the retirement & savings business, partially offset by
decreases in the non-medical health & other and group
life businesses in the Institutional segment. Underwriting
results were favorable in the Individual segment in life
products for the three months ended June 30, 2009.
Other
Expenses
Other expenses decreased by $576 million, or 22%, to
$2,031 million for the three months ended June 30,
2009 from $2,607 million for the comparable 2008 period.
The following table provides the change from the prior period in
other expenses by segment:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Institutional
|
|
$
|
36
|
|
Individual
|
|
|
(757
|
)
|
International
|
|
|
(72
|
)
|
Auto & Home
|
|
|
(13
|
)
|
Corporate & Other
|
|
|
230
|
|
|
|
|
|
|
Total change
|
|
$
|
(576
|
)
|
|
|
|
|
|
The Institutional segments increase in other expense was
primarily due to higher non-deferrable volume related expenses.
This increase was primarily attributable to higher pension and
post-retirement benefit expense, partially offset by a reduction
in certain expenses, which management attributes to the
Companys enterprise-wide cost reduction and revenue
enhancement initiative. Non-deferrable volume related expenses
include those expenses associated with information technology
and direct departmental spending. Direct departmental spending
includes expenses associated with advertising, consultants,
travel, printing and postage.
Other expenses in the Individual segment decreased primarily due
to lower DAC amortization as a result of current period net
derivative losses, as well as separate account balance
increases, which increase expected future gross profits, as a
result of market improvement. In addition, expenses decreased
due to higher DAC capitalization primarily from increases in
annuity deposits and a reduction in certain expenses, which
management attributes to the Companys enterprise-wide cost
reduction and revenue enhancement initiative. These decreases
were offset by higher pension and post-retirement benefits and
commission expenses in the current period. Non-deferrable volume
related expenses, which include those expenses associated with
information technology and direct departmental spending, also
increased.
The International segments other expenses decreased
primarily due to the impact of changes in foreign currency
exchange rates. In addition, other expenses decreased in the
home office primarily due to lower headcount and lower spending
on growth and infrastructure initiatives and in Argentina due to
lower administrative expenses resulting from nationalization of
the pension business. Partially offsetting these decreases in
other expenses were increases in Ireland primarily due to higher
spending on regional initiatives, as well as business growth.
Indias
132
other expenses increased primarily due to increased staffing,
rent and DAC amortization due to business growth. Increases in
other countries account for the remainder of the change in other
expenses.
Other expenses in the Auto & Home segment decreased
primarily due to lower information technology infrastructure
charges and other operational efficiencies in a number of
expense categories.
The increase in Corporate & Other expenses was due to
higher MetLife Bank costs for compensation, rent, and mortgage
loan origination and servicing expenses primarily related to
acquisitions in 2008, higher post employment related costs in
the current quarter associated with the implementation of an
enterprise-wide cost reduction and revenue enhancement
initiative and higher deferred compensation expenses. Corporate
expenses also increased as a result of higher corporate support
expenses, which included consultant fees, banking fees, rent,
advertising, and information technology costs. Interest expense
was also higher due to the issuance of senior notes in March
2009 and May 2009 and the issuance of junior subordinated debt
in April 2008, partially offset by rate reductions on variable
rate collateral financing arrangements in 2008 and the reduction
of commercial paper outstanding.
Net
Income (Loss)
Income tax benefit for the three months ended June 30, 2009
was $956 million, or 40% of income from continuing
operations before provision for income tax, compared with an
income tax expense of $342 million, or 28%, of such income,
for the comparable 2008 period. The 2009 and 2008 effective tax
rates differ from the corporate tax rate of 35% primarily due to
the impact of non-taxable investment income and tax credits for
investments in low income housing. Also impacting the effective
tax rate are changes in valuation allowances associated with our
international operations. In addition, the increase in effective
tax rate was primarily attributable to changes in the ratio of
permanent differences to income from continuing operations
before provision for income tax.
There was no income from discontinued operations for the three
months ended June 30, 2009 as compared to $117 million
for the comparable 2008 period. 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
Insurance Company, to a third party and the sale was completed
on March 2, 2009. Income from discontinued operations
related to Cova was $3 million for the three months ended
June 30, 2008. In addition, the Company completed the
split-off of substantially all of the Companys interest in
Reinsurance Group of America, Incorporated (RGA), in
September 2008. Income related to RGAs operations amounted
to $114 million for the three months ended June 30,
2008. There was no income related to the operations of RGA or
Cova in the current quarter.
Net income attributable to noncontrolling interests declined in
the current period as compared to the prior period due to the
disposal of RGA in the third quarter of 2008.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008 The Company
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$3,506 million to a loss of $2,002 million for the six
months ended June 30, 2009 from net income of
$1,504 million for the comparable 2008 period.
The following table provides the change from the prior period in
income (loss) from continuing operations by segment:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Institutional
|
|
$
|
(2,140
|
)
|
Individual
|
|
|
(1,028
|
)
|
International
|
|
|
(127
|
)
|
Auto & Home
|
|
|
33
|
|
Corporate & Other
|
|
|
(244
|
)
|
|
|
|
|
|
Total change, net of income tax
|
|
$
|
(3,506
|
)
|
|
|
|
|
|
133
The primary driver of change in income (loss) from continuing
operations was an increase in net investment losses. This
increase in net investment losses was primarily due to
freestanding derivatives, fixed maturity and equity securities,
other limited partnership interests, mortgage and consumer
loans, as well as real estate and real estate joint ventures.
The narrowing of MetLifes own credit spread also
contributed to the increase in net investment losses and was
partially offset by increases in gains on certain embedded
derivatives. Excluding the impact of net investment gains
(losses), changes in income (loss) from continuing operations
were driven by factors identified below.
The Institutional segments income (loss) from continuing
operations was adversely impacted by a decrease in interest
margin within the retirement & savings, non-medical
health & other, and group life businesses. These
decreases were compounded by lower underwriting results in the
non-medical health & other and group life businesses.
In addition, higher other expenses contributed to the decrease
in income from continuing operations, mainly due to an increase
in higher non-deferrable volume related expenses.
The Individual segments income (loss) from continuing
operations decreased primarily due to lower universal life and
investment-type product policy fees combined with other
revenues, higher annuity benefits, a decrease in interest
margins, lower net investment income on blocks of business not
driven by interest margins, higher expenses, and an increase in
interest credited to policyholder account balances. These
decreases in income were partially offset by lower DAC
amortization primarily due to net investment losses, favorable
underwriting results in life products, and a decrease in
policyholder dividends.
The International segments income (loss) from continuing
operations decreased primarily due to the operation in Mexico
which experienced an increase in certain policyholder
liabilities, higher claims experience, an increase in
sales-related expenses, a reduction in fees charged on the
pension business, higher expenses from initiative spending, the
impact of portfolio repositioning and a decrease in short-term
yields, as well as the prior year impact from the reinstatement
of premiums. These items were partially offset by a decrease in
policyholder liabilities resulting from a policy cancellation,
as well as a revision to certain dollar-denominated policyholder
liabilities, a lower effective tax rate, growth in its
individual and institutional businesses, and a one-time tax
benefit related to the change in assumption regarding the
repatriation of earnings. The decrease due to the operation in
Mexico was partially offset by an increase in Argentina due to a
reassessment by the Company of its approach to managing existing
and potential future claims related to certain social security
pension annuity contractholders, as a result of which
liabilities related to pesification were reduced, as well as
higher yields resulting from portfolio repositioning. This
increase was partially offset by a reduction in fees due to the
nationalization of the pension business in December 2008, the
reduction in the prior year of the liability for pension
servicing obligations resulting from a refinement of assumptions
and methodology, the availability of government statistics
regarding the number of participants transferring to the
government-sponsored plan created by the pension reform program,
which was in effect from January 1, 2008 until December
2008 when the business was nationalized, as well as the adverse
impact of currency transaction losses in the prior year. The
operations in Argentina also benefited more significantly in the
current year from the utilization of deferred tax assets against
which valuation allowances had previously been established.
The increase in income from continuing operations in the
Auto & Home segment was primarily attributable to
decreases in policyholder benefits and claims driven primarily
by a decrease in catastrophe losses and favorable development of
prior year catastrophe losses. In addition, other expenses
decreased due to information technology infrastructure charges
and other operational efficiencies. A reduction in premiums
related to decreased exposures partially offset these factors.
Corporate & Others loss from continuing
operations increased primarily due to lower net investment
income. This was partially offset by higher other revenues and
corporate expenses, both of which were principally due to
MetLife Bank acquisitions in 2008. In addition, tax benefits
increased over the comparable 2008 period due to the actual and
the estimated tax rate allocated to the various segments, as
well as the ratio of tax preference items to income before
income tax on an annualized basis.
134
Revenues
and Expenses
Premiums,
Fees and Other Revenues
Premiums, fees and other revenues increased by $79 million,
or 0.5%, to $16,223 million for the six months ended
June 30, 2009 from $16,144 million for the comparable
2008 period. The following table provides the change from the
prior period in premiums, fees and other revenues by segment:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Institutional
|
|
$
|
250
|
|
Individual
|
|
|
(159
|
)
|
International
|
|
|
(482
|
)
|
Auto & Home
|
|
|
(46
|
)
|
Corporate & Other
|
|
|
516
|
|
|
|
|
|
|
Total change
|
|
$
|
79
|
|
|
|
|
|
|
The increase in the Institutional segment was due to increases
in the group life and non-medical health & other
businesses, partially offset by a decrease in the
retirement & savings business. The increase in group
life business was primarily due to an increase in term life,
which was largely attributable to an increase in net reinsurance
activity and the impact of lower experience rated refunds in the
current period. Partially offsetting these increases was a
decrease in the COLI business, which was largely attributable to
lower net fees, mainly driven by lower assets under management,
and a decrease in the universal life business, primarily due to
the impact of higher experience rated refunds in the prior
period. The growth in the non-medical health & other
business was largely due to increases in the dental and LTC
businesses. The increase in the dental business was primarily
due to organic growth and the incremental impact of an
acquisition that closed in the prior period, while the increase
in LTC was primarily due to growth in the business. Partially
offsetting these increases was a decline in the disability
business primarily attributable to higher case terminations and
the impact of a decrease in covered lives in the current period,
coupled with the impact of higher reserve buyout activity in the
prior period. The decrease in the retirement & savings
business was primarily due to decreases in premiums in the group
institutional annuity and income annuity businesses, both of
which were primarily due to lower sales. Partially offsetting
these decreases was the impact of higher sales in the current
period in the structured settlement business. The remaining
decrease in the retirement & savings business was
attributable to lower premiums, fees and other revenues across
several products.
The decrease in the Individual segment was primarily due to a
decrease in universal life and investment-type product policy
fees combined with other revenues primarily resulting from lower
average separate account balances due to recent unfavorable
equity market performance. Partially offsetting these items were
an increase in immediate annuity premiums and growth driven by
increased renewals of traditional life business. These increases
were partially offset by a decline in premiums associated with
the run-off of the Companys closed block of business.
The decrease in the International segment was primarily due to
an adverse impact of changes in foreign currency exchange rates.
Premiums, fees and other revenues grew in Mexico, South Korea,
India, the U.K., Brazil, and Australia due to general growth in
business offset substantially by decreases in Chile primarily
due to lower annuity sales resulting from a contraction of the
annuity market and in Argentina primarily due to the
nationalization of the pension business in the fourth quarter of
2008, which eliminated the revenue from this business.
Contributions from the other countries account for the remainder
of the change in premiums, fees and other revenues.
The decrease in the Auto & Home segment was primarily
due to a decrease in premiums which related to a decrease in
exposures, a reduction in average earned premium per policy and
a decrease in premiums from various involuntary programs. Other
revenues decreased, primarily related to less income from COLI.
Partially offsetting these decreases in revenue was a decrease
in catastrophe reinsurance costs.
Partially offsetting these decreases in premiums, fees and other
revenues was an increase in Corporate & Other
primarily due to an increase in other revenues related to
MetLife Bank loan origination and servicing fees from
acquisitions in 2008 and income from counterparties on
collateral pledged in 2008, partially offset by lower revenue
135
on COLI policies. Premiums decreased as a result of an increase
in indemnity reinsurance on certain run-off products.
Net
Investment Income
Net investment income decreased by $1,622 million, or 19%,
to $6,994 million for the six months ended June 30,
2009 from $8,616 million for the comparable 2008 period.
The following table provides the change from the prior period in
net investment income by invested asset class.
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
(1,224
|
)
|
Equity securities
|
|
|
(57
|
)
|
Trading securities
|
|
|
189
|
|
Mortgage and consumer loans
|
|
|
(19
|
)
|
Policy loans
|
|
|
19
|
|
Real estate and real estate joint ventures
|
|
|
(536
|
)
|
Other limited partnership interests
|
|
|
(384
|
)
|
Cash, cash equivalents and short-term investments
|
|
|
(130
|
)
|
International joint ventures
|
|
|
(65
|
)
|
Other
|
|
|
(28
|
)
|
|
|
|
|
|
Total investment income
|
|
|
(2,235
|
)
|
Investment expenses
|
|
|
613
|
|
|
|
|
|
|
Net investment income
|
|
$
|
(1,622
|
)
|
|
|
|
|
|
Management attributes $1,862 million of this change to a
decrease in yields, partially offset by an increase of
$240 million due to growth in average invested assets.
Average invested assets are calculated on the cost basis without
unrealized gains and losses. The decrease in net investment
income attributable to lower yields was primarily due to lower
returns on real estate joint ventures, fixed maturity
securities, cash, cash equivalents and short-term investments,
other limited partnership interests and mortgage loans partially
offset by increased returns on trading securities. The decrease
in yields and the negative returns on real estate joint ventures
realized in the first six months of 2009 were primarily from
continued declining property valuations on real estate held by
certain real estate investment funds that carry their real
estate at fair value and operating losses incurred on real
estate properties that were developed for sale by real estate
development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate properties
underlying real estate investment funds have experienced
declines in value driven by capital market factors and
deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. The decrease in
fixed maturity securities yields was primarily due to lower
yields on floating rate securities due to declines in short-term
interest rates and an increased allocation to high quality,
lower yielding U.S. Treasury, agency and government
guaranteed securities, including FDIC Program bonds, and from
decreased securities lending results due to the smaller size of
the program, offset slightly by improved spreads. The increase
in yields from the decrease in investment expenses was primarily
attributable to lower cost of funds expense on the securities
lending program and decreased cost partially offset the decrease
in net investment income. The decrease in short-term investment
yields was primarily attributable to continuing declines in
short-term interest rates. The reduction in yields and the
negative returns realized on other limited partnership interests
were primarily due to a lack of liquidity and available credit
in the financial markets, driven by volatility in the equity and
credit markets. The decrease in yields associated with our
mortgage loan portfolio was primarily attributable to lower
prepayments on commercial mortgage loans and lower yields on
variable rate loans due to declines in short-term interest
rates. Trading securities results increased primarily due to
increased estimated fair value on equity securities within the
trading securities portfolio. Trading securities and short sale
agreement liabilities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income. The decrease in net
136
investment income attributable to lower yields was partially
offset by increased net investment income attributable to an
increase in average invested assets on the cost basis, primarily
within mortgages loans, cash, cash equivalents, short-term
investments and fixed maturity securities excluding securities
lending. The increases in mortgage loans were driven by an
increased allocation to residential mortgage loans, primarily
loans originated with the intent to sell. The increase in cash,
cash equivalents and short-term investments has been accumulated
to provide additional flexibility to address potential
variations in cash needs while credit markets continue to
stabilize. The decrease in fixed maturity securities was driven
by a decrease in the size of the securities lending program.
Excluding securities lending, fixed maturity securities
increased, driven by the reinvestment of operating cash flows
and accumulated liquidity balances into longer duration
investments.
Interest
Margin
Interest margin, which represents the difference between
interest earned and interest credited to policyholder account
balances, decreased in the Individual segment for the six months
ended June 30, 2009 as compared to the comparable 2008
period due to decreases in the deferred annuity business and
other investment-type products. Interest margins decreased in
retirement & savings, group life and non-medical
health & other, all within the Institutional segment.
Interest earned approximates net investment income on investable
assets attributed to the segment with minor adjustments related
to the consolidation of certain separate accounts and other
minor non-policyholder elements. Interest credited was the
amount attributed to insurance products, recorded in
policyholder benefits and claims, and the amount credited to
policyholder account balances for investment-type products,
recorded in interest credited to policyholder account balances.
Interest credited on insurance products reflects the current
period impact of the interest rate assumptions established at
issuance or acquisition. Interest credited to policyholder
account balances is subject to contractual terms, including some
minimum guarantees. This tends to move gradually over time to
reflect market interest rate movements and may reflect actions
by management to respond to competitive pressures and,
therefore, generally does not introduce volatility in expense.
Net
Investment Gains (Losses)
Net investment losses increased by $3,648 million, to a
loss of $4,735 million for the six months ended
June 30, 2009 from a loss of $1,087 million for the
comparable 2008 period. The following table provides the change
from the prior period in net investment gains (losses) by
invested asset class:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Losses on fixed maturity securities:
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(906
|
)
|
Less: Noncredit portion of OTTI loss transferred to and
recognized in other comprehensive loss
|
|
|
234
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(672
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
194
|
|
|
|
|
|
|
Fixed maturity securities net
|
|
|
(478
|
)
|
Equity securities
|
|
|
(367
|
)
|
Mortgage and consumer loans
|
|
|
(209
|
)
|
Real estate and real estate joint ventures
|
|
|
(95
|
)
|
Other limited partnership interests
|
|
|
(329
|
)
|
Freestanding derivatives
|
|
|
(4,329
|
)
|
Embedded derivatives
|
|
|
2,070
|
|
Other
|
|
|
89
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(3,648
|
)
|
|
|
|
|
|
The increase in net investment losses was primarily due to
increased losses on freestanding derivatives, fixed maturity
securities, equity securities, other limited partnership
interests, mortgage loans, and real estate and real estate joint
ventures, partially offset by increased gains on embedded
derivatives and certain foreign currency
137
transaction gains. The increase in losses on freestanding
derivatives of $4,329 million was primarily attributable to
rising interest rates and improving equity markets in the
current period. Rising interest rates drove losses on interest
rate swaps, floors, options and futures. Improving equity
markets drove losses on equity futures and options. The increase
in freestanding derivative losses was partially offset by
increased gains on embedded derivatives principally associated
with variable annuity riders. The positive change in embedded
derivatives of $2,070 million was driven by gains on
embedded derivatives in the current period of
$2,010 million as compared with losses in the prior period
of $60 million. As it relates to hedged risks associated
with variable annuity riders, the year over year increase in
gains of $2,578 million was due to the positive impact of
interest rates, and foreign currency and equity market
movements. Hedged risks associated with variable annuity riders
include interest rate risk, equity market risk and foreign
currency risk. As it relates to unhedged risks associated with
variable annuity embedded derivatives, there was a year over
year increase in losses of $579 million. The increased
losses associated with unhedged risks were driven by the
narrowing of MetLifes own credit spread in the current
period. Losses on own credit were $710 million in the
current period, as compared with gains of $275 million in
the prior period, contributing to a $985 million
unfavorable year over year change related to own credit. The
increase in fixed maturity securities OTTI credit losses of
$672 million and equity securities losses of
$367 million was attributable to an increase in impairments
across several industries due to increased financial
restructurings, bankruptcy filings, ratings downgrades or
difficult underlying operating environments of the issuer,
including impairments on perpetual hybrid securities as a result
of deterioration of the credit rating of the issuer to below
investment grade and due to a severe and extended unrealized
loss position. The increased impairments were partially offset
by decreased losses on the sale of fixed maturity securities of
$194 million. The increase in losses on other limited
partnership interests of $329 million, as well as the
increase in losses on real estate and real estate joint ventures
of $95 million were principally due to higher impairments
on cost method investments resulting from deterioration in value
due to volatility in real estate, equity and credit markets and
from weakening of real estate market fundamentals. These
investments experienced a reduction in net asset values due to
the revaluation of the underlying portfolio companies. The
underlying valuations of the portfolio companies have decreased
due to the current economic environment. The increase in losses
on mortgage loans of $209 million was principally due to
increases in the valuation allowances and strengthening of the
allowances, which resulted from weakening of the real estate
market and other economic fundamentals. Other net investment
gains (losses) improved by $89 million principally due to
the combined effects of foreign currency transaction gains of
foreign currency-denominated assets, due to the U.S. Dollar
weakening against the British Pound and the Canadian Dollar,
along with net gains on foreign currency-denominated
liabilities, due to the mixed results of changes in the relative
value of the U.S. Dollar against numerous other major currencies.
Underwriting
Underwriting results are generally the difference between the
portion of premium and fee income intended to cover mortality,
morbidity or other insurance costs, less claims incurred, and
the change in insurance-related liabilities. Underwriting
results are significantly influenced by mortality, morbidity or
other insurance-related experience trends, as well as the
reinsurance activity related to certain blocks of business.
Consequently, results can fluctuate from period to period.
Underwriting results in Auto & Home, including
catastrophes, were favorable for the six months ended
June 30, 2009 compared to the corresponding 2008 period, as
the combined ratio, including catastrophes, decreased to 93.0%
from 95.3% for the six months ended June 30, 2008.
Underwriting results in Auto & Home, excluding
catastrophes, were unfavorable for the six months ended
June 30, 2009, as the combined ratio, excluding
catastrophes, increased to 88.1% from 84.9% for the six months
ended June 30, 2008. Underwriting results were lower in the
non-medical health & other and group life businesses
in the Institutional segment, partially offset by an increase in
the retirement & savings business. Underwriting
results were favorable in the Individual segment in life
products for the six months ended June 30, 2009.
138
Other
Expenses
Other expenses decreased by $121 million, or 2%, to
$5,033 million for the six months ended June 30, 2009
from $5,154 million for the comparable 2008 period. The
following table provides the change from the prior period in
other expenses by segment:
|
|
|
|
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Institutional
|
|
$
|
64
|
|
Individual
|
|
|
(403
|
)
|
International
|
|
|
(214
|
)
|
Auto & Home
|
|
|
(23
|
)
|
Corporate & Other
|
|
|
455
|
|
|
|
|
|
|
Total change
|
|
$
|
(121
|
)
|
|
|
|
|
|
The Institutional segments increase in other expenses was
primarily due to higher non-deferrable volume related expenses.
This increase was primarily attributable to higher pension and
post-retirement benefit expense, partially offset by a reduction
in certain expenses, which management attributes to the
Companys enterprise-wide cost reduction and revenue
enhancement initiative. Non-deferrable volume related expenses
include those expenses associated with information technology
and direct departmental spending. Direct departmental spending
includes expenses associated with advertising, consultants,
travel, printing and postage.
Other expenses in the Individual segment decreased due to lower
DAC amortization primarily due to net investment losses.
Additionally, expenses decreased due to higher DAC
capitalization resulting primarily from increases in annuity
deposits and by a reduction in certain expenses, which
management attributes to the Companys enterprise-wide cost
reduction and revenue enhancement initiative. These deceases
were offset by higher pension and post-retirement benefits and
commission expenses, as well as an increase associated with
higher non-deferrable volume related expenses, which include
those expenses associated with information technology and direct
departmental spending.
The International segments other expenses decreased
primarily due to the impact of changes in foreign currency
exchange rates. In addition, other expenses decreased in
Argentina due to a reassessment by the Company of its approach
to managing existing and potential future claims related to
certain social security pension annuity contractholders and the
home office due to lower staffing and lower spending on growth
and infrastructure initiatives. Partially offsetting these
decreases in other expenses were increases in Ireland primarily
due to foreign currency transaction gains in the prior year,
higher spending on regional initiatives, as well as business
growth. Mexicos other expenses increased primarily due to
higher sales-related expenses, as well as higher expenses from
initiative spending and business growth. Indias other
expenses increased primarily due to business growth. Increases
in other countries account for the remainder of the change in
other expenses.
Other expenses in the Auto & Home segment decreased
primarily due to lower information technology infrastructure
charges and other operational efficiencies in a number of
expense categories partially offset by an increase in pension
and postretirement benefit costs.
The increase in Corporate & Other expenses was
primarily due to higher MetLife Bank costs for compensation,
rent, and mortgage loan origination and servicing expenses
primarily related to acquisitions in 2008, higher post
employment related costs in the current period associated with
the implementation of an enterprise-wide cost reduction and
revenue enhancement initiative and higher deferred compensation
expenses. Corporate expenses also increased as a result of
higher corporate support expenses, which included consultant
fees, banking fees, rent, advertising, and information
technology costs, and lease impairments for Company use space
that is currently vacant. Acquisition-related costs were also
higher during the current period. Legal costs were lower
primarily due to prior year asbestos insurance costs and a
decrease in the current period resulting from the resolution of
certain matters. Interest expense was also lower due to rate
reductions on variable rate collateral financing arrangements in
2008 and the reduction of commercial paper outstanding,
partially offset by the issuance of senior notes in March 2009
and May 2009 and junior subordinated debt in April 2008.
139
Net
Income (Loss)
Income tax benefit for the six months ended June 30, 2009
was $1,332 million, or 40% of income from continuing
operations before provision for income tax, compared with an
income tax expense of $549 million, or 27%, of such income,
for the comparable 2008 period. The 2009 and 2008 effective tax
rates differ from the corporate tax rate of 35% primarily due to
the impact of non-taxable investment income and tax credits for
investments in low income housing. Also impacting the effective
tax rate are changes in valuation allowances associated with our
International operations. In addition, the increase in effective
tax rate was primarily attributable to changes in the ratio of
permanent differences to income from continuing operations
before provision for income tax.
Income from discontinued operations, net of income tax,
decreased by $116 million for the six months ended
June 30, 2009 to $36 million from $152 million
for the comparable 2008 period. 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
Insurance Company, to a third party and the sale was completed
on March 2, 2009. Income from discontinued operations
related to Cova was $36 million for the six months ended
June 30, 2009. In the comparable prior period, income from
discontinued operations related to Cova was $5 million. In
addition, the Company completed the split-off of substantially
all of the Companys interest in RGA, in September 2008.
Income related to RGAs operations amounted to
$147 million for the six months ended June 30, 2008.
There was no income related to RGAs operations in the
current quarter.
Net income attributable to noncontrolling interests declined in
the current period as compared to the prior period due to the
disposal of RGA in the third quarter of 2008.
Institutional
The Companys Institutional segment offers a broad range of
group insurance and retirement & savings products and
services to corporations and other institutions and their
respective employees. Group insurance products and services
include group life insurance, non-medical health insurance
products and related administrative services, as well as other
benefits, such as employer-sponsored auto and homeowners
insurance provided through the Auto & Home segment and
prepaid legal services plans. The Companys Institutional
segment also offers group insurance products as employer-paid
benefits or as voluntary benefits where all or a portion of the
premiums are paid by the employee. Retirement &
savings products and services include an array of annuity and
investment products, including defined contribution plans,
guaranteed interest products and other stable value products,
accumulation and income annuities, and separate account
contracts for the investment management of defined benefit and
defined contribution plan assets.
140
The following table presents consolidated financial information
for the Institutional segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,904
|
|
|
$
|
3,599
|
|
|
$
|
7,444
|
|
|
$
|
7,172
|
|
Universal life and investment-type product policy fees
|
|
|
226
|
|
|
|
208
|
|
|
|
434
|
|
|
|
432
|
|
Net investment income
|
|
|
1,585
|
|
|
|
1,973
|
|
|
|
3,050
|
|
|
|
4,001
|
|
Other revenues
|
|
|
166
|
|
|
|
171
|
|
|
|
337
|
|
|
|
361
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(325
|
)
|
|
|
(95
|
)
|
|
|
(600
|
)
|
|
|
(123
|
)
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transferred to other comprehensive loss
|
|
|
113
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(1,116
|
)
|
|
|
193
|
|
|
|
(2,628
|
)
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(1,328
|
)
|
|
|
98
|
|
|
|
(3,115
|
)
|
|
|
(633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,553
|
|
|
|
6,049
|
|
|
|
8,150
|
|
|
|
11,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
4,333
|
|
|
|
4,016
|
|
|
|
8,280
|
|
|
|
7,927
|
|
Interest credited to policyholder account balances
|
|
|
460
|
|
|
|
613
|
|
|
|
971
|
|
|
|
1,297
|
|
Other expenses
|
|
|
627
|
|
|
|
591
|
|
|
|
1,228
|
|
|
|
1,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,420
|
|
|
|
5,220
|
|
|
|
10,479
|
|
|
|
10,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(867
|
)
|
|
|
829
|
|
|
|
(2,329
|
)
|
|
|
945
|
|
Provision for income tax expense (benefit)
|
|
|
(312
|
)
|
|
|
280
|
|
|
|
(823
|
)
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(555
|
)
|
|
|
549
|
|
|
|
(1,506
|
)
|
|
|
634
|
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(555
|
)
|
|
|
549
|
|
|
|
(1,506
|
)
|
|
|
634
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(555
|
)
|
|
$
|
549
|
|
|
$
|
(1,506
|
)
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008
Institutional
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$1,104 million to a loss of $555 million for the three
months ended June 30, 2009 from income of $549 million
for the comparable 2008 period.
Net investment losses increased by $926 million, net of
income tax, to a loss of $863 million, net of income tax,
for the three months ended June 30, 2009 from a gain of
$63 million, net of income tax, for the comparable 2008
period. The increase in net investment losses was due primarily
to increased losses on freestanding derivatives, other limited
partnership interests, fixed maturity securities, mortgage
loans, equity securities, and real estate and real estate joint
ventures. The increase in the losses on freestanding derivatives
was $610 million, net of income tax, primarily driven by
losses on interest rate swaps and futures interest rates rose in
the current period. The increase in losses on other limited
partnership interests of $94 million, net of income tax,
was principally due to impairments of
141
certain cost method investments. These funds experienced a
reduction in net asset value due to the revaluation of the
underlying portfolio companies. The underlying valuations of the
portfolio companies have decreased due to the current economic
environment. The increase in fixed maturity securities OTTI
credit losses of $75 million, net of income tax, and equity
securities losses of $36 million, net of income tax, was
attributable to an increase in impairments across several
industry sectors due to increased financial restructurings,
bankruptcy filings, ratings downgrades or difficult underlying
operating environments of the issuer, including impairments on
perpetual hybrid securities as a result of deterioration of the
credit rating of the issuer to below investment grade and due to
a severe and extended unrealized loss position. The increase in
losses due to mortgage loans of $40 million, net of income
tax, was principally due to increases in the valuation
allowances and strengthening of the allowances, which resulted
from weakening of real estate market fundamentals. The increase
in losses on embedded derivatives of $34 million, net of
income tax, was driven by embedded derivatives in various
liabilities. The increase in losses on real estate joint
ventures of $12 million, net of income tax, was principally
due to higher impairments on cost method investments resulting
from declines in value driven by capital market factors and from
weakening of real estate market fundamentals. Additional losses
of $21 million, net of income tax, were principally attributable
to losses related to the early termination of unamortized
balances pertaining to a basis adjustment resulting from a fair
value hedging relationship, partially offset by the combined
effects of foreign currency transaction gains on foreign
currency denominated assets, due to the U.S. Dollar weakening
against the British pound and the Canadian Dollar, along with
net gains on foreign currency denominated liabilities, due to
the mixed results of changes in the relative value of the U.S.
Dollar against numerous major currencies.
The impact of the change in net investment gains (losses)
increased policyholder benefits and claims by $41 million,
net of income tax, the majority of which relates to policyholder
participation in the performance of the portfolio.
Excluding the impact from net investment gains (losses), income
(loss) from continuing operations decreased by
$137 million, net of income tax, compared to the prior
period.
A decrease in interest margins of $182 million, net of
income tax, compared to the prior period, contributed to the
decrease in income from continuing operations. Management
attributed this decrease to the retirement & savings,
group life, and non-medical health & other businesses,
which contributed $134 million, $30 million and
$18 million, net of income tax, respectively. Interest
margin is the difference between interest earned and interest
credited to policyholder account balances. Interest earned
approximates net investment income on investable assets
attributed to the segment with minor adjustments related to the
consolidation of certain separate accounts and other minor
non-policyholder elements. Interest credited is the amount
attributed to insurance products, recorded in policyholder
benefits and claims, and the amount credited to policyholder
account balances for investment-type products, recorded in
interest credited to policyholder account balances. Interest
credited on insurance products reflects the current period
impact of the interest rate assumptions established at issuance
or acquisition. Interest credited to policyholder account
balances is subject to contractual terms, including some minimum
guarantees. This tends to move in a manner similar to market
interest rate movements, and may reflect actions by management
to respond to competitive pressures and, therefore, generally
does not, but it may, introduce volatility in expense.
Higher underwriting results of $54 million, net of income
tax, compared to the prior period, partially offset the decrease
in income from continuing operations. Management attributed
$69 million, net of income tax, of this increase to the
retirement & savings business partially offset by
decreases in the non-medical health & other, and group
life businesses of $11 million and $4 million, both
net of income tax, respectively. Underwriting results are
generally the difference between the portion of premium and fee
income intended to cover mortality, morbidity, or other
insurance costs less claims incurred, and the change in
insurance-related liabilities. Underwriting results are
significantly influenced by mortality, morbidity, or other
insurance-related experience trends, as well as the reinsurance
activity related to certain blocks of business. During periods
of high unemployment, underwriting results, specifically in the
disability businesses, tend to decrease as incidence levels
trend upwards with unemployment levels and the amount of
recoveries decline. In addition, certain insurance-related
liabilities can vary as a result of the valuation of the assets
supporting those liabilities. As invested assets underperform or
lose value, the related insurance liabilities are increased to
reflect the Companys obligation with respect to those
products, specifically certain LTC products. Consequently,
underwriting results can and will fluctuate from period to
period.
142
Other expenses contributed to the decrease in income from
continuing operations, mainly due to an increase of
$23 million, net of income tax, from higher non-deferrable
volume related expenses primarily in pension and post-retirement
benefits expense. In addition, higher expenses of
$1 million, net of income tax, related to DAC amortization
contributed to the decrease in income from continuing
operations. A portion of premiums, fees and other revenues is
intended to cover the Companys operating expenses or
non-insurance related expenses. As many of those expenses are
fixed expenses, management may not be able to reduce those
expenses, in a timely manner, proportionate with declining
revenues that may result from customer-related bankruptcies,
customers reduction of coverage stemming from plan
changes, elimination of retiree coverage, or a reduction in
covered payroll.
The remaining increase in operating expenses was more than
offset by the remaining increase in premiums, fees, and other
revenues.
Revenues
Total revenues, excluding net investment gains (losses),
decreased by $70 million, or 1%, to $5,881 million for
the three months ended June 30, 2009 from
$5,951 million for the comparable 2008 period.
Net investment income decreased by $388 million compared to
the prior period. Management attributed a $275 million
decrease in net investment income to a decrease in yields,
primarily due to lower returns on real estate joint ventures,
fixed maturity securities, cash, cash equivalents and short-term
investments and mortgage loans, partially offset by a decrease
in net investment expenses. Management also attributed a
decrease of $113 million to a decrease in average invested
assets, calculated on the cost basis without unrealized gains
and losses, principally in fixed maturity securities including
securities lending, partially offset by increases in cash, cash
equivalents and short-term investments, and mortgage loans. The
reduction in yields and the negative returns in the second
quarter of 2009 realized on real estate joint ventures was
primarily from declining property valuations on real estate held
by certain real estate investment funds that carry their real
estate at fair value and operating losses incurred on real
estate properties that were developed for sale by real estate
development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate properties
underlying real estate investment funds have experienced
declines in value driven by capital market factors and
deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. The decrease in
fixed maturity securities yields was primarily due to lower
yields on floating rate securities due to declines in short-term
interest rates and an increased allocation to high quality,
lower yielding U.S. Treasury, agency and government
guaranteed securities, including FDIC Program bonds, and from
decreased securities lending results due to the smaller size of
the program, offset slightly by improved spreads. The decrease
in cash, cash equivalent and short-term investment yields was
primarily attributable to declines in short-term interest rates.
The decrease in yields associated with our mortgage loan
portfolio was primarily attributable to lower prepayments on
commercial mortgage loans and lower yields on variable rate
loans due to declines in short-term interest rates. The increase
in yields from the decrease in investment expenses was primarily
attributable to lower cost of funds expense on the securities
lending program and this decreased cost partially offsets the
decrease in net investment income on fixed maturity securities.
The decrease in net investment income was attributable to a
$113 million decrease in average invested assets calculated
on the cost basis without unrealized gains and losses, primarily
within fixed maturity securities including securities lending,
partially offset by increases in cash, cash equivalents and
short-term investments, and mortgage loans. The decrease in
fixed maturity securities was primarily due to the smaller size
of the securities lending program and reinvestment into
shorter-term investments within the securities lending program.
Excluding securities lending, fixed maturity securities and
cash, cash equivalents and short-term securities decreased
slightly. The increases in mortgage loans are driven by the
reinvestment of operating cash flows in accordance with our
investment portfolio allocation guidelines.
Partially offsetting the decrease in net investment income was
an increase of $318 million in premiums, fees and other
revenues, which was largely due to increases in the
retirement & savings, group life and non-medical
health & other businesses of $195 million,
$79 million and $44 million, respectively.
The increase in the retirement & savings business of
$195 million was primarily due to increases in the group
institutional annuity and structured settlement businesses of
$120 million and $107 million, respectively, both of
143
which were primarily due to higher sales in the current period.
Partially offsetting these increases was the impact of lower
sales, in the current period, in the income annuity business of
$28 million. The remaining decrease in the
retirement & savings business was attributed to lower
premiums, fees and other revenues across several products.
Premiums, fees and other revenues from retirement &
savings products are significantly influenced by large
transactions and the demand for certain of these products can
decline during periods of volatile credit and investment markets
and, as a result, can fluctuate from period to period.
The increase in group life business of $79 million was
primarily due to a $77 million increase in term life, which
was largely attributable to an increase in net reinsurance
activity. In addition, the impact of lower experience rated
refunds in the current period also contributed to this increase.
An increase in the COLI business of $9 million was largely
attributable to higher fees in the current period. Partially
offsetting these increases was a decrease of $7 million in
the universal life business, primarily due to lower experience
rated refunds in the prior period. Premiums, fees and other
revenues from group life business can and will fluctuate based,
in part, on the covered payroll of customers. In periods of high
unemployment, revenue may be impacted. Revenue may also be
impacted as a result of customer-related bankruptcies,
customers reduction of coverage stemming from plan changes
or elimination of retiree coverage.
The growth in the non-medical health & other business
of $44 million was largely due to increases in the dental
business of $60 million, and the LTC business of
$9 million, both attributable to continued growth.
Partially offsetting these increases was a decline in the
disability and AD&D businesses of $27 million and
$2 million, respectively. The decrease in disability was
primarily attributable to higher reserve buyout activity in the
prior period. The decrease in AD&D was primarily
attributable to higher experience rated refunds in the current
period. The remaining increase in the non-medical
health & other business was attributed to business
growth across several products.
Expenses
Total expenses increased by $200 million, or 4%, to
$5,420 million for the three months ended June 30,
2009 from $5,220 million for the comparable 2008 period.
The increase in expenses was primarily attributable to increases
in policyholder benefits and claims of $317 million and
higher other expenses of $36 million, partially offset by
lower interest credited to policyholder account balances of
$153 million.
The increase in policyholder benefits and claims of
$317 million included a $63 million increase related
to net investment gains (losses). Excluding the increase related
to net investment gains (losses), policyholder benefits and
claims increased by $254 million.
Retirement & savings policyholder benefits and
claims increased $121 million, which was primarily
attributable to increases in the structured settlement and group
institutional annuity businesses of $94 million and
$58 million, respectively. The increase in the structured
settlement business was primarily due to the aforementioned
increase in premiums and an increase in interest credited on
future policyholder benefits, partially offset by favorable
mortality and the impact of a favorable liability refinement of
$8 million, both in the current period. The increase in the
group institutional annuity business was primarily due to the
aforementioned increase in premiums, fees and other revenues,
less favorable mortality in the current period and an increase
in interest credited on future policyholder benefits, which is
consistent with the expectations of an aging block of business.
Partially offsetting these increases was the net favorable
impact of liability refinements in both periods. There were
unfavorable liability refinements of $64 million in the
prior period and favorable liability refinements of
$21 million in the current period. Partially offsetting
these increases was a decrease in the income annuity business of
$28 million, primarily due to the aforementioned decrease
in premium.
Group lifes policyholder benefits and claims increased
$72 million, mostly due to increases in the term life
business of $75 million, which was primarily due to the
aforementioned increase in premiums, fees and other revenues,
and less favorable mortality in the current period. These
increases were partially offset by a decrease in interest
credited on future policyholder benefits, mainly due to lower
crediting rates. An increase in the COLI business of
$9 million was primarily attributable to the aforementioned
increase in premiums, fees and other revenues. Partially
offsetting these increases was a decrease in the universal life
business of $8 million, which was primarily due to the
aforementioned decrease in premiums, fees and other revenues.
144
Non-medical health & others policyholder
benefits and claims increased $61 million, which was
primarily attributable to an increase in the dental and LTC
businesses of $112 million. The increase in dental of
$105 million was largely due to the aforementioned increase
in premium and the impact of unfavorable morbidity, primarily
due to higher benefit utilization which management attributes to
current labor market conditions. The increase in the LTC
business of $7 million was primarily attributable to the
aforementioned increase in premium and an increase in interest
credited on future policyholder benefits, partially offset by
lower claims incidence. Partially offsetting these increases was
a decrease in the disability business of $33 million,
primarily due to the aforementioned decrease in premiums, fees,
and other revenues. In addition, favorable morbidity, primarily
due to higher claim terminations, contributed to this decrease.
Lastly, a decrease in the AD&D business of $18 million
was primarily due to favorable claims experience.
Higher other expenses of $36 million include an increase in
DAC amortization of $1 million. Non-deferrable volume
related expenses increased $35 million. This increase was
primarily attributable to higher pension and post-retirement
benefit expense, partially offset by a reduction in certain
expenses, which management attributes to the Companys
enterprise-wide cost reduction and revenue enhancement
initiative. Non-deferrable volume related expenses include those
expenses associated with information technology and direct
departmental spending. Direct departmental spending includes
expenses associated with advertising, consultants, travel,
printing and postage.
Management attributed the decrease of $153 million in
interest credited to policyholder account balances to a
$157 million decrease resulting from a decline in average
crediting rates, which was largely due to the impact of lower
short-term interest rates in the current period, partially
offset by a $4 million increase, solely from growth in the
average policyholder account balances, primarily the result of
continued growth in the Federal Home Loan Bank
(FHLB) advances, partially offset by a decline in
funding agreements. Management considers the absence of funding
agreement issuances in the current period to be a direct result
of the conditions in credit markets.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008 Institutional
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$2,140 million to a loss of $1,506 million for the six
months ended June 30, 2009 from income of $634 million
for the comparable 2008 period.
Net investment losses increased by $1,613 million, net of
income tax, to a loss of $2,025 million, net of income tax,
for the six months ended June 30, 2009 from a loss of
$412 million, net of income tax, for the comparable 2008
period. The increase in net investment losses was primarily due
to increased losses on freestanding derivatives, fixed maturity
securities, equity securities, other limited partnership
interests, mortgage loans, and real estate and real estate joint
ventures, partially offset by increased gains on foreign
currency transactions. The increase in the losses on
freestanding derivatives was $1,072 million, net of income
tax, primarily driven by losses on interest rate swaps and
swaptions as interest rates rose in the current period. The
increase in fixed maturity securities OTTI credit losses of
$237 million, net of income tax, and equity securities
losses of $143 million, net of income tax, was attributable
to an increase in impairments across several industry sectors
due to increased financial restructurings, bankruptcy filings,
ratings downgrades or difficult underlying operating
environments of the issuer, including impairments on perpetual
hybrid securities as a result of deterioration of the credit
rating of the issuer to below investment grade and due to a
severe and extended unrealized loss position. Additional losses
of $47 million, net of income tax, were realized on the
sale of fixed maturity securities. The increase in losses on
other limited partnership interests of $110 million, net of
income tax, as well as the increase in losses on real estate and
real estate joint ventures of $21 million, net of income
tax, is principally due to higher impairments on cost method
investments resulting from deterioration in value due to
volatility in real estate, equity and credit markets and from
weakening of real estate market fundamentals. These investments
experienced a reduction in net asset values due to the
revaluation of the underlying portfolio companies. The
underlying valuations of the portfolio companies have decreased
due to the current economic environment. The increase in losses
on mortgage loans of $82 million, net of income tax, was
principally due to increases in the valuation allowances and
strengthening of the allowances, which resulted from weakening
of real estate market fundamentals. The losses in freestanding
derivatives, fixed maturity securities, equity securities, other
limited partnership interests, mortgage loans, and real estate
and real estate joint ventures were partially offset by gains of
$115 million, net of income tax, which were principally
attributable to the
145
combined effects of foreign currency transaction gains on
foreign currency-denominated assets due to the U.S. Dollar
weakening against the British pound and the Canadian Dollar,
along with net gains on foreign currency denominated liabilities
due to mixed results of changes in the relative value of the
U.S. Dollar against numerous other major currencies.
The impact of the change in net investment gains (losses)
increased policyholder benefits and claims by $47 million,
net of income tax, the majority of which relates to policyholder
participation in the performance of the portfolio.
Excluding the impact from net investment gains (losses), income
(loss) from continuing operations decreased by
$480 million, net of income tax, compared to the prior
period.
A decrease in interest margins of $443 million, net of
income tax, compared to the prior period, contributed to the
decrease in income from continuing operations. Management
attributed this decrease to the retirement & savings,
non-medical health & other, and group life businesses,
which contributed $324 million, $64 million and
$55 million, net of income tax, respectively. Interest
margin is the difference between interest earned and interest
credited to policyholder account balances. Interest earned
approximates net investment income on investable assets
attributed to the segment with minor adjustments related to the
consolidation of certain separate accounts and other minor
non-policyholder elements. Interest credited is the amount
attributed to insurance products, recorded in policyholder
benefits and claims, and the amount credited to policyholder
account balances for investment-type products, recorded in
interest credited to policyholder account balances. Interest
credited on insurance products reflects the current period
impact of the interest rate assumptions established at issuance
or acquisition. Interest credited to policyholder account
balances is subject to contractual terms, including some minimum
guarantees. This tends to move in a manner similar to market
interest rate movements, and may reflect actions by management
to respond to competitive pressures and, therefore, generally
does not, but it may, introduce volatility in expense.
Lower underwriting results of $10 million, net of income
tax, compared to the prior period, also contributed to the
decrease in income from continuing operations. Management
attributed this decrease to the non-medical health &
other and group life businesses of $24 million and
$15 million, both net of income tax, respectively,
partially offset by an increase in the retirement and savings
business of $29 million, net of income tax. Underwriting
results are generally the difference between the portion of
premium and fee income intended to cover mortality, morbidity,
or other insurance costs less claims incurred, and the change in
insurance-related liabilities. Underwriting results are
significantly influenced by mortality, morbidity, or other
insurance-related experience trends, as well as the reinsurance
activity related to certain blocks of business. During periods
of high unemployment, underwriting results, specifically in the
disability businesses, tend to decrease as incidence levels
trend upwards with unemployment levels and the amount of
recoveries decline. In addition, certain insurance-related
liabilities can vary as a result of the valuation of the assets
supporting those liabilities. As invested assets underperform or
lose value, the related insurance liabilities are increased to
reflect the Companys obligation with respect to those
products, specifically certain LTC products. Consequently,
underwriting results can and will fluctuate from period to
period.
In addition, other expenses contributed to the decrease in
income from continuing operations, mainly due to an increase of
$36 million, net of income tax, from higher non-deferrable
volume related expenses. In addition, higher expenses of
$6 million, net of income tax, related to DAC amortization
contributed to the decrease in income from continuing
operations. A portion of premiums, fees and other revenues is
intended to cover the Companys operating expenses or
non-insurance related expenses. As many of those expenses are
fixed expenses, management may not be able to reduce those
expenses, in a timely manner, proportionate with declining
revenues that may result from customer-related bankruptcies,
customers reduction of coverage stemming from plan
changes, elimination of retiree coverage, or a reduction in
covered payroll.
The remaining increase in operating expenses was more than
offset by the remaining increase in premiums, fees, and other
revenues.
146
Revenues
Total revenues, excluding net investment gains (losses),
decreased by $701 million, or 6%, to $11,265 million
for the six months ended June 30, 2009 from
$11,966 million for the comparable 2008 period.
Net investment income decreased by $951 million compared to
the prior period. Management attributed an $820 million
decrease in net investment income to a decrease in yields,
primarily due to lower returns on real estate joint ventures,
fixed maturity securities, other limited partnership interests,
cash, cash equivalents and short-term investments and mortgage
loans, partially offset by a decrease in net investment
expenses. Management also attributed a decrease of
$131 million to a decrease in average invested assets,
calculated on the cost basis without unrealized gains and
losses, principally in fixed maturity securities including
securities lending, partially offset by increases in cash, cash
equivalents and short-term investments, and mortgage loans. The
decrease in yields and the negative returns in the first six
months of 2009 realized on real estate joint ventures were
primarily from declining property valuations on real estate held
by certain real estate investment funds that carry their real
estate at fair value and operating losses incurred on real
estate properties that were developed for sale by real estate
development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate properties
underlying real estate investment funds have experienced
declines in value driven by capital market factors and
deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. The decrease in
fixed maturity securities yields resulted primarily from lower
yields on floating rate securities due to declines in short-term
interest rates and an increased allocation to high quality,
lower yielding U.S. Treasury, agency and government
guaranteed securities, including FDIC Program bonds, and from
decreased securities lending results due to the smaller size of
the program, offset slightly by improved spreads. The increase
in yields from the decrease in investment expenses was primarily
attributable to lower cost of funds expense on the securities
lending program and this decreased cost partially offsets the
decrease in net investment income on fixed maturity securities.
The reduction in yields and the negative returns realized on
other limited partnership interests were primarily due to a lack
of liquidity and available credit in the financial markets,
driven by volatility in the equity and credit markets. The
decrease in cash, cash equivalent and short-term investment
yields was primarily attributable to declines in short-term
interest rates. The decrease in yields associated with our
mortgage loan portfolio was primarily attributable to lower
prepayments on commercial mortgage loans and lower yields on
variable rate loans due to declines in short-term interest
rates. The decrease in net investment income was attributable to
a $131 million decrease in average invested assets
calculated on the cost basis without unrealized gains and
losses, primarily within fixed maturity securities including
securities lending, partially offset by increases in cash, cash
equivalents and short-term investments, and mortgage loans. The
decrease in fixed maturity securities was primarily due to the
smaller size of the securities lending program and reinvestment
into shorter-term investments within the securities lending
program. Excluding securities lending, fixed maturity securities
and cash, cash equivalents and short-term securities decreased
slightly. The increases in mortgage loans are driven by the
reinvestment of operating cash flows in accordance with our
investment portfolio allocation guidelines.
The increase of $250 million in premiums, fees and other
revenues was largely due to increases in the group life and
non-medical health & other businesses of
$170 million and $113 million, respectively, partially
offset by a decrease in the retirement & savings
business of $33 million.
The increase in group life business of $170 million was
primarily due to a $187 million increase in term life,
which was largely attributable to an increase in net reinsurance
activity and the impact of lower experience rated refunds in the
current period. Partially offsetting these increases was a
decrease in the COLI business of $9 million, which was
largely attributable to lower net fees, mainly driven by lower
assets under management. In addition, a decrease of
$4 million was attributed to the universal life business,
primarily due to the impact of higher experience rated refunds
in the prior period. Premiums, fees and other revenues from
group life business can and will fluctuate based, in part, on
the covered payroll of customers. In periods of high
unemployment, revenue may be impacted. Revenue may also be
impacted as a result of customer-related bankruptcies,
customers reduction of coverage stemming from plan changes
or elimination of retiree coverage.
147
The growth in the non-medical health & other business
of $113 million was largely due to increases in the dental
and LTC businesses of $170 million. The increase in the
dental business of $143 million was primarily due to
organic growth and the incremental impact of an acquisition that
closed in the prior period. The increase in LTC of
$27 million was primarily due to growth in the business.
Partially offsetting these increases was a decline in the
disability business of $61 million, which was primarily
attributable to higher case terminations and the impact of a
decrease in covered lives in the current period, coupled with
the impact of higher reserve buyout activity in the prior
period. The remaining increase in the non-medical
health & other business was attributed to business
growth across several products.
The decrease in the retirement & savings business of
$33 million was primarily due to decreases in premiums in
the group institutional annuity and income annuity businesses of
$86 million and $58 million, respectively, both of
which were primarily due to lower sales in the current period.
Partially offsetting these decreases was the impact of higher
sales, in the current period, in the structured settlement
business of $119 million. The remaining decrease in the
retirement & savings business was attributed to lower
premiums, fees and other revenues across several products.
Premiums, fees and other revenues from retirement &
savings products are significantly influenced by large
transactions and the demand for certain of these products can
decline during periods of volatile credit and investment markets
and, as a result, can fluctuate from period to period.
Expenses
Total expenses increased by $91 million, or 1%, to
$10,479 million for the six months ended June 30, 2009
from $10,388 million for the comparable 2008 period. The
increase in expenses was primarily attributable to increases in
policyholder benefits and claims of $353 million and higher
other expenses of $64 million, partially offset by lower
interest credited to policyholder account balances of
$326 million.
The increase in policyholder benefits and claims of
$353 million included a $72 million increase related
to net investment gains (losses). Excluding the increase related
to net investment gains (losses), policyholder benefits and
claims increased by $281 million.
Non-medical health & others policyholder
benefits and claims increased $159 million, which was
primarily attributable to an increase in the dental and LTC
businesses of $220 million. The increase in dental of
$177 million was largely due to the aforementioned increase
in premium and the impact of unfavorable morbidity, primarily
due to higher benefit utilization which management attributes to
current labor market conditions. The increase in the LTC
business of $43 million was primarily attributable to the
aforementioned increase in premium, higher claims incidence, an
increase in interest credited on future policyholder benefits,
and the impact of an unfavorable liability refinement in the
current period. Partially offsetting these increases was a
decrease in the disability business of $37 million,
primarily due to the aforementioned decrease in premiums, fees,
and other revenues, partially offset by marginally higher claim
incidence and an increase in interest credited on future
policyholder benefits. In addition, a decrease in the AD&D
business of $20 million was primarily due to favorable
claims experience.
Group lifes policyholder benefits and claims increased
$153 million, mostly due to increases in the term life
business of $162 million, which was primarily due to the
aforementioned increase in premiums, fees and other revenues and
less favorable mortality in the current period, partially offset
by a decrease in interest credited on future policyholder
benefits, mainly due to lower crediting rates. Partially
offsetting this increase was a decrease in the COLI business of
$6 million, which was primarily due to the aforementioned
decrease in premiums, fees and other revenues. In addition, a
decrease in the universal life business of $2 million was
primarily attributable to the aforementioned increase in
premiums, fees and other revenues partially offset by less
favorable mortality in the current period.
Retirement & savings policyholder benefits
decreased $31 million, which was primarily attributable to
the group institutional annuity and income annuity businesses of
$108 million and $51 million, respectively. The
decrease in the group institutional annuity business was
primarily due to the aforementioned decrease in premiums, fees
and other revenues and the net favorable impact of liability
refinements in both periods. There were unfavorable liability
refinements of $64 million in the prior period and
favorable liability refinements of $28 million in the
current period. Partially offsetting these decreases was the
impact of less favorable mortality in the current period and an
increase in interest credited on future policyholder benefits,
which is
148
consistent with the expectations of an aging block of business.
The decrease in the income annuity business was primarily due to
the aforementioned decrease in premium, partially offset by
unfavorable mortality and an increase in interest credited to
future policyholder benefits. An increase in structured
settlements of $128 million was largely due to the
aforementioned increase in premiums, an increase in interest
credited on future policyholder benefits and the impact of
unfavorable mortality in the current period. These increases
were partially offset by a favorable liability refinement in the
current period of $8 million.
Higher other expenses of $64 million include an increase in
DAC amortization of $8 million. Non-deferrable volume
related expenses increased $56 million. This increase was
primarily attributable to higher pension and post-retirement
benefit expense, partially offset by a reduction in certain
expenses, which management attributes to the Companys
enterprise-wide cost reduction and revenue enhancement
initiative. Non-deferrable volume related expenses include those
expenses associated with information technology, and direct
departmental spending. Direct departmental spending includes
expenses associated with advertising, consultants, travel,
printing and postage.
Management attributed the decrease of $326 million in
interest credited to policyholder account balances to a
$402 million decrease resulting from a decline in average
crediting rates, which was largely due to the impact of lower
short-term interest rates in the current period, partially
offset by a $76 million increase, solely from growth in the
average policyholder account balances, primarily the result of
continued growth in the FHLB advances, partially offset by a
decline in funding agreements. Management considers the absence
of funding agreement issuances in the current period to be a
direct result of conditions in the credit markets.
Individual
The Companys Individual segment offers a wide variety of
protection and asset accumulation products aimed at serving the
financial needs of its customers throughout their entire life
cycle. Products offered by Individual include insurance
products, such as traditional, variable and universal life
insurance, and variable and fixed annuities. In addition,
Individual sales representatives distribute disability insurance
and LTC insurance products offered through the Institutional
segment, investment products such as mutual funds, as well as
other products offered by the Companys other businesses.
149
The following table presents consolidated financial information
for the Individual segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,165
|
|
|
$
|
1,067
|
|
|
$
|
2,302
|
|
|
$
|
2,130
|
|
Universal life and investment-type product policy fees
|
|
|
764
|
|
|
|
895
|
|
|
|
1,529
|
|
|
|
1,778
|
|
Net investment income
|
|
|
1,704
|
|
|
|
1,696
|
|
|
|
3,220
|
|
|
|
3,387
|
|
Other revenues
|
|
|
116
|
|
|
|
154
|
|
|
|
221
|
|
|
|
303
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(135
|
)
|
|
|
(25
|
)
|
|
|
(242
|
)
|
|
|
(36
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(1,394
|
)
|
|
|
(236
|
)
|
|
|
(1,222
|
)
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(1,490
|
)
|
|
|
(261
|
)
|
|
|
(1,425
|
)
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,259
|
|
|
|
3,551
|
|
|
|
5,847
|
|
|
|
7,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
1,559
|
|
|
|
1,392
|
|
|
|
3,146
|
|
|
|
2,751
|
|
Interest credited to policyholder account balances
|
|
|
609
|
|
|
|
494
|
|
|
|
1,189
|
|
|
|
996
|
|
Policyholder dividends
|
|
|
431
|
|
|
|
442
|
|
|
|
855
|
|
|
|
868
|
|
Other expenses
|
|
|
176
|
|
|
|
933
|
|
|
|
1,512
|
|
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,775
|
|
|
|
3,261
|
|
|
|
6,702
|
|
|
|
6,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(516
|
)
|
|
|
290
|
|
|
|
(855
|
)
|
|
|
703
|
|
Provision for income tax expense (benefit)
|
|
|
(184
|
)
|
|
|
92
|
|
|
|
(302
|
)
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(332
|
)
|
|
|
198
|
|
|
|
(553
|
)
|
|
|
475
|
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
1
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(332
|
)
|
|
|
199
|
|
|
|
(529
|
)
|
|
|
475
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(332
|
)
|
|
$
|
199
|
|
|
$
|
(529
|
)
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008 Individual
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$530 million to a loss of $332 million for the three
months ended June 30, 2009 from income of $198 million
for the comparable 2008 period.
Included in this decrease in income (loss) from continuing
operations was an increase in net investment losses of
$799 million, net of income tax. The increase in net
investment losses was due primarily to increased losses on
freestanding derivatives, fixed maturity securities, real estate
joint ventures, other limited partnership interests, mortgage
loans and equity securities, partially offset by increased gains
on embedded derivatives. The increase in losses on freestanding
derivatives of $1,099 million, net of income tax, was
primarily attributable to rising interest rates and improving
equity markets. Rising interest rates drove losses on interest
rate swaps, floors and futures. Improving equity markets drove
losses on equity futures and options. The increase in
freestanding derivative losses was partially offset by increased
gains on embedded derivatives principally associated with
variable annuity riders.
150
The positive change in embedded derivatives of
$420 million, net of income tax, was driven by gains on
embedded derivatives in the current period of $500 million,
net of income tax, less gains in the prior period of
$80 million, net of income tax. As it relates to hedged
risks associated with variable annuity riders, the year over
year increase in gains was $913 million, net of income tax,
due to the positive impact of interest rate and equity market
movements. Hedged risks associated with variable annuity riders
include interest rate risk, equity market risk and foreign
currency risk. As it relates to unhedged risks associated with
variable annuity embedded derivatives, there was a year over
year increase in losses of $488 million, net of income tax.
The increased losses associated with unhedged risks were driven
by the narrowing of MetLifes own credit spread in the
current period. Losses on own credit were $625 million, net
of income tax, in the current period, compared to losses of
$7 million, net of income tax, in the prior period,
resulting in a $618 million, net of income tax, unfavorable
year over year change related to own credit. The increase in
fixed maturity securities OTTI credit losses of
$45 million, net of income tax, and equity securities
losses of $18 million, net of income tax, was attributable
to an increase in impairments across several industry sectors
due to increased financial restructurings, bankruptcy filings,
ratings downgrades, or difficult underlying operating
environments of the issuer, including impairments on perpetual
hybrid securities as a result of deterioration of the credit
rating of the issuer to below investment grade and due to a
severe and extended unrealized loss position. The increase in
losses on real estate and real estate joint ventures of
$27 million, net of income tax, was principally due to
higher impairments on cost method investments resulting from
declines in value driven by capital market factors and from the
weakening of real estate market fundamentals. The increase in
losses on other limited partnership interests of
$19 million, net of income tax, was principally due to
impairments of certain cost method investments. These
investments experienced a reduction in net asset value due to
the revaluation of the underlying portfolio companies. The
underlying valuations of the portfolio companies have decreased
due to the current economic environment.
Excluding the impact of net investment gains (losses), income
(loss) from continuing operations increased by
$269 million, net of income tax, from the comparable 2008
period.
The increase in income (loss) from continuing operations for the
period was driven by the following items:
|
|
|
|
|
Lower DAC amortization of $514 million, net of income tax,
primarily due to current period net derivative losses, as well
as separate account balance increases, which increase expected
future gross profits, as a result of market improvement.
|
|
|
|
Favorable underwriting results in life products of
$23 million, net of income tax. Underwriting results are
generally the difference between the portion of premium and fee
income intended to cover mortality, morbidity or other insurance
costs less claims incurred and the change in insurance-related
liabilities. Underwriting results are significantly influenced
by mortality, morbidity, or other insurance-related experience
trends, as well as the reinsurance activity related to certain
blocks of business. Consequently, results can fluctuate from
period to period.
|
|
|
|
A decrease in policyholder dividends of $7 million, net of
income tax, primarily due to updates of actuarial assumptions
used in the calculation of the terminal dividend liability for
certain life products.
|
These aforementioned increases in income (loss) from continuing
operations were partially offset by the following items:
|
|
|
|
|
Lower universal life and investment-type product policy fees
combined with other revenues of $103 million, net of income
tax, primarily resulting from lower average separate account
balances due to recent unfavorable equity market performance.
|
|
|
|
Higher annuity benefits of $75 million, net of income tax,
primarily due to current period hedge losses net of lower
guaranteed annuity benefit costs, partially offset by lower
amortization of sales inducements.
|
|
|
|
Lower net investment income on blocks of business not driven by
interest margins of $44 million, net of income tax.
|
|
|
|
A decrease in interest margins of $23 million, net of
income tax. Interest margins relate primarily to the general
account portion of investment-type products. Management
attributed $20 million of this decrease to the deferred
annuity business and $3 million of the decrease to other
investment-type products, both net of
|
151
|
|
|
|
|
income tax. Interest margin is the difference between interest
earned and interest credited to policyholder account balances
related to the general account on these businesses. Interest
earned approximates net investment income on invested assets
attributed to these businesses with net adjustments for other
non-policyholder elements. Interest credited approximates the
amount recorded in interest credited to policyholder account
balances. Interest credited to policyholder account balances is
subject to contractual terms, including some minimum guarantees,
and may reflect actions by management to respond to competitive
pressures. Interest credited to policyholder account balances
tends to move in a manner similar to market interest rate
movements, subject to any minimum guarantees and, therefore,
generally does not, but may introduce volatility in expense.
|
|
|
|
|
|
Higher expenses of $21 million, net of income tax, include
higher pension and post-retirement benefits and commission
expenses offset by higher DAC capitalization primarily from
increases in annuity deposits and a reduction in certain
expenses, which management attributes to the Companys
enterprise-wide cost reduction and revenue enhancement
initiative. In addition, non-deferrable volume related expenses,
which include those expenses associated with information
technology and direct departmental spending, have also increased.
|
|
|
|
An increase in interest credited to policyholder account
balances of $3 million, net of income tax, due primarily to
lower amortization of the excess interest reserves on acquired
annuity and universal life blocks of business.
|
The change in effective tax rates between periods accounts for
the remainder of the decrease in income (loss) from continuing
operations.
Revenues
Total revenues, excluding net investment gains (losses),
decreased by $63 million, or 2%, to $3,749 million for
the three months ended June 30, 2009 from
$3,812 million for the comparable 2008 period.
Premiums increased by $98 million primarily due to an
increase in immediate annuity premiums of $58 million, and
growth in premiums of $57 million driven by increased
renewals of traditional life business. These increases were
partially offset by a $17 million decline in premiums
associated with the run-off of the Companys closed block
of business.
Universal life and investment-type product policy fees combined
with other revenues decreased by $169 million primarily
resulting from lower average separate account balances due to
recent unfavorable equity market performance. Policy fees from
variable life and annuity and investment-type products are
typically calculated as a percentage of the average assets in
policyholder accounts. The value of these assets can fluctuate
depending on equity performance.
Net investment income increased by $8 million. Management
attributes an increase of $81 million of net investment
income to the general account portion of investment-type
products and a decrease of $73 million to other businesses.
Management attributes $98 million of the increase to a
higher average asset base across various investment types,
primarily fixed maturity securities excluding securities
lending, cash, cash equivalents and short-term investments, and
mortgage loans, partially offset by a decrease in equity
securities. Average invested assets are calculated on the cost
basis without unrealized gains and losses. This increase was
partially offset by a decrease of $90 million on lower
yields, primarily due to lower returns on real estate joint
ventures, fixed maturity securities, real estate and cash, cash
equivalents and short-term investments, partially offset by
increased securities lending results from improved spreads and
other limited partnership interests. Excluding the impact of the
decrease in the securities lending program, fixed maturity
securities increased, driven by the reinvestment of operating
cash flows and accumulated liquidity balances into longer
duration investments. The increase in cash, cash equivalents and
short-term investments has been accumulated to provide
additional flexibility to address potential variations in cash
needs while credit markets continue to stabilize. The increases
in mortgage loans are driven by the reinvestment of operating
cash flows in accordance with our investment portfolio
allocation guidelines. The decrease in yields and the negative
returns in the second quarter of 2009 realized on real estate
joint ventures was primarily from declining property valuations
on real estate held by certain real estate investment funds that
carry their real estate at fair value
152
and operating losses incurred on real estate properties that
were developed for sale by real estate development joint
ventures, in excess of earnings from wholly-owned real estate.
The commercial real estate properties underlying real estate
investment funds have experienced declines in value driven by
capital market factors and deteriorating market conditions,
which have led to declining property valuations, while the real
estate development joint ventures have experienced fewer
property sales due to declining real estate market fundamentals
and decreased availability of real estate lending to finance
transactions. The decrease in fixed maturity securities yields
resulted primarily from to lower yields on floating rate
securities due to declines in short-term interest rates and an
increased allocation to high quality, lower yielding
U.S. Treasury, agency and government guaranteed securities,
including FDIC Program bonds, and from decreased securities
lending results due to the smaller size of the program, offset
slightly by improved spreads. The decrease in the short-term
investment yields was primarily due to declines in short-term
interest rates. The increase in yields due to the decrease in
investment expenses was primarily attributable to lower cost of
funds expense on the securities lending program and this
decreased cost partially offset the decrease in net investment
income. The increase in yields due to other limited partnership
interests was primarily attributable to the impact of the
stabilization of market and economic conditions on equity method
investments.
Expenses
Total expenses decreased by $486 million, or 15%, to
$2,775 million for the three months ended June 30,
2009 from $3,261 million for the comparable 2008 period.
Policyholder benefits and claims increased by $167 million.
Recent equity market improvements contributed to an increase of
$139 million from current period hedge losses net of lower
guaranteed annuity benefit costs, partially offset by
$24 million of lower amortization of sales inducements.
Revisions to policyholder benefits and claims in the current
period and favorable mortality contributed decreases of
$32 million and $14 million, respectively.
Additionally, policyholder benefits and claims increased by
$98 million commensurate with the change in premiums
discussed above.
Interest credited to policyholder account balances increased by
$115 million. Interest credited on the general account
portion of investment-type products increased by
$116 million, of which $98 million is attributed to
higher average general account balances, and $18 million to
higher crediting rates. Interest credited on other businesses
decreased by $5 million. Lower amortization of the excess
interest reserves on acquired annuity and universal life blocks
of business, primarily driven by lower lapses in the current
period, increased interest credited to policyholder account
balances by $4 million.
Policyholder dividends decreased by $11 million primarily
due to updates of actuarial assumptions used in the calculation
of the terminal dividend liability for certain life products.
Lower other expenses of $757 million include lower DAC
amortization of $790 million primarily due to current
period net derivative losses as well as separate account balance
increases, which increase expected future gross profits, as a
result of market improvement. In addition, expenses decreased
due to higher DAC capitalization primarily from increases in
annuity deposits and a reduction in certain expenses, which
management attributes to the Companys enterprise-wide cost
reduction and revenue enhancement initiative. These increases
were offset by includes higher pension and post-retirement
benefits and commission expenses in the current period.
Non-deferrable volume related expenses, which include those
expenses associated with information technology and direct
departmental spending, also increased $33 million.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008 Individual
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$1,028 million to a loss of $553 million for the six
months ended June 30, 2009 from income of $475 million
for the comparable 2008 period.
Included in this decrease in income (loss) from continuing
operations was an increase in net investment losses of
$689 million, net of income tax. The increase in net
investment losses was due primarily to increased losses on
freestanding derivatives, mortgage loans, other limited
partnership interests, real estate joint ventures, equity
securities and fixed maturity securities, partially offset by
increased gains on embedded derivatives and gains on
153
foreign currency transactions. The increase in losses on
freestanding derivatives of $1,524 million, net of income
tax, was primarily attributable to the rising interest rates and
improving equity markets. Rising interest rates drove losses on
interest rate floors, swaps and futures. Improving equity
markets drove losses on equity futures and options. The increase
in freestanding derivative losses was partially offset by
increased gains on embedded derivatives principally associated
with variable annuity riders. The positive change in embedded
derivatives of $943 million, net of income tax, was driven
by gains on embedded derivatives in the current period of
$875 million, net of income tax, less losses in the prior
period of $68 million, net of income tax. As it relates to
hedged risks associated with variable annuity riders, the year
over year increase in gains was $1,104 million, net of
income tax, due to the positive impact of interest rate and
equity market movements. Hedged risks associated with variable
annuity riders include interest rate risk, equity market risk
and foreign currency risk. As it relates to unhedged risks
associated with variable annuity embedded derivatives, there was
a year over year increase in losses of $192 million, net of
income tax. The increased losses associated with unhedged risks
were driven by the narrowing of MetLifes own credit spread
in the current period. Losses on own credit were
$349 million, net of income tax, in the current period,
compared to gains of $81 million, net of income tax, in the
prior period, contributing to a $430 million unfavorable
year over year change related to own credit. The increase in
losses on mortgage loans of $51 million, net of income tax,
was principally due to increases in the valuation allowances and
strengthening of the allowances, which resulted from weakening
of real estate market fundamentals. The increase in losses on
other limited partnership interests of $34 million, net of
income tax, was principally due to impairments of certain cost
method investments. These investments experienced a reduction in
net asset value due to the revaluation of the underlying
portfolio companies. The underlying valuations of the portfolio
companies have decreased due to the current economic
environment. The increase in losses on real estate and real
estate joint ventures of $33 million, net of income tax,
was principally due to higher impairments on cost method
investments resulting from decline in value driven by capital
market factors and the weakening of real estate market
fundamentals. The increase in fixed maturity securities OTTI
credit losses of $108 million, net of income tax, and
equity securities losses of $24 million, net of income tax,
was attributable to an increase in impairments across several
industry sectors due to increased financial restructurings,
bankruptcy filings, ratings downgrades or difficult underlying
operating environments of the issuer, including impairments on
perpetual hybrid securities as a result of deterioration of the
credit rating of the issuer to below investment grade and due to
a severe and extended unrealized loss position. The increased
impairments were partially offset by decreased losses on the
sale of fixed maturity securities of $120 million, net of
income tax. The increased losses in freestanding derivatives,
mortgage loans, other limited partnership interests, real estate
and real estate joint ventures, fixed maturity securities and
equity securities were partially offset by gains of
$22 million, net of income tax, principally attributable to
the effect of foreign currency transaction gains on foreign
currency denominated assets, due to the U.S. Dollar weakening
against the British pound and Canadian Dollar.
Excluding the impact of net investment gains (losses), income
(loss) from continuing operations decreased by
$339 million, net of income tax, from the comparable 2008
period.
The decrease in income (loss) from continuing operations for the
period was driven by the following items:
|
|
|
|
|
Lower universal life and investment-type product policy fees
combined with other revenues of $225 million, net of income
tax, primarily resulting from lower average separate account
balances due to recent unfavorable equity market performance.
|
|
|
|
Higher annuity benefits of $165 million, net of income tax,
primarily due to current period hedge losses and higher
guaranteed annuity benefit costs, partially offset by lower
amortization of sales inducements.
|
|
|
|
A decrease in interest margins of $146 million, net of
income tax. Interest margins relate primarily to the general
account portion of investment-type products. Management
attributed $96 million of this decrease to the deferred
annuity business and $50 million of the decrease to other
investment-type products, both net of income tax. Interest
margin is the difference between interest earned and interest
credited to policyholder account balances related to the general
account on these businesses. Interest earned approximates net
investment income on invested assets attributed to these
businesses with net adjustments for other non-policyholder
elements. Interest credited approximates the amount recorded in
interest credited to policyholder account balances. Interest
credited to policyholder account balances is subject to
contractual terms, including some minimum guarantees, and may
reflect actions by management to respond to competitive
pressures. Interest credited to policyholder account balances
tends to move in a
|
154
|
|
|
|
|
manner similar to market interest rate movements, subject to any
minimum guarantees and, therefore, generally does not, but may
introduce volatility in expense.
|
|
|
|
|
|
Lower net investment income on blocks of business not driven by
interest margins of $79 million, net of income tax.
|
|
|
|
Higher expenses of $11 million, net of income tax, include
higher pension and post-retirement benefits and commission
expenses offset by higher DAC capitalization primarily from
increases in annuity deposits and a reduction in certain
expenses, which management attributes to the Companys
enterprise-wide cost reduction and revenue enhancement
initiative. In addition, non-deferrable volume related expenses,
which include those expenses associated with information
technology and direct departmental spending have also increased.
|
|
|
|
An increase in interest credited to policyholder account
balances of $9 million, net of income tax, due primarily to
lower amortization of the excess interest reserves on acquired
annuity and universal life blocks of business.
|
These aforementioned decreases in income (loss) from continuing
operations were partially offset by the following items:
|
|
|
|
|
Lower DAC amortization of $274 million, net of income tax,
primarily due to net investment losses; the remainder of the
change in DAC amortization was driven by various immaterial
items.
|
|
|
|
Favorable underwriting results in life products of
$30 million, net of income tax. Underwriting results are
generally the difference between the portion of premium and fee
income intended to cover mortality, morbidity or other insurance
costs less claims incurred and the change in insurance-related
liabilities. Underwriting results are significantly influenced
by mortality, morbidity, or other insurance-related experience
trends, as well as the reinsurance activity related to certain
blocks of business. Consequently, results can fluctuate from
period to period.
|
|
|
|
A decrease in policyholder dividends of $8 million, net of
income tax, primarily due to updates of actuarial assumptions
used in the calculation of the terminal dividend liability for
certain life products.
|
The change in effective tax rates between periods accounts for
the remainder of the decrease in income (loss) from continuing
operations.
Revenues
Total revenues, excluding net investment gains (losses),
decreased by $326 million, or 4%, to $7,272 million
for the six months ended June 30, 2009 from
$7,598 million for the comparable 2008 period.
Premiums increased by $172 million primarily due to an
increase in immediate annuity premiums of $128 million, and
growth in premiums of $77 million driven by increased
renewals of traditional life business. These increases were
partially offset by a $33 million decline in premiums
associated with the run-off of the Companys closed block
of business.
Universal life and investment-type product policy fees combined
with other revenues decreased by $331 million primarily
resulting from lower average separate account balances due to
recent unfavorable equity market performance. Policy fees from
variable life and annuity and investment-type products are
typically calculated as a percentage of the average assets in
policyholder accounts. The value of these assets can fluctuate
depending on equity performance.
Net investment income decreased by $167 million. Management
attributes a decrease of $36 million of net investment
income to the general account portion of investment-type
products and a decrease of $131 million to other
businesses. Management attributed $371 million of the
decrease to lower yields, primarily due to lower returns on real
estate joint ventures, fixed maturity securities, cash, cash
equivalents and short-term investments and other limited
partnership interests, partially offset by increased securities
lending results from improved spreads. This decrease was
partially offset by an increase of $204 million due to a
higher average asset base across various investment types. The
decrease in yields and the negative returns in the first six
months of 2009 realized on real
155
estate joint ventures was primarily from declining property
valuations on real estate held by certain real estate investment
funds that carry their real estate at fair value and operating
losses incurred on real estate properties that were developed
for sale by real estate development joint ventures, in excess of
earnings from wholly-owned real estate. The commercial real
estate properties underlying real estate investment funds have
experienced declines in value driven by capital market factors
and deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. The decrease in
fixed maturity securities yields was primarily due to lower
yields on floating rate securities due to declines in short-term
interest rates and an increased allocation to high quality,
lower yielding U.S. Treasury, agency and government
guaranteed securities, including FDIC Program bonds, and from
decreased securities lending results due to the smaller size of
the program, offset slightly by improved spreads. The increase
in yields due to the decrease in investment expenses was
primarily attributable to lower cost of funds expense on the
securities lending program and this decreased cost partially
offset the decrease in net investment income. The decrease in
the short-term investment yields was primarily due to declines
in short-term interest rates. The reduction in yields and the
negative returns for the six months ended June 30, 2009
realized on other limited partnership interests were primarily
due to a lack of liquidity and available credit in the financial
markets, driven by volatility in the equity and credit markets.
Management attributed a $204 million increase due to a
higher average asset base across various investment types,
primarily fixed maturities excluding securities lending, cash,
cash equivalents and short-term investments and mortgage loans,
partially offset by a decrease in equity securities. Average
invested assets are calculated on the cost basis without
unrealized gains and losses. Excluding the impact of the
decrease in the securities lending program, fixed maturity
securities increased, driven by the reinvestment of operating
cash flows and accumulated liquidity balances into longer
duration investments. The increase in cash, cash equivalents and
short-term investments has been accumulated to provide
additional flexibility to address potential variations in cash
needs while credit markets continue to stabilize. The increases
in mortgage loans are driven by the reinvestment of operating
cash flows in accordance with our investment portfolio
allocation guidelines.
Expenses
Total expenses increased by $172 million, or 3%, to
$6,702 million for the six months ended June 30, 2009
from $6,530 million for the comparable 2008 period.
Policyholder benefits and claims increased by $395 million.
This was primarily due to weaker equity markets during the
current period, which resulted in hedge losses and higher
guaranteed annuity benefit costs of $260 million, partially
offset by lower amortization of sales inducements of
$6 million. Revisions to policyholder benefits and claims
in the current period and favorable mortality contributed
decreases of $17 million and $14 million,
respectively. Additionally, policyholder benefits and claims
increased by $172 million commensurate with the change in
premiums discussed above.
Interest credited to policyholder account balances increased by
$193 million. Interest credited on the general account
portion of investment-type products increased by
$189 million, of which $182 million is attributed to
higher average general account balances, and $7 million to
higher crediting rates. Interest credited on other businesses
decreased by $10 million. Lower amortization of the excess
interest reserves on acquired annuity and universal life blocks
of business, primarily driven by lower lapses in the current
period, increased interest credited to policyholder account
balances by $14 million.
Policyholder dividends decreased by $13 million primarily
due to updates of actuarial assumptions used in the calculation
of the terminal dividend liability for certain life products.
Lower other expenses of $403 million include lower DAC
amortization of $421 million primarily due to net
investment losses; the remainder of the change in DAC
amortization was driven by various immaterial items.
Additionally, expenses decreased due to higher DAC
capitalization primarily from increases in annuity deposits and
a reduction in certain expenses, which management attributes to
the Companys enterprise-wide cost reduction and revenue
enhancement initiative. These decreases were offset by higher
pension and post-retirement benefits and commission expenses, as
well as an increase of $18 million associated with
non-deferrable volume related expenses, which include those
expenses associated with information technology and direct
departmental spending.
156
International
International provides life insurance, accident and health
insurance, credit insurance, annuities and
retirement & savings products to both individuals and
groups. The Company focuses on emerging markets primarily within
the Latin America, Europe and Asia Pacific regions. The
following table presents consolidated financial information for
the International segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
777
|
|
|
$
|
920
|
|
|
$
|
1,498
|
|
|
$
|
1,824
|
|
Universal life and investment-type product policy fees
|
|
|
226
|
|
|
|
293
|
|
|
|
436
|
|
|
|
583
|
|
Net investment income
|
|
|
258
|
|
|
|
356
|
|
|
|
451
|
|
|
|
626
|
|
Other revenues
|
|
|
2
|
|
|
|
6
|
|
|
|
4
|
|
|
|
13
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
|
|
(1
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(491
|
)
|
|
|
(135
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(501
|
)
|
|
|
(136
|
)
|
|
|
(47
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
762
|
|
|
|
1,439
|
|
|
|
2,342
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
559
|
|
|
|
618
|
|
|
|
1,128
|
|
|
|
1,443
|
|
Interest credited to policyholder account balances
|
|
|
160
|
|
|
|
89
|
|
|
|
237
|
|
|
|
136
|
|
Policyholder dividends
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
Other expenses
|
|
|
404
|
|
|
|
476
|
|
|
|
697
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,125
|
|
|
|
1,185
|
|
|
|
2,065
|
|
|
|
2,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income tax
|
|
|
(363
|
)
|
|
|
254
|
|
|
|
277
|
|
|
|
551
|
|
Provision for income tax expense (benefit)
|
|
|
(149
|
)
|
|
|
87
|
|
|
|
56
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(214
|
)
|
|
|
167
|
|
|
|
221
|
|
|
|
348
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(214
|
)
|
|
|
167
|
|
|
|
221
|
|
|
|
348
|
|
Less: Net loss attributable to noncontrolling interests
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
(14
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
(205
|
)
|
|
$
|
173
|
|
|
$
|
235
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008
International
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$381 million, or 228%, to a loss of $214 million for
the three months ended June 30, 2009 from income of
$167 million for the comparable 2008 period. Included in
this decrease in income (loss) from continuing operations was an
increase in net investment losses of $223 million, net of
income tax. The increase in net investment losses was due to an
increase in losses on derivatives, partially offset by lower
losses on fixed maturity securities. Derivative losses were
driven by losses on embedded derivatives associated with assumed
risk on variable annuity riders written directly through the
Japan joint venture, as well as losses on freestanding
derivatives. Losses on the embedded derivatives increased by
$101 million, net of income
157
tax, and were driven by an increase in losses of
$322 million, net of income taxes, resulting from the
effect of the narrowing of MetLifes own credit spread, as
well as the impact of interest rates and foreign currency rates,
partially offset by gains due to movement in the equity markets.
Losses on freestanding derivatives increased by
$131 million, net of income tax, and were primarily driven
by losses from equity options and futures due to increases in
equity markets, partially offset by gains on interest rate
futures due to rising interest rates and gains from foreign
currency forwards due to the U.S. Dollar weakening. The
losses on the freestanding derivatives substantially offset the
change in the underlying embedded derivative liability that is
hedged by these derivatives. The remaining change in net
investment losses results primarily from lower losses on the
sale of fixed maturities from the comparable period.
The remaining $158 million decrease in income (loss) from
continuing operations from the comparable 2008 period was
comprised of the factors described below which decreased income
(loss) from continuing operations by $97 million, as well
as the negative impact of changes in foreign exchange rates of
$61 million, net of income tax.
Income (loss) from continuing operations excluding net
investment gains (losses) decreased in:
|
|
|
|
|
Mexico by $66 million, net of income tax, primarily due to
an increase in certain policyholder liabilities caused by an
increase in the unrealized investment results on the invested
assets supporting those liabilities relative to the prior year,
higher claims experience, as well as an increase in
sales-related expenses, partially offset by a decrease in
policyholder liabilities resulting from a policy cancellation, a
revision to certain dollar-denominated policyholder liabilities
and business growth, as well as a lower effective tax rate.
|
|
|
|
Japan by $46 million, net of income tax, due to a decrease
of $38 million, net of income tax, from hedging activities
associated with Japans guaranteed annuity benefits, a
decrease of $20 million, net of income tax, in the
Companys earnings from its investment in Japan resulting
from the adverse impact from the utilization of the fair value
option for certain fixed annuities offset by a decrease in the
costs of guaranteed annuity benefits, as well as an increase of
$12 million, net of income tax, from assumed reinsurance
due to a decrease in liabilities resulting from a refinement in
methodology on certain annuity guarantee liabilities.
|
|
|
|
Ireland by $5 million, net of income tax, primarily due to
higher initiative spending.
|
Partially offsetting these decreases, income (loss) from
continuing operations excluding net investment gains (losses)
increased in:
|
|
|
|
|
South Korea by $14 million, net of income tax, primarily
due to an increase in surrender charges and business growth, as
well as lower taxes resulting from a reduction in the statutory
tax rate.
|
|
|
|
The home office by $6 million, net of income tax, primarily
due to lower headcount and lower spending on growth and
infrastructure initiatives, partially offset by higher
investment charges.
|
|
|
|
Hong Kong by $4 million, net of income tax, primarily due
to business growth.
|
Contributions from other countries account for the remainder of
the change in income (loss) from continuing operations excluding
net investment gains (losses).
Revenues
Total revenues, excluding net investment gains (losses),
decreased by $312 million, or 20%, to $1,263 million
for the three months ended June 30, 2009 from
$1,575 million for the comparable 2008 period. This
decrease was comprised of the impact of foreign currency
exchange rates which decreased total revenues, excluding net
investment gains (losses), by $286 million, as well as
other factors described below which decreased total revenues by
$26 million, or 2%, from the comparable 2008 period.
Premiums, fees and other revenues decreased by
$214 million, or 18%, to $1,005 million for the three
months ended June 30, 2009 from $1,219 million for the
comparable 2008 period. The decrease was comprised of the impact
of changes in foreign currency exchange rates which decreased
premiums, fees and other revenues by $219 million, as well
as other factors described below which increased premiums, fees
and other revenues increased by $5 million from the
comparable 2008 period.
158
Premiums, fees and other revenues increased in:
|
|
|
|
|
Mexico by $33 million due to growth in its individual and
institutional businesses partially offset by a reduction in fees
charged on the pension business.
|
|
|
|
Australia by $9 million primarily due to business growth.
|
|
|
|
South Korea by $9 million primarily due to an increase in
surrender charges, as well as business growth, partially offset
by various immaterial items.
|
|
|
|
Hong Kong by $6 million due to a shift to traditional
business.
|
|
|
|
Brazil, India and Poland by $5 million, $3 million and
$2 million, respectively, primarily due to business growth.
|
|
|
|
Japan by $4 million due to an increase in assumed
reinsurance business.
|
Partially offsetting these increases, premiums, fees and other
revenues decreased in:
|
|
|
|
|
Chile by $52 million primarily due to lower annuity sales
resulting from a contraction of the annuity market in Chile.
|
|
|
|
Argentina by $17 million primarily due to the
nationalization of the pension business in the in the fourth
quarter of 2008, which eliminated the revenue from this business.
|
Contributions from the other countries account for the remainder
of the change in premiums, fees and other revenues.
Net investment income decreased by $98 million, or 28%, to
$258 million for the three months ended June 30, 2009
from $356 million for the comparable 2008 period. This
decrease was comprised of the impact of foreign currency
exchange rates of $67 million, as well as other factors
described below which decreased net investment income by
$31 million, or 11%, from the comparable 2008 period.
Net investment income decreased in:
|
|
|
|
|
Japan by $80 million primarily due to a decrease of
$60 million from hedging activities associated with
Japans guaranteed annuity benefits, as well as a decrease
of $20 million, net of income tax, in the Companys
earnings from its investment in Japan resulting from the adverse
impact from the utilization of the fair value option for certain
fixed annuities offset by a decrease in the costs of guaranteed
annuity benefits.
|
|
|
|
Chile by $52 million due to the impact of lower inflation
rates on indexed securities, the valuations and returns of which
are linked to inflation rates.
|
Partially offsetting these decreases, net investment income
increased in:
|
|
|
|
|
Hong Kong by $64 million due to favorable results on the
trading securities portfolio which supports unit-linked
policyholder liabilities, compared to the prior year.
|
|
|
|
Mexico by $12 million primarily due to an increase in
invested assets.
|
|
|
|
Ireland by $12 million due to favorable results on the
trading securities portfolio which supports unit-linked
policyholder liabilities, compared to the prior year.
|
|
|
|
Argentina by $4 million due to higher yields resulting from
portfolio repositioning, as well as the adverse impact of
currency transaction losses in the prior year.
|
|
|
|
South Korea and Taiwan by $4 million and $2 million,
respectively, primarily due to increases in invested assets.
|
|
|
|
Brazil by $2 million due to favorable results on the
trading securities portfolio which supports unit-linked pension
liabilities.
|
Contributions from the other countries account for the remainder
of the change in net investment income.
159
Expenses
Total expenses decreased by $60 million, or 5%, to
$1,125 million for the three months ended June 30,
2009 from $1,185 million for the comparable 2008 period.
The impact of changes in foreign currency exchange rates
decreased total expenses by $196 million. Other factors
described below increased total expenses by $136 million,
or 14%, from the comparable 2008 period.
Policyholder benefits and claims, policyholder dividends and
interest credited to policyholder account balances increased by
$12 million, or 2%, to $721 million for the three
months ended June 30, 2009 from $709 million for the
comparable 2008 period. This increase was comprised of a
decrease from changes in foreign currency exchange rates of
$112 million, as well as other factors described below
which increased policyholder benefits and claims, policyholder
dividends and interest credited to policyholder account balances
by $124 million, or 21%, from the comparable 2008 period.
Policyholder benefits and claims, policyholder dividends and
interest credited to policyholder account balances increased in:
|
|
|
|
|
Mexico by $155 million, primarily due to an increase in
certain policyholder liabilities of $129 million caused by
an increase in the unrealized investment results on the invested
assets supporting those liabilities relative to the prior
period, an increase in claims experience, as well as in interest
credited to policyholder account balances resulting from
business growth, partially offset by a decrease in policyholder
liabilities resulting from a policy cancellation, as well as a
revision in the calculation of certain dollar-denominated
policyholder liabilities.
|
|
|
|
Hong Kong by $65 million primarily due to favorable results
on the trading securities portfolio which supports unit-linked
policyholder liabilities compared to the prior period, as
discussed above.
|
|
|
|
Ireland by $11 million due favorable results on the trading
securities portfolio which supports unit-linked policyholder
liabilities.
|
|
|
|
Australia by $6 million primarily due to business growth,
as well as higher claims experience and an increase in
liabilities related to reinsurance.
|
|
|
|
Taiwan by $5 million primarily due to business growth.
|
|
|
|
Brazil by $5 million due to higher interest credited
resulting from better performance on the trading securities
portfolio which supports unit-linked pension liabilities.
|
Partially offsetting these increases in policyholder benefits
and claims, policyholder dividends and interest credited to
policyholder account balances were decreases in:
|
|
|
|
|
Chile by $110 million primarily due to a decrease in
inflation indexed policyholder liabilities commensurate with the
decrease in net investment income from inflation-indexed assets,
as well as a decrease in the annuity business mentioned above,
partially offset by higher interest credited.
|
|
|
|
Our operation in Japan by $15 million resulting from a
refinement in methodology on certain annuity guarantee
liabilities.
|
Increases in other countries account for the remainder of the
change.
Other expenses decreased by $72 million, or 15%, to
$404 million for the three months ended June 30, 2009
from $476 million for the comparable 2008 period. The
impact of changes in foreign currency exchange rates decreased
other expenses by $84 million, and other factors described
below increased other expenses by $12 million, or 3%, from
the comparable 2008 period.
Other expenses increased in:
|
|
|
|
|
Ireland by $7 million due to higher spending on regional
initiatives, as well as business growth.
|
|
|
|
India by $6 million primarily due to increased staffing,
rent and DAC amortization due to business growth.
|
|
|
|
Australia by $4 million primarily due to business growth.
|
160
|
|
|
|
|
Chile by $4 million due to an adjustment in DAC
amortization related to the decrease in inflation.
|
|
|
|
Brazil by $3 million primarily due to entry into the dental
insurance business.
|
|
|
|
Mexico by $3 million due to an increase in sales-related
expenses.
|
|
|
|
Korea and Taiwan by $3 million and $3 million,
respectively due to business growth.
|
Partially offsetting these increases in other expenses were
decreases in:
|
|
|
|
|
The home office of $12 million primarily due to lower
headcount and lower spending on growth and infrastructure
initiatives.
|
|
|
|
Argentina by $10 million due to lower administrative
expenses resulting from the nationalization of the pension
business.
|
Increases in other countries account for the remainder of the
change.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008 International
Income
(Loss) from Continuing Operations
Income (loss) from continuing operations decreased by
$127 million, or 36%, to $221 million for the six
months ended June 30, 2009 from $348 million for the
comparable 2008 period. Included in this decrease in income
(loss) from continuing operations was an increase in net
investment losses of $24 million, net of income tax. The
increase in net investment losses was due to losses on fixed
maturity securities, partially offset by an increase in gains on
derivatives. Losses on fixed maturities increased by
$31 million, net of income tax, due to the loss on the
exchange of certain government bonds in Argentina, an increase
in impairments primarily associated with financial services
industry holdings, including impairments as a result of
deterioration of the credit rating of the issuer to below
investment grade and due to a severe and extended unrealized
loss position, partially offset by lower losses on the sale of
fixed maturities from the comparable period. Derivative gains
were driven by gains on embedded derivatives associated with
assumed risk on variable annuity riders written directly through
the Japan joint venture partially offset by losses on
freestanding derivatives. Gains on the embedded derivatives
increased by $387 million, net of income tax, and were
driven by the positive impact of interest rates, foreign
currency rates and movement in the equity markets. These
embedded derivative gains include a $209 million, net of
income tax, decrease in gains resulting from the effect of the
narrowing of MetLifes own credit spread. Losses on
freestanding derivatives increased by $380 million, net of
income tax, and were primarily driven by losses from equity
options and futures due to rising equity indices, foreign
currency forwards primarily due to the U.S. Dollar
strengthening, as well as interest rate futures due to rising
interest rates, all of which hedge the embedded derivatives. The
losses on these hedges partially offset the change in the
underlying embedded derivative liability that is hedged by these
derivatives.
The remaining $103 million decrease in income (loss) from
continuing operations from the comparable 2008 period was
comprised of the factors described below which caused a decrease
in income (loss) from continuing operations by $12 million,
as well as the negative impact of change in foreign exchange
rates of $91 million, net of income tax.
Income (loss) from continuing operations excluding net
investment gains (losses) decreased in:
|
|
|
|
|
Mexico by $44 million, net of income tax, primarily due to
an increase in certain policyholder liabilities caused by an
increase in the unrealized investment results on the invested
assets supporting those liabilities relative to the prior year,
higher claims experience, an increase in sales-related expenses,
a reduction in fees charged on the pension business, higher
expenses from initiative spending, the impact of portfolio
repositioning and a decrease in short-term yields as well as the
prior year impact from the reinstatement of premiums. The
remainder of the decrease was driven by various immaterial
items. These items were partially offset by a decrease in
policyholder liabilities resulting from a policy cancellation,
as well as a revision to certain dollar-denominated policyholder
liabilities, a lower effective tax rate, growth in its
individual and institutional businesses, and a one-time tax
benefit related to a change in assumption regarding the
repatriation of earnings.
|
161
|
|
|
|
|
The home office by $29 million, net of income tax,
primarily due to a valuation allowance of $40 million
established against net deferred tax assets resulting from an
election to not repatriate earnings from our Mexico operation,
as well as higher economic capital charges and lower interest
income due to a decrease in cash equivalents, partially offset
by lower headcount, lower spending on growth and infrastructure
initiatives.
|
|
|
|
Japan by $21 million, net of income tax, due to a decrease
of $80 million, net of income tax, from hedging activities
associated with Japans guaranteed annuity benefits. This
was partially offset by an increase of $56 million, net of
income tax, in the Companys earnings from its investment
in Japan resulting from the impact from refinement in
assumptions for DAC amortization on guaranteed annuity business,
a decrease in the costs of guaranteed annuity benefits, the
impact of a reduction in a liability for guarantee fund
assessments and the unfavorable impact from the utilization of
the fair value option for certain fixed annuities, as well as an
increase of $3 million, net of income tax, from assumed
reinsurance due to a decrease in liabilities resulting from a
refinement in methodology on certain annuity guarantee
liabilities. The remainder of the decrease was driven by various
immaterial items.
|
|
|
|
Ireland by $19 million, net of income tax, primarily due to
foreign currency transaction gains and a tax benefit in the
prior period, as well as higher initiative spending.
|
|
|
|
Hong Kong by $2 million primarily due to business growth.
|
Partially offsetting these decreases, income (loss) from
continuing operations excluding net investment gains (losses)
increased in:
|
|
|
|
|
Argentina by $75 million, net of income tax, due to a
reassessment by the Company of its approach to managing existing
and potential future claims related to certain social security
pension annuity contractholders, as a result of which
liabilities of $95 million related to pesification were
released, as well as higher yields resulting from portfolio
repositioning. This increase was partially offset by a reduction
in fees due to the nationalization of the pension business in
December 2008, the reduction in the prior year of the liability
for pension servicing obligations resulting from a refinement of
assumptions and methodology, the availability of government
statistics regarding the number of participants transferring to
the government-sponsored plan created by the pension reform
program, which was in effect from January 1, 2008 until
December 2008 when the business was nationalized, as well as the
adverse impact of currency transaction losses in the prior year.
Our operations in Argentina also benefited more significantly in
the current year from the utilization of deferred tax assets
against which valuation allowances had previously been
established.
|
|
|
|
South Korea by $22 million, net of income tax, due to an
increase in surrender charges, lower taxes resulting from a
reduction in the statutory tax rate and a one-time tax benefit
related to the reduction in the statutory tax rate as well as
business growth, partially offset by an increase in claims and
by various immaterial items.
|
|
|
|
Chile by $9 million primarily due to the net impact of
lower inflation rates on indexed securities and on policyholder
liabilities. While the impact of inflation is neutral to net
income, a portion of the inflation impact is accounted for in
net investment gains (losses).
|
Contributions from other countries account for the remainder of
the change in income (loss) from continuing operations excluding
net investment gains (losses).
Revenues
Total revenues, excluding net investment gains (losses),
decreased by $657 million, or 22%, to $2,389 million
for the six months ended June 30, 2009 from
$3,046 million for the comparable 2008 period. The impact
of changes in foreign currency exchange rates decreased total
revenues by $654 million. Other factors described below
decreased total revenues by $3 million from the comparable
2008 period.
Premiums, fees and other revenues decreased by
$482 million, or 20%, to $1,938 million for the six
months ended June 30, 2009 from $2,420 million for the
comparable 2008 period. This decrease was comprised of the
impact of foreign currency exchange rates, which decreased
premiums, fees and other revenues by $511 million,
162
partially offset by an increase from other factors described
below, which increased premiums, fees and other revenues by
$29 million, or 2%, from the comparable 2008 period.
Premiums, fees and other revenues increased in:
|
|
|
|
|
Mexico by $45 million due to growth in its individual and
institutional businesses, partially offset by the reinstatement
of premiums in the prior period and a reduction in fees charged
on the pension business.
|
|
|
|
Hong Kong by $18 million due to a shift to traditional
business, as well as an increase in surrender charges on
non-traditional business.
|
|
|
|
South Korea by $18 million primarily due to an increase in
surrender charges, as well as business growth.
|
|
|
|
India by $12 million due to business growth and a shift to
traditional products.
|
|
|
|
United Kingdom by $7 million due to premium growth and the
impact of stronger foreign currencies from business written
outside of the United Kingdom, partially offset by a decrease in
business written in the United Kingdom.
|
|
|
|
Brazil by $10 million due to its entry into the dental
business in the fourth quarter of 2008, as well as growth in
existing lines.
|
|
|
|
Australia and Poland by $14 million and $3 million,
respectively, primarily due to business growth.
|
|
|
|
Japan by $5 million due to an increase in assumed
reinsurance business.
|
Partially offsetting these increases, premiums, fees and other
revenues decreased in:
|
|
|
|
|
Chile by $81 million primarily due to lower annuity sales
resulting from a contraction of the annuity market in Chile.
|
|
|
|
Argentina by $29 million primarily due to the
nationalization of the pension business in the fourth quarter of
2008, which eliminated the revenue from this business.
|
Contributions from the other countries account for the remainder
of the change in premiums, fees and other revenues.
Net investment income decreased by $175 million, or 28%, to
$451 million for the six months ended June 30, 2009
from $626 million for the comparable 2008 period. This
decrease was comprised of the impact of foreign currency
exchange rates of $143 million, as well as other factors
described below which decreased net investment income by
$32 million, or 7%, from the comparable 2008 period.
Net investment income decreased in:
|
|
|
|
|
Chile by $122 million due to the impact of lower inflation
rates on indexed securities, the valuations and returns of which
are linked to inflation rates, as well as lower yields partially
offset by an increase in invested assets.
|
|
|
|
Japan by $68 million primarily due to a decrease of
$124 million from hedging activities associated with
Japans guaranteed annuity benefits, partially offset by an
increase of $56 million, net of income tax, in the
Companys earnings from its investment in Japan resulting
from the impact from refinement in assumptions for DAC
amortization on guaranteed annuity business, a decrease in the
costs of guaranteed annuity benefits, the impact of a reduction
in a liability for guarantee fund assessments and the
unfavorable impact from the utilization of the fair value option
for certain fixed annuities, and various immaterial items.
|
|
|
|
The home office by $6 million primarily due to an increase
in the amount charged for economic capital and lower interest
income due to a decrease in cash equivalents.
|
Partially offsetting these decreases, net investment income
increased in:
|
|
|
|
|
Hong Kong by $106 million due to favorable results on the
trading securities portfolio which supports unit-linked
policyholder liabilities, compared to the prior year.
|
163
|
|
|
|
|
Ireland by $5 million due to favorable results on the
trading securities portfolio which supports unit-linked
policyholder liabilities, compared to the prior year.
|
|
|
|
Mexico by $23 million primarily due to an increase in
invested assets, partially offset by the impact of lower
inflation rates on indexed securities, the impact of portfolio
repositioning and a decrease in short-term yields.
|
|
|
|
Brazil by $8 million primarily due to favorable results on
the trading securities portfolio which supports unit-linked
pension liabilities.
|
|
|
|
South Korea and Taiwan by $8 million and $6 million,
respectively, primarily due to increases in invested assets.
|
|
|
|
Argentina by $4 million due to higher yields resulting from
portfolio repositioning, as well as the adverse impact of
currency transaction losses in the prior year.
|
Contributions from the other countries account for the remainder
of the change in net investment income.
Expenses
Total expenses decreased by $429 million, or 17%, to
$2,065 million for the six months ended June 30, 2009
from $2,494 million for the comparable 2008 period. The
impact of changes in foreign currency exchange rates decreased
total expenses by $518 million. Other factors described
below increased total expenses by $89 million, or 5%, from
the comparable 2008 period.
Policyholder benefits and claims, policyholder dividends and
interest credited to policyholder account balances decreased by
$215 million, or 14%, to $1,368 million for the six
months ended June 30, 2009 from $1,583 million for the
comparable 2008 period. This decrease was comprised of the
impact of changes in foreign currency exchange rates which
decreased policyholder benefits and claims, policyholder
dividends and interest credited to policyholder account balances
by $330 million, and other factors described below which
increased policyholder benefits and claims, policyholder
dividends and interest credited to policyholder account balances
by $115 million, or 9%, from the comparable 2008 period.
Policyholder benefits and claims, policyholder dividends and
interest credited to policyholder account balances increased in:
|
|
|
|
|
Mexico by $158 million, primarily due to an increase in
certain policyholder liabilities of $98 million caused by
an increase in the unrealized investment results on the invested
assets supporting those liabilities relative to the prior
period, an increase in claims experience, as well as in interest
credited to policyholder account balances resulting from
business growth, partially offset by a decrease in policyholder
liabilities resulting from a policy cancellation, as well as a
revision in the calculation of certain dollar-denominated
policyholder liabilities.
|
|
|
|
Hong Kong by $122 million primarily due to favorable
results on the trading securities portfolio which supports
unit-linked policyholder liabilities compared to the prior
period, as discussed above, as well as a shift to traditional
business.
|
|
|
|
South Korea by $12 million primarily due to an increase in
claims and surrenders.
|
|
|
|
Brazil by $12 million due to higher interest credited
resulting from better performance on the trading securities
portfolio which supports unit-linked pension liabilities, as
well as growth from entry into the dental insurance business in
fourth quarter of 2008.
|
|
|
|
Australia by $10 million primarily due to business growth,
as well as higher claims experience and an increase in
liabilities related to reinsurance.
|
|
|
|
India by $8 million due to business growth.
|
|
|
|
Taiwan by $5 million primarily due to business growth.
|
164
|
|
|
|
|
Ireland by $4 million due to favorable results on the
trading securities portfolio which supports unit-linked
policyholder liabilities.
|
|
|
|
Our operation in Japan by $1 million due to an increase in
liabilities for guaranteed death benefits, almost completely
offset by a refinement in methodology on certain annuity
guarantee liabilities.
|
Partially offsetting these increases in policyholder benefits
and claims, policyholder dividends and interest credited to
policyholder account balances were decreases in:
|
|
|
|
|
Chile by $219 million primarily due to a decrease in
inflation indexed policyholder liabilities commensurate with the
decrease in net investment income from inflation-indexed assets,
as well as a decrease in the annuity business mentioned above,
partially offset by higher interest credited.
|
Increases in other countries account for the remainder of the
change.
Other expenses decreased by $214 million, or 23%, to
$697 million for the six months ended June 30, 2009
from $911 million for the comparable 2008 period. The
impact of changes in foreign currency exchange rates decreased
other expenses by $188 million and the other factors
described below decreased other expenses by $26 million, or
4%, from the comparable 2008 period.
Other expenses decreased in:
|
|
|
|
|
Argentina by $82 million, due to a reassessment by the
Company of its approach to managing existing and potential
future claims related to certain social security pension annuity
contractholders. As a result of this reassessment, contingent
liabilities of $95 million related to pesification were
released. In addition, the nationalization of the pension
business in December 2008 resulted in lower administrative
expenses. These decreases were partially offset by a reduction
in the prior period of the liability for pension servicing
obligations resulting from a refinement of assumptions and
methodology, as well as the availability of government
statistics regarding the number of participants transferring to
the government-sponsored plan created by the pension reform
program which was in effect from January 1, 2008 until
December 2008 when the business was nationalized.
|
|
|
|
The home office of $22 million primarily due to lower
headcount and lower spending on growth and infrastructure
initiatives.
|
Partially offsetting these decreases in other expenses were
increases in:
|
|
|
|
|
Ireland by $22 million due to foreign currency transaction
gains in the prior period, higher spending on regional
initiatives, as well as business growth.
|
|
|
|
Mexico by $11 million primarily from higher expenses from
initiative spending and business growth, higher sales-related
expenses and various immaterial items.
|
|
|
|
India by $11 million primarily due to increased staffing,
rent and DAC amortization due to business growth.
|
|
|
|
Australia by $7 million primarily due to business growth.
|
|
|
|
The United Kingdom by $6 million due to higher commission
cost related to the increase in premiums, as well as foreign
currency transaction gains recognized in the prior period.
|
|
|
|
Brazil by $6 million primarily due to business growth and
entry into the dental insurance business.
|
|
|
|
Chile by $6 million due to an adjustment in DAC
amortization related to the decrease in inflation.
|
|
|
|
Hong Kong and Korea by $5 million and $3 million,
respectively, due to business growth.
|
Decreases in other countries account for the remainder of the
change.
165
Auto &
Home
Auto & Home, operating through Metropolitan Property
and Casualty Insurance Company and its subsidiaries, offers
personal lines property and casualty insurance directly to
employees at their employers worksite, as well as to
individuals through a variety of retail distribution channels,
including the agency distribution group, independent agents,
property and casualty specialists and direct response marketing.
Auto & Home primarily sells auto insurance and home
insurance.
The following table presents consolidated financial information
for the Auto & Home segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
726
|
|
|
$
|
742
|
|
|
$
|
1,448
|
|
|
$
|
1,487
|
|
Net investment income
|
|
|
49
|
|
|
|
50
|
|
|
|
89
|
|
|
|
101
|
|
Other revenues
|
|
|
5
|
|
|
|
10
|
|
|
|
14
|
|
|
|
21
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Other net investment gains (losses), net
|
|
|
(8
|
)
|
|
|
(12
|
)
|
|
|
24
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(8
|
)
|
|
|
(13
|
)
|
|
|
23
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
772
|
|
|
|
789
|
|
|
|
1,574
|
|
|
|
1,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
491
|
|
|
|
539
|
|
|
|
971
|
|
|
|
1,017
|
|
Policyholder dividends
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
Other expenses
|
|
|
192
|
|
|
|
205
|
|
|
|
385
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
684
|
|
|
|
746
|
|
|
|
1,356
|
|
|
|
1,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
88
|
|
|
|
43
|
|
|
|
218
|
|
|
|
157
|
|
Provision for income tax
|
|
|
17
|
|
|
|
|
|
|
|
51
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of income tax
|
|
|
71
|
|
|
|
43
|
|
|
|
167
|
|
|
|
134
|
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
71
|
|
|
|
43
|
|
|
|
167
|
|
|
|
134
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to MetLife, Inc.s common shareholders
|
|
$
|
71
|
|
|
$
|
43
|
|
|
$
|
167
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008 Auto &
Home
Income
from Continuing Operations
Income from continuing operations increased by $28 million,
or 65%, to $71 million for the three months ended
June 30, 2009 from $43 million for the comparable 2008
period.
The increase in income from continuing operations was primarily
attributable to a decrease in policyholder benefits and claims
of $31 million, net of income tax, and a decrease in
operating expenses of $9 million, net of income tax, offset
by a decrease in premiums of $11 million, net of income tax.
The decrease in policyholder benefits and claims was due to a
decrease of $60 million, net of income tax, in catastrophe
losses resulting from a decrease of $53 million, net of
income tax, from fewer and less severe
166
catastrophe events than 2008s near record levels and due
to $7 million, net of income tax, more of favorable
development of prior year catastrophe losses. Also impacting
policyholder benefits and claims was a $6 million, net of
income tax, decrease related to earned exposures. Offsetting
these decreases were $23 million, net of income tax, less
of favorable development of prior year non-catastrophe losses,
an increase of $8 million, net of income tax, due to higher
severities, primarily in the auto line of business, an increase
of $3 million, net of income tax, from higher
non-catastrophe claim frequencies, primarily in the auto line of
business, and a $2 million, net of income tax, increase in
unallocated adjustment expenses.
The decrease in other expenses of $9 million, net of income
tax, resulted from decreases in information technology
infrastructure charges and other operational efficiencies in a
number of expense categories.
Also contributing to the increase in income from continuing
operations was a decrease in net investment losses of
$3 million, net of income tax, and a decrease of
$1 million, net of income tax, in policyholder dividends.
These increases in income from continuing operations were offset
by a decrease in premiums of $11 million, net of income
tax, which was primarily comprised of a decrease of
$11 million, net of income tax, related to decreased
exposures and a decrease of $1 million, net of income tax,
related to a reduction in average earned premium per policy.
Offsetting these decreases in premiums was an increase of
$1 million, net of income tax, from a decrease in
catastrophe reinsurance costs.
Also decreasing income from continuing operations was a decline
in net investment income of $1 million, net of income tax,
which was primarily due to a smaller asset base and a decrease
of $3 million, net of income tax, in other revenues.
Income taxes unfavorably impacted income from continuing
operations by $1 million due to favorable resolution of
prior year tax audit.
Revenues
Total revenues, excluding net investment gains (losses),
decreased $22 million, or 3%, to $780 million for the
three months ended June 30, 2009 from $802 million for
the comparable 2008 period.
Premiums decreased $16 million due to a decrease of
$17 million related to a decrease in exposures, a decrease
of $1 million related to a decrease in average earned
premium per policy offset by a decrease of $2 million in
catastrophe reinsurance costs.
Net investment income decreased $1 million due primarily to
a smaller asset base. Other revenues decreased $5 million
primarily related to less income from COLI.
Expenses
Total expenses decreased $62 million, or 8%, to
$684 million for the three months ended June 30, 2009
from $746 million for the comparable 2008 period.
Policyholder benefits and claims decreased $48 million due
to a decrease of $92 million in catastrophe losses
resulting from a decrease of $81 million from fewer and
less severe catastrophe events than 2008s near record
levels and due to $11 million more of favorable development
of prior year catastrophe losses and a $9 million decrease
related to earned exposures. Offsetting these decreases were
$35 million less of favorable development of prior year
non-catastrophe losses, an increase of $12 million due to
higher severities, primarily in the auto line of business, an
increase of $4 million from higher non-catastrophe claim
frequencies, primarily in the auto line of business, and a
$3 million increase in unallocated adjustment expenses.
Other expenses decreased $13 million due to decreases in
information technology infrastructure charges and other
operational efficiencies in a number of expense categories and
policyholder dividends decreased $1 million.
Underwriting results, including catastrophes, were favorable for
the three months ended June 30, 2009 as compared to the
corresponding 2008 period, as the combined ratio, including
catastrophes, decreased to 93.5% from 99.5% for the three months
ended June 30, 2008. Underwriting results, excluding
catastrophes, were
167
unfavorable for the three months ended June 30, 2009, as
the combined ratio, excluding catastrophes, increased to 88.0%
from 81.9% for the three months ended June 30, 2008.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008 Auto &
Home
Income
from Continuing Operations
Income from continuing operations increased by $33 million,
or 25%, to $167 million for the six months ended
June 30, 2009 from $134 million for the comparable
2008 period.
The increase in income from continuing operations was primarily
attributable to a decrease in policyholder benefits and claims
of $29 million, net of income tax, a $31 million, net
of income tax, increase in net investment gains, offset by a
decrease of $26 million, net of income tax, in premiums and
a decrease of $8 million, net of income tax, in net
investment income.
The decrease in policyholder benefits and claims was due to a
decrease of $55 million, net of income tax, in catastrophe
losses resulting from a decrease of $49 million, net of
income tax, from fewer and less severe catastrophe events than
2008s near record levels and due to $6 million, net
of income tax, more of favorable development of prior year
catastrophe losses. Also impacting policyholder benefits and
claims was a $14 million, net of income tax, decrease
related to earned exposures. Offsetting these decreases were
$29 million, net of income tax, less of favorable
development of prior year non-catastrophe losses and an increase
of $11 million, net of income tax, from higher
non-catastrophe claim frequencies, primarily in the
homeowners line of business.
The increase in net investment gains of $31 million, net of
income tax, was due primarily to gains on credit
spread-sensitive options which are embedded derivatives within
certain equity securities.
Also contributing to the increase in income from continuing
operations was a decrease of $15 million, net of income
tax, in other expenses resulting from information technology
infrastructure charges and other operational efficiencies in a
number of expense categories and a decrease of $2 million,
net of income tax, in policyholder dividends.
These increases in income from continuing operations were offset
by a decrease in premiums of $26 million, net of income
tax, which was comprised of a decrease of $24 million, net
of income tax, related to decreased exposures, a decrease of
$3 million, net of income tax, related to a reduction in
average earned premium per policy and a decrease of
$1 million, net of income tax, in premiums primarily from
various involuntary programs, offset by an increase of
$2 million, net of income tax, from a decrease in
catastrophe reinsurance costs.
Also decreasing income from continuing operations was a decline
in net investment income of $8 million, net of income tax,
which was primarily due to a smaller asset base and a decrease
of $4 million, net of income tax, in other revenues.
Income taxes unfavorably impacted income from continuing
operations by $2 million due to the favorable resolution of
a prior year audit in 2008 and by an additional $4 million
due to a reduction in tax advantaged investment income.
Revenues
Total revenues, excluding net investment gains (losses),
decreased $58 million, or 4%, to $1,551 million for
the six months ended June 30, 2009 from $1,609 million
for the comparable 2008 period.
Premiums decreased $39 million due to a decrease of
$38 million related to a decrease in exposures, a decrease
of $4 million related to a decrease in average earned
premium per policy and a decrease of $1 million in premiums
primarily from various involuntary programs. These decreases in
premiums were offset by a decrease of $4 million in
catastrophe reinsurance costs.
Net investment income decreased $12 million due primarily
to a smaller asset base. Other revenues decreased
$7 million primarily related to less income from COLI.
168
Expenses
Total expenses decreased $72 million, or 5%, to
$1,356 million for the six months ended June 30, 2009
from $1,428 million for the comparable 2008 period.
Policyholder benefits and claims decreased $46 million due
to a decrease of $85 million in catastrophe losses
resulting from a decrease of $75 million from fewer and
less severe catastrophe events than 2008s near record
levels and due to $10 million more of favorable development
of prior year catastrophe losses and a $21 million decrease
related to earned exposures. Offsetting these decreases were
$44 million less of favorable development of prior year
non-catastrophe losses, an increase of $16 million from
higher non-catastrophe claim frequencies, primarily in the
homeowners line of business, and a $1 million
increase in unallocated adjustment expenses.
Other expenses decreased $23 million due to decreases in
information technology infrastructure charges and other
operational efficiencies in a number of expense categories
partially offset by an increase in pension and postretirement
benefit costs. Policyholder dividends decreased $3 million
due primarily to unfavorable loss experience on participating
policies.
Underwriting results, including catastrophes, were favorable for
the six months ended June 30, 2009 as compared to the
corresponding 2008 period, as the combined ratio, including
catastrophes, decreased to 93.0% from 95.3% for the six months
ended June 30, 2008. Underwriting results, excluding
catastrophes, were unfavorable for the six months ended
June 30, 2009, as the combined ratio, excluding
catastrophes, increased to 88.1% from 84.9% for the six months
ended June 30, 2008.
Corporate &
Other
Corporate & Other contains the excess capital not
allocated to the business segments, various
start-up
entities, MetLife Bank and run-off entities, as well as interest
expense related to the majority of the Companys
outstanding debt and expenses associated with certain legal
proceedings and income tax audit issues. Corporate &
Other also includes the elimination of all intersegment amounts,
which generally relate to intersegment loans, which bear
interest at rates commensurate with related borrowings, as well
as intersegment transactions. The operations of RGA are also
reported in Corporate & Other as discontinued
operations. Additionally, the Companys asset management
business, including amounts reported as discontinued operations,
is included in the results of operations for
Corporate & Other. See Note 17 of the Notes to
the Interim Condensed Consolidated Financial Statements for
disclosures regarding discontinued operations, including real
estate.
169
The following table presents consolidated financial information
for Corporate & Other for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
6
|
|
|
$
|
18
|
|
Net investment income
|
|
|
135
|
|
|
|
244
|
|
|
|
184
|
|
|
|
501
|
|
Other revenues
|
|
|
283
|
|
|
|
10
|
|
|
|
550
|
|
|
|
22
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(96
|
)
|
|
|
(17
|
)
|
|
|
(255
|
)
|
|
|
(52
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
82
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(488
|
)
|
|
|
(28
|
)
|
|
|
2
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(502
|
)
|
|
|
(45
|
)
|
|
|
(171
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(80
|
)
|
|
|
221
|
|
|
|
569
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
4
|
|
|
|
14
|
|
|
|
3
|
|
|
|
24
|
|
Other expenses
|
|
|
632
|
|
|
|
402
|
|
|
|
1,211
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
636
|
|
|
|
416
|
|
|
|
1,214
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax
|
|
|
(716
|
)
|
|
|
(195
|
)
|
|
|
(645
|
)
|
|
|
(303
|
)
|
Income tax benefit
|
|
|
(328
|
)
|
|
|
(117
|
)
|
|
|
(314
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations, net of income tax
|
|
|
(388
|
)
|
|
|
(78
|
)
|
|
|
(331
|
)
|
|
|
(87
|
)
|
Income from discontinued operations, net of income tax
|
|
|
|
|
|
|
116
|
|
|
|
12
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(388
|
)
|
|
|
38
|
|
|
|
(319
|
)
|
|
|
65
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(7
|
)
|
|
|
56
|
|
|
|
(6
|
)
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to MetLife, Inc.
|
|
|
(381
|
)
|
|
|
(18
|
)
|
|
|
(313
|
)
|
|
|
(7
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to MetLife, Inc.s common shareholders
|
|
$
|
(412
|
)
|
|
$
|
(49
|
)
|
|
$
|
(374
|
)
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008 Corporate &
Other
Loss
from Continuing Operations
Loss from continuing operations increased by $310 million
to $388 million for the three months ended June 30,
2009 from $78 million for the comparable 2008 period.
Net investment losses increased by $296 million, net of
income tax, to a loss of $326 million, net of income tax,
for the three months ended June 30, 2009 from a loss of
$30 million, net of income tax, for the comparable 2008
period. The increase in net investment losses was primarily due
to increased losses on freestanding derivatives, certain foreign
currency transactions, and other limited partnerships, partially
offset by gains on the sale of fixed maturity securities. The
increase in losses on freestanding derivatives of
$251 million, net of income tax, was primarily attributable
to the impact of rising short-term interest rates in the prior
period and improving equity markets in the current period.
Rising short-term interest rates in the prior period drove gains
on certain interest rate swaps that were terminated prior to the
current period. Improving equity markets in the current period
drove losses on equity options which were entered into as part
of a macro-economic hedging strategy to mitigate the
Companys
170
equity exposure arising from variable annuity guarantees. The
increase in losses attributable to certain foreign currency
transactions of $51 million, net of income tax, was due to
the weakening of the U.S Dollar. The increase in losses on other
limited partnerships of $40 million, net of income tax, as
well as the increase in losses on real estate and real estate
joint ventures of $7 million, net of income tax, was
principally due to higher impairments on cost method investments
resulting from deterioration in value due to volatility in real
estate, equity and credit markets and from weakening of real
estate market fundamentals. These investments experienced a
reduction in net asset values due to the revaluation of the
underlying portfolio companies. The underlying valuations of the
portfolio companies have decreased due to the current economic
environment. The increase in fixed maturity securities OTTI
credit losses was attributable to an increase in impairments
across several industries due to increased financial
restructurings, bankruptcy filings, ratings downgrades or
difficult underlying operating environments of the issuer,
including impairments on perpetual hybrid securities as a result
of deterioration of the credit rating of the issuer to below
investment grade and due to a severe and extended unrealized
loss position. These losses were offset by gains of
$73 million, net of income tax, on the sale of fixed
maturity securities.
Excluding the impact of net investment gains (losses), loss from
continuing operations increased by $14 million, compared to
the comparable 2008 period.
The increase in loss from continuing operations excluding net
investment gains (losses) was primarily attributable to higher
corporate expenses, lower net investment income, lower premiums,
higher interest expenses and higher interest credited on bank
deposits of $157 million, $71 million,
$5 million, $2 million, and $1 million,
respectively, each of which were net of income tax. This
increase was partially offset by higher other revenues, lower
policyholder benefits and claims, lower interest on uncertain
tax positions, and lower legal costs of $177 million,
$7 million, $7 million and $4 million,
respectively, each of which were net of income tax. Tax benefits
increased by $29 million over the comparable 2008 period
due to the actual and the estimated tax rate allocated to the
various segments, as well as the ratio of tax preference items
to income before income tax on an annualized basis.
Revenues
Total revenues, excluding net investment gains (losses),
increased by $156 million, or 59%, to $422 million for
the three months ended June 30, 2009 from $266 million
for the comparable 2008 period.
This increase was primarily due to an increase in other revenues
of $273 million, which was principally due to an increase
in MetLife Bank loan origination and servicing fees of
$271 million related to acquisitions in 2008 and income
from counterparties on collateral pledged in 2008 of
$6 million, partially offset by a $4 million reduction
in revenue on COLI policies.
Net investment income decreased by $109 million, or 45%, to
$135 million for the three months ended June 30, 2009
from $244 million for the comparable 2008 period.
Management attributes $173 million of this change to a
decrease in yields, partially offset by an increase of
$64 million due to growth in average invested assets.
Average invested assets are calculated on the cost basis without
unrealized gains and losses. Net investment income, excluding
MetLife Bank, decreased $153 million, mainly due to reduced
yields on fixed maturity securities, cash, cash equivalents, and
short-term investments, and real estate joint ventures,
partially offset by a decrease in investment expense related to
securities lending cost of funds expense. The decrease in fixed
maturity securities yields was primarily due to lower yields on
floating rate securities due to declines in short-term interest
rates and an increased allocation to high quality, lower
yielding U.S. Treasury, agency and government guaranteed
securities, including FDIC Program bonds, and from decreased
securities lending results due to the smaller size of the
program, offset slightly by improved spreads. The decrease in
short-term investment yields was primarily attributable to
declining short-term interest rates. The decrease in yields and
the negative returns in the second quarter of 2009 realized on
real estate joint ventures was primarily from continued
declining property valuations on real estate held by certain
real estate investment funds that carry their real estate at
fair value and operating losses incurred on real estate
properties that were developed for sale by real estate
development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate properties
underlying real estate investment funds have experienced
declines in value driven by capital market factors and
deteriorating market conditions while the real estate
development joint ventures have experienced fewer property sales
due to declining real estate market
171
fundamentals and decreased availability of real estate lending
to finance transactions. The decrease in investment expenses was
primarily attributable to lower cost of funds expense on the
securities lending program and this decreased cost partially
offsets the decrease in net investment income on fixed maturity
securities. This decrease in yields was partially offset by a
higher asset base, primarily within fixed maturity securities
excluding securities lending related to the investment of
proceeds from the sale of common stock in October 2008 partially
offset by repurchases of outstanding common stock throughout
2008 and the reduction of commercial paper outstanding. Net
investment income on MetLife Bank increased by $44 million
primarily due to increased interest income on consumer loans
related to mortgage loan production primarily from acquisitions
in 2008. This increase in the net investment income of MetLife
Bank was partially offset by discontinued participation in the
securities lending program.
Premiums decreased by $8 million as a result of an increase
in indemnity reinsurance on certain run-off products. Also
included as a component of total revenues was the elimination of
intersegment amounts which was offset within total expenses.
Expenses
Total expenses increased by $220 million, or 53%, to
$636 million for the three months ended June 30, 2009
from $416 million for the comparable 2008 period.
Corporate expenses were higher by $242 million primarily
due to higher MetLife Bank costs of $210 million for
compensation, rent, and mortgage loan origination and servicing
expenses primarily related to operations acquired in 2008,
higher post employment related costs of $16 million in the
current period associated with the implementation of an
enterprise-wide cost reduction and revenue enhancement
initiative and higher deferred compensation expenses of
$9 million. Corporate expenses also increased as a result
of higher corporate support expenses of $7 million, which
included consultant fees, banking fees, rent, advertising, and
information technology costs. Interest expense was higher by
$3 million due to the issuance of senior notes in March
2009 and May 2009, and the issuance of junior subordinated debt
securities in April 2008, partially offset by rate reductions on
variable rate collateral financing arrangements in 2008 and the
reduction of commercial paper outstanding. Interest credited on
bank deposits increased by $1 million at MetLife Bank due
to higher bank deposit balances, partially offset by lower
interest rates. Interest on uncertain tax positions was lower by
$11 million as a result of a decrease in published Internal
Revenue Service (IRS) interest rates. Policyholder
benefits and claims were lower by $10 million primarily as
a result of an increase in indemnity reinsurance on certain
run-off products. Legal costs were lower by $5 million
primarily due to prior year asbestos insurance costs of
$4 million and a decrease in other legal fees of
$1 million. Also included as a component of total expenses
was the elimination of intersegment amounts which were offset
within total revenues.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008 Corporate &
Other
Loss
from Continuing Operations
Loss from continuing operations increased by $244 million
to a loss of $331 million for the six months ended
June 30, 2009 from $87 million for the comparable 2008
period.
Net investment losses increased by $69 million, net of
income tax, to a loss of $111 million, net of income tax,
for the six months ended June 30, 2009 from a loss of
$42 million, net of income tax, for the comparable 2008
period. The increase in net investment losses was primarily due
to increased losses on certain foreign currency transactions,
fixed maturity securities OTTI, other limited partnership
interests, equity securities, and real estate joint ventures,
partially offset by decreased losses on freestanding derivatives
and increased gains on the sale of fixed maturity securities.
The increase in losses attributable to certain foreign currency
transactions of $89 million, net of income tax, was due to
the weakening of the U.S Dollar. The increase in losses on other
limited partnerships of $69 million, net of income tax, as
well as the increase in losses on real estate and real estate
joint ventures of $9 million, net of income tax, was
principally due to higher impairments on cost method investments
resulting from deterioration in value due to volatility in real
estate, equity and credit markets and from weakening of real
estate market fundamentals. These investments experienced a
reduction in net asset values due to the revaluation of the
underlying portfolio companies. The underlying valuations of the
portfolio companies have decreased due to the
172
current economic environment. The increase in fixed maturity
securities OTTI credit losses of $79 million, net of income
tax, and equity securities losses of $68 million, net of
income tax, was attributable to an increase in impairments
across several industries due to increased financial
restructurings, bankruptcy filings, ratings downgrades or
difficult underlying operating environments of the issuer,
including impairments on perpetual hybrid securities as a result
of deterioration of the credit rating of the issuer to below
investment grade and due to a severe and extended unrealized
loss position. These losses were partially offset by gains of
$74 million, net of income tax, on the sale of fixed
maturity securities. The decrease in losses on freestanding
derivatives of $167 million, net of income tax, was
primarily attributable to the impact of the weakening of the
U.S. Dollar, which resulted in gains on foreign currency
swaps, and rising interest rates, which resulted in gains on
interest rate swaps, partially offset improving equity markets
which resulted in losses on equity options which were entered
into as part of a macro-economic hedging strategy to mitigate
the Companys equity exposure arising from variable annuity
guarantees.
Excluding the impact of net investment gains (losses), loss from
continuing operations increased by $175 million, compared
to the comparable 2008 period.
The increase in loss from continuing operations excluding net
investment gains (losses) was primarily attributable to higher
corporate expenses, lower net investment income,
acquisition-related costs, and lower premiums of
$329 million, $206 million, $9 million, and
$8 million, respectively, each of which were net of income
tax. This increase was partially offset by higher other
revenues, lower interest expense, lower legal costs, lower
policyholder benefits and claims, and lower interest on
uncertain tax positions of $343 million, $15 million,
$15 million, $14 million and $10 million,
respectively, each of which were net of income tax. Tax benefits
decreased by $19 million over the comparable 2008 period
due to the actual and the estimated tax rate allocated to the
various segments, as well as the ratio of tax preference items
to income before income tax on an annualized basis.
Revenues
Total revenues, excluding net investment gains (losses),
increased by $199 million, or 37%, to $740 million for
the six months ended June 30, 2009 from $541 million
for the comparable 2008 period.
This increase was primarily due to an increase in other revenues
of $528 million, which was principally due to an increase
in MetLife Bank loan origination and servicing fees of
$526 million related to operations acquired in 2008 and
income from counterparties on collateral pledged in 2008 of
$10 million, partially offset by an $8 million
reduction in revenue on COLI policies.
Net investment income decreased by $317 million, or 63%, to
$184 million for the six months ended June 30, 2009
from $501 million for the comparable 2008 period.
Management attributes $449 million of this change to a
decrease in yields, partially offset by an increase of
$132 million due to growth in average invested assets.
Average invested assets are calculated on the cost basis without
unrealized gains and losses. Net investment income, excluding
MetLife Bank, decreased $399 million, mainly due to reduced
yields on fixed maturity securities, cash, cash equivalents, and
short term investments, mortgage loans, other limited
partnership interests and real estate joint ventures, partially
offset by a decrease in investment expense related to securities
lending cost of funds. The decrease in fixed maturity securities
yields was primarily due to lower yields on floating rate
securities due to declines in short-term interest rates and an
increased allocation to high quality, lower yielding
U.S. Treasury, agency and government guaranteed securities,
including FDIC Program bonds, and from decreased securities
lending results due to the smaller size of the program, offset
slightly by improved spreads. The decrease in short-term
investment yields was primarily attributable to declining
short-term interest rates. The decrease in yields associated
with our mortgage loan portfolio was primarily attributable to
lower prepayments on commercial mortgage loans and lower yields
on variable rate loans due to declines in short-term interest
rates. The reduction in yields and the negative returns realized
on other limited partnership interests were primarily due to a
lack of liquidity and available credit in the financial markets,
driven by volatility in the equity and credit markets. The
decrease in yields and the negative returns in the first six
months of 2009 realized on real estate joint ventures was
primarily from continued declining property valuations on real
estate held by certain real estate investment funds that carry
their real estate at fair value and operating losses incurred on
real estate properties that were developed for sale by real
estate development joint ventures, in excess of earnings from
wholly-owned real estate. The commercial real estate
173
properties underlying real estate investment funds have
experienced declines in capital market factors and deteriorating
market conditions which have led to declining property
valuations, while the real estate development joint ventures
have experienced fewer property sales due to declining real
estate market fundamentals and decreased availability of real
estate lending to finance transactions. The decrease in
investment expenses was primarily attributable to lower cost of
funds expense on the securities lending program and this
decreased cost partially offsets the decrease in net investment
income on fixed maturity securities. This decrease in yields was
partially offset by a higher asset base, primarily within fixed
maturity securities excluding securities lending, related to the
investment of proceeds from the sale of common stock in October
2008 partially offset by repurchases of outstanding common stock
throughout 2008 and the reduction of commercial paper
outstanding. Net investment income on MetLife Bank increased by
$82 million primarily due to increased interest income on
consumer loans related to mortgage loan production primarily
from acquisitions in 2008. This increase in net investment
income of MetLife Bank was partially offset by discontinued
participation in the securities lending program.
Premiums decreased by $12 million as a result of an
increase in indemnity reinsurance on certain run-off products.
Also included as a component of total revenues was the
elimination of intersegment amounts which was offset within
total expenses.
Expenses
Total expenses increased by $434 million, or 56%, to
$1,214 million for the six months ended June 30, 2009
from $780 million for the comparable 2008 period.
Corporate expenses were higher by $506 million primarily
due to higher MetLife Bank costs of $401 million for
compensation, rent, and mortgage loan origination and servicing
expenses primarily related to acquisitions in 2008, higher post
employment related costs of $37 million in the current
period associated with the implementation of an enterprise-wide
cost reduction and revenue enhancement initiative and higher
deferred compensation expenses of $31 million. Corporate
expenses also increased as a result of higher corporate support
expenses of $25 million, which included consultant fees,
banking fees, rent, advertising, and information technology
costs, and lease impairments of $12 million for Company use
space that is currently vacant. Acquisition-related costs were
$11 million in the current period. Legal costs were lower
by $24 million primarily due to prior year asbestos
insurance costs of $14 million and a decrease of
$10 million in the current period resulting from the
resolution of certain matters. Interest expense was lower by
$23 million due to rate reductions on variable rate
collateral financing arrangements in 2008 and the reduction of
commercial paper outstanding, partially offset by the issuance
of senior notes in March 2009 and May 2009 and junior
subordinated debt in April 2008. Policyholder benefits and
claims were lower by $21 million primarily as a result of
an increase in indemnity reinsurance on certain run-off
products. Interest on uncertain tax positions was lower by
$15 million as a result of a decrease in published IRS
interest rates. Also included as a component of total expenses
was the elimination of intersegment amounts which were offset
within total revenues.
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. Although conditions in the financial
markets have stabilized since March 2009, continuing adverse
financial market conditions or a recurrence of the stressed
conditions that prevailed at the end of 2008 and the beginning
of 2009 could significantly affect the Companys ability to
meet liquidity needs and obtain capital. The following
discussion supplements the discussion in the 2008 Annual Report
under the caption Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Extraordinary Market Conditions.
Liquidity Management. Based upon the strength
of its franchise, diversification of its businesses and strong
financial fundamentals, management believes that the Company has
ample liquidity and capital resources to meet business
requirements under current market conditions. Processes for
monitoring and managing liquidity risk, including liquidity
stress models, have been enhanced to take into account the
extraordinary market conditions,
174
including the impact on policyholder and counterparty behavior,
the ability to sell various investment assets and the ability to
raise incremental funding from various sources. The
Companys short-term liquidity position (cash and cash
equivalents and short-term investments, excluding cash
collateral received under the Companys securities lending
program and in connection with derivative instruments that has
been reinvested in cash, cash equivalents, short-term
investments and publicly-traded securities) was
$14.4 billion and $26.7 billion at June 30, 2009
and December 31, 2008, respectively. A somewhat higher than
normal level of short-term liquidity is being maintained to
provide additional flexibility to address potential variations
in cash needs while credit market conditions remain distressed.
Maintaining a higher than normal level of short-term liquidity
adversely impacts net investment income. During the first and
second quarters of 2009, the Company invested a portion of its
short-term liquidity in higher quality, more liquid asset types,
including government securities and agency residential
mortgage-backed securities. During this extraordinary market
environment, management is continuously monitoring and adjusting
its liquidity and capital plans for the Holding Company and its
subsidiaries in light of changing needs and opportunities. The
dislocation in the credit markets has limited the access of
financial institutions to long-term debt and hybrid capital.
While, in general, yields on benchmark U.S. Treasury
securities have been historically low during the current
extraordinary market conditions, related spreads on debt
instruments, in general, and those of financial institutions,
specifically, have been as high as they have been in
MetLifes history as a public company.
Liquidity Needs of the Business. The liquidity
needs of the Companys insurance businesses did not change
materially from the discussion included in the 2008 Annual
Report. With respect to the insurance businesses, Individual and
Institutional segments tend to behave differently under these
extraordinary market conditions. In the Companys
Individual segment, which includes individual life and annuity
products, lapses and surrenders occur in the normal course of
business in many product areas. These lapses and surrenders have
not deviated materially from management expectations during the
financial crisis. For the six months ended June 30, 2009,
for both fixed and variable annuities, net flows were positive
and lapse rates declined.
Within the Institutional segment, the retirement &
savings business consists of general account values of
$93.6 billion at June 30, 2009. Of that amount,
$90.3 billion is comprised of pension closeouts, other
fixed annuity contracts without surrender or withdrawal options,
as well as global guaranteed interest contracts
(GICs) that have stated maturities and cannot be put
back to the Company prior to maturity. As a result, the
surrenders or withdrawals are fairly predictable and even during
this difficult environment they have not deviated materially
from management expectations. During the six months ended
June 30, 2009, policyholder account balances and future
policy benefits in the Institutional segment declined by
$6.5 billion, related to a decrease of $7.5 billion in
the retirement & savings business that resulted from
market conditions that were adverse to issuing new global GICs
to replace maturities or renewing maturing funding agreements,
partially offset by an increase in the outstanding amount of the
funding agreement-backed commercial paper program at quarter end.
With regard to Institutionals retirement &
savings liabilities where customers have limited liquidity
rights, at June 30, 2009, there were $2.5 billion of
funding agreements and global GICs that could be put back to the
Company after a period of notice. While the notice requirements
vary, the shortest is 15 days and applies to only
$0.3 billion of these liabilities. The next shortest notice
period is 90 days, which applies to $1.3 billion of
these liabilities. The remainder of the notice periods are
between 6 and 13 months, so even on the small portion of
the portfolio where there is ability to accelerate withdrawal,
the exposure is relatively limited. With respect to credit
ratings downgrade triggers that permit early termination,
$500 million of the retirement & savings
liabilities were subject to such triggers. In addition, such
early termination payments are subject to 90 day prior
notice. Management controls the liquidity exposure that can
arise from these various product features.
During the six months ended June 30, 2009, the Company
renewed maturing funding agreements with the Federal Home Loan
Bank of New York (FHLB of New York), primarily
replacing shorter term maturities with new agreements for
maturities ranging from two to seven years. See
The Company Liquidity and Capital
Sources Global Funding Sources for additional
detail on the funding agreements issued to the FHLB of New York
and the Federal Home Loan Bank of Boston (FHLB of
Boston).
At June 30, 2009, the Company held $4,271 million in
residential loans
held-for-sale,
compared with $2,012 million at December 31, 2008, an
increase of $2,259 million. As a result of acquisitions
completed by MetLife Bank in 2008 and a significant increase in
refinancing activity driven by lower interest rates, MetLife
Bank
175
has an increased liquidity 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
Fannie Mae or Freddie Mac. To meet the increased funding
requirement, as well as to increase overall liquidity, MetLife
Bank has taken increased advantage of collateralized borrowing
opportunities with the Federal Reserve Bank of New York and the
FHLB of New York. MetLife Banks outstanding borrowings
from the Federal Reserve Bank of New Yorks Discount Window
and Term Auction Facility increased to $1.8 billion at
June 30, 2009 from $950 million at December 31,
2008, and its liability under outstanding repurchase agreements
with the FHLB of New York increased to $3.8 billion at
June 30, 2009 from $1.8 billion at December 31,
2008.
During the six months ended June 30, 2009, the Company used
$1.2 billion of net cash in operating activities, compared
to net cash provided by operating activities of
$5.4 billion during the six months ended June 30,
2008. Cash flows from operations represent net income earned
adjusted for non-cash charges and changes in operating assets
and liabilities. For the six months ended June 30, 2009,
cash flows from operations include the impact of the Company
entering the mortgage origination and servicing business in the
latter part of 2008 discussed above, resulting in a reduction of
operating cash flows of $2.8 billion as a result of growth
within the quarter in net residential loans
held-for-sale
and mortgage servicing rights compared with no impact for the
six months ended June 30, 2008. Cash flows from operations
also reflected a loss of $2.0 billion for the six months
ended June 30, 2009 compared with a profit of
$1.7 billion for the six months ended June 30, 2008.
Excluding the impact from the mortgage origination and servicing
business and from the net loss for the period, the
Companys net cash provided by operating activities was
$3.6 billion for the six months ended June 30, 2009.
See The Company Liquidity and
Capital Uses Consolidated Cash Flows for
additional information.
Securities Lending. Under the Companys
securities lending program, blocks of securities, which are
included in fixed maturity securities and short-term
investments, are loaned to third parties, primarily major
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.
The Company was liable for cash collateral under its control of
$21.5 billion and $23.3 billion at June 30, 2009
and December 31, 2008, respectively. Based upon present
market conditions, management anticipates the securities lending
program will be maintained in the $18 billion to
$25 billion range. For further detail on the securities
lending program and the related liquidity needs, see
Investments Securities
Lending.
Internal Asset Transfers. MetLife employs an
internal asset transfer process that allows for the sale of
securities among the business portfolio segments for the
purposes of efficient asset/liability matching. The execution of
the internally transferred assets is permitted when mutually
beneficial to both business segments. The asset is transferred
at estimated fair market value with corresponding net investment
gains (losses) being eliminated in Corporate & Other.
During the six months ended June 30, 2009, a period of
market disruption, internal asset transfers were utilized to
preserve economic value for MetLife by transferring assets
across business segments instead of selling them to external
parties at depressed market prices. Securities with an estimated
fair value of $3.7 billion were transferred across business
segments in the six months ended June 30, 2009 generating
$509 million in net investment losses, principally within
Individual and Institutional, with the offset in
Corporate & Others net investment gains
(losses). Transfers of securities out of the securities lending
portfolio to other investment portfolios in exchange for cash
and short-term investments represented the majority of the
internal asset transfers during this period.
Derivatives and Collateral Financing
Arrangements. The Company does not operate a
financial guarantee or financial products business with
exposures in derivative products that could give rise to
extremely large collateral calls. The Company is a net receiver
of collateral from counterparties under the Companys
current derivative transactions. With respect to derivative
transactions with credit ratings downgrade triggers, a two-notch
downgrade would impact the Companys derivative collateral
requirements by $131 million at June 30, 2009. As a
result, the Company does not have significant exposure to any
credit ratings dependent liquidity factors resulting from
current derivative positions. As discussed under
The Holding Company Liquidity and
Capital Sources Collateral Financing
Arrangements, the Company has been providing, and may be
required from time to time to provide, collateral in connection
with collateral financing arrangements related to reinsurance of
closed block liabilities and universal life secondary guarantee
liabilities.
176
Holding Company. The Holding Company relies
principally on dividends from its subsidiaries to meet its cash
requirements. The ability of the Holding Companys
insurance subsidiaries to pay dividends is subject to regulatory
restrictions, as described under The Holding
Company Liquidity and Capital Sources. None of
the Holding Companys long-term debt is due before 2011, so
there is no near-term refinancing risk. In addition to its fixed
obligations, the Holding Company has pledged and may be required
to pledge further collateral under collateral support agreements
if the estimated fair value of the related derivatives
and/or
collateral financing arrangements declines. The Holding Company
holds significant liquid assets of $4.7 billion at
June 30, 2009, compared to $2.7 billion at
December 31, 2008. At June 30, 2009, the Holding
Company had pledged $532 million of liquid assets under
collateral support agreements, compared to $820 million at
December 31, 2008.
In April 2009, the Holding Company made a payment of
$400 million to an unaffiliated financial institution
related to a decline in the estimated fair value of the surplus
note issued by MetLife Reinsurance Company of Charleston
(MRC) pursuant to a collateral financing
arrangement. In June 2009, the Holding Company received
$400 million from the unaffiliated financial institution as
a result of the increase in the estimated fair value of the
surplus note since April 2009. See The Holding
Company Liquidity and Capital Sources
Collateral Financing Arrangements.
In January 2009, the Holding Company paid $360 million to
an unaffiliated financial institution pursuant to a collateral
financing arrangement providing statutory reserve support for
MetLife Reinsurance Company of South Carolina (MRSC)
associated with its intercompany reinsurance obligations
relating to reinsurance of universal life secondary guarantees.
All of the $360 million paid by the Holding Company was
deposited into a trust securing MRSCs obligations to the
ceding companies. See The Holding
Company Liquidity and Capital Sources
Collateral Financing Arrangements.
On March 2, 2009, the Company completed the sale of Cova,
the parent company of Texas Life, for a purchase price of
$134 million, excluding $1 million of transaction
costs. The proceeds of the transaction were paid to the Holding
Company.
On February 17, 2009, in connection with the successful
remarketing of the $1,035 million Series B portion of
the junior subordinated debt securities constituting part of the
common equity units issued in June 2005, the Holding Company
received proceeds of $1,035 million from the settlement of
the related stock purchase contracts and delivered
24,343,154 shares of its newly issued common stock. On
March 26, 2009, the Holding Company issued
$397 million aggregate principal amount of floating-rate
senior notes due June 2012 under the FDIC Program.
On May 29, 2009, the Holding Company issued
$1,250 million aggregate principal amount of senior notes
due June 1, 2016. Interest on the notes accrues at a fixed
rate of 6.75%, payable semiannually. See The
Holding Company Liquidity and Capital
Sources Debt Issuances and Other Borrowings.
See Subsequent Events for discussion of
issuances of junior subordinated debt securities since
June 30, 2009.
Capital. Although the Company has been able to
raise new capital during the difficult market conditions
prevailing since the second half of 2008, the increase in credit
spreads experienced since the second half of 2008 has resulted
in an increase in the cost of new debt capital. As a result of
reductions in interest rates, the Companys interest
expense and dividends on floating rate securities has been
lower; however, the increase in the Companys credit
spreads since the second half of 2008 has caused the
Companys letter of credit fees to increase.
The Company manages its capital structure to maintain a level of
capital needed for AA financial strength ratings.
However, management believes that the rating agencies have
recently heightened the level of scrutiny that they apply to
insurance companies and are considering several other factors,
in addition to the level of capital, in assigning financial
strength ratings. In the current environment, holding capital at
levels that have been historically associated with a particular
financial strength rating is one factor in the maintenance of
that rating. The rating agencies may also adjust upward the
capital and other requirements employed in their models for
maintenance of certain ratings levels.
177
The
Company
Capital
Capital and liquidity represent the financial strength of the
Company and reflect 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.
Statutory Capital and Dividends. Our insurance
subsidiaries have statutory surplus well above levels to meet
current regulatory requirements.
The amount of dividends that our insurance subsidiaries can pay
to MetLife, Inc. 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. The rating agencies assign
insurer financial strength ratings to the Companys
domestic life subsidiaries and credit ratings to MetLife, Inc.
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 Companys 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. In the current environment, holding
capital at levels that have been historically associated with a
particular financial strength rating is one factor in the
maintenance of that rating. Management believes 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 Companys financial strength ratings for its domestic
life insurance companies are AA-/Aa2/AA/A+ for
Standard & Poors Ratings Services
(S&P), Moodys Investors Service
(Moodys), Fitch Ratings (Fitch),
and A.M. Best Company (A.M. Best),
respectively. The Companys long-term senior debt credit
ratings are A-/A2/A/a- for S&P, Moodys,
Fitch, and A.M. Best, respectively. The Companys
ratings outlooks are
Negative/Negative/Negative/Stable for S&P,
Moodys, Fitch, and A.M. Best, respectively.
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 unsecured 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 Companys
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 Overview and
Liquidity and Capital Uses
Contractual Obligations.
Cash Flows from Investments. The
Companys 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
volatilities. The Company closely monitors and manages these
risks through its credit risk management process. Since the
latter half of 2008, the Company has held a higher short-term
liquidity position in response to the extraordinary market
conditions. The Companys short-term liquidity position,
defined as cash, cash equivalents and short-term investments
excluding both cash collateral received under the Companys
securities lending program that has been reinvested in cash,
cash equivalents, short-term investments and collateral received
from counterparties in connection with derivative instruments,
was $14.4 billion and $26.7 billion at June 30,
2009 and December 31, 2008, respectively. See
Investments Current
Environment.
178
Liquid Assets. An integral part of the
Companys 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 Companys
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 June 30, 2009 and December 31,
2008, the Company had $144.5 billion and
$141.7 billion in liquid assets, respectively. For further
discussion of 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 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 stockholders equity. The diversity of the
Companys 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.
During the turbulent market conditions that began in 2008 and
continued through the second quarter of 2009, the Company has
had available to it various means of short- and long-term
financing, including certain economic stabilization programs
established by various government institutions.
|
|
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|
|
MetLife, Inc. and MetLife Funding, Inc. (MetLife
Funding) each have commercial paper programs. Depending on
market conditions, we may issue shorter maturities than we would
otherwise like. The commercial paper markets have effectively
closed to certain issuers, depending upon their ratings.
|
|
|
|
The Federal Reserve Bank of New Yorks Commercial Paper
Funding Facility (CPFF) is intended 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 MetLife Insurance Company of Connecticut (MICC),
was accepted in October 2008 for the CPFF and may issue a
maximum amount of $3.8 billion under the CPFF. At
June 30, 2009 MetLife Short Term Funding LLC had no
drawdown under its CPFF capacity, compared to
$1,650 million at December 31, 2008. MetLife Funding
was accepted in November 2008 for the CPFF and may issue a
maximum amount of $1 billion under the CPFF. No drawdown by
MetLife Funding has taken place under this facility at
June 30, 2009.
|
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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. 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 June 30, 2009 and December 31, 2008,
MetLife Banks liability for advances from the Federal
Reserve Bank of New York under these facilities was
$1.8 billion and $950 million, respectively, which is
included in short-term debt. The Company did not participate in
these programs during the six months ended June 30, 2008.
See Note 9 of the Notes to the Interim Condensed
Consolidated Financial Statements.
|
|
|
|
As a member of the FHLB of New York, MetLife Bank has entered
into repurchase agreements with FHLB of New York on both short-
and long-term bases, with a total liability for repurchase
agreements with the FHLB of New York of $3.8 billion and
$1.8 billion at June 30, 2009 and December 31,
2008, respectively. See Note 9 of the Notes to the Interim
Condensed Consolidated Financial Statements.
|
|
|
|
MetLife, Inc. and MetLife Bank have elected to continue to
participate in the debt guarantee component of the FDIC Program.
On March 26, 2009, MetLife, Inc. issued $397 million
aggregate principal amount of floating-rate senior notes due
June 2012 under the FDIC Program, representing all MetLife,
Inc.s capacity
|
179
|
|
|
|
|
under the FDIC Program. MetLife Bank may issue up to
$178 million of guaranteed debt under the FDIC Program.
Unless extended, the FDIC Program will not apply to debt issued
after October 31, 2009.
|
|
|
|
|
|
In addition, the Company had obligations under funding
agreements with the Federal Home Loan Bank of New York
(FHLB of NY) of $14.9 billion and
$15.2 billion at June 30, 2009 and December 31,
2008, respectively, for MLIC and with the FHLB of Boston of
$325 million and $526 million at June 30, 2009
and December 31, 2008, respectively, for MICC. The FHLB of
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 June 30, 2009. In the
current market environment, the Federal Home Loan Bank system
has demonstrated its commitment to provide funding to its
members especially through these stressful market conditions.
Management expects the renewal of these funding resources.
During the six months ended June 30, 2009, the Company
renewed maturing funding agreements with the FHLB-NY, replacing
shorter term maturities with new agreements for maturities
ranging from 2 to 7 years. See Note 7 of the Notes to
the Interim Condensed Consolidated Financial Statements.
|
At June 30, 2009 and December 31, 2008, the Company
had outstanding $4.8 billion and $2.7 billion in
short-term debt, respectively, and $12.9 billion and
$9.7 billion in long-term debt, respectively. At
June 30, 2009 and December 31, 2008, the Company had
outstanding $5.3 billion and $5.2 billion in
collateral financing arrangements, respectively, and
$2.7 billion and $3.8 billion in junior subordinated
debt, respectively. Short-term and long-term debt include 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. For
information on debt issuances and other borrowings entered into
by the Company, see The Holding
Company Liquidity and Capital Sources
Debt Issuances and Other Borrowings.
Collateral Financing Arrangements. For
information on collateral financing arrangements entered into by
the Company, see The Holding
Company Liquidity and Capital Sources
Collateral Financing Arrangements.
Credit Facilities. The Company maintains
committed and unsecured credit facilities aggregating
$3.2 billion at June 30, 2009. When drawn upon, these
facilities bear interest at varying rates in accordance with the
respective agreements. The facilities can be used for general
corporate purposes and, at June 30, 2009, $2.9 billion
of the facilities also served as
back-up
lines of credit for the Companys commercial paper
programs. These facilities contain various administrative,
reporting, legal and financial covenants, including a
requirement for the Company to maintain a specified minimum
consolidated net worth. Management has no reason to believe that
its lending counterparties are unable to fulfill their
respective contractual obligations.
Total fees associated with these credit facilities were
$14 million and $30 million for the three months and
six months ended June 30, 2009, respectively, and
$1 million and $3 million for the three months and six
months ended June 30, 2008, respectively. Information on
these credit facilities at June 30, 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
|
|
|
$
|
534
|
|
|
$
|
|
|
|
$
|
2,316
|
|
MetLife Bank, N.A
|
|
|
July 2009
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,150
|
|
|
$
|
534
|
|
|
$
|
|
|
|
$
|
2,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Company maintains
committed facilities aggregating $11.5 billion at
June 30, 2009. When drawn upon, these facilities bear
interest at varying rates in accordance with the respective
agreements. The facilities are used for collateral for certain
of the Companys reinsurance liabilities. These facilities
contain various administrative, reporting, legal and financial
covenants, including a requirement for the Company to
180
maintain a specified minimum consolidated net worth. Management
has no reason to believe that its lending counterparties are
unable to fulfill their respective contractual obligations.
Total fees associated with these committed facilities were
$14 million and $25 million for the three months and
six months ended June 30, 2009, respectively, and
$4 million and $7 million for the three months and six
months ended June 30, 2008, respectively. Information on
committed facilities at June 30, 2009 is as follows:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
|
|
Unused
|
|
|
Maturity
|
|
Account Party/Borrower(s)
|
|
Expiration
|
|
Capacity
|
|
|
Issuances
|
|
|
Drawdowns
|
|
|
Commitments
|
|
|
(Years)
|
|
|
|
|
|
(In millions)
|
|
|
MetLife, Inc.
|
|
August 2009 (1)
|
|
$
|
500
|
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri
Reinsurance (Barbados), Inc.
|
|
June 2016 (2)
|
|
|
500
|
|
|
|
490
|
|
|
|
|
|
|
|
10
|
|
|
|
7
|
|
Exeter Reassurance Company Ltd.
|
|
December 2027 (3)
|
|
|
650
|
|
|
|
410
|
|
|
|
|
|
|
|
240
|
|
|
|
18
|
|
MetLife Reinsurance Company of South Carolina &
MetLife, Inc.
|
|
June 2037
|
|
|
3,500
|
|
|
|
|
|
|
|
2,797
|
|
|
|
703
|
|
|
|
28
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
December 2037 (3)
|
|
|
2,896
|
|
|
|
1,421
|
|
|
|
|
|
|
|
1,475
|
|
|
|
28
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
September 2038 (3)
|
|
|
3,500
|
|
|
|
1,261
|
|
|
|
|
|
|
|
2,239
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
11,546
|
|
|
$
|
4,082
|
|
|
$
|
2,797
|
|
|
$
|
4,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On July 31, 2009, MetLife, Inc. entered into an agreement
to extend the availability of $300 million of this
committed facility to August 2010. |
|
(2) |
|
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. |
|
(3) |
|
The Holding Company is a guarantor under this agreement. |
Letters of Credit. At June 30, 2009, the
Company had outstanding $4.7 billion in letters of credit
from various financial institutions, of which $4.1 billion
and $534 million were part of committed and credit
facilities, respectively. As commitments associated with letters
of credit and financing arrangements may expire unused, these
amounts do not necessarily reflect the Companys actual
future cash funding requirements.
Covenants. Certain of the Companys debt
instruments, credit facilities and committed facilities contain
various administrative, reporting, legal and financial
covenants. The Company believes it is in compliance with all
covenants at June 30, 2009.
Liquidity
and Capital Uses
Debt Repayments. During the six months ended
June 30, 2009 and 2008, MetLife Bank made repayments of
$120 million and $171 million, respectively, to the
FHLB of NY related to long-term borrowings. During the six
months ended June 30, 2009, MetLife Bank made repayments of
$16 billion to the FHLB of NY and $8.1 billion to the
Federal Reserve Bank of New York related to short-term
borrowings. During the six months ended June 30, 2009, MICC
made repayments of $300 million to the FHLB of Boston
related to short-term borrowings.
Insurance Liabilities. The Companys
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. See
Contractual Obligations.
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.
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 major
brokerage firms and commercial banks. The Company was liable for
cash collateral under its control of
181
$21.5 billion and $23.3 billion at June 30, 2009
and December 31, 2008, respectively. During the
unprecedented market disruption since mid-September 2008, the
demand for securities loans from the Companys
counterparties has decreased. The volume of securities lending
has decreased in line with reduced demand from counterparties
and reduced trading capacity of certain segments of the fixed
income securities market. See Overview
and Investments Securities
Lending for further information.
Contractual Obligations. The following table
summarizes the Companys major contractual obligations at
June 30, 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(1
|
)
|
|
$
|
301,362
|
|
|
$
|
7,139
|
|
|
$
|
10,838
|
|
|
$
|
11,600
|
|
|
$
|
271,785
|
|
Policyholder account balances
|
|
|
(2
|
)
|
|
|
205,328
|
|
|
|
33,137
|
|
|
|
30,556
|
|
|
|
24,533
|
|
|
|
117,102
|
|
Other policyholder liabilities
|
|
|
(3
|
)
|
|
|
6,137
|
|
|
|
6,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
(4
|
)
|
|
|
4,757
|
|
|
|
4,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
(4
|
)
|
|
|
21,198
|
|
|
|
1,290
|
|
|
|
3,469
|
|
|
|
2,668
|
|
|
|
13,771
|
|
Collateral financing arrangements
|
|
|
(4
|
)
|
|
|
7,656
|
|
|
|
97
|
|
|
|
194
|
|
|
|
193
|
|
|
|
7,172
|
|
Junior subordinated debt securities
|
|
|
(4
|
)
|
|
|
8,462
|
|
|
|
205
|
|
|
|
409
|
|
|
|
409
|
|
|
|
7,439
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
(5
|
)
|
|
|
24,607
|
|
|
|
24,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to lend funds
|
|
|
(6
|
)
|
|
|
7,619
|
|
|
|
7,528
|
|
|
|
66
|
|
|
|
5
|
|
|
|
20
|
|
Operating leases
|
|
|
(7
|
)
|
|
|
2,056
|
|
|
|
286
|
|
|
|
437
|
|
|
|
298
|
|
|
|
1,035
|
|
Other
|
|
|
(8
|
)
|
|
|
11,001
|
|
|
|
10,622
|
|
|
|
6
|
|
|
|
2
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
600,183
|
|
|
$
|
95,805
|
|
|
$
|
45,975
|
|
|
$
|
39,708
|
|
|
$
|
418,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Future policyholder benefits include liabilities related to
traditional whole life policies, term life policies, 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
$463 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 displays estimated payments due for periods extending
for more than 100 years from the present date. |
182
|
|
|
|
|
The sum of the estimated cash flows shown for all years in the
table of $301.4 billion exceeds the liability amount of
$132.8 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 Companys 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. |
|
|
|
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. |
|
(2) |
|
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, bank deposits, 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 $625 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 $205.3 billion exceeds the liability amount of
$147.9 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 between the date the liabilities were initially
established and the current date. See the comments under
footnote 1 regarding the source and uncertainties associated
with the estimation of the contractual obligations related to
future policyholder benefits and policyholder account balances.
See also Overview. |
|
(3) |
|
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 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
|
183
|
|
|
|
|
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. |
|
|
|
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 sheet.
|
|
|
|
c. The nature of the policyholder dividend obligation is
described in Note 9 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report. 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,
management has 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 done to reflect
the long-duration of the liability and the uncertainty of the
ultimate cash payment.
|
|
(4) |
|
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. |
|
|
|
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 April 1, 2009 through
maturity. |
|
|
|
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 is computed
using prevailing rates at June 30, 2009 and, as such, does
not consider the impact of future rate movements. Long-term debt
also includes payments under capital lease obligations of
$8 million, $4 million, $1 million and
$28 million, in the less than one year, one to three years,
three to five years and more than five years categories,
respectively. |
|
|
|
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 is computed using prevailing rates at June 30, 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 Holding Company
Global Funding Sources. |
|
|
|
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
Companys 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. |
|
(5) |
|
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 $435 million at
June 30, 2009. |
|
(6) |
|
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. |
184
|
|
|
(7) |
|
As a lessee, the Company has various operating leases, primarily
for office space. Contractual provisions exist that could
increase or accelerate those leases 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 Companys financial position or results
of operations. See Off-Balance Sheet
Arrangements. |
|
(8) |
|
Other includes those other liability balances which represent
contractual obligations, as well as other miscellaneous
contractual obligations of $11 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. |
|
|
|
The other liabilities presented in the table above differs from
the amount presented in the consolidated balance sheet by
$3.7 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. |
|
|
|
The net funded status of the Companys 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 $72 million, based on the current
years expected gross benefit payments to participants, to
be made by the Company to the postretirement benefit plans
during 2009. 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 Companys cash flows. |
|
|
|
Excluded from the table above are unrecognized tax benefits and
accrued interest of $768 million and $182 million,
respectively, for which the Company cannot reliably determine
the timing of payment. Current income tax payable is also
excluded from the table. |
|
|
|
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 as
prescribed by
SOP 03-1
Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts
(SOP 03-1).
The Company also enters into agreements to purchase goods and
services in the normal course of business; however, these
purchase obligations are not material to its consolidated
results of operations or financial position at June 30,
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.
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 entitys insurance liabilities.
Management anticipates that
185
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 Companys
consolidated financial statements, have arisen in the course of
the Companys 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 Companys 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 Companys financial
position, based on information currently known by the
Companys 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 Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
Fair Value. The estimated fair value of the
Companys fixed maturity securities, equity securities,
trading securities, short-term investments, derivatives, and
embedded derivatives along with their fair value hierarchy, are
described and disclosed in Note 18 of the Notes to the
Interim Condensed Consolidated Financial Statements and
Investments.
Unprecedented credit and equity market conditions have resulted
in difficulty in valuing certain asset classes due to inactive
or disorderly markets and less observable market data. Rapidly
changing market conditions and less liquid markets could
materially change the valuation of securities within our
consolidated financial statements and
period-to-period
changes in value could vary significantly. The ultimate value at
which securities may be sold could differ significantly from the
valuations reported within the consolidated financial statements
and could impact our liquidity.
Further, recent events have prompted accounting standard setters
and law makers to study the definition and application of fair
value accounting. It appears likely that further disclosures
regarding the application of, and amounts carried at, fair value
will be required.
See also Quantitative and Qualitative Disclosures About
Market Risk.
Other. Based on managements analysis of
its expected cash inflows from operating activities, the
dividends it receives from subsidiaries, that are permitted to
be paid without prior insurance regulatory approval and its
portfolio of liquid assets and other anticipated cash flows,
management believes there will be sufficient liquidity to enable
the Company to make payments on debt, make cash dividend
payments on its common and preferred stock, pay all operating
expenses, and meet its cash needs. The nature of the
Companys diverse product portfolio and customer base
lessens the likelihood that normal operations will result in any
significant strain on liquidity.
Consolidated Cash Flows. Net cash used in
operating activities was $1.2 billion for the six months
ended June 30, 2009 as compared to net cash provided by
operating activities of $5.4 billion for the six months
ended June 30, 2008. Accordingly, net cash provided by
operating activities decreased by $6.6 billion for the six
months ended June 30, 2009 as compared to the six months
ended June 30, 2008. Cash flows from operations represent
net income earned adjusted for non-cash charges and changes in
operating assets and liabilities. Net income for the six months
ended June 30, 2009 was a loss of $2.0 billion as
compared to a profit of $1.7 billion for the six months
ended June 30, 2008. Accordingly, the decrease in net
income contributed $3.7 billion of the $6.6 billion
decrease in net cash provided by operating activities for the
six months ended June 30, 2009 as compared to the six
months ended June 30, 2008. Also, for the six months ended
June 30, 2009, cash flows from operations includes the
impact
186
of the Company entering the mortgage origination and servicing
business in the latter part of 2008, resulting in a reduction of
operating cash flows of $2.8 billion due to growth for the
six months ended June 30, 2009 in net residential loans
held-for-sale
and mortgage servicing rights compared with no impact for the
six months ended June 30, 2008. Excluding the impacts of
changes in net income and the mortgage origination and servicing
business, the Companys net cash provided by operating
activities was $3.6 billion for the six months ended
June 30, 2009 compared with $3.7 billion for the six
months ended June 30, 2008. The net cash generated from
operating activities is used to meet the Companys
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
Companys insurance liabilities.
Net cash used in financing activities was $1.0 billion for
the six months ended June 30, 2009 as compared to net cash
provided by financing activities of $7.5 billion for the
six months ended June 30, 2008. Accordingly, net cash
provided by financing activities decreased by $8.5 billion
for the six months ended June 30, 2009 as compared to the
six months ended June 30, 2008. Since the third quarter of
2008, the Company has reduced securities lending activities in
line with market conditions, which resulted in a decrease of
$1.8 billion in the cash collateral received in connection
with the securities lending program for the six months ended
June 30, 2009, compared to a $1.6 billion increase for
the six months ended June 30, 2008. The Company also
experienced a $4.7 billion decrease in cash collateral
received under derivatives transactions for the six months ended
June 30, 2009 compared to an increase of $0.2 billion
for the six months ended June 30, 2008. The cash collateral
received under derivatives transactions is invested in cash,
cash equivalents and other short-term investments, and the
reduction in cash collateral received therefore contributed in
part to the decrease in the liquid assets. Primarily as a result
of unfavorable market conditions for the issuance of funding
agreements and funding agreement-backed notes (Global GIC)
contracts, net cash flows from policyholder account balances
were relatively flat for the six months ended June 30, 2009
compared to a net increase of $6.1 billion during the six
months ended June 30, 2008. Partially offsetting these
decreases in cash flow from financing activities, short-term
debt increased by $2.1 billion during the six months ended
June 30, 2009 compared with no material change in the six
months ended June 30, 2008. The increase in short-term debt
primarily reflected MetLife Banks borrowings from the FHLB
of NY and the Federal Reserve Bank of New York to fund the
increase in the mortgage origination and servicing business
mentioned above. Also during the six months ended June 30,
2009, there was a net issuance of long-term debt of
$2.1 billion compared to $0.8 billion issuance of
junior subordinated debt in the six months ended June 30,
2008. The Company made a payment of $400 million to an
unaffiliated financial institution related to a decline in the
estimated fair value of a surplus note issued by MRC in January
2009 and also received $400 million from the unaffiliated
financial institution as a result of the increase in the
estimated fair value of the surplus note at June 30, 2009.
Finally, in order to strengthen its capital base, during the six
months ended June 30, 2009, the Company issued
$1.0 billion of common stock and did not repurchase any of
its common stock under its common stock repurchase programs as
compared to no common stock issuance and $1.3 billion of
repurchases of its common stock during the six months ended
June 30, 2008.
Net cash used in investing activities was $8.9 billion and
$9.5 billion for the six months ended June 30, 2009
and 2008, respectively. Accordingly, net cash used in investing
activities decreased by $0.6 billion for the six months
ended June 30, 2009 as compared to six months ended
June 30, 2008. The net cash used in investing activities in
the six months ended June 30, 2009 corresponded with a net
decrease of $11.0 billion in cash and cash equivalents in
the same period, reflecting the Companys 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 six
months ended June 30, 2009 was primarily composed of net
purchases of $15.3 billion of fixed maturity securities,
partly offset by a net reduction of $5.8 billion in short
term investments. In the comparable 2008 period, cash and cash
equivalents increased by $3.4 billion and there was a net
reduction of $0.7 billion in short term investments. Of the
net cash used in investing activities in the six months ended
June 30, 2008, a little over half was used for net
purchases of fixed maturity securities and the rest was spread
across various asset classes.
187
The
Holding Company
Capital
Restrictions and Limitations on Bank Holding Companies and
Financial Holding Companies
Capital. 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, MetLife, Inc. and MetLife Bank met the
minimum capital standards as per federal banking regulatory
agencies with all of MetLife Banks risk-based and leverage
capital ratios meeting the federal banking regulatory
agencies well capitalized standards and all of
MetLife, Inc.s risk-based and leverage capital ratios
meeting the adequately capitalized standards.
Liquidity
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 Companys 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 Companys access
to liquidity. See Overview.
The Holding Companys ability to maintain regular access to
competitively priced wholesale funds is fostered by its current
high credit ratings from the major credit rating agencies.
Management views its capital ratios, credit quality, stable and
diverse earnings streams, diversity of liquidity sources and its
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 Companys liquidity.
Liquidity
and Capital Sources
Dividends. The primary source of the Holding
Companys liquidity is dividends it receives from its
insurance subsidiaries. The Holding Companys 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, reserve calculation assumptions,
goodwill and surplus notes. Management of the Holding Company
cannot provide assurances that the Holding Companys
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.
188
The table below sets forth the dividends permitted to be paid by
the respective insurance subsidiary without insurance regulatory
approval:
|
|
|
|
|
|
|
2009
|
|
|
|
Permitted w/o
|
|
Company
|
|
Approval (1)
|
|
|
|
(In millions)
|
|
|
Metropolitan Life Insurance Company
|
|
$
|
552
|
|
MetLife Insurance Company of Connecticut
|
|
$
|
714
|
|
Metropolitan Tower Life Insurance Company
|
|
$
|
88
|
|
Metropolitan Property and Casualty Insurance Company
|
|
$
|
9
|
|
|
|
|
(1) |
|
Reflects dividend amounts that may be paid during 2009 without
prior regulatory approval. However, if paid before a specified
date during 2009, some or all of such dividends may require
regulatory approval. |
Liquid Assets. An integral part of the Holding
Companys 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 Companys
securities lending program that has been reinvested in cash,
cash equivalents, short-term investments and publicly-traded
securities. At June 30, 2009 and December 31, 2008,
the Holding Company had $4.7 billion and $2.7 billion
in liquid assets, respectively. In addition to its other fixed
obligations, the Holding Company has and may be required to
pledge further collateral under collateral support agreements if
the estimated fair value of the related derivatives
and/or
collateral financing arrangements declines. At June 30,
2009, the Holding Company had pledged $532 million of
liquid assets under collateral support agreements as described
in Investments Assets on Deposit,
Held in Trust and Pledged as Collateral. At
December 31, 2008, the Holding Company had pledged
$820 million 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 Companys 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
Companys liquidity include programs for short-and
long-term borrowing, as needed.
During this extraordinary market environment, management is
continuously monitoring and adjusting its liquidity and capital
plans for the Holding Company and its subsidiaries in light of
changing needs and opportunities. The dislocation in the credit
markets has limited the access of financial institutions to
long-term debt and hybrid capital. While, in general, yields on
benchmark U.S. Treasury securities are historically low,
related spreads on debt instruments, in general, and those of
financial institutions, specifically, are as high as they have
been in our history as a public company.
At June 30, 2009 and December 31, 2008, the Holding
Company had $0 and $300 million in short-term debt
outstanding, respectively. At June 30, 2009 and
December 31, 2008, the Holding Company had
$10.5 billion and $7.7 billion of unaffiliated
long-term debt outstanding, respectively. At both June 30,
2009 and December 31, 2008, the Holding Company had
$500 million of affiliated long-term debt outstanding. At
June 30, 2009 and December 31, 2008, the Holding
Company had $1.2 billion and $2.3 billion of junior
subordinated debt securities outstanding, respectively. At
June 30, 2009 and December 31, 2008, the Holding
Company had $2.8 billion and $2.7 billion in
collateral financing arrangements outstanding, respectively.
Debt Issuances and Other Borrowings. On
May 29, 2009, the Holding Company issued
$1,250 million 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
aggregate principal amount of floating rate senior notes due
June 2012 under the FDIC Program. The notes bear interest at a
rate equal to three-month LIBOR, reset
189
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 using the effective interest method
over the term of the notes.
On February 17, 2009, the Holding Company closed the
successful remarketing of the Series B portion of the
junior subordinated debt securities constituting part of its
common equity units issued in June 2005. The common equity units
consisted of a debt security and a stock purchase contract under
which the holders of the units would be required to purchase
common stock. The remarketing of the Series A portion of
the junior subordinated debt securities and the associated stock
purchase contract settlement occurred in August 2008. In the
February 2009 remarketing, the 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 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 stock purchase contracts. 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 contracts, the
terms of the debt they received are the same as the terms of the
remarketed debt. The subsequent settlement of the stock purchase
contracts provided proceeds to the Holding Company of
$1,035 million in exchange for shares of the Holding
Companys common stock. The Holding Company delivered
24,343,154 shares of its newly issued common stock to
settle the stock purchase contracts on February 17, 2009.
See Subsequent Events for discussion of
issuances of junior subordinated debt securities since
June 30, 2009.
Collateral Financing Arrangements. As
described more fully in Note 10 of the Notes to the Interim
Condensed Consolidated Financial Statements:
|
|
|
|
|
In December 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MRCs
reinsurance of the closed block liabilities, entered into an
agreement with an unaffiliated financial institution that
referenced the $2.5 billion surplus note issued by MRC.
Under the agreement, the Holding Company is entitled to the
interest paid by MRC on the surplus note 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.
|
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 note. Any such payments would be
accounted for as a receivable and included under other assets on
the Companys consolidated financial statements and would
not reduce the principal amount outstanding of the surplus note.
Such payments would reduce the amount of interest payments due
from the Holding Company under the agreement. At
December 31, 2008, the Company had paid $800 million
to the unaffiliated financial institution related to the decline
in the estimated fair value of the surplus note. In April 2009,
the Holding Company paid $400 million to the unaffiliated
financial institution related to a decline in the estimated fair
value of the surplus note. In June 2009, the Holding Company
received $400 million from the unaffiliated financial
institution as a result of the increase in the estimated fair
value of the surplus note since April 2009. In addition, the
Holding Company had pledged collateral with an estimated fair
value of $48 million and $230 million to the
unaffiliated financial institution at June 30, 2009 and
December 31, 2008, respectively. 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.
|
|
|
|
|
In May 2007, the Holding Company, in connection with the
collateral financing arrangement associated with MRSCs
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 a trust 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 trust,
|
190
|
|
|
|
|
related to any decline in the estimated fair value of the assets
held by the trust, as well as amounts outstanding upon maturity
or early termination of the collateral financing arrangement. In
January 2009, the Holding Company paid $360 million to the
unaffiliated financial institution as a result of the decline in
the estimated fair value of the assets in the trust.
Cumulatively, the Holding Company has contributed
$680 million as a result of declines in the estimated fair
value of the assets in the trust through June 30, 2009, all
of which was deposited into the trust.
|
In addition, the Holding Company may be required to pledge
collateral to the unaffiliated financial institution under this
agreement. At June 30, 2009 and December 31, 2008, the
Holding Company had pledged $75 million and
$86 million under the agreement, respectively.
Credit Facilities. The Holding Company and
MetLife Funding entered into a $2.9 billion credit
agreement with various financial institutions, the proceeds of
which are available to be used for general corporate purposes,
to support their 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. Total fees associated with these credit facilities were
$14 million and $30 million for the three months and
six months ended June 30, 2009, respectively, and
$1 million and $3 million for the three months and six
months ended June 30, 2008, respectively.
At June 30, 2009, $534 million of letters of credit
have been issued under these unsecured credit facilities on
behalf of the Holding Company.
Management has no reason to believe that its lending
counterparties are unable to fulfill their respective
contractual obligations. See The
Company Liquidity and Capital Sources
Credit Facilities.
Committed Facilities. The Holding Company
maintains committed facilities aggregating $11.5 billion at
June 30, 2009. When drawn upon, these facilities bear
interest at varying rates in accordance with the respective
agreements. The facilities are used for collateral for certain
of the Companys reinsurance liabilities. Management has no
reason to believe that its lending counterparties are unable to
fulfill their contractual obligations. See The
Company Liquidity and Capital Sources
Committed Facilities.
Letters of Credit. At June 30, 2009, the
Holding Company had outstanding $1.0 billion in letters of
credit from various financial institutions, of which
$500 million and $534 million were part of committed
and credit facilities, respectively. As commitments associated
with letters of credit and financing arrangements may expire
unused, these amounts do not necessarily reflect the Holding
Companys actual future cash funding requirements.
Covenants. Certain of the Holding
Companys debt instruments, credit facilities and committed
facilities contain various administrative, reporting, legal and
financial covenants. The Holding Company believes it is in
compliance with all covenants at June 30, 2009.
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 Companys common stock.
Dividends
Future common stock dividend decisions will be determined by the
Holding Companys Board of Directors after taking into
consideration factors such as the Companys 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.
191
Information on the declaration, record and payment dates, as
well as per share and aggregate dividend amounts, for the
Holding Companys Floating Rate Non-Cumulative Preferred
Stock, Series A and 6.50% Non-Cumulative Preferred Stock,
Series B is as follows for the six months ended
June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16
|
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliated Capital Transactions. During the
six months ended June 30, 2009 and 2008, the Holding
Company invested an aggregate of $755 million and
$788 million, respectively, in various subsidiaries.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
Interest Rate
|
|
Maturity Date
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Metropolitan Life Insurance Company
|
|
3-month LIBOR + 1.15%
|
|
December 31, 2009
|
|
$
|
700
|
|
|
$
|
700
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
December 15, 2032
|
|
|
400
|
|
|
|
400
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
January 15, 2033
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,200
|
|
|
$
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchases. At June 30, 2009, the
Company had $1,261 million remaining on the April 2008 and
January 2008 common stock repurchase authorizations. The Company
does not intend to make any purchases under the common stock
repurchase programs in 2009.
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. See the 2008 Annual Report for a description of
various support arrangements of the Holding Company.
Management anticipates that in the event that these arrangements
place demands upon the Holding Company, there will be sufficient
liquidity and capital to enable the Holding Company to meet
anticipated demands.
Based on managements 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.
Holding Company Cash Flows. Net cash provided
by operating activities was $88 million and
$421 million for the six months ending June 30, 2009
and 2008, respectively. Accordingly, net cash provided by
operating activities decreased by $333 million for the six
months ended June 30, 2009 as compared to the six months
ended June 30, 2008. The net cash generated from operating
activities is used to meet the Holding Companys liquidity
192
needs, such as debt and dividend payments, and provides cash
available for investing activities. Cash flows from operations
represent net income earned adjusted for non-cash charges and
changes in operating assets and liabilities. The 2008 and 2009
operating activities included net income and earnings from
subsidiaries, and changes in current assets and liabilities.
Net cash provided by financing activities was $2.4 billion
for the six months ended June 30, 2009 compared to
$1.6 billion of net cash used for the six months ended
June 30, 2008. Accordingly, net cash provided by financing
activities increased by $4.0 billion for the six months
ended June 30, 2009 compared to the six months ended
June 30, 2008. During the six months ended June 30,
2009, there was a net issuance of $1.6 billion of long-term
debt compared to no net issuance in the comparable period of the
prior year. Also, in order to strengthen its capital base,
during the six months ended June 30, 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
compared with no issuance during the six months ended
June 30, 2008. An increase in securities lending activity
during the six months ended June 30, 2009 contributed an
increase of $102 million to the Holding Companys cash
flows from financing activities compared to a decrease of
$322 million in cash flows from financing activities from
securities lending in the comparable period of the prior year.
Partially offsetting these increases in cash flows in the
current period, the Holding Company repaid $300 million of
short-term debt during the six months ended June 30, 2009,
compared with no repayments during the six months ended
June 30, 2008. The Holding Company made a payment of
$400 million to an unaffiliated financial institution
related to a decline in the estimated fair value of a surplus
note issued by MRC and also received $400 million from the
unaffiliated financial institution as a result of the increase
in the estimated fair value of the surplus note at June 30,
2009. Financing activity results relate to the Holding
Companys 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 used in investing activities was $2.5 billion for
the six months ended June 30, 2009 compared to
$745 million of net cash provided by investing activities
for the six months ended June 30, 2008. Accordingly, net
cash provided by investing activities decreased by
$3.3 billion for the six months ended June 30, 2009
compared to the prior period. Net purchases of fixed maturity
securities in the first six months of 2009 were above the first
six months of 2008 activity due to the investment of the net
proceeds from the issuance of $1.0 billion in common stock
in February 2009 and the issuance of $1.6 billion of
long-term debt described above. Investing activity results
relate to the Holding Companys management of its capital
and the capital of its subsidiaries, and any business
development opportunities. The Holding Company received
$134 million for the sale of a subsidiary during the six
months ended June 30, 2009 as compared to the use of
$202 million related to acquisitions during the six months
ended June 30, 2008. The Holding Company also made capital
contributions of $667 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
relating to reinsurance of universal life secondary guarantees,
as described above under Collateral Financing
Arrangements) during the six months ended June 30,
2009, compared to $447 million (including $205 million
paid pursuant to the collateral financing arrangement related to
MRSC) during the six months ended June 30, 2008.
During the six months ended June 30, 2009, the Holding
Company paid $61 million in dividends on its Series A
and Series B preferred shares.
Subsequent
Events
On July 8, 2009, the Holding Company issued
$500 million aggregate principal amount of junior
subordinated debt securities. The debt securities are scheduled
for redemption on August 1, 2039 and the final maturity of
the debt securities is August 1, 2069.
On July 14, 2009, the Company announced the combination of
its institutional and individual businesses, as well as its
auto & home unit into a single U.S. business
organization beginning in August 2009.
On August 3, 2009, the date the June 30, 2009 interim
condensed consolidated financial statements of MetLife, Inc.
were issued, the Company evaluated the recognition and
disclosure of subsequent events.
193
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
Companys total return on its investment portfolio. The
amounts of these unfunded commitments were $4.2 billion and
$4.5 billion at June 30, 2009 and December 31,
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
$4.4 billion and $8.0 billion at June 30, 2009
and December 31, 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 SFAS No. 133,
Accounting for Derivative Instruments and Hedging
(SFAS 133), 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
$2.5 billion and $2.7 billion at June 30, 2009
and December 31, 2008, respectively.
The purpose of the Companys loan program is to enhance the
Companys 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 $847 million and
$971 million at June 30, 2009 and December 31,
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 Companys commitments under such lease
agreements are included within the contractual obligations
table. See Liquidity and Capital
Resources The Company Liquidity and
Capital Uses Investment and Other.
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 Facilities,
Committed Facilities and
Letters of Credit for further
descriptions of such arrangements.
Guarantees
During the three months ended June 30, 2009, the Company
did not record additional liabilities for indemnities,
guarantees and commitments. The Companys recorded
liabilities were $6 million at both June 30, 2009 and
December 31, 2008.
Other
Commitments
MetLife Insurance Company of Connecticut is a member of the
Federal Home Loan Bank of Boston and holds $70 million of
common stock of the FHLB of Boston at both June 30, 2009
and December 31, 2008, which is included in equity
securities. MICC has also entered into funding agreements with
the FHLB of Boston whereby
194
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 MICCs 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 Bostons recovery on the
collateral is limited to the amount of MICCs liability to
the FHLB of Boston. The amount of the Companys liability
for funding agreements with the FHLB of Boston was
$326 million and $526 million at June 30, 2009
and December 31, 2008, respectively, which is included in
policyholder account balances. MICC had no advances from the
FHLB of Boston at June 30, 2009. 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 were included in short-term debt. These advances
and the advances on these funding agreements are collateralized
by mortgage-backed securities with estimated fair values of
$434 million and $1,284 million at June 30, 2009
and December 31, 2008, respectively.
Metropolitan Life Insurance Company is a member of the FHLB of
NY and holds $797 million and $830 million of common
stock of the FHLB of NY at June 30, 2009 and
December 31, 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
MLICs 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 NYs recovery on the collateral is limited to the amount
of MLICs liability to the FHLB of NY. The amount of the
Companys liability for funding agreements with the FHLB of
NY was $14.9 billion and $15.2 billion at
June 30, 2009 and December 31, 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 $17.1 billion and
$17.8 billion at June 30, 2009 and December 31,
2008, respectively.
MetLife Bank is a member of the FHLB of NY and holds
$187 million and $89 million of common stock of the
FHLB of NY at June 30, 2009 and December 31, 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 Banks residential
mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities to
collateralize MetLife Banks 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 NYs recovery is limited to the
amount of MetLife Banks liability under the outstanding
repurchase agreements. The amount of MetLife Banks
liability for repurchase agreements entered into with the FHLB
of NY was $3.8 billion and $1.8 billion at
June 30, 2009 and December 31, 2008, respectively,
which is included in long-term debt and short-term debt
depending upon the original tenor of the advance. During the six
months ended June 30, 2009 and 2008, MetLife Bank received
advances related to long-term borrowings totaling
$550 million and $170 million, respectively, from the
FHLB of NY. MetLife Bank made repayments to the FHLB of NY of
$120 million and $171 million related to long-term
borrowings for the six months ended June 30, 2009 and 2008,
respectively. The advances on the repurchase agreements related
to both long-term and short-term debt are collateralized by
residential mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities with
estimated fair values of $5.0 billion and $3.1 billion
at June 30, 2009 and December 31, 2008, respectively.
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 $29 million and
$279 million at June 30, 2009 and December 31,
2008, respectively.
195
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. 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.
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
5,008
|
|
Other, net (1)
|
|
|
28
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
5,036
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consisting principally of foreign currency translation
adjustments. |
Information regarding goodwill by segment and reporting unit is
as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Institutional:
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
15
|
|
|
$
|
15
|
|
Retirement & savings
|
|
|
887
|
|
|
|
887
|
|
Non-medical health & other
|
|
|
149
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,051
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
Individual:
|
|
|
|
|
|
|
|
|
Traditional life
|
|
|
73
|
|
|
|
73
|
|
Variable & universal life
|
|
|
1,172
|
|
|
|
1,174
|
|
Annuities
|
|
|
1,692
|
|
|
|
1,692
|
|
Other
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,955
|
|
|
|
2,957
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
Latin America region
|
|
|
205
|
|
|
|
184
|
|
European region
|
|
|
41
|
|
|
|
37
|
|
Asia Pacific region
|
|
|
157
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
403
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
Auto & Home
|
|
|
157
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Corporate & Other (1)
|
|
|
470
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,036
|
|
|
$
|
5,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The allocation of the goodwill to the reporting units was
performed at the time of the respective acquisition. The
$470 million of goodwill within Corporate & Other
relates to goodwill acquired as a part of the Travelers
acquisition of $405 million, as well as acquisitions by
MetLife Bank which resides within Corporate & Other.
For purposes of goodwill impairment testing at March 31,
2009 and December 31, 2008, the $405 million of
Corporate & Other goodwill has been attributed to the
Individual and Institutional segment reporting units. The
Individual segment was attributed $210 million (traditional
life $23 million, variable &
universal life $11 million and
annuities $176 million), and the Institutional
segment was attributed $195 million (group |
196
|
|
|
|
|
life $2 million, retirement &
savings $186 million, and non-medical
health & other $7 million) at both
March 31, 2009 and December 31, 2008. |
For purposes of goodwill impairment testing, if the carrying
value of a reporting units goodwill exceeds its estimated
fair value, there is an indication of impairment, and 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.
The Company performed its annual goodwill impairment tests
during the third quarter of 2008 based upon data at
June 30, 2008. Such tests indicated that goodwill was not
impaired at September 30, 2008. Due to economic conditions,
the sustained low level of equity markets, declining market
capitalizations in the insurance industry and lower operating
earnings projections, particularly for the Individual segment,
management determined it was appropriate to perform 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 Companys reporting units at
March 31, 2009 and December 31, 2008.
In performing its goodwill impairment tests, when management
believes 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 are particularly sensitive to market
assumptions, such as the annuities and variable &
universal life reporting units within the Individual segment,
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 loss), the 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 management believes appropriate to the risk
associated with the respective reporting unit. The estimated
fair value of the annuity and variable & universal
life reporting units are particularly sensitive to the equity
market levels.
When testing goodwill for impairment, management also considers
the Companys market capitalization in relation to its book
value. Management believes that the overall decrease in the
Companys current market capitalization is not
representative of a long-term decrease in the value of the
underlying reporting units.
Management applies significant judgment when determining the
estimated fair value of the Companys reporting. 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
managements 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 Companys reporting units
could result in goodwill impairments in future periods which
could materially adversely affect the Companys results of
operations or financial position.
Management continues to evaluate current market conditions that
may affect the estimated fair value of the Companys
reporting units to assess whether any goodwill impairment exists
and concluded that there were no triggering events in the second
quarter that would require further detailed goodwill impairment
testing. However, additional deterioration 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.
Adoption
of New Accounting Pronouncements
Fair
Value and Financial Instruments
Effective April 1, 2009, the Company adopted
FSP 115-2
which amends the recognition guidance for determining whether an
other-than-temporary
impairment (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.
FSP 115-2
requires that an OTTI be recognized in
197
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
securitys amortized cost and its fair value only when
either (1) the Company has the intent to sell the fixed
maturity security or (2) it is more likely than not that
the Company will be required to sell the fixed maturity security
before recovery of the decline in 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 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). When an unrealized loss on a fixed maturity
security is considered temporary, the Company continues to
record the unrealized loss in other comprehensive income (loss)
and not in earnings. There was no change for equity securities
which, when an OTTI has occurred, continue to be impaired for
the entire difference between the equity securitys cost or
amortized cost and its fair value with a corresponding charge to
earnings.
Prior to the adoption of this new 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 fair
value to the securitys amortized cost basis. Also prior to
the adoption of
FSP 115-2,
the entire difference between the fixed maturity securitys
amortized cost basis and its fair value was recognized in
earnings if it was determined to have an OTTI.
The Companys net cumulative effect adjustment of adopting
FSP 115-2
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 amortized
cost basis of fixed maturity securities of $126 million by
sector was as follows: $53 million asset-backed
securities, $43 million residential
mortgage-backed securities, $17 million
U.S. corporate securities, and $13 million
commercial mortgage-backed securities.
As a result of the adoption of
FSP 115-2,
the Companys pre-tax earnings for the three months ended
June 30, 2009 increased by $216 million offset by an
increase in other comprehensive loss representing OTTI relating
to noncredit losses recognized in the three months period ended
June 30, 2009.
The enhanced financial statement presentation required by
FSP 115-2
of the total OTTI loss and the offset for the portion of OTTI
transferred to and recognized in other comprehensive income
(loss) is presented in the consolidated statements of income and
stockholders equity. The enhanced disclosures required by
FSP 115-2
are included in Note 3 Investments.
Effective April 1, 2009, the Company adopted two FSPs
providing additional guidance relating to fair value measurement
and disclosure.
|
|
|
|
|
FSP
No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
(FSP 157-4),
provides guidance on (1) 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 (2) identifying transactions that are not
orderly. Further,
FSP 157-4
requires disclosure in interim financial statements of the
inputs and valuation techniques used to measure fair value. The
adoption of
FSP 157-4
did not have an impact on the Companys consolidated
financial statements. Additionally, the Company has provided all
of the material required disclosures in its consolidated
financial statements.
|
|
|
|
FSP
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, requires interim financial instrument fair
value disclosures similar to those included in annual financial
statements. The Company has provided all of the material
required disclosures in its consolidated financial statements.
|
198
Business
Combinations and Noncontrolling Interests
Effective January 1, 2009, the Company adopted SFAS
No. 141 (revised 2007), Business
Combinations A Replacement of FASB Statement
No. 141 (SFAS 141(r)),
FSP 141(r)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies (FSP 141(r)-1) and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements An Amendment of
ARB No. 51 (SFAS 160). Under this new
guidance:
|
|
|
|
|
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.
|
|
|
|
Acquisition costs are generally expensed as incurred;
restructuring costs associated with a business combination are
generally expensed as incurred subsequent to the acquisition
date.
|
|
|
|
The fair value of the purchase price, including the issuance of
equity securities, is determined on the acquisition date.
|
|
|
|
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.
|
|
|
|
Changes in deferred income tax asset valuation allowances and
income tax uncertainties after the acquisition date generally
affect income tax expense.
|
|
|
|
Noncontrolling interests (formerly known as minority
interests) are valued at fair value at the acquisition
date and are presented as equity rather than liabilities.
|
|
|
|
Net income includes amounts attributable to noncontrolling
interests.
|
|
|
|
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.
|
|
|
|
Purchases or sales of equity interests that do not result in a
change in control are accounted for as equity transactions.
|
|
|
|
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 SFAS 141(r) and FSP 141(r)-1 on a
prospective basis did not have an impact on the Companys
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 SFAS 160.
Effective January 1, 2009, the Company adopted
prospectively Emerging Issues Task Force (EITF)
Issue
No. 08-6,
Equity Method Investment Accounting Considerations
(EITF 08-6).
EITF 08-6
addresses a number of issues associated with the impact that
SFAS 141(r) and SFAS 160 might have on the accounting
for equity method investments, including how an equity method
investment should initially be measured, how it should be tested
for impairment, and how changes in classification from equity
method to cost method should be treated. The adoption of
EITF 08-6
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted
prospectively EITF Issue
No. 08-7,
Accounting for Defensive Intangible Assets
(EITF 08-7).
EITF 08-7
requires that an acquired defensive intangible asset (i.e., an
asset an entity does not intend to actively use, but rather,
intends to prevent others from using) be accounted for as a
separate unit of accounting at time of acquisition, not combined
with the acquirers existing intangible assets. In
addition, the EITF concludes that a defensive intangible asset
may not be considered immediately abandoned following its
acquisition or have indefinite life. The adoption of
EITF 08-7
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted
prospectively FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in
199
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142). This change is intended to
improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected
cash flows used to measure the fair value of the asset under
SFAS 141(r) and other GAAP. The Company will determine
useful lives and provide all of the material required
disclosures prospectively on intangible assets acquired on or
after January 1, 2009 in accordance with
FSP 142-3.
The adoption of
FSP 142-3
did not have an impact on the Companys consolidated
financial statements.
Other
Pronouncements
Effective April 1, 2009, the Company prospectively adopted
SFAS No. 165, Subsequent Events
(SFAS 165). SFAS 165 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. SFAS 165
also requires disclosure of the date through which management
has evaluated subsequent events and the basis for that date. The
Company has provided all of the material required disclosures in
its consolidated financial statements.
Effective January 1, 2009, the Company adopted
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities An Amendment of
FASB Statement No. 133 (SFAS 161).
SFAS 161 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
required disclosures in its consolidated financial statements.
Effective January 1, 2009, the Company implemented guidance
of SFAS 157, for certain nonfinancial assets and
liabilities that are recorded at fair value on a nonrecurring
basis. This guidance which 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, was previously
deferred under
FSP 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2).
The adoption of
FSP 157-2
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted
prospectively EITF Issue
No. 08-5,
Issuers Accounting for Liabilities Measured at Fair
Value with a Third-Party Credit Enhancement
(EITF 08-5).
EITF 08-5
concludes 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,
EITF 08-5
requires disclosures about the existence of any third-party
credit enhancement related to liabilities that are measured at
fair value. The adoption of
EITF 08-5
did not have an impact on the Companys consolidated
financial statements.
Effective January 1, 2009, the Company adopted EITF Issue
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock
(EITF 07-5).
EITF 07-5
provides a framework for evaluating the terms of a particular
instrument and whether such terms qualify the instrument as
being indexed to an entitys own stock. The adoption of
EITF 07-5
did not have an impact on Companys consolidated financial
statements.
Effective January 1, 2009, the Company adopted
prospectively FSP
No. FAS 140-3,
Accounting for Transfers of Financial Assets and Repurchase
Financing Transactions
(FSP 140-3).
FSP 140-3
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. At adoption
FSP 140-3
did not have an impact on the Companys consolidated
financial statements.
Future
Adoption of New Accounting Pronouncements
In June 2009, the FASB issued two standards providing additional
guidance on financial instrument transfers and evaluation of
special purpose entities for consolidation. The standards must
be adopted in the first quarter of 2010.
200
|
|
|
|
|
SFAS No. 166, Accounting for Transfers of Financial
Assets (SFAS 166) eliminates the concept of
a qualifying special purpose entity, 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. SFAS 166 also requires additional
disclosures about transfers of financial assets, including
securitized transactions, as well as a companys continuing
involvement in transferred financial assets. The Company is
currently evaluating the impact of SFAS 166 on its consolidated
financial statements.
|
|
|
|
SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (SFAS 167) changes the
determination of the primary beneficiary of a variable interest
entity (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. SFAS 167 also changes
when reassessment is needed, as well as requires enhanced
disclosures, including the effects of a companys
involvement with VIEs on its financial statements. The Company
is currently evaluating the impact of SFAS 167 on its
consolidated financial statements.
|
In December 2008, the FASB issued FSP
No. FAS 132(r)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets (FSP 132(r)-1). FSP 132(r)-1
amends SFAS No. 132(r), Employers Disclosures
about Pensions and Other Postretirement Benefits, to enhance
the transparency surrounding the types of assets and associated
risks in an employers defined benefit pension or other
postretirement benefit plan. The FSP requires an employer to
disclose information about the valuation of plan assets similar
to that required under SFAS 157. FSP 132(r)-1 is
effective for fiscal years ending after December 15, 2009.
The Company will provide the required disclosures in the
appropriate future annual periods.
Investments
Investment Risks. The Companys 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.
|
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. Concerns over the
availability and cost of credit, the U.S. residential
mortgage market, geopolitical issues, energy costs, and a
declining real estate market in the United States have
contributed to increased volatility and diminished expectations
for the economy and the financial markets going forward. These
factors, combined with declining business and consumer
confidence and increased unemployment, have precipitated an
economic slowdown which was deemed an on-going
U.S. recession since December 2007 by the National Bureau
of Economic Research. As a result of the stress experienced by
the global financial markets, the
201
fixed-income markets are recovering somewhat from a period of
extreme volatility which had 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-backed
and asset-backed and other fixed-income securities, including
those rated investment grade, the U.S. and international
credit and inter-bank 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 fewer opportunities for disposal.
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. 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
have 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
Companys financial services industry fixed maturity and
equity securities holdings.
202
Composition
of Investment Portfolio Results
The following table illustrates the net investment income, net
investment gains (losses), annualized yields on average ending
assets and ending carrying value for each of the components of
the Companys investment portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three
|
|
|
At or For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.91
|
%
|
|
|
6.51
|
%
|
|
|
5.81
|
%
|
|
|
6.51
|
%
|
Investment income (2)
|
|
$
|
3,036
|
|
|
$
|
3,186
|
|
|
$
|
5,836
|
|
|
$
|
6,323
|
|
Investment gains (losses)
|
|
$
|
(378
|
)
|
|
$
|
(306
|
)
|
|
$
|
(987
|
)
|
|
$
|
(509
|
)
|
Ending carrying value (2)
|
|
$
|
213,034
|
|
|
$
|
231,896
|
|
|
$
|
213,034
|
|
|
$
|
231,896
|
|
Mortgage and Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.37
|
%
|
|
|
6.10
|
%
|
|
|
5.35
|
%
|
|
|
6.14
|
%
|
Investment income (3)
|
|
$
|
694
|
|
|
$
|
674
|
|
|
$
|
1,374
|
|
|
$
|
1,350
|
|
Investment gains (losses)
|
|
$
|
(125
|
)
|
|
$
|
(34
|
)
|
|
$
|
(271
|
)
|
|
$
|
(62
|
)
|
Ending carrying value
|
|
$
|
52,500
|
|
|
$
|
48,158
|
|
|
$
|
52,500
|
|
|
$
|
48,158
|
|
Real Estate and Real Estate Joint Ventures (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
(8.83
|
)%
|
|
|
6.78
|
%
|
|
|
(9.01
|
)%
|
|
|
5.94
|
%
|
Investment income
|
|
$
|
(162
|
)
|
|
$
|
121
|
|
|
$
|
(334
|
)
|
|
$
|
208
|
|
Investment gains (losses)
|
|
$
|
(68
|
)
|
|
$
|
4
|
|
|
$
|
(93
|
)
|
|
$
|
2
|
|
Ending carrying value
|
|
$
|
7,296
|
|
|
$
|
7,328
|
|
|
$
|
7,296
|
|
|
$
|
7,328
|
|
Policy Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
6.51
|
%
|
|
|
6.25
|
%
|
|
|
6.45
|
%
|
|
|
6.24
|
%
|
Investment income
|
|
$
|
161
|
|
|
$
|
151
|
|
|
$
|
318
|
|
|
$
|
299
|
|
Ending carrying value
|
|
$
|
9,907
|
|
|
$
|
9,683
|
|
|
$
|
9,907
|
|
|
$
|
9,683
|
|
Equity Securities (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
6.01
|
%
|
|
|
6.01
|
%
|
|
|
4.94
|
%
|
|
|
5.43
|
%
|
Investment income
|
|
$
|
54
|
|
|
$
|
80
|
|
|
$
|
91
|
|
|
$
|
145
|
|
Investment gains (losses)
|
|
$
|
(108
|
)
|
|
$
|
|
|
|
$
|
(377
|
)
|
|
$
|
(10
|
)
|
Ending carrying value
|
|
$
|
3,045
|
|
|
$
|
5,228
|
|
|
$
|
3,045
|
|
|
$
|
5,228
|
|
Other Limited Partnership Interests (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.46
|
%
|
|
|
4.63
|
%
|
|
|
(6.59
|
)%
|
|
|
6.76
|
%
|
Investment income
|
|
$
|
72
|
|
|
$
|
71
|
|
|
$
|
(181
|
)
|
|
$
|
203
|
|
Investment gains (losses)
|
|
$
|
(247
|
)
|
|
$
|
(12
|
)
|
|
$
|
(344
|
)
|
|
$
|
(15
|
)
|
Ending carrying value
|
|
$
|
5,193
|
|
|
$
|
6,707
|
|
|
$
|
5,193
|
|
|
$
|
6,707
|
|
Cash and Short-Term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
0.45
|
%
|
|
|
2.66
|
%
|
|
|
0.47
|
%
|
|
|
2.89
|
%
|
Investment income
|
|
$
|
24
|
|
|
$
|
86
|
|
|
$
|
60
|
|
|
$
|
181
|
|
Investment gains (losses)
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
Ending carrying value
|
|
$
|
21,330
|
|
|
$
|
15,343
|
|
|
$
|
21,330
|
|
|
$
|
15,343
|
|
Other Invested Assets (5),(6),(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
98
|
|
|
$
|
46
|
|
|
$
|
190
|
|
|
$
|
94
|
|
Investment gains (losses)
|
|
$
|
(3,033
|
)
|
|
$
|
2
|
|
|
$
|
(2,800
|
)
|
|
$
|
(471
|
)
|
Ending carrying value
|
|
$
|
13,071
|
|
|
$
|
8,617
|
|
|
$
|
13,071
|
|
|
$
|
8,617
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income yield (1)
|
|
|
5.02
|
%
|
|
|
6.11
|
%
|
|
|
4.63
|
%
|
|
|
6.14
|
%
|
Investment fees and expenses yield
|
|
|
(0.15
|
)
|
|
|
(0.16
|
)
|
|
|
(0.14
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income Yield
|
|
|
4.87
|
%
|
|
|
5.95
|
%
|
|
|
4.49
|
%
|
|
|
5.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income
|
|
$
|
3,977
|
|
|
$
|
4,415
|
|
|
$
|
7,354
|
|
|
$
|
8,803
|
|
Investment fees and expenses
|
|
|
(118
|
)
|
|
|
(118
|
)
|
|
|
(221
|
)
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
$
|
3,859
|
|
|
$
|
4,297
|
|
|
$
|
7,133
|
|
|
$
|
8,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
325,376
|
|
|
$
|
332,960
|
|
|
$
|
325,376
|
|
|
$
|
332,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
263
|
|
|
$
|
300
|
|
|
$
|
834
|
|
|
$
|
688
|
|
Gross investment losses
|
|
|
(546
|
)
|
|
|
(346
|
)
|
|
|
(1,081
|
)
|
|
|
(881
|
)
|
Writedowns
|
|
|
(846
|
)
|
|
|
(262
|
)
|
|
|
(1,887
|
)
|
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
(1,129
|
)
|
|
$
|
(308
|
)
|
|
$
|
(2,134
|
)
|
|
$
|
(641
|
)
|
Derivative not qualifying for hedge accounting (8)
|
|
|
(2,828
|
)
|
|
|
(38
|
)
|
|
|
(2,738
|
)
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses)
|
|
$
|
(3,957
|
)
|
|
$
|
(346
|
)
|
|
$
|
(4,872
|
)
|
|
$
|
(1,064
|
)
|
Investment gains (losses) tax benefit (provision)
|
|
|
1,394
|
|
|
|
115
|
|
|
|
1,719
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses), Net of Income Tax
|
|
$
|
(2,563
|
)
|
|
$
|
(231
|
)
|
|
$
|
(3,153
|
)
|
|
$
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Yields are based on quarterly average asset carrying values,
excluding recognized and unrealized investment gains (losses),
and for yield calculation purposes, average ending assets
exclude collateral received from counterparties associated with
the Companys securities lending program. |
203
|
|
|
(2) |
|
Fixed maturity securities include $1,471 million and
$883 million at estimated fair value related to trading
securities at June 30, 2009 and 2008, respectively. Fixed
maturity securities include $130 million and
$147 million of investment income (loss) related to trading
securities for the three months and six months ended
June 30, 2009, respectively, and $9 million and
($42) million of investment income (loss) for the three
months and six months ended June 30, 2008, respectively. |
|
(3) |
|
Investment income from mortgage and consumer loans includes
prepayment fees. |
|
(4) |
|
Included in investment income (loss) from real estate and real
estate joint ventures is $2 million and $1 million
from discontinued operations for the three months and six months
ended June 30, 2008, respectively. There were no
discontinued operations from real estate and real estate joint
ventures for any other period. |
|
(5) |
|
Included in investment income from other invested assets are
scheduled periodic settlement payments on derivative instruments
that do not qualify for hedge accounting under SFAS 133 of
$32 million and $63 million for the three months and
six months ended June 30, 2009, respectively, and
($40) million and ($47) million for the three months
and six months ended June 30, 2008, respectively. These
amounts are excluded from investment gains (losses).
Additionally, excluded from investment gains (losses) is $0 and
($2) million for the three months and six months ended
June 30, 2009, respectively, and $13 million and
$28 million for the three months and six months ended
June 30, 2008, respectively, related to settlement payments
on derivative instruments used to hedge interest rate and
currency risk on policyholder account balances that do not
qualify for hedge accounting. Such amounts are included within
interest credited to policyholder account balances. |
|
(6) |
|
Other invested assets are principally comprised of free-standing
derivatives with positive estimated fair values and leveraged
leases. Freestanding derivatives with negative estimated fair
values are included within other liabilities. As yield is not
considered a meaningful measure of performance for other
invested assets it has been excluded from the table above. |
|
(7) |
|
Certain prior period amounts have been reclassified to conform
to the current period presentation. |
|
(8) |
|
The caption Derivatives not qualifying for hedge
accounting is comprised of amounts for freestanding
derivatives of ($3,621) million and ($404) million;
and embedded derivatives of $793 million and
$366 million for the three months ended June 30, 2009
and 2008, respectively. For the six months ended June 30,
2009 and 2008, respectively, it is comprised of amounts for
freestanding derivatives of ($4,748) million and
($363) million; and embedded derivatives of
$2,010 million and ($60) million. |
|
(9) |
|
Included in investment gains (losses) from other invested assets
are the net results of the hedged embedded derivatives related
to certain variable annuities with guarantees of consolidated
entities and operating joint ventures reported under the equity
method of accounting of $96 million and $16 million
for the three months ended June 30, 2009 and 2008,
respectively. For the six months ended June 30, 2009 and
2008, respectively, it is related to amounts of joint ventures
of $76 million and ($4) million. |
Three
Months Ended June 30, 2009 compared with the Three Months
Ended June 30, 2008
Net investment income decreased by $438 million, or 10%, to
$3,859 million for the three months ended June 30,
2009 from $4,297 million for the comparable 2008 period.
Excluding the impacts of discontinued operations and periodic
settlement payments on derivative instruments as described in
Notes 4 and 5 of the yield table presented above, net
investment income decreased by $588 million, or 14%, to
$3,731 million for the three months ended June 30,
2009 from $4,319 million for the comparable 2008 period.
Management attributes $648 million of this change to a
decrease in yields, partially offset by an increase of
$60 million due to growth in average invested assets.
Average invested assets are calculated on the cost basis without
unrealized gains and losses. The decrease in net investment
income attributable to lower yields was primarily due to lower
returns on real estate joint ventures, International joint
ventures, cash, cash equivalents and short-term investments,
fixed maturity securities, trading securities and mortgage
loans. The decrease in yields and the negative returns in the
second quarter of 2009 realized on real estate joint ventures
was primarily from continued declining property valuations on
real estate held by certain real estate investment funds that
carry their real estate at fair value and operating losses
incurred on real estate properties that were developed for sale
by real estate development joint ventures, in excess of earnings
from wholly-owned real estate. The commercial real estate
properties underlying real estate investment funds have
experienced declines in value driven by capital market factors
and deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures
204
have experienced fewer property sales due to declining real
estate market fundamentals and decreased availability of real
estate lending to finance transactions. The reduction in yields
and the negative returns in the second quarter of 2009 realized
on the International joint venture were driven by hedging losses
associated with Japans guaranteed annuity business. The
decrease in short-term investment yields was primarily
attributable to declining short-term interest rates. The
decrease in fixed maturity securities yields was primarily due
to lower yields on floating rate securities due to declines in
short-term interest rates and an increased allocation to high
quality, lower yielding U.S. Treasury, agency and
government guaranteed securities, including Temporary Liquidity
Guarantee Program bonds, and from decreased securities lending
results due to the smaller size of the program, offset slightly
by improved spreads. The increase in yields from the decrease in
investment expenses was primarily attributable to lower cost of
funds expense on the securities lending program and this
decreased cost partially offsets the decrease in net investment
income on fixed maturity securities. Trading securities results
increased primarily due to increased unrealized gains on equity
securities within the trading securities portfolio. The decrease
in yields associated with our mortgage loan portfolio was
primarily attributable to lower prepayments on commercial
mortgage loans and lower yields on variable rate loans due to
declines in short-term interest rates. The decrease in net
investment income attributable to lower yields was partially
offset by increased net investment income attributable to an
increase in average invested assets on the cost basis, primarily
within mortgages loans, cash, cash equivalents, short-term
investments and fixed maturity securities excluding securities
lending. The increases in mortgage loans are driven by an
increased allocation to residential mortgage loans, primarily
loans originated with the intent to sell. The increase in cash,
cash equivalents and short-term investments has been accumulated
to provide additional flexibility to address potential
variations in cash needs while credit markets continue to
stabilize. The decrease in fixed maturity securities was driven
by a decrease in the size of the securities lending program.
Excluding securities lending, fixed maturity securities
increased, driven by the reinvestment of operating cash flows
and accumulated liquidity balances into longer duration
investments.
Six
Months Ended June 30, 2009 compared with the Six Months
Ended June 30, 2008
Net investment income decreased by $1,433 million, or 17%,
to $7,133 million for the six months ended June 30,
2009 from $8,566 million for the comparable 2008 period.
Excluding the impacts of discontinued operations and periodic
settlement payments on derivative instruments as described in
Notes 4 and 5 of the yield table presented above, net
investment income decreased by $1,622 million, or 19%, to
$6,994 million for the six months ended June 30, 2009
from $8,616 million for the comparable 2008 period.
Management attributes $1,862 million of this change to a
decrease in yields, partially offset by an increase of
$240 million due to growth in average invested assets.
Average invested assets are calculated on the cost basis without
unrealized gains and losses. The decrease in net investment
income attributable to lower yields was primarily due to lower
returns on real estate joint ventures, fixed maturity
securities, trading securities, cash, cash equivalents and
short-term investments, other limited partnership interests and
mortgage loans. The decrease in yields and the negative returns
on real estate joint ventures realized in the first six months
of 2009 were primarily from continued declining property
valuations on real estate held by certain real estate investment
funds that carry their real estate at fair value and operating
losses incurred on real estate properties that were developed
for sale by real estate development joint ventures, in excess of
earnings from wholly-owned real estate. The commercial real
estate properties underlying real estate investment funds have
experienced declines in value driven by capital market factors
and deteriorating market conditions, which have led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. The decrease in
fixed maturity securities yields was primarily due to lower
yields on floating rate securities due to declines in short-term
interest rates and an increased allocation to high quality,
lower yielding U.S. Treasury, agency and government
guaranteed securities, including Temporary Liquidity Guarantee
Program bonds, and from decreased securities lending results due
to the smaller size of the program, offset slightly by improved
spreads. The increase in yields from the decrease in investment
expenses was primarily attributable to lower cost of funds
expense on the securities lending program and this decreased
cost partially offsets the decrease in net investment income on
fixed maturity securities. Trading securities results increased
primarily due to increased unrealized gains on equity securities
within the trading securities portfolio. The decrease in
short-term investment yields was primarily attributable to
continuing declines in short-term interest rates. The reduction
in yields and the negative returns realized on other limited
partnership interests were primarily due to a lack of liquidity
and available credit in the financial markets, driven by
volatility in the equity and credit
205
markets. The decrease in yields associated with our mortgage
loan portfolio was primarily attributable to lower prepayments
on commercial mortgage loans and lower yields on variable rate
loans due to declines in short-term interest rates. The decrease
in net investment income attributable to lower yields was
partially offset by increased net investment income attributable
to an increase in average invested assets on the cost basis,
primarily within mortgages loans, cash, cash equivalents,
short-term investments and fixed maturity securities excluding
securities lending. The increases in mortgage loans are driven
by an increased allocation to residential mortgage loans,
primarily loans originated with the intent to sell. The increase
in cash, cash equivalents and short-term investments has been
accumulated to provide additional flexibility to address
potential variations in cash needs while credit markets continue
to stabilize. The decrease in fixed maturity securities was
driven by a decrease in the size of the securities lending
program. Excluding securities lending, fixed maturity securities
increased, driven by the reinvestment of operating cash flows
and accumulated liquidity balances into longer duration
investments.
Investment
Outlook
Management anticipates that the significant volatility in the
equity, credit and real estate markets will continue in 2009
which 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 asset / liability
management (ALM) discipline in appropriate assets
over time. However, considering the continued, uncertain equity,
credit and real estate markets conditions, management plans to
continue to maintain 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.
Fixed
Maturity and Equity Securities
Available-for-Sale
Fixed maturity securities consisted principally of
publicly-traded and privately placed fixed maturity securities,
and represented 65% and 58% of total cash and invested assets at
June 30, 2009 and December 31, 2008, respectively.
Based on estimated fair value, public fixed maturity securities
represented $175.3 billion, or 83%, and
$156.7 billion, or 83%, of total fixed maturity securities
at June 30, 2009 and December 31, 2008, respectively.
Based on estimated fair value, private fixed maturity securities
represented $36.3 billion, or 17%, and $31.6 billion,
or 17%, of total fixed maturity securities at June 30, 2009
and December 31, 2008, respectively.
Valuation of Securities. Management is
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 investments 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 do 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 managements 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
206
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. Management reviews its valuation methodologies on an
ongoing basis and ensures that any changes to valuation
methodologies are justified. The Company gains 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 managements 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.
Management determines 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 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 developed
valuation to override these prices. Such overrides are
classified as Level 3. Despite the credit events prevalent
in the current dislocated markets 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
absence of such evidence, managements 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. Even
some of our very high quality invested assets have been more
illiquid for periods of time as a result of the challenging
market conditions. 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, management 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
estimated fair value hierarchy. Security prices which cannot be
corroborated due to relatively less pricing transparency and
diminished liquidity will be classified as Level 3.
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 SFAS 157 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.
207
The Company adopted FSP
FAS 157-4
effective April 1, 2009. This FSP clarified existing
guidance regarding (1) 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 (2) identifying transactions that are not
orderly. The Companys valuation policies as described
above and in Summary of Critical Accounting
Estimates Estimated Fair Valuation of
Investments already incorporated the key concepts from
this additional guidance, accordingly, this FSP results in no
material changes in our valuation policies. At April 1,
2009 and June 30, 2009, we evaluated the markets that our
fixed maturity and equity securities trade in and in our
judgment, despite the increased illiquidity discussed above,
believed 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.
Fixed Maturity Securities Credit Quality
Ratings. The Securities Valuation Office of the
National Association of Insurance Commissioners
(NAIC) evaluates the fixed maturity security
investments of insurers for regulatory reporting purposes and
assigns securities to one of six investment categories called
NAIC designations. The NAIC ratings are similar to
the rating agency designations of the Nationally Recognized
Statistical Rating Organizations (NRSRO) for
marketable bonds. NAIC ratings 1 and 2 include bonds generally
considered investment grade (rated Baa3 or higher by
Moodys or rated BBB or higher by
S&P and Fitch), by such rating organizations. NAIC ratings
3 through 6 include bonds generally considered below investment
grade (rated Ba1 or lower by Moodys, or rated
BB+ or lower by S&P and Fitch).
The following table presents the Companys total fixed
maturity securities by Nationally Recognized Statistical Rating
Organization 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
NAIC
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
% of
|
|
|
Amortized
|
|
|
Estimated
|
|
|
% of
|
|
Rating
|
|
Rating Agency Designation (1)
|
|
Cost
|
|
|
Fair Value
|
|
|
Total
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
|
|
(In millions)
|
|
|
1
|
|
Aaa/Aa/A
|
|
$
|
152,336
|
|
|
$
|
147,337
|
|
|
|
69.6
|
%
|
|
$
|
146,796
|
|
|
$
|
137,125
|
|
|
|
72.9
|
%
|
2
|
|
Baa
|
|
|
49,247
|
|
|
|
45,949
|
|
|
|
21.7
|
|
|
|
45,253
|
|
|
|
38,761
|
|
|
|
20.6
|
|
3
|
|
Ba
|
|
|
11,775
|
|
|
|
9,598
|
|
|
|
4.6
|
|
|
|
10,258
|
|
|
|
7,796
|
|
|
|
4.1
|
|
4
|
|
B
|
|
|
7,662
|
|
|
|
5,717
|
|
|
|
2.7
|
|
|
|
5,915
|
|
|
|
3,779
|
|
|
|
2.0
|
|
5
|
|
Caa and lower
|
|
|
4,237
|
|
|
|
2,756
|
|
|
|
1.3
|
|
|
|
1,192
|
|
|
|
715
|
|
|
|
0.4
|
|
6
|
|
In or near default
|
|
|
237
|
|
|
|
206
|
|
|
|
0.1
|
|
|
|
94
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
225,494
|
|
|
$
|
211,563
|
|
|
|
100.0
|
%
|
|
$
|
209,508
|
|
|
$
|
188,251
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts presented are based on rating agency designations.
Comparisons between NAIC ratings and rating agency designations
are published by the NAIC. The rating agency designations are
based on availability and the midpoint of the applicable ratings
among Moodys, S&P and Fitch. If no rating is
available from a rating agency, then the MetLife rating is used. |
208
The following tables present the Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities by Sector &
Credit Quality Rating at June 30, 2009
|
|
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Total
|
|
NAIC Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and
|
|
|
In or Near
|
|
|
Estimated
|
|
Rating Agency Designation (1) :
|
|
Aaa/Aa/A
|
|
|
Baa
|
|
|
Ba
|
|
|
B
|
|
|
Lower
|
|
|
Default
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
29,154
|
|
|
$
|
27,660
|
|
|
$
|
5,554
|
|
|
$
|
2,716
|
|
|
$
|
704
|
|
|
$
|
193
|
|
|
$
|
65,981
|
|
Residential mortgage-backed securities
|
|
|
35,994
|
|
|
|
1,607
|
|
|
|
1,376
|
|
|
|
1,051
|
|
|
|
1,770
|
|
|
|
|
|
|
|
41,798
|
|
Foreign corporate securities
|
|
|
16,373
|
|
|
|
13,953
|
|
|
|
1,542
|
|
|
|
1,525
|
|
|
|
201
|
|
|
|
13
|
|
|
|
33,607
|
|
US Treasury, agency and government guaranteed securities
|
|
|
27,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,673
|
|
Commercial mortgage-backed securities
|
|
|
13,814
|
|
|
|
104
|
|
|
|
59
|
|
|
|
8
|
|
|
|
10
|
|
|
|
|
|
|
|
13,995
|
|
Asset-backed securities
|
|
|
11,006
|
|
|
|
1,009
|
|
|
|
282
|
|
|
|
83
|
|
|
|
34
|
|
|
|
|
|
|
|
12,414
|
|
Foreign government securities
|
|
|
8,661
|
|
|
|
835
|
|
|
|
738
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
10,560
|
|
State & political subdivisions securities
|
|
|
4,644
|
|
|
|
781
|
|
|
|
47
|
|
|
|
8
|
|
|
|
37
|
|
|
|
|
|
|
|
5,517
|
|
Other fixed maturity securities
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
147,337
|
|
|
$
|
45,949
|
|
|
$
|
9,598
|
|
|
$
|
5,717
|
|
|
$
|
2,756
|
|
|
$
|
206
|
|
|
$
|
211,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
69.6
|
%
|
|
|
21.7
|
%
|
|
|
4.6
|
%
|
|
|
2.7
|
%
|
|
|
1.3
|
%
|
|
|
0.1
|
%
|
|
|
100.0
|
%
|
|
|
|
(1) |
|
Amounts presented are based on rating agency designations.
Comparisons between NAIC ratings and rating agency designations
are published by the NAIC. The rating agency designations are
based on availability and the midpoint of the applicable ratings
among Moodys, S&P and Fitch. If no rating is
available from a rating agency, then the MetLife rating is used. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities by Sector &
Credit Quality Rating at December 31, 2008
|
|
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Total
|
|
NAIC Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and
|
|
|
In or Near
|
|
|
Estimated
|
|
Rating Agency Designation (1) :
|
|
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
|
|
Residential mortgage-backed securities
|
|
|
34,512
|
|
|
|
638
|
|
|
|
695
|
|
|
|
103
|
|
|
|
80
|
|
|
|
|
|
|
|
36,028
|
|
Foreign corporate securities
|
|
|
15,936
|
|
|
|
11,039
|
|
|
|
1,357
|
|
|
|
1,184
|
|
|
|
148
|
|
|
|
15
|
|
|
|
29,679
|
|
US Treasury, agency and government guaranteed securities
|
|
|
21,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,310
|
|
Commercial mortgage-backed securities
|
|
|
12,486
|
|
|
|
81
|
|
|
|
59
|
|
|
|
7
|
|
|
|
11
|
|
|
|
|
|
|
|
12,644
|
|
Asset-backed securities
|
|
|
9,393
|
|
|
|
1,037
|
|
|
|
35
|
|
|
|
16
|
|
|
|
42
|
|
|
|
|
|
|
|
10,523
|
|
Foreign government securities
|
|
|
8,030
|
|
|
|
1,049
|
|
|
|
713
|
|
|
|
357
|
|
|
|
4
|
|
|
|
|
|
|
|
10,153
|
|
State & political subdivisions 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
72.9
|
%
|
|
|
20.6
|
%
|
|
|
4.1
|
%
|
|
|
2.0
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
(1) |
|
Amounts presented are based on rating agency designations.
Comparisons between NAIC ratings and rating agency designations
are published by the NAIC. The rating agency designations are
based on availability and the midpoint of the applicable ratings
among Moodys, S&P and Fitch. If no rating is
available from a rating agency, then the MetLife rating is used. |
Below Investment Grade or Non-Rated Fixed Maturity
Securities. The Company held fixed maturity
securities at estimated fair values that were below investment
grade or not rated by an independent rating
209
agency that totaled $18.3 billion and $12.4 billion at
June 30, 2009 and December 31, 2008, respectively.
These securities had net unrealized losses of $5.6 billion
and $5.1 billion at June 30, 2009 and
December 31, 2008, respectively.
Non-Income Producing Fixed Maturity
Securities. Non-income producing fixed maturity
securities at estimated fair value were $206 million and
$75 million at June 30, 2009 and December 31,
2008, respectively. Net unrealized losses associated with
non-income producing fixed maturity securities were
$31 million and $19 million at June 30, 2009 and
December 31, 2008, respectively.
Fixed Maturity Securities Credit Enhanced by Financial
Guarantee Insurers. At June 30, 2009,
$4.6 billion of the estimated fair value of the
Companys fixed maturity securities were credit enhanced by
financial guarantee insurers of which $2.1 billion,
$1.7 billion and $0.8 billion are included within
state and political subdivision securities, U.S. corporate
securities and asset-backed securities, respectively, and 18%
and 39% were guaranteed by financial guarantee insurers who were
rated Aa and A, respectively. At December 31, 2008,
$4.9 billion of the estimated fair value of the
Companys fixed maturity securities were credit enhanced by
financial guarantee insurers of which $2.0 billion,
$2.0 billion and $0.9 billion are included within
state and political subdivision securities, U.S. corporate
securities and asset-backed securities, respectively, and 15%
and 68% were guaranteed by financial guarantee insurers who were
rated Aa and Baa, respectively. Approximately 50% of the
asset-backed securities held at June 30, 2009 that are
credit enhanced by financial guarantee insurers are asset-backed
securities which are backed by
sub-prime
mortgage loans.
Gross Unrealized Gains and Losses. The
following tables present the cost or amortized cost, gross
unrealized gain and loss, estimated fair value of the
Companys fixed maturity and equity securities and the
percentage that each sector represents by the respective total
holdings for the period shown. The unrealized loss amounts
presented below at June 30, 2009 include the noncredit
component of OTTI loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Estimated
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
70,682
|
|
|
$
|
1,350
|
|
|
$
|
6,016
|
|
|
$
|
35
|
|
|
$
|
65,981
|
|
|
|
31.2
|
%
|
Residential mortgage-backed securities
|
|
|
44,834
|
|
|
|
1,078
|
|
|
|
3,913
|
|
|
|
201
|
|
|
|
41,798
|
|
|
|
19.8
|
|
Foreign corporate securities
|
|
|
35,817
|
|
|
|
976
|
|
|
|
3,177
|
|
|
|
9
|
|
|
|
33,607
|
|
|
|
15.9
|
|
U.S. Treasury, agency and government guaranteed securities (1)
|
|
|
27,277
|
|
|
|
1,053
|
|
|
|
657
|
|
|
|
|
|
|
|
27,673
|
|
|
|
13.1
|
|
Commercial mortgage-backed securities
|
|
|
16,354
|
|
|
|
75
|
|
|
|
2,410
|
|
|
|
24
|
|
|
|
13,995
|
|
|
|
6.6
|
|
Asset-backed securities
|
|
|
14,619
|
|
|
|
97
|
|
|
|
2,206
|
|
|
|
96
|
|
|
|
12,414
|
|
|
|
5.8
|
|
Foreign government securities
|
|
|
9,987
|
|
|
|
834
|
|
|
|
261
|
|
|
|
|
|
|
|
10,560
|
|
|
|
5.0
|
|
State and political subdivision securities
|
|
|
5,905
|
|
|
|
119
|
|
|
|
507
|
|
|
|
|
|
|
|
5,517
|
|
|
|
2.6
|
|
Other fixed maturity securities
|
|
|
19
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2),(3)
|
|
$
|
225,494
|
|
|
$
|
5,582
|
|
|
$
|
19,148
|
|
|
$
|
365
|
|
|
$
|
211,563
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,730
|
|
|
$
|
59
|
|
|
$
|
71
|
|
|
$
|
|
|
|
$
|
1,718
|
|
|
|
56.4
|
%
|
Non-redeemable preferred stock (2)
|
|
|
1,949
|
|
|
|
28
|
|
|
|
650
|
|
|
|
|
|
|
|
1,327
|
|
|
|
43.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
3,679
|
|
|
$
|
87
|
|
|
$
|
721
|
|
|
$
|
|
|
|
$
|
3,045
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
72,211
|
|
|
$
|
994
|
|
|
$
|
9,902
|
|
|
$
|
63,303
|
|
|
|
33.6
|
%
|
Residential mortgage-backed securities
|
|
|
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
|
|
Commercial mortgage-backed securities
|
|
|
16,079
|
|
|
|
18
|
|
|
|
3,453
|
|
|
|
12,644
|
|
|
|
6.7
|
|
Asset-backed securities
|
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 above certain corporate
fixed maturity securities issued by U.S. financial institutions
that are guaranteed by the FDIC pursuant to the FDICs
Temporary Liquidity Guarantee Program of $1,023 million and
$2 million at estimated fair value with unrealized gains
(losses) of $5 million and less than ($1) million at
June 30, 2009 and December 31, 2008, respectively. |
|
(2) |
|
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 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. Perpetual hybrid securities classified as
non-redeemable preferred stock held by the Company at
June 30, 2009 and December 31, 2008 had an estimated
fair value of $1,063 million and $1,224 million,
respectively. In addition, the Company held $264 million
and $288 million at estimated fair value at June 30,
2009 and December 31, 2008, respectively, of other
perpetual hybrid securities, primarily of U.S. financial
institutions, also included in non-redeemable preferred stock.
Perpetual hybrid securities held by the Company and included
within fixed maturity securities (primarily within foreign
corporate securities) at June 30, 2009 and
December 31, 2008 had an estimated fair value of
$2,378 million and $2,110 million, respectively. In
addition, the Company held $52 million and $46 million
at estimated fair value at June 30, 2009 and
December 31, 2008, respectively, of other perpetual hybrid
securities, primarily U.S. financial institutions, included in
U.S. corporate securities. |
|
(3) |
|
At June 30, 2009 and December 31, 2008, the Company
also held $2,082 million and $2,052 million at
estimated fair value, respectively, of redeemable preferred
stock which have stated maturity dates. These securities are
primarily issued by U.S. financial institutions, have cumulative
interest deferral features and are commonly referred to as
capital securities and are included within U.S.
corporate securities which are included within fixed maturity
securities. |
|
(4) |
|
Equity securities primarily consist of investments in common and
preferred stocks and mutual fund interests. Such securities
include common stock of privately held companies with an
estimated fair value of $1.2 billion and $1.1 billion
at June 30, 2009 and December 31, 2008, respectively. |
211
Concentrations of Credit Risk (Equity
Securities). The Company is not exposed to any
significant concentrations of credit risk of any single issuer
greater than 10% of the Companys stockholders equity
in its equity securities portfolio.
Concentrations of Credit Risk (Fixed Maturity
Securities). The Company is not exposed to any
concentrations of credit risk of any single issuer greater than
10% of the Companys stockholders equity, other than
securities of the U.S. government, certain
U.S. government agencies and certain securities guaranteed
by the U.S. government. At June 30, 2009 and
December 31, 2008, the Companys holdings in
U.S. Treasury, agency and government guaranteed fixed
maturity securities at estimated fair value were
$27.7 billion and $21.3 billion, respectively. As
shown in the sector table above, at June 30, 2009, the
Companys three largest exposures in its fixed maturity
security portfolio were U.S. corporate securities (31.2%),
residential mortgage-backed securities (19.8%) and foreign
corporate securities (15.9%); and at December 31, 2008 were
U.S. corporate securities (33.6%), residential
mortgage-backed securities (19.2%) and foreign corporate
securities (15.8%). Additionally, at June 30, 2009 and
December 31, 2008, the Company had exposure to fixed
maturity securities backed by
sub-prime
mortgages with estimated fair values of $0.9 billion and
$1.1 billion, respectively, and unrealized losses of
$821 million and $730 million, respectively. These
securities are classified within asset-backed securities in the
immediately preceding table.
See also Investments Fixed
Maturity and Equity Securities
Available-for-Sale
Corporate Fixed Maturity Securities and
Structured Securities for a description
of concentrations of credit risk related to these asset
subsectors.
Fair Value Hierarchy. Fixed maturity
securities and equity securities measured at estimated fair
value on a recurring basis and their corresponding fair value
sources and fair value hierarchy are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
Equity
|
|
|
|
Fixed Maturity Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
$
|
11,333
|
|
|
|
5.4
|
%
|
|
$
|
387
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
157,044
|
|
|
|
74.2
|
|
|
|
402
|
|
|
|
13.2
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
27,394
|
|
|
|
12.9
|
|
|
|
1,071
|
|
|
|
35.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant other observable inputs (Level 2)
|
|
|
184,438
|
|
|
|
87.1
|
|
|
|
1,473
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
6,263
|
|
|
|
3.0
|
|
|
|
843
|
|
|
|
27.7
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
6,239
|
|
|
|
2.9
|
|
|
|
206
|
|
|
|
6.8
|
|
Independent broker quotations
|
|
|
3,290
|
|
|
|
1.6
|
|
|
|
136
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
15,792
|
|
|
|
7.5
|
|
|
|
1,185
|
|
|
|
39.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
211,563
|
|
|
|
100.0
|
%
|
|
$
|
3,045
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Fair Value Measurements at Reporting Date 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
|
|
$
|
|
|
|
$
|
59,318
|
|
|
$
|
6,663
|
|
|
$
|
65,981
|
|
Residential mortgage-backed securities
|
|
|
|
|
|
|
40,304
|
|
|
|
1,494
|
|
|
|
41,798
|
|
Foreign corporate securities
|
|
|
|
|
|
|
28,878
|
|
|
|
4,729
|
|
|
|
33,607
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
11,042
|
|
|
|
16,594
|
|
|
|
37
|
|
|
|
27,673
|
|
Commercial mortgage-backed securities
|
|
|
|
|
|
|
13,744
|
|
|
|
251
|
|
|
|
13,995
|
|
Asset-backed securities
|
|
|
|
|
|
|
10,254
|
|
|
|
2,160
|
|
|
|
12,414
|
|
Foreign government securities
|
|
|
291
|
|
|
|
9,923
|
|
|
|
346
|
|
|
|
10,560
|
|
State and political subdivision securities
|
|
|
|
|
|
|
5,413
|
|
|
|
104
|
|
|
|
5,517
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
10
|
|
|
|
8
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
11,333
|
|
|
$
|
184,438
|
|
|
$
|
15,792
|
|
|
$
|
211,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
387
|
|
|
$
|
1,213
|
|
|
$
|
118
|
|
|
$
|
1,718
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
260
|
|
|
|
1,067
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
387
|
|
|
$
|
1,473
|
|
|
$
|
1,185
|
|
|
$
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of, fair value pricing source for and
significant changes in Level 3 securities is as follows:
|
|
|
|
|
The majority of the Level 3 fixed maturity and equity
securities 86%, as shown above, are concentrated in four
sectors: U.S. and foreign corporate securities,
asset-backed securities and non-redeemable preferred securities.
|
|
|
|
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 below investment grade private
placements and less liquid investment grade corporate securities
(included in U.S. and foreign corporate securities) and
less liquid asset-backed securities including securities
supported by
sub-prime
mortgage loans (included in asset-backed securities).
Level 3 non-redeemable preferred securities include
securities with very limited trading activity or where less
price transparency exists around the inputs to the valuation.
|
|
|
|
During the three months ended June 30, 2009, Level 3
fixed maturity securities increased by $1.6 billion or 11%,
due primarily to favorable fair value changes recognized in
other comprehensive income (loss), and purchases in excess of
sales and settlements which were partially offset by transfers
out of Level 3. The transfers out of Level 3 are
described in the discussion after the rollforward table below.
The favorable fair value changes in fixed maturity securities
were concentrated in U.S. and foreign corporate securities
and asset-backed securities (including residential
mortgage-backed securities backed by
sub-prime
mortgage loans) due to current market conditions including
narrowing of credit spreads, offset slightly by the effect of
rising interest rates on such securities. Net purchases in
excess of sales and settlements of fixed maturity securities
were concentrated in residential mortgage-backed securities.
|
During the six months ended June 30, 2009, Level 3
fixed maturity securities decreased by $1.6 billion or 9%,
due primarily to transfers out of Level 3, which were
partially offset by favorable fair value changes
213
recognized in other comprehensive income (loss) and to a lesser
extent purchases in excess of sales and settlements. The
transfers out of Level 3 are described in the discussion
after the rollforward table below. The favorable fair value
changes in fixed maturity securities were concentrated in
U.S. and foreign corporate securities and asset-backed
securities (including residential mortgage-backed securities
backed by
sub-prime
mortgage loans) due to current market conditions including
narrowing of credit spreads, offset slightly by the effect of
rising interest rates on such securities. Net purchases in
excess of sales and settlements of fixed maturity securities
were concentrated in residential mortgage-backed 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 three months and six months
ended June 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
14,166
|
|
|
$
|
1,006
|
|
|
$
|
17,408
|
|
|
$
|
1,379
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(43
|
)
|
|
|
(55
|
)
|
|
|
(492
|
)
|
|
|
(259
|
)
|
Other comprehensive loss
|
|
|
1,569
|
|
|
|
300
|
|
|
|
654
|
|
|
|
138
|
|
Purchases, sales, issuances and settlements
|
|
|
1,040
|
|
|
|
(66
|
)
|
|
|
194
|
|
|
|
(73
|
)
|
Transfer in and/or out of Level 3
|
|
|
(940
|
)
|
|
|
|
|
|
|
(1,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
15,792
|
|
|
$
|
1,185
|
|
|
$
|
15,792
|
|
|
$
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An analysis of transfers in
and/or out
of Level 3 for the three months and six months ended
June 30, 2009 is as follows:
|
|
|
|
|
Total gains and losses (in earnings and other comprehensive
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 $4 million and ($90) million,
respectively, and other comprehensive income (loss) of
$12 million and ($414) million, respectively, were
incurred for transfers subsequent to their transfer to
Level 3, for the three months and six months ended
June 30, 2009, respectively.
|
|
|
|
Net transfers in
and/or out
of Level 3 for fixed maturity securities were
($940) million and ($1,972) million for the three
months and six months ended June 30, 2009, respectively,
and were comprised of transfers in of $383 million and
$3,268 million, respectively, and transfers out of
($1,323) million and ($5,240) million, respectively.
There were no net transfers in or out of Level 3 for equity
securities for the three months and six months ended
June 30, 2009.
|
Overall, transfers in
and/or out
of Level 3 are attributable to a change in the
observability of inputs. During the three months and six months
ended June 30, 2009, fixed maturity securities transfers
into Level 3 of $383 million and $3,268 million,
respectively, 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 fair
value principally for U.S. and foreign corporate
securities. During the three months and six months ended
June 30, 2009, fixed maturity securities transfers out of
Level 3 of ($1,323) million and ($5,240) million,
respectively, resulted primarily from existing issuances of
fixed maturity securities, principally U.S. and foreign
corporate securities that, over time, the Company was able to
corroborate pricing received from independent pricing services
with observable inputs and increased transparency of both new
issuances and subsequent to issuance and establishment of
trading activity became priced by pricing services.
214
See Summary of Critical Accounting
Estimates Investments for further information
on the estimates and assumptions that affect the amounts
reported above.
Evaluating
Investments for an
Other-Than-Temporary
Impairment
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2008 Annual
Report, the Company performs a regular evaluation, on a
security-by-security
basis, of its investment holdings in accordance with its
impairment policy in order to evaluate whether such investments
are
other-than-temporarily
impaired.
With respect to fixed maturity securities, the Company
considers, amongst other criteria, whether it has the intent to
sell a particular impaired fixed maturity security. The
assessment of the Companys intent to sell a particular
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
Companys 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 the security before
recovery of the decline in 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, the Company estimates the present value of
the expected future cash flows to be received from that
security. If the present value of the expected future cash flows
to be received is less than the amortized cost, the security
will be deemed
other-than-temporarily
impaired in the period that such present value of the expected
cash flows falls below amortized cost and this difference,
referred to as the credit loss, will be recognized in earnings.
Any remaining difference between the present value of the
expected future cash flows to be received and the estimated fair
value of the security will be recognized as a separate component
of other comprehensive income (loss) and is referred to as the
noncredit loss. Prior to April 1, 2009 the Companys
assessment of OTTI for fixed maturity securities was performed
in the same manner described below for equity securities.
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
or amortized 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. If a sale
decision is made with respect to a particular equity security
and that equity security is not expected to recover to an amount
at least equal to cost or amortized 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.
See Summary of Critical Accounting
Estimates.
215
Net Unrealized Investment Gains (Losses). The
components of net unrealized investment gains (losses), included
in accumulated other comprehensive loss, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities that are temporarily impaired
|
|
$
|
(13,566
|
)
|
|
$
|
(21,246
|
)
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive loss
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
(13,931
|
)
|
|
|
(21,246
|
)
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(634
|
)
|
|
|
(934
|
)
|
Derivatives
|
|
|
(138
|
)
|
|
|
(2
|
)
|
Other
|
|
|
50
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(14,653
|
)
|
|
|
(22,129
|
)
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(116
|
)
|
|
|
42
|
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
28
|
|
|
|
|
|
DAC and VOBA
|
|
|
2,206
|
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,118
|
|
|
|
3,067
|
|
Deferred income tax benefit on which noncredit OTTI losses have
been recognized
|
|
|
116
|
|
|
|
|
|
Deferred income tax benefit
|
|
|
4,204
|
|
|
|
6,508
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
(8,215
|
)
|
|
|
(12,554
|
)
|
Net unrealized investment gains (losses) attributable to
noncontrolling interest
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses) attributable to
MetLife, Inc.
|
|
$
|
(8,218
|
)
|
|
$
|
(12,564
|
)
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive loss, as presented above, of $365 million
includes $126 million related to the transition adjustment,
$234 million ($216 million, net of DAC) of noncredit
losses recognized in the three months ended June 30, 2009
and $5 million of additional unrealized losses incurred
during the three months ended June 30, 2009 on such
securities for which a noncredit loss was previously recognized
in other comprehensive loss.
216
The changes in net unrealized investment gains (losses) are as
follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, end of prior period
|
|
$
|
(12,564
|
)
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
(76
|
)
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
(239
|
)
|
Unrealized investment gains (losses) during the period
|
|
|
7,813
|
|
Unrealized investment loss of subsidiary at the date of disposal
|
|
|
28
|
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(158
|
)
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
18
|
|
DAC and VOBA
|
|
|
(809
|
)
|
DAC and VOBA of subsidiary at date of disposal
|
|
|
(10
|
)
|
Deferred income tax on which noncredit OTTI losses have been
recognized
|
|
|
76
|
|
Deferred income tax
|
|
|
(2,298
|
)
|
Deferred income tax of subsidiary at date of disposal
|
|
|
(6
|
)
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
|
(8,225
|
)
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interest
|
|
|
7
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(8,218
|
)
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
4,339
|
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interest
|
|
|
7
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses) attributable
to MetLife, Inc.s common shareholders
|
|
$
|
4,346
|
|
|
|
|
|
|
The following tables present the cost or amortized cost, gross
unrealized loss, including the portion of OTTI losses on fixed
maturity securities recognized in accumulated other
comprehensive loss at June 30, 2009, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
27,591
|
|
|
$
|
6,804
|
|
|
$
|
940
|
|
|
$
|
1,973
|
|
|
|
739
|
|
|
|
315
|
|
Six months or greater but less than nine months
|
|
|
4,838
|
|
|
|
13,860
|
|
|
|
279
|
|
|
|
4,608
|
|
|
|
391
|
|
|
|
681
|
|
Nine months or greater but less than twelve months
|
|
|
9,909
|
|
|
|
8,978
|
|
|
|
599
|
|
|
|
3,724
|
|
|
|
589
|
|
|
|
464
|
|
Twelve months or greater
|
|
|
53,707
|
|
|
|
5,907
|
|
|
|
4,402
|
|
|
|
2,988
|
|
|
|
2,644
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96,045
|
|
|
$
|
35,549
|
|
|
$
|
6,220
|
|
|
$
|
13,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
61
|
|
|
$
|
400
|
|
|
$
|
5
|
|
|
$
|
143
|
|
|
|
89
|
|
|
|
54
|
|
Six months or greater but less than nine months
|
|
|
42
|
|
|
|
357
|
|
|
|
5
|
|
|
|
128
|
|
|
|
46
|
|
|
|
20
|
|
Nine months or greater but less than twelve months
|
|
|
46
|
|
|
|
525
|
|
|
|
6
|
|
|
|
221
|
|
|
|
29
|
|
|
|
19
|
|
Twelve months or greater
|
|
|
121
|
|
|
|
520
|
|
|
|
10
|
|
|
|
203
|
|
|
|
24
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270
|
|
|
$
|
1,802
|
|
|
$
|
26
|
|
|
$
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
At June 30, 2009 and December 31, 2008, the
Companys gross unrealized losses related to its fixed
maturity securities including the portion of OTTI loss on fixed
maturity securities recognized in accumulated other
comprehensive loss at June 30, 2009, of $20.2 billion
and $29.8 billion, respectively, were concentrated,
calculated as a percentage of gross unrealized loss and OTTI
loss, by sector and industry is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
30
|
%
|
|
|
33
|
%
|
Residential mortgage-backed securities
|
|
|
20
|
|
|
|
16
|
|
Foreign corporate securities
|
|
|
16
|
|
|
|
19
|
|
Commercial mortgage-backed securities
|
|
|
12
|
|
|
|
11
|
|
Asset-backed securities
|
|
|
11
|
|
|
|
13
|
|
State and political subdivision securities
|
|
|
3
|
|
|
|
3
|
|
Foreign government securities
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
7
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
32
|
%
|
|
|
27
|
%
|
Finance
|
|
|
27
|
|
|
|
24
|
|
Asset-backed
|
|
|
11
|
|
|
|
13
|
|
Consumer
|
|
|
7
|
|
|
|
11
|
|
Utility
|
|
|
5
|
|
|
|
8
|
|
Communications
|
|
|
3
|
|
|
|
5
|
|
Industrial
|
|
|
2
|
|
|
|
4
|
|
Foreign government
|
|
|
5
|
|
|
|
1
|
|
Other
|
|
|
8
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
218
Evaluating
Temporarily Impaired Investments
At June 30, 2009 and December 31, 2008,
$6.2 billion and $8.0 billion, respectively, of
unrealized losses related to fixed maturity securities with an
unrealized loss position of less than 20% of amortized cost,
which represented 6% and 9%, respectively, of the amortized cost
of such securities. At June 30, 2009 and December 31,
2008, $26 million and $75 million, respectively, of
unrealized losses related to equity securities with an
unrealized loss position of less than 20% of cost or amortized
cost, which represented 10% and 13%, respectively, of the cost
or amortized cost of such securities.
At June 30, 2009, $13.3 billion and $695 million
of unrealized losses related to fixed maturity securities and
equity securities, respectively, with an unrealized loss
position of 20% or more of cost or amortized cost, which
represented 37% and 39% of the cost or amortized cost of such
fixed maturity and equity securities, respectively. Of such
unrealized losses of $13.3 billion and $695 million,
$2.0 billion and $143 million related to fixed
maturity and equity securities, respectively, that were in an
unrealized loss position for a period of less than six months.
At December 31, 2008, $20.8 billion and
$903 million of unrealized losses related to fixed maturity
and equity securities, respectively, with an unrealized loss
position of 20% or more of cost or amortized cost, which
represented 38% and 43% of the cost or amortized cost of such
fixed maturity and equity securities, respectively. Of such
unrealized losses of $20.8 billion and $903 million,
$17.2 billion and $519 million related to fixed
maturity and equity securities, respectively, that were in an
unrealized loss position for a period of less than six months.
The Company held 469 fixed maturity securities and 23 equity
securities, each with a gross unrealized loss at June 30,
2009 of greater than $10 million. These 469 fixed maturity
securities represented 50%, or $9.7 billion in the
aggregate, of the gross unrealized loss on fixed maturity
securities. These 23 equity securities represented 70%, or
$506 million in the aggregate, of the gross unrealized loss
on equity securities. The Company held 699 fixed maturity
securities and 33 equity securities, each with a gross
unrealized loss at December 31, 2008 of greater than
$10 million. These 699 fixed maturity securities
represented 50%, or $14.5 billion in the aggregate, of the
gross unrealized loss on fixed maturity securities. These 33
equity securities represented 71%, or $699 million in the
aggregate, of the gross unrealized loss on equity securities.
The fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$6.3 billion and $5.0 billion during the three months
and six months ended June 30, 2009, respectively. These
securities were included in the regular evaluation of whether
such investments are
other-than-temporarily
impaired. Based upon the Companys current evaluation of
these securities in accordance with its impairment policy, the
cause of the decline being primarily attributable to a rise in
market yields caused principally by an extensive widening of
credit spreads which resulted from a lack of market liquidity
and a short-term market dislocation versus a long-term
deterioration in credit quality, and its 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 Companys impairment review process, the duration
of, and severity of, an unrealized loss position, such as
unrealized losses of 20% or more for equity securities, which
was $695 million and $903 million at June 30,
2009 and December 31, 2008, respectively, 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
Companys 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 are given by the
Company to a decline in market value and the likelihood such
market value decline will recover.
Equity securities with an unrealized loss of 20% or more for
less than six months was $143 million at June 30,
2009, of which $82 million of the unrealized losses, or
57%, were for non-redeemable preferred securities, of which
$68 million, of the unrealized losses, or 83%, were for
investment grade non-redeemable preferred securities. Of the
$68 million of unrealized losses for investment grade
non-redeemable preferred securities, $61 million of the
unrealized losses, or 90%, was comprised of unrealized losses on
investment grade financial services industry non-redeemable
preferred securities, of which 97% were rated A or higher.
219
Equity securities with an unrealized loss of 20% or more for six
months or greater but less than twelve months was
$349 million at June 30, 2009, all of which were for
non-redeemable preferred securities, of which, $248 million
of the unrealized losses, or 71%, are for investment grade
securities, and $243 million, or 98%, of which are within
the financial services industry non-redeemable preferred
securities, of which 56% were rated A or higher.
Equity securities with an unrealized loss of 20% or more for
twelve months or greater was $203 million at June 30,
2009, of which $197 million of the unrealized losses, or
97%, were for investment grade non-redeemable preferred
securities, within the financial services industry, of which 57%
were rated A or higher.
In connection with the equity securities impairment review
process at June 30, 2009, the Company evaluated its
holdings in non-redeemable preferred securities, 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 securities with a
severe or an extended unrealized loss. 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 the 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).
At June 30, 2009, there were $695 million of equity
securities with an unrealized loss of 20% or more, of which
$634 million of the unrealized losses, or 91%, were for
non-redeemable preferred securities. At June 30, 2009,
$513 million of the unrealized losses of 20% or more, or
81%, of the non-redeemable preferred securities were investment
grade securities, of which, $501 million of the unrealized
losses of 20% or more, or 98%, are investment grade financial
services industry non-redeemable preferred securities, of which
61% were rated A or higher. Also all non-redeemable preferred
securities with unrealized losses of 20% or more, regardless of
credit rating, have not deferred any dividend payments.
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 continue to deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming quarters. See also
Investments Fixed Maturity and
Equity Securities
Available-for-Sale.
Impairments
OTTI Losses Recognized in Earnings.
Effective April 1, 2009 the Company adopted
FSP 115-2.
With the adoption of
FSP 115-2,
for those fixed maturity securities that are intended to be sold
or for which it is more likely than not that the security will
be required to be sold before recovery of the decline in fair
value below amortized cost, the full OTTI loss from the fair
value being less than the amortized cost is recognized in
earnings. For those fixed maturity securities which the Company
has no intent to sell (i.e. has not made the decision to sell)
and the Company believes it is not more likely than not that it
will be required to sell prior to recovery of the decline in
fair value, and an assessment has been made that the amortized
cost will not be fully recovered, only the OTTI credit loss
component is recognized in earnings, while the remaining decline
in fair value is recognized in accumulated other comprehensive
income (loss), not in earnings, as a noncredit OTTI loss. Prior
to the adoption of this new guidance, the Company recognized an
OTTI loss in earnings 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 to allow for a recovery of fair value to the
securitys amortized cost basis. There was no change for
equity securities which, when an OTTI loss has occurred,
continue to be impaired for the entire difference between the
equity securitys cost or amortized cost and its fair value
with a corresponding charge to earnings. The discussion below
describes the Companys methodology and significant inputs
used to determine the amount of the credit loss effective
April 1, 2009.
In order to determine the amount of the credit loss for a fixed
maturity security, the Company calculates the recovery value 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.
220
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 managements
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 securitys 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. Additional
considerations are made when assessing the unique features that
apply to certain structured securities such as residential
mortgage-backed securities, commercial mortgage-backed
securities and asset-backed securities. 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.
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
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
7,573
|
|
|
$
|
14,018
|
|
|
$
|
19,351
|
|
|
$
|
26,809
|
|
|
$
|
195
|
|
|
$
|
358
|
|
|
$
|
253
|
|
|
$
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
189
|
|
|
|
131
|
|
|
|
545
|
|
|
|
290
|
|
|
|
13
|
|
|
|
70
|
|
|
|
20
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(235
|
)
|
|
|
(298
|
)
|
|
|
(647
|
)
|
|
|
(586
|
)
|
|
|
(49
|
)
|
|
|
(14
|
)
|
|
|
(67
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(287
|
)
|
|
|
(136
|
)
|
|
|
(743
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(1)
|
|
|
(45
|
)
|
|
|
(3
|
)
|
|
|
(142
|
)
|
|
|
(3
|
)
|
|
|
(72
|
)
|
|
|
(56
|
)
|
|
|
(330
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(332
|
)
|
|
|
(139
|
)
|
|
|
(885
|
)
|
|
|
(213
|
)
|
|
|
(72
|
)
|
|
|
(56
|
)
|
|
|
(330
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(378
|
)
|
|
$
|
(306
|
)
|
|
$
|
(987
|
)
|
|
$
|
(509
|
)
|
|
$
|
(108
|
)
|
|
$
|
|
|
|
$
|
(377
|
)
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on non-redeemable preferred
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 fair value. |
Overview of Fixed Maturity and Equity Security OTTI Losses
Recognized in Earnings. Impairments of fixed
maturity and equity securities were $404 million and
$1,215 million for the three months and six months ended
June 30, 2009, respectively, and $195 million and
$330 million for the three months and six months ended
June 30, 2008, respectively. Impairments of fixed maturity
securities were $332 million and $885 million for the
three months and six months ended June 30, 2009,
respectively, and $139 million and $213 million for
the three months and six months ended June 30, 2008,
respectively. Impairments of equity securities were
$72 million and $330 million for the three months and
six months ended June 30, 2009, respectively, and
$56 million and $117 million for the three months and
six months ended June 30, 2008, respectively.
The Companys credit-related impairments of fixed maturity
securities were $287 million and $743 million for the
three months and six months ended June 30, 2009,
respectively, and $136 million and $210 million for
the three months and six months ended June 30, 2008,
respectively.
221
The Companys three largest impairments totaled
$91 million and $320 million for the three months and
six months ended June 30, 2009 and $69 million and
$96 million for the three months and six months ended
June 30, 2008, 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
$1.9 billion and $5.3 billion during the three months
and six months ended June 30, 2009 and $7.5 billion
and $13.0 billion for the three months and six months ended
June 30, 2008, respectively. Gross losses excluding
impairments for fixed maturity and equity securities were
$284 million and $714 million for the three months and
six months ended June 30, 2009 and $312 million and
$626 million for the three months and six months ended
June 30, 2008, respectively.
Three Months and Six Months Ended June 30,
2009 Financial Services Industry including Perpetual
Hybrid Securities Impairments. Of the fixed
maturity and equity securities impairments of $404 million
and $1,215 million for the three months and six months
ended June 30, 2009, respectively, $127 million and
$478 million were concentrated in the Companys
financial services industry holdings including $68 million
and $361 million of perpetual hybrid securities, some
classified as fixed maturity securities and some classified as
non-redeemable preferred stock. The financial services industry
impairments of $127 million and $478 million for the
three months and six months ended June 30, 2009,
respectively, were comprised of $67 million and
$188 million, respectively, in impairments on fixed
maturity securities and $60 million and $290 million,
respectively, in impairments on equity securities, of which
$8 million and $102 million and $60 million and
$260 million were perpetual hybrid securities included
within fixed maturity securities and non-redeemable preferred
stock, respectively. The circumstances that gave rise to these
financial services industry impairments during the three months
and six months ended June 30, 2009 were financial
restructurings, bankruptcy filings, ratings downgrades or
difficult underlying operating environments for the issuers. In
addition, impairments on perpetual hybrid securities during the
three months and six months ended June 30, 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.
222
Three Months and Six Months Ended June 30,
2009 Summary of Fixed Maturity Security
Impairments. Overall OTTI losses recognized in
earnings on fixed maturity securities were $332 million and
$885 million for the three months and six months ended
June 30, 2009, respectively. This substantial increase over
the prior year periods were driven by impairments across several
industries and sectors as shown in the table below. The
circumstances that gave rise to these impairments were financial
restructurings, bankruptcy filings, ratings downgrades or
difficult underlying operating environments for the issuers.
Overall, $287 million and $743 million of the
impairments were considered to be credit-related impairments on
fixed maturity securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
U.S. and foreign corporate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
$
|
61
|
|
|
$
|
|
|
|
$
|
203
|
|
|
$
|
17
|
|
Finance
|
|
|
67
|
|
|
|
83
|
|
|
|
188
|
|
|
|
114
|
|
Consumer
|
|
|
74
|
|
|
|
45
|
|
|
|
164
|
|
|
|
48
|
|
Utility
|
|
|
43
|
|
|
|
1
|
|
|
|
76
|
|
|
|
1
|
|
Industrial
|
|
|
3
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
3
|
|
|
|
26
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
250
|
|
|
|
135
|
|
|
|
677
|
|
|
|
185
|
|
Asset-backed securities
|
|
|
28
|
|
|
|
4
|
|
|
|
94
|
|
|
|
28
|
|
Residential mortgage-backed securities
|
|
|
20
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
34
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
332
|
|
|
$
|
139
|
|
|
$
|
885
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months and Six Months Ended June 30,
2009 Summary of Equity Security
Impairments. Equity security impairments recorded
in the three months and six months ended June 30, 2009
totaled $72 million and $330 million, respectively.
Included within the $72 million and $330 million of
impairments on equity securities in the three months and six
months ended June 30, 2009, respectively are
$60 million and $290 million of impairments on
financial services industry perpetual hybrid securities where
there had been a deterioration in the credit rating of the
issuer to below investment grade and due to a severe and
extended unrealized loss position and $12 million and
$40 million of impairments across several industries
including communications and consumer. With respect to common
stock holdings, the Company considered the duration and severity
of the securities in an unrealized loss position of 20% or more;
and the duration of the securities in an unrealized loss
position of 20% or less with an extended unrealized loss
position (i.e.12 months or greater) in determining the
other-than-temporary
impairment charge for such securities.
The $72 million and $56 million of equity security
impairments in the three months ended June 30, 2009 and
2008, respectively, and $330 million and $117 million
in the six months ended June 30, 2009 and 2008,
respectively, related to the following sectors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Common stock
|
|
$
|
12
|
|
|
$
|
55
|
|
|
$
|
50
|
|
|
$
|
79
|
|
Non-redeemable preferred stock
|
|
|
60
|
|
|
|
1
|
|
|
|
280
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72
|
|
|
$
|
56
|
|
|
$
|
330
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 continue to deteriorate,
223
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
The table below is a 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 and are still held on
June 30, 2009.
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
June 30, 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 in
the current period on securities not previously impaired
|
|
|
152
|
|
Additional impairments credit loss OTTI recognized
in the current period on securities previously impaired
|
|
|
5
|
|
Reductions:
|
|
|
|
|
Due to sales (or maturities, pay downs or prepayments) during
the period of securities previously credit loss OTTI impaired
|
|
|
(7
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
380
|
|
|
|
|
|
|
Corporate Fixed Maturity Securities. The table
below shows the major industry types that comprise the corporate
securities holdings at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Estimated
|
|
|
% of
|
|
|
Estimated
|
|
|
% of
|
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Foreign (1)
|
|
$
|
33,607
|
|
|
|
33.7
|
%
|
|
$
|
29,679
|
|
|
|
32.0
|
%
|
Industrial
|
|
|
15,312
|
|
|
|
15.4
|
|
|
|
13,324
|
|
|
|
14.3
|
|
Consumer
|
|
|
14,948
|
|
|
|
15.0
|
|
|
|
13,122
|
|
|
|
14.1
|
|
Utility
|
|
|
13,697
|
|
|
|
13.8
|
|
|
|
12,434
|
|
|
|
13.4
|
|
Finance
|
|
|
13,482
|
|
|
|
13.5
|
|
|
|
14,996
|
|
|
|
16.1
|
|
Communications
|
|
|
5,898
|
|
|
|
5.9
|
|
|
|
5,714
|
|
|
|
6.1
|
|
Other
|
|
|
2,644
|
|
|
|
2.7
|
|
|
|
3,713
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
99,588
|
|
|
|
100.0
|
%
|
|
$
|
92,982
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. Dollar-denominated debt obligations of foreign
obligors and other fixed maturity securities foreign investments. |
The Company maintains a diversified corporate fixed maturity
portfolio across industries and issuers. The portfolio does not
have exposure to any single issuer in excess of 1% of the total
investments. At June 30, 2009 and December 31, 2008,
the Companys combined holdings in the ten issuers to which
it had the greatest exposure totaled $7.7 billion and
$8.4 billion, respectively, the total of these ten issuers
being less than 3% of the Companys total investments at
such dates. The largest exposure to a single issuer of corporate
fixed maturity securities held at June 30, 2009 and
December 31, 2008 was $1.1 billion and
$1.5 billion, respectively.
224
Structured Securities. The following table
shows the types of structured securities the Company held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Estimated
|
|
|
% of
|
|
|
Estimated
|
|
|
% of
|
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
24,555
|
|
|
|
36.0
|
%
|
|
$
|
26,025
|
|
|
|
44.0
|
%
|
Pass-through securities
|
|
|
17,243
|
|
|
|
25.3
|
|
|
|
10,003
|
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage-backed securities
|
|
|
41,798
|
|
|
|
61.3
|
|
|
|
36,028
|
|
|
|
60.8
|
|
Commercial mortgage-backed securities
|
|
|
13,995
|
|
|
|
20.5
|
|
|
|
12,644
|
|
|
|
21.4
|
|
Asset-backed securities
|
|
|
12,414
|
|
|
|
18.2
|
|
|
|
10,523
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,207
|
|
|
|
100.0
|
%
|
|
$
|
59,195
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations are a type of
mortgage-backed security that creates separate pools or tranches
of pass-through cash flows for different classes of bondholders
with varying maturities. 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 fee, remits or passes these
payments through to the holders of the pass-through securities.
Residential Mortgage-Backed Securities. The
Companys residential mortgage-backed securities portfolio
consists of agency, prime and alternative residential mortgage
loans (Alt-A) securities of 75%, 18% and 7% of the
total holdings, respectively, at June 30, 2009 and 68%, 23%
and 9% of the total holdings, respectively, at December 31,
2008. At June 30, 2009 and December 31, 2008,
$34.5 billion and $33.3 billion, respectively, or 83%
and 92%, respectively, of the residential mortgage-backed
securities were rated Aaa/AAA by Moodys, S&P or
Fitch. The majority of the agency residential mortgage-backed
securities are guaranteed or otherwise supported by the Federal
National Mortgage Association (FNMA), the Federal
Home Loan Mortgage Corporation (FHLMC) or the
Government National Mortgage Association. In September 2008, the
U.S. Treasury announced that FNMA and FHLMC had been placed
into conservatorship. Prime residential mortgage lending
includes the origination of residential mortgage loans to the
most credit-worthy customers with high quality credit profiles.
Alt-A residential mortgage loans are a classification of
mortgage loans where the risk profile of the borrower falls
between prime and
sub-prime.
At June 30, 2009 and December 31, 2008, the
Companys Alt-A residential mortgage-backed securities
holdings at estimated fair value was $3.1 billion and
$3.4 billion, respectively, with an unrealized loss of
$1.8 billion and $2.0 billion, respectively. At
June 30, 2009 and December 31, 2008, $0.5 billion
and $2.1 billion, respectively, or 16% and 63%,
respectively, of the Companys Alt-A residential
mortgage-backed securities were rated Aa/AA or better by
Moodys, S&P or Fitch. At June 30, 2009, the
Companys Alt-A holdings are distributed by vintage year as
follows at estimated fair value: 2% in the 2009 vintage year,
25% in the 2007 vintage year and 73% in the 2006 and prior
vintage years. At December 31, 2008, the Companys
Alt-A holdings are distributed by vintage year as follows at
estimated fair value: 23% in the 2007 vintage year, 25% in the
2006 vintage year and 52% in the 2005 and prior vintage years.
Vintage year refers to the year of origination and not to the
year of purchase. In January 2009 Moodys revised its loss
projections for Alt-A residential mortgage-backed securities and
downgraded virtually all 2006 and 2007 vintage year Alt-A
securities to below investment grade, contributing to the
substantial decrease cited above in our Alt-A securities
holdings rated Aa/AA or better. Our analysis suggests that
Moodys is applying essentially the same default
methodology to all Alt-A bonds regardless of the underlying
collateral. The Companys Alt-A portfolio has superior
structure to the overall Alt-A market. At June 30, 2009,
the Companys Alt-A portfolio is 87% fixed rate collateral,
has zero exposure to option ARM mortgages and has only 13%
hybrid ARMs. At December 31, 2008, the Companys Alt-A
portfolio is 88% fixed rate collateral, has zero exposure to
option ARM mortgages and has only 12% hybrid ARMs. Fixed rate
mortgages have performed better than both option ARMs and hybrid
ARMs. Additionally, 84% and 83% at June 30, 2009 and
December 31, 2008, respectively, of the Companys
Alt-A portfolio has super senior credit enhancement, which
typically provides double the credit enhancement of a standard
AAA rated bond. Based upon the analysis of the Companys
exposure to Alt-A mortgage loans through its
225
investment in residential mortgage-backed securities, the
Company continues to expect to receive payments in accordance
with the contractual terms of the securities.
Asset-Backed Securities. The Companys
asset-backed securities are diversified both by sector and by
issuer. At June 30, 2009, the largest exposures in the
Companys asset-backed securities portfolio were credit
card receivables, student loan receivables, residential
mortgage-backed securities backed by
sub-prime
mortgage, and automobile receivables loans of 57%, 13%, 8% and
8% of the total holdings, respectively. At December 31,
2008, the largest exposures in the Companys asset-backed
securities portfolio were credit card receivables, student loan
receivables, automobile receivables and residential
mortgage-backed securities backed by
sub-prime
mortgage loans of 49%, 10%, 10% and 10% of the total holdings,
respectively. At June 30, 2009 and December 31, 2008,
the Companys holdings in asset-backed securities were
$12.4 billion and $10.5 billion, respectively, at
estimated fair value. At June 30, 2009 and
December 31, 2008, $9.5 billion and $7.9 billion,
respectively, or 77% and 75%, respectively, of total
asset-backed securities were rated Aaa/AAA by Moodys,
S&P or Fitch.
The Companys asset-backed securities included in the
structured securities table above include exposure to
residential mortgage-backed securities backed by
sub-prime
mortgage loans.
Sub-prime
mortgage lending is the origination of residential mortgage
loans to customers with weak credit profiles. The Companys
exposure exists through investment in asset-backed securities
which are supported by
sub-prime
mortgage loans. The slowing U.S. housing market, greater
use of affordable mortgage products and relaxed underwriting
standards for some originators of below-prime loans have
recently led to higher delinquency and loss rates, especially
within the 2006 and 2007 vintage year. 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 an increase in unrealized
losses from December 31, 2008 to June 30, 2009. Based
upon the analysis of the Companys
sub-prime
mortgage loans through its investment in asset-backed
securities, the Company expects to receive payments in
accordance with the contractual terms of the securities.
The following table shows the Companys exposure to
asset-backed securities supported by
sub-prime
mortgage loans by credit quality and by vintage year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Below Investment Grade
|
|
|
Total
|
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
2003 & Prior
|
|
$
|
83
|
|
|
$
|
58
|
|
|
$
|
73
|
|
|
$
|
52
|
|
|
$
|
22
|
|
|
$
|
10
|
|
|
$
|
18
|
|
|
$
|
10
|
|
|
$
|
77
|
|
|
$
|
42
|
|
|
$
|
273
|
|
|
$
|
172
|
|
2004
|
|
|
104
|
|
|
|
48
|
|
|
|
373
|
|
|
|
204
|
|
|
|
17
|
|
|
|
7
|
|
|
|
36
|
|
|
|
17
|
|
|
|
2
|
|
|
|
1
|
|
|
|
532
|
|
|
|
277
|
|
2005
|
|
|
74
|
|
|
|
39
|
|
|
|
225
|
|
|
|
101
|
|
|
|
39
|
|
|
|
25
|
|
|
|
31
|
|
|
|
22
|
|
|
|
241
|
|
|
|
135
|
|
|
|
610
|
|
|
|
322
|
|
2006
|
|
|
59
|
|
|
|
49
|
|
|
|
62
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
6
|
|
|
|
93
|
|
|
|
44
|
|
|
|
236
|
|
|
|
131
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
15
|
|
|
|
117
|
|
|
|
45
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
320
|
|
|
$
|
194
|
|
|
$
|
811
|
|
|
$
|
419
|
|
|
$
|
78
|
|
|
$
|
42
|
|
|
$
|
107
|
|
|
$
|
55
|
|
|
$
|
452
|
|
|
$
|
237
|
|
|
$
|
1,768
|
|
|
$
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Below Investment Grade
|
|
|
Total
|
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009 and December 31, 2008, the Company
had asset-backed securities supported by
sub-prime
mortgage loans with estimated fair values of $0.9 billion
and $1.1 billion, respectively, and unrealized losses of
226
$821 million and $730 million, respectively, as
outlined in the tables above. At June 30, 2009,
approximately 65% of the portfolio is rated Aa or better of
which 82% was in vintage year 2005 and prior. At
December 31, 2008, approximately 82% of the portfolio was
rated Aa or better of which 82% was in vintage year 2005 and
prior. These older vintages benefit from better underwriting,
improved enhancement levels and higher residential property
price appreciation. At June 30, 2009, 39% of the
asset-backed securities backed by
sub-prime
mortgage loans have been guaranteed by financial guarantee
insurers, of which 20% and 5% were guaranteed by financial
guarantee insurers who were Aa and A rated, respectively. At
December 31, 2008, 37% of the asset-backed securities
backed by
sub-prime
mortgage loans have been guaranteed by financial guarantee
insurers, of which 19% and 37% were guaranteed by financial
guarantee insurers who were Aa and Baa rated, respectively. At
June 30, 2009 and December 31, 2008, all of the
$0.9 billion and $1.1 billion, respectively, of
asset-backed securities supported by
sub-prime
mortgage loans were classified as Level 3 fixed maturity
securities.
Asset-backed securities also include collateralized debt
obligations backed by
sub-prime
mortgage loans at an aggregate cost of $19 million with an
estimated fair value of $4 million at June 30, 2009
and an aggregate cost of $20 million with an estimated fair
value of $10 million at December 31, 2008, which are
not included in the tables above.
Commercial Mortgage-Backed Securities. There
have been disruptions in the commercial mortgage-backed
securities 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 spreads and repricing of risk, which has led to an
increase in unrealized losses since third quarter 2008. Based
upon the analysis of the Companys exposure to commercial
mortgage-backed securities, the Company expects to receive
payments in accordance with the contractual terms of the
securities.
At June 30, 2009 and December 31, 2008, the
Companys holdings in commercial mortgage-backed securities
were $14.0 billion and $12.6 billion, respectively, at
estimated fair value. At June 30, 2009 and
December 31, 2008, $13.0 billion and
$11.8 billion, respectively, of the estimated fair value,
or 93% for both years, of commercial mortgage-backed securities
was rated Aaa/AAA by Moodys, S&P or Fitch. At both
June 30, 2009 and December 31, 2008, the rating
distribution of the Companys commercial mortgage-backed
securities holdings was as follows: 93% Aaa, 4% Aa, 1% A, 1% Baa
and 1% Ba or below. At June 30, 2009 and December 31,
2008, 85% and 84%, respectively, of the holdings were in the
2005 and prior vintage years. At June 30, 2009 and
December 31, 2008, the Company had no exposure to CMBX
securities and its holdings of commercial real estate debt
obligations securities were $111 million and
$121 million, respectively, at estimated fair value. The
weighted average credit enhancement of the Companys
commercial mortgage-backed securities holdings at June 30,
2009 and December 31, 2008 was 28% and 26%, respectively.
This credit enhancement percentage represents the current
weighted average estimated percentage of outstanding capital
structure subordinated to the Companys 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.
The following table shows the Companys exposure to
commercial mortgage-backed securities by credit quality and by
vintage year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Below Investment Grade
|
|
|
Total
|
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
2003 & Prior
|
|
$
|
5,950
|
|
|
$
|
5,883
|
|
|
$
|
422
|
|
|
$
|
344
|
|
|
$
|
192
|
|
|
$
|
139
|
|
|
$
|
54
|
|
|
$
|
31
|
|
|
$
|
36
|
|
|
$
|
14
|
|
|
$
|
6,654
|
|
|
$
|
6,411
|
|
2004
|
|
|
2,568
|
|
|
|
2,372
|
|
|
|
211
|
|
|
|
117
|
|
|
|
139
|
|
|
|
59
|
|
|
|
47
|
|
|
|
13
|
|
|
|
84
|
|
|
|
43
|
|
|
|
3,049
|
|
|
|
2,604
|
|
2005
|
|
|
3,293
|
|
|
|
2,776
|
|
|
|
172
|
|
|
|
62
|
|
|
|
19
|
|
|
|
5
|
|
|
|
35
|
|
|
|
13
|
|
|
|
26
|
|
|
|
11
|
|
|
|
3,545
|
|
|
|
2,867
|
|
2006
|
|
|
1,783
|
|
|
|
1,395
|
|
|
|
54
|
|
|
|
33
|
|
|
|
79
|
|
|
|
29
|
|
|
|
94
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
2,010
|
|
|
|
1,502
|
|
2007
|
|
|
999
|
|
|
|
542
|
|
|
|
34
|
|
|
|
29
|
|
|
|
47
|
|
|
|
29
|
|
|
|
3
|
|
|
|
2
|
|
|
|
10
|
|
|
|
9
|
|
|
|
1,093
|
|
|
|
611
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,593
|
|
|
$
|
12,968
|
|
|
$
|
893
|
|
|
$
|
585
|
|
|
$
|
476
|
|
|
$
|
261
|
|
|
$
|
233
|
|
|
$
|
104
|
|
|
$
|
156
|
|
|
$
|
77
|
|
|
$
|
16,351
|
|
|
$
|
13,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Below Investment Grade
|
|
|
Total
|
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
Cost or
|
|
|
Fair
|
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Amortized 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,286
|
|
|
$
|
11,778
|
|
|
$
|
969
|
|
|
$
|
488
|
|
|
$
|
455
|
|
|
$
|
220
|
|
|
$
|
207
|
|
|
$
|
81
|
|
|
$
|
162
|
|
|
$
|
77
|
|
|
$
|
16,079
|
|
|
$
|
12,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 major 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 to be
obtained at the inception of a loan and maintained at a level
greater than or equal to 100% for the duration of the loan.
During the extraordinary market events occurring beginning in
the fourth quarter of 2008, the Company, in limited instances,
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 with a cost or amortized cost of
$20.7 billion and $20.8 billion and an estimated fair
value of $20.9 billion and $22.9 billion were on loan
under the program at June 30, 2009 and December 31,
2008, respectively. Securities loaned under such transactions
may be sold or repledged by the transferee. The Company was
liable for cash collateral under its control of
$21.5 billion and $23.3 billion at June 30, 2009
and December 31, 2008, respectively. Of this
$21.5 billion of cash collateral at June 30, 2009,
$2.4 billion was on open terms, meaning that the related
loaned security could be returned to the Company on the next
business day requiring return of cash collateral and
$11.0 billion, $4.0 billion, $2.4 billion and
$1.7 billion, respectively, were due within 30 days,
60 days, 90 days and over 90 days. The estimated
fair value of the securities related to the cash collateral on
open terms at June 30, 2009 has been reduced to
$2.3 billion from $5.0 billion at December 31,
2008. Substantially all (99%) of the $2.3 billion of
estimated fair value of the securities related to the cash
collateral on open terms at June 30, 2009 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
are primarily U.S. Treasury, agency, and government
guaranteed securities and very liquid residential
mortgage-backed securities. Within the U.S. Treasury
securities on loan, they 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 estimated fair
value of the reinvestment portfolio acquired with the cash
collateral was $19.6 billion at June 30, 2009, and
consisted principally of fixed maturity securities (including
residential mortgage-backed, asset-backed, 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 demand when securities are put back
to the Company.
228
The following table represents, at June 30, 2009, when the
Company may be obligated to return cash collateral received in
connection with its securities lending program. Cash collateral
is required to be returned when the related loaned security is
returned to the Company.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Cash Collateral
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
Open
|
|
$
|
2,419
|
|
|
|
11.3
|
%
|
Less than thirty days
|
|
|
10,973
|
|
|
|
51.1
|
|
Greater than thirty days to sixty days
|
|
|
3,969
|
|
|
|
18.5
|
|
Greater than sixty days to ninety days
|
|
|
2,372
|
|
|
|
11.0
|
|
Greater than ninety days
|
|
|
1,752
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,485
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Security collateral of $29 million and $279 million on
deposit from counterparties in connection with the securities
lending transactions at June 30, 2009 and December 31,
2008, respectively, may not be sold or repledged, unless the
counterparty is in default, and is not reflected in the
consolidated financial statements.
Assets
on Deposit, Held in Trust and Pledged as
Collateral
The assets on deposit, assets held in trust and assets pledged
as collateral are summarized in the table below. The amounts
presented in the table below are at estimated fair value for
cash, fixed maturity and equity securities and at carrying value
for mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
1,279
|
|
|
$
|
1,282
|
|
Assets held in trust:
|
|
|
|
|
|
|
|
|
Collateral financing arrangements (2)
|
|
|
5,750
|
|
|
|
4,754
|
|
Reinsurance arrangements (3)
|
|
|
1,244
|
|
|
|
1,714
|
|
Assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Debt and funding agreements FHLB of NY (4)
|
|
|
22,065
|
|
|
|
20,880
|
|
Debt and funding agreements FHLB of Boston (4)
|
|
|
434
|
|
|
|
1,284
|
|
Funding agreements Farmer MAC (5)
|
|
|
2,870
|
|
|
|
2,875
|
|
Federal Reserve Bank of New York (6)
|
|
|
2,961
|
|
|
|
1,577
|
|
Collateral financing arrangements Holding Company (7)
|
|
|
123
|
|
|
|
316
|
|
Derivative transactions (8)
|
|
|
1,257
|
|
|
|
1,744
|
|
Short sale agreements (9)
|
|
|
545
|
|
|
|
346
|
|
Other
|
|
|
190
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
Total assets on deposit, held in trust and pledged as collateral
|
|
$
|
38,718
|
|
|
$
|
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. The Company has also pledged certain fixed
maturity securities in support of the collateral financing
arrangements described in Note 10 of the Notes to the
Interim Condensed Consolidated Financial Statements. |
|
(3) |
|
The Company has pledged certain investments, primarily fixed
maturity securities, in connection with certain reinsurance
transactions. |
229
|
|
|
(4) |
|
The Company has pledged fixed maturity securities and mortgage
loans in support of its debt and funding agreements with the
FHLB of NY and has pledged fixed maturity securities to the FHLB
of Boston. The nature of these Federal Home Loan Bank
arrangements are described in Note 7 of the Notes to the
Consolidated Financial Statements included in the 2008 Annual
Report. |
|
(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 arrangement is
described in Note 7 of the Notes to the Consolidated
Financial Statements included in the 2008 Annual Report. |
|
(6) |
|
The Company has pledged qualifying mortgage loans and securities
in connection with collateralized borrowings from the Federal
Reserve Bank of New Yorks Term Auction Facility. The
nature of the Federal Reserve Bank of New York arrangement is
described in Note 9 of the Notes to the Interim Condensed
Consolidated Financial Statements. |
|
(7) |
|
The Holding Company has pledged certain collateral in support of
the collateral financing arrangements described in Note 10
of the Notes to the Interim Condensed Consolidated Financial
Statements. |
|
(8) |
|
Certain of the Companys invested assets are pledged as
collateral for various derivative transactions as described in
Note 4 of the Notes to the Interim Condensed Consolidated
Financial Statements. |
|
(9) |
|
Certain of the Companys trading securities are pledged to
secure liabilities associated with short sale agreements in the
trading securities portfolio as described in the following
section. |
See also Investments Securities
Lending for the amount of the Companys 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. Trading securities and short sale
agreement liabilities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income.
At June 30, 2009 and December 31, 2008, trading
securities at estimated fair value were $1,471 million and
$946 million, respectively, and liabilities associated with
the short sale agreements in the trading securities portfolio,
which were included in other liabilities, were $201 million
and $57 million, respectively. The Company had pledged
$545 million and $346 million of its assets, at
estimated fair value, consisting of trading securities and cash
and cash equivalents, as collateral to secure the liabilities
associated with the short sale agreements in the trading
securities portfolio at June 30, 2009 and December 31,
2008, respectively.
Interest and dividends earned on trading securities, in addition
to the net realized gains (losses) and subsequent changes in
estimated fair value recognized on the trading securities and
the related short sale agreement liabilities included within net
investment income, totaled $130 million and
$147 million for the three months and six months ended
June 30, 2009, respectively, and $9 million and
($42) million for the three months and six months ended
June 30, 2008, respectively. Changes in estimated fair
value in net investment income of such trading securities and
short sale agreement liabilities were $141 million and
$143 million for the three months and six months ended
June 30, 2009, respectively, and ($4) million and
($47) million for the three months and six months ended
June 30, 2008, respectively.
230
The trading securities measured at estimated fair value on a
recurring basis and their corresponding fair value hierarchy,
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Trading
|
|
|
Trading
|
|
|
|
Securities
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
1,134
|
|
|
|
77
|
%
|
|
$
|
142
|
|
|
|
71
|
%
|
Significant other observable inputs (Level 2)
|
|
|
265
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
72
|
|
|
|
5
|
|
|
|
59
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
1,471
|
|
|
|
100
|
%
|
|
$
|
201
|
|
|
|
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 three months and six months ended June 30, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
105
|
|
|
$
|
175
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
6
|
|
|
|
7
|
|
Purchases, sales, issuances and settlements
|
|
|
(39
|
)
|
|
|
(104
|
)
|
Transfer in and/or out of Level 3
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
72
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
See Summary of Critical Accounting Estimates
for further information on the estimates and assumptions that
affect the amounts reported above.
Mortgage
and Consumer Loans
The Companys mortgage and consumer loans are principally
collateralized by commercial, agricultural and residential
properties, as well as automobiles. Mortgage and consumer loans
comprised 16.1% and 15.9% of the Companys total cash and
invested assets at June 30, 2009 and December 31,
2008, respectively. The carrying value of mortgage and consumer
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. The following table shows the carrying value
of the Companys mortgage and consumer loans by type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Commercial mortgage loans
|
|
$
|
35,017
|
|
|
|
66.7
|
%
|
|
$
|
35,965
|
|
|
|
70.1
|
%
|
Agricultural mortgage loans
|
|
|
11,913
|
|
|
|
22.7
|
|
|
|
12,234
|
|
|
|
23.8
|
|
Consumer loans
|
|
|
1,299
|
|
|
|
2.5
|
|
|
|
1,153
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held-for-investment
|
|
|
48,229
|
|
|
|
91.9
|
|
|
|
49,352
|
|
|
|
96.1
|
|
Mortgage loans
held-for-sale
|
|
|
4,271
|
|
|
|
8.1
|
|
|
|
2,012
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,500
|
|
|
|
100.0
|
%
|
|
$
|
51,364
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009 and December 31, 2008, mortgage loans
held-for-sale
include $4,258 million and $1,975 million,
respectively, of residential mortgage loans
held-for-sale
carried under the fair value option,
231
which included $4,122 million and $1,798 million of
Level 2 mortgage loans
held-for-sale
and $136 million and $177 million of Level 3
mortgage loans
held-for-sale
at June 30, 2009 and December 31, 2008, respectively.
At June 30, 2009 and December 31, 2008, mortgage loans
held-for-sale
also include $13 million and $37 million,
respectively, of commercial and residential mortgage loans
held-for-sale
which are carried at the lower of amortized cost or estimated
fair value.
At June 30, 2009, the Company held $124 million in
impaired mortgage loans of which $111 million was related
to mortgage loans
held-for-investment
and $13 million was related to certain mortgage loans
held-for-sale.
At December 31, 2008, the Company held $220 million in
impaired mortgage loans, of which $188 million was related
to mortgage loans
held-for-investment
and $32 million to certain mortgage loans
held-for-sale.
These impaired mortgage loans are carried at their estimated
fair values at the time such impairments were recognized.
Estimated fair values for impaired mortgage loans are based on
independent broker quotations or, if the loans are in
foreclosure or are otherwise determined to be collateral
dependent, on the value of the underlying collateral.
Impairments to estimated fair value of less than $1 million
and $13 million for the three months ended June 30,
2009 and 2008, respectively, and $26 million and
$42 million for the six months ended June 30, 2009 and
2008, respectively, were recognized within net investment gains
(losses). These impairments to estimated fair value represent
nonrecurring 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.
Commercial Mortgage Loans By Geographic Region and Property
Type. The Company diversifies its commercial
mortgage loans by both geographic region and property type. The
following table presents the distribution across geographic
regions and property types for commercial mortgage loans
held-for-investment
at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific
|
|
$
|
8,679
|
|
|
|
24.8
|
%
|
|
$
|
8,837
|
|
|
|
24.6
|
%
|
South Atlantic
|
|
|
7,627
|
|
|
|
21.8
|
|
|
|
8,101
|
|
|
|
22.5
|
|
Middle Atlantic
|
|
|
5,879
|
|
|
|
16.8
|
|
|
|
5,931
|
|
|
|
16.5
|
|
International
|
|
|
3,461
|
|
|
|
9.9
|
|
|
|
3,414
|
|
|
|
9.5
|
|
West South Central
|
|
|
2,908
|
|
|
|
8.3
|
|
|
|
3,070
|
|
|
|
8.5
|
|
East North Central
|
|
|
2,561
|
|
|
|
7.3
|
|
|
|
2,591
|
|
|
|
7.2
|
|
New England
|
|
|
1,465
|
|
|
|
4.2
|
|
|
|
1,529
|
|
|
|
4.3
|
|
Mountain
|
|
|
1,044
|
|
|
|
3.0
|
|
|
|
1,052
|
|
|
|
2.9
|
|
West North Central
|
|
|
677
|
|
|
|
1.9
|
|
|
|
716
|
|
|
|
2.0
|
|
East South Central
|
|
|
462
|
|
|
|
1.3
|
|
|
|
468
|
|
|
|
1.3
|
|
Other
|
|
|
254
|
|
|
|
0.7
|
|
|
|
256
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,017
|
|
|
|
100.0
|
%
|
|
$
|
35,965
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
14,832
|
|
|
|
42.3
|
%
|
|
$
|
15,307
|
|
|
|
42.6
|
%
|
Retail
|
|
|
7,941
|
|
|
|
22.7
|
|
|
|
8,038
|
|
|
|
22.3
|
|
Apartments
|
|
|
3,838
|
|
|
|
11.0
|
|
|
|
4,113
|
|
|
|
11.4
|
|
Hotel
|
|
|
3,076
|
|
|
|
8.8
|
|
|
|
3,078
|
|
|
|
8.6
|
|
Industrial
|
|
|
2,802
|
|
|
|
8.0
|
|
|
|
2,901
|
|
|
|
8.1
|
|
Other
|
|
|
2,528
|
|
|
|
7.2
|
|
|
|
2,528
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,017
|
|
|
|
100.0
|
%
|
|
$
|
35,965
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, delinquent or
under foreclosure. These loan classifications are consistent
with those used in industry practice.
232
The Company defines restructured mortgage loans as loans in
which the Company, for economic or legal reasons related to the
debtors financial difficulties, grants a concession to the
debtor that it would not otherwise consider. The Company defines
potentially delinquent loans as loans that, in managements
opinion, have a high probability of becoming delinquent. 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 Company reviews all 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 and tenant creditworthiness.
The Company records valuation allowances for certain of the
loans that it deems impaired. The Companys valuation
allowances are established both on a loan specific basis for
those loans where a property or market specific risk has been
identified that could likely result in a future default, as well
as for pools of loans with similar high risk characteristics
where a property specific or market risk has not been
identified. Loan specific valuation allowances are established
for the excess carrying value of the mortgage loan over the
present value of expected future cash flows discounted at the
loans original effective interest rate, the value of the
loans collateral or the loans estimated fair value
if the loan is being sold. Valuation allowances for pools of
loans are established based on property types and loan to value
risk factors. The Company records valuation allowances as
investment losses. The Company records subsequent adjustments to
allowances as investment gains (losses).
Recent economic events causing deteriorating market conditions,
low levels of liquidity and credit spread widening have all
adversely impacted the mortgage and consumer loan markets. As a
result, commercial real estate, agricultural and residential
loan market fundamentals 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 Companys ongoing,
systematic and comprehensive review of the mortgage and consumer
loan portfolios, resulting in higher writedown amounts and
valuation allowances for the three months and six months ended
June 30, 2009 as compared to the prior periods.
The following table presents the amortized cost and valuation
allowance for commercial mortgage loans
held-for-investment
distributed by loan classification at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
|
Cost (1)
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
Cost (1)
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
|
(In millions)
|
|
|
Performing
|
|
$
|
35,416
|
|
|
|
100.0
|
%
|
|
$
|
408
|
|
|
|
1.2
|
%
|
|
$
|
36,192
|
|
|
|
100.0
|
%
|
|
$
|
232
|
|
|
|
0.6
|
%
|
Restructured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
Potentially delinquent
|
|
|
25
|
|
|
|
|
|
|
|
24
|
|
|
|
96.0
|
%
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
Delinquent or under foreclosure
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,449
|
|
|
|
100.0
|
%
|
|
$
|
432
|
|
|
|
1.2
|
%
|
|
$
|
36,197
|
|
|
|
100.0
|
%
|
|
$
|
232
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortized cost is equal to carrying value before valuation
allowances. |
233
The following table presents the changes in valuation allowances
for commercial mortgage loans
held-for-investment
for the:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
232
|
|
Additions
|
|
|
218
|
|
Deductions
|
|
|
(18
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
432
|
|
|
|
|
|
|
Agricultural Mortgage Loans. The Company
diversifies its agricultural mortgage loans
held-for-investment
by both geographic region and product type.
Of the $12.0 billion of agricultural mortgage loans
outstanding at June 30, 2009, 56% were subject to rate
resets prior to maturity. A substantial portion of these loans
has been successfully renegotiated and remain outstanding to
maturity. The process and policies for monitoring the
agricultural mortgage loans and classifying them by performance
status are generally the same as those for the commercial loans.
The following table presents the amortized cost and valuation
allowances for agricultural mortgage loans
held-for-investment
distributed by loan classification at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
|
Cost (1)
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
Cost (1)
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
|
(In millions)
|
|
|
Performing
|
|
$
|
11,778
|
|
|
|
98.1
|
%
|
|
$
|
37
|
|
|
|
0.3
|
%
|
|
$
|
12,054
|
|
|
|
98.0
|
%
|
|
$
|
16
|
|
|
|
0.1
|
%
|
Restructured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
Potentially delinquent
|
|
|
100
|
|
|
|
0.8
|
|
|
|
24
|
|
|
|
24.0
|
%
|
|
|
133
|
|
|
|
1.1
|
|
|
|
18
|
|
|
|
13.5
|
%
|
Delinquent or under foreclosure
|
|
|
131
|
|
|
|
1.1
|
|
|
|
35
|
|
|
|
26.7
|
%
|
|
|
107
|
|
|
|
0.9
|
|
|
|
27
|
|
|
|
25.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,009
|
|
|
|
100.0
|
%
|
|
$
|
96
|
|
|
|
0.8
|
%
|
|
$
|
12,295
|
|
|
|
100.0
|
%
|
|
$
|
61
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortized cost is equal to carrying value before valuation
allowances. |
The following table presents the changes in valuation allowances
for agricultural mortgage loans
held-for-investment
for the:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
61
|
|
Additions
|
|
|
50
|
|
Deductions
|
|
|
(15
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
96
|
|
|
|
|
|
|
Consumer Loans. Consumer loans consist of
residential mortgage loans and auto loans
held-for-investment.
234
The following table presents the amortized cost and valuation
allowances for consumer loans
held-for-investment
distributed by loan classification at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
|
Cost (1)
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
Cost (1)
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
|
(In millions)
|
|
|
Performing
|
|
$
|
1,244
|
|
|
|
94.7
|
%
|
|
$
|
15
|
|
|
|
1.2
|
%
|
|
$
|
1,116
|
|
|
|
95.8
|
%
|
|
$
|
11
|
|
|
|
1.0
|
%
|
Restructured
|
|
|
1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially delinquent
|
|
|
24
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
Delinquent or under foreclosure
|
|
|
45
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,314
|
|
|
|
100.0
|
%
|
|
$
|
15
|
|
|
|
1.1
|
%
|
|
$
|
1,164
|
|
|
|
100.0
|
%
|
|
$
|
11
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortized cost is equal to carrying value before valuation
allowances. |
The following table presents the changes in valuation allowances
for consumer loans
held-for-investment
for the:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
11
|
|
Additions
|
|
|
7
|
|
Deductions
|
|
|
(3
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
15
|
|
|
|
|
|
|
Real
Estate Holdings
The Companys real estate holdings consist of commercial
properties located primarily in the United States. At
June 30, 2009 and December 31, 2008, the carrying
value of the Companys real estate, real estate joint
ventures and real estate
held-for-sale
was $7.3 billion and $7.6 billion, respectively, or
2.2% and 2.4%, respectively, of total cash and invested assets.
The carrying value of real estate is stated at depreciated cost
net of impairments and valuation allowances. The carrying value
of equity method real estate joint ventures is stated at the
Companys equity, while cost method real estate joint
ventures are stated at cost net of impairments and valuation
allowances.
The following table presents the carrying value of the
Companys real estate holdings at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
Type
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Real estate
|
|
$
|
4,068
|
|
|
|
55.8
|
%
|
|
$
|
4,061
|
|
|
|
53.5
|
%
|
Real estate joint ventures
|
|
|
3,141
|
|
|
|
43.0
|
|
|
|
3,522
|
|
|
|
46.5
|
|
Foreclosed real estate
|
|
|
86
|
|
|
|
1.2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,295
|
|
|
|
100.0
|
|
|
|
7,585
|
|
|
|
100.0
|
|
Real estate
held-for-sale
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate holdings
|
|
$
|
7,296
|
|
|
|
100.0
|
%
|
|
$
|
7,586
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys carrying value of real estate
held-for-sale
of $1 million at both June 30, 2009 and
December 31, 2008, has been reduced by impairments of
$1 million at both June 30, 2009 and December 31,
2008.
235
The Company records real estate acquired upon foreclosure of
commercial and agricultural mortgage loans at the lower of
estimated fair value or the carrying value of the mortgage loan
at the date of foreclosure.
Net investment income from real estate joint ventures and funds
within the real estate and real estate joint venture caption
represents distributions for investments accounted for under the
cost method and equity in earnings for investments accounted for
under the equity method. For the three months and six months
ended June 30, 2009, net investment income (loss) from real
estate and real estate joint ventures was ($71) million and
($156) million, respectively. For the three months and six
months ended June 30, 2008, net investment income (loss)
from real estate and real estate joint ventures was
$206 million and $380 million, respectively. The
negative returns from real estate and real estate joint ventures
in both the three months and six months ended June 30, 2009
and the year over year decrease of net investment income (loss)
of $277 million and $536 million for the three month
and six month periods ended June 30, 2009 compared to the
prior year periods was primarily from declining property
valuations on real estate held by certain real estate investment
funds that carry their real estate at fair value and operating
losses incurred on real estate properties that were developed
for sale by real estate development joint ventures, in excess of
earnings from wholly-owned real estate. The commercial real
estate properties underlying real estate investment funds have
experienced declines in value driven by capital market factors
and deteriorating market conditions, which has led to declining
property valuations, while the real estate development joint
ventures have experienced fewer property sales due to declining
real estate market fundamentals and decreased availability of
real estate lending to finance transactions. For equity method
real estate joint ventures and funds, the Company reports the
equity in earnings based on the availability of financial
statements and other periodic financial information that are
substantially the same as financial statements. Accordingly,
those financial statements are received and reviewed on a lag
basis after the close of the joint ventures or funds
financial reporting periods, and the Company records the equity
in earnings, generally on a one reporting period lag. In
addition, due to the lag in reporting of the joint
ventures and funds results to the Company, the
volatility in the real estate markets experienced in first and
second quarter of 2009, may unfavorably impact net investment
income in subsequent quarters in 2009, as those results are
reported to the Company.
At June 30, 2009, the Company held $69 million in cost
basis real estate joint ventures which were impaired based on
the underlying real estate joint venture financial statements.
These real estate joint ventures were recorded at estimated fair
value and represent a nonrecurring fair value measurement. The
estimated fair value was categorized as Level 3. Included
within net investment gains (losses) for such real estate joint
ventures are impairments of $68 million for the three
months and six months ended June 30, 2009, respectively.
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
$5.2 billion and $6.0 billion at June 30, 2009
and December 31, 2008, respectively. Included within other
limited partnership interests at June 30, 2009 and
December 31, 2008 are $1.1 billion and
$1.3 billion, respectively, of hedge funds. The Company
uses the equity method of accounting for investments in limited
partnership interests in which it has more than a minor
interest, has influence over the partnerships operating
and financial policies, but does not have a controlling interest
and is not the primary beneficiary. The Company uses the cost
method for minor interest investments and when it has virtually
no influence over the partnerships operating and financial
policies. For equity method limited partnership interests, the
Company reports the equity in earnings based on the availability
of financial statements and other periodic financial information
that are substantially the same as financial statements.
Accordingly, those financial statements are received and
reviewed on a lag basis after the close of the
partnerships financial reporting periods, and the Company
records the equity in earnings, generally on a one reporting
period lag. The Companys investments in other limited
partnership interests represented 1.6% and 1.9% of total cash
and invested assets at June 30, 2009 and December 31,
2008, respectively.
For the three months and six months ended June 30, 2009,
net investment income (loss) from other limited partnership
interests was $72 million and ($181) million,
respectively. For the three months and six months ended
June 30, 2008, net investment income (loss) from other
limited partnership interests was $71 million and
$203 million, respectively. The negative returns from other
limited partnership interests, including hedge funds, in the six
months ended June 30, 2009 and the decrease of net
investment income (loss) of
236
($384) million for the six months ended June 30, 2009
compared to the six months ended June 30, 2008, was
primarily due to volatility in the equity and credit markets.
Management anticipates that the significant volatility in the
equity and credit markets may continue in subsequent quarters in
2009 which could continue to impact net investment income and
the related yields on other limited partnership interests. In
addition, due to the lag in reporting of the other limited
partnership interests results to the Company, the volatility and
lack of liquidity in the equity and credit markets incurred in
first and second quarter of 2009, may unfavorably impact net
investment income in subsequent quarters in 2009, as those
results are reported to the Company.
At June 30, 2009 and December 31, 2008, the Company
held $410 million and $137 million, respectively, of
impaired other limited partnership interests which are accounted
for using the cost basis. 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 $245 million and $12 million for the
three months ended June 30, 2009 and 2008, respectively,
and $341 million and $16 million for the six months
ended June 30, 2009 and 2008, respectively, were recognized
within net investment gains (losses). These impairments to
estimated fair value represent nonrecurring 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
Other invested assets represents 4.1% and 5.3% of total cash and
invested assets at June 30, 2009 and December 31,
2008, respectively. The following table presents the carrying
value of the Companys other invested assets at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
Type
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Freestanding derivatives with positive fair values
|
|
$
|
6,912
|
|
|
|
52.9
|
%
|
|
$
|
12,306
|
|
|
|
71.3
|
%
|
Leveraged leases, net of non-recourse debt
|
|
|
2,179
|
|
|
|
16.7
|
|
|
|
2,146
|
|
|
|
12.4
|
|
Joint venture investments
|
|
|
874
|
|
|
|
6.7
|
|
|
|
751
|
|
|
|
4.4
|
|
Tax credit partnerships
|
|
|
672
|
|
|
|
5.1
|
|
|
|
503
|
|
|
|
2.9
|
|
Funding agreements
|
|
|
403
|
|
|
|
3.1
|
|
|
|
394
|
|
|
|
2.3
|
|
Mortgage servicing rights
|
|
|
670
|
|
|
|
5.1
|
|
|
|
191
|
|
|
|
1.1
|
|
Funds withheld
|
|
|
483
|
|
|
|
3.7
|
|
|
|
62
|
|
|
|
0.4
|
|
Other
|
|
|
878
|
|
|
|
6.7
|
|
|
|
895
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,071
|
|
|
|
100.0
|
%
|
|
$
|
17,248
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Derivative Financial Instruments
regarding the freestanding derivatives with positive estimated
fair values. Joint venture investments accounted for on the
equity method and represent our 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 which
are accounted for under the equity method. 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. Funds withheld represent amounts
contractually withheld by ceding companies in accordance with
reinsurance agreements.
237
Mortgage
Servicing Rights
The following table presents the changes in capitalized mortgage
servicing rights which are included in other invested assets for
the six months ended June 30, 2009:
|
|
|
|
|
|
|
Carrying Value
|
|
|
|
(In millions)
|
|
|
Fair value, beginning of period
|
|
$
|
191
|
|
Acquisition of mortgage servicing rights
|
|
|
117
|
|
Origination of mortgage servicing rights
|
|
|
289
|
|
Reduction due to loan payments
|
|
|
(61
|
)
|
Changes in fair value due to:
|
|
|
|
|
Changes in valuation model inputs or assumptions
|
|
|
133
|
|
Other changes in fair value
|
|
|
1
|
|
|
|
|
|
|
Fair value, end of period
|
|
$
|
670
|
|
|
|
|
|
|
The Company recognizes the rights to service residential
mortgage loans as mortgage servicing rights (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. The estimated
fair value of MSRs is categorized as Level 3. See also
Notes 1 and 24 of the Notes to the Consolidated Financial
Statements included in the 2008 Annual Report for further
information about how the estimated fair value of mortgage
servicing rights is determined and other related information.
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 and are
stated at amortized cost, which approximates estimated fair
value, was $8.1 billion and $13.9 billion at
June 30, 2009 and December 31, 2008, respectively.
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 Interim Condensed
Consolidated Financial Statements for a comprehensive
description of the nature of the Companys derivative
instruments, including the strategies for which derivatives are
used in managing various risks.
238
The following table presents the notional amount, estimated fair
value, and primary underlying risk exposure of Companys
derivative financial instruments, excluding embedded
derivatives, held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
Current Market
|
|
|
|
|
|
Current Market
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
or Fair Value (1)
|
|
|
Notional
|
|
|
or Fair Value (1)
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
35,613
|
|
|
$
|
1,887
|
|
|
$
|
1,336
|
|
|
$
|
34,060
|
|
|
$
|
4,617
|
|
|
$
|
1,468
|
|
|
|
Interest rate floors
|
|
|
26,191
|
|
|
|
544
|
|
|
|
51
|
|
|
|
48,517
|
|
|
|
1,748
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
22,635
|
|
|
|
183
|
|
|
|
|
|
|
|
24,643
|
|
|
|
11
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
8,711
|
|
|
|
14
|
|
|
|
11
|
|
|
|
13,851
|
|
|
|
44
|
|
|
|
117
|
|
|
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
2,365
|
|
|
|
939
|
|
|
|
35
|
|
|
|
Interest rate forwards
|
|
|
19,577
|
|
|
|
191
|
|
|
|
39
|
|
|
|
16,616
|
|
|
|
49
|
|
|
|
70
|
|
|
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
4,260
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
17,527
|
|
|
|
1,438
|
|
|
|
1,222
|
|
|
|
19,438
|
|
|
|
1,953
|
|
|
|
1,866
|
|
|
|
Foreign currency forwards
|
|
|
6,292
|
|
|
|
61
|
|
|
|
142
|
|
|
|
5,167
|
|
|
|
153
|
|
|
|
129
|
|
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
932
|
|
|
|
73
|
|
|
|
|
|
|
|
Non-derivative hedging
instruments (2)
|
|
|
351
|
|
|
|
|
|
|
|
344
|
|
|
|
351
|
|
|
|
|
|
|
|
323
|
|
Credit
|
|
Swap spreadlocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,338
|
|
|
|
|
|
|
|
99
|
|
|
|
Credit default swaps
|
|
|
6,867
|
|
|
|
166
|
|
|
|
108
|
|
|
|
5,219
|
|
|
|
152
|
|
|
|
69
|
|
|
|
Other
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity market
|
|
Equity futures
|
|
|
6,345
|
|
|
|
20
|
|
|
|
10
|
|
|
|
6,057
|
|
|
|
1
|
|
|
|
88
|
|
|
|
Equity options
|
|
|
23,438
|
|
|
|
2,083
|
|
|
|
659
|
|
|
|
5,153
|
|
|
|
2,150
|
|
|
|
|
|
|
|
Variance swaps
|
|
|
11,969
|
|
|
|
283
|
|
|
|
13
|
|
|
|
9,222
|
|
|
|
416
|
|
|
|
|
|
|
|
Other
|
|
|
250
|
|
|
|
|
|
|
|
98
|
|
|
|
250
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
191,279
|
|
|
$
|
6,912
|
|
|
$
|
4,033
|
|
|
$
|
198,439
|
|
|
$
|
12,306
|
|
|
$
|
4,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated fair value of all derivatives in an asset position
are reported within other invested assets in the consolidated
balance sheets and the estimated fair value of all derivatives
in a liability position are 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. |
239
Hedging. The following table presents the
notional amount and estimated fair value of derivatives and
non-derivative instruments designated as hedging instruments
under SFAS 133 by type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Derivatives Designated as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
5,665
|
|
|
$
|
744
|
|
|
$
|
159
|
|
|
$
|
6,093
|
|
|
$
|
467
|
|
|
$
|
550
|
|
Interest rate swaps
|
|
|
4,507
|
|
|
|
599
|
|
|
|
89
|
|
|
|
4,141
|
|
|
|
1,338
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
10,172
|
|
|
|
1,343
|
|
|
|
248
|
|
|
|
10,234
|
|
|
|
1,805
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
3,558
|
|
|
|
164
|
|
|
|
251
|
|
|
|
3,782
|
|
|
|
463
|
|
|
|
381
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
6
|
|
Interest rate forwards
|
|
|
4,691
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,259
|
|
|
|
237
|
|
|
|
251
|
|
|
|
4,068
|
|
|
|
463
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Operations Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
1,787
|
|
|
|
8
|
|
|
|
60
|
|
|
|
1,670
|
|
|
|
32
|
|
|
|
50
|
|
Foreign currency swaps
|
|
|
102
|
|
|
|
|
|
|
|
5
|
|
|
|
164
|
|
|
|
1
|
|
|
|
|
|
Non-derivative hedging instruments
|
|
|
351
|
|
|
|
|
|
|
|
344
|
|
|
|
351
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,240
|
|
|
|
8
|
|
|
|
409
|
|
|
|
2,185
|
|
|
|
33
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
20,671
|
|
|
$
|
1,588
|
|
|
$
|
908
|
|
|
$
|
16,487
|
|
|
$
|
2,301
|
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Designated or Not Qualifying as
Hedging. The following table presents the
notional amount and estimated fair value of derivatives that are
not designated or do not qualify as hedging instruments under
SFAS 133 by derivative type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Derivatives Not Designated or Not Qualifying as Hedging
Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
31,106
|
|
|
$
|
1,288
|
|
|
$
|
1,247
|
|
|
$
|
29,633
|
|
|
$
|
3,279
|
|
|
$
|
1,309
|
|
Interest rate floors
|
|
|
26,191
|
|
|
|
544
|
|
|
|
51
|
|
|
|
48,517
|
|
|
|
1,748
|
|
|
|
|
|
Interest rate caps
|
|
|
22,635
|
|
|
|
183
|
|
|
|
|
|
|
|
24,643
|
|
|
|
11
|
|
|
|
|
|
Interest rate futures
|
|
|
8,711
|
|
|
|
14
|
|
|
|
11
|
|
|
|
13,851
|
|
|
|
44
|
|
|
|
117
|
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
2,365
|
|
|
|
939
|
|
|
|
35
|
|
Interest rate forwards
|
|
|
14,886
|
|
|
|
118
|
|
|
|
39
|
|
|
|
16,616
|
|
|
|
49
|
|
|
|
70
|
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
4,260
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
8,202
|
|
|
|
530
|
|
|
|
807
|
|
|
|
9,399
|
|
|
|
1,022
|
|
|
|
935
|
|
Foreign currency forwards
|
|
|
4,505
|
|
|
|
53
|
|
|
|
82
|
|
|
|
3,497
|
|
|
|
121
|
|
|
|
79
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
932
|
|
|
|
73
|
|
|
|
|
|
Swaps spreadlocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,338
|
|
|
|
|
|
|
|
99
|
|
Credit default swaps
|
|
|
6,867
|
|
|
|
166
|
|
|
|
108
|
|
|
|
5,219
|
|
|
|
152
|
|
|
|
69
|
|
Equity futures
|
|
|
6,345
|
|
|
|
20
|
|
|
|
10
|
|
|
|
6,057
|
|
|
|
1
|
|
|
|
88
|
|
Equity options
|
|
|
23,438
|
|
|
|
2,083
|
|
|
|
659
|
|
|
|
5,153
|
|
|
|
2,150
|
|
|
|
|
|
Variance swaps
|
|
|
11,969
|
|
|
|
283
|
|
|
|
13
|
|
|
|
9,222
|
|
|
|
416
|
|
|
|
|
|
Other
|
|
|
250
|
|
|
|
|
|
|
|
98
|
|
|
|
250
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
170,608
|
|
|
$
|
5,324
|
|
|
$
|
3,125
|
|
|
$
|
181,952
|
|
|
$
|
10,005
|
|
|
$
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
The following table presents the effects on the consolidated
statement of income of derivatives in cash flow, fair value, or
non-qualifying hedge relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualifying Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(880
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(155
|
)
|
|
$
|
|
|
Interest rate floors
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
(366
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
|
(782
|
)
|
|
|
(38
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(85
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
(784
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Interest rate forwards
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
Variance swaps
|
|
|
(106
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap spreadlocks
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
(208
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(3,636
|
)
|
|
|
(95
|
)
|
|
|
(210
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,630
|
)
|
|
$
|
(99
|
)
|
|
$
|
(210
|
)
|
|
$
|
(95
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualifying Hedges
|
|
$
|
(351
|
)
|
|
$
|
(37
|
)
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Fair Value Hedges
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
(51
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(412
|
)
|
|
$
|
(41
|
)
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualifying Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(1,472
|
)
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
(146
|
)
|
|
$
|
|
|
Interest rate floors
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
(484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
|
(349
|
)
|
|
|
(11
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(84
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
(732
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Interest rate forwards
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Variance swaps
|
|
|
(129
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap spreadlocks
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
(119
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(4,732
|
)
|
|
|
(123
|
)
|
|
|
(97
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
(33
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(33
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,760
|
)
|
|
$
|
(127
|
)
|
|
$
|
(97
|
)
|
|
$
|
(102
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualifying Hedges
|
|
$
|
(283
|
)
|
|
$
|
39
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
|
|
Fair Value Hedges
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
|
|
|
7
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(281
|
)
|
|
$
|
33
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value related to economic hedges of
equity method investments in joint ventures that do not qualify
for hedge accounting 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
liabilities embedded in certain variable annuity products
offered by the Company. |
|
(3) |
|
Changes in estimated fair value related to derivatives held in
connection with the Companys mortgage banking activities. |
|
(4) |
|
Net of the gains or losses recognized on the hedged item. |
242
Fair Value Hierarchy. Derivatives measured at
estimated fair value on a recurring basis and their
corresponding fair value hierarchy, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
126
|
|
|
|
2
|
%
|
|
|
49
|
|
|
|
1
|
%
|
Significant other observable inputs (Level 2)
|
|
|
4,265
|
|
|
|
62
|
|
|
|
2,885
|
|
|
|
78
|
|
Significant unobservable inputs (Level 3)
|
|
|
2,521
|
|
|
|
36
|
|
|
|
755
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
6,912
|
|
|
|
100
|
%
|
|
$
|
3,689
|
|
|
|
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 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 June 30, 2009
include: 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
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; and interest rate caps and
floors referencing unobservable yield curves
and/or which
include liquidity and volatility adjustments.
At June 30, 2009 and December 31, 2008, 3.1% 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
three months and six months ended June 30, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, December 31, 2008
|
|
$
|
2,585
|
|
|
$
|
2,547
|
|
Impact of SFAS 157 and SFAS 159 adoption
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
2,585
|
|
|
|
2,547
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(987
|
)
|
|
|
(965
|
)
|
Other comprehensive income (loss)
|
|
|
20
|
|
|
|
(62
|
)
|
Purchases, sales, issuances and settlements
|
|
|
123
|
|
|
|
221
|
|
Transfer in and/or out of Level 3
|
|
|
25
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,766
|
|
|
$
|
1,766
|
|
|
|
|
|
|
|
|
|
|
Credit Risk. 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 Companys derivative
contracts is limited to the net positive estimated fair value of
derivative contracts at the reporting
243
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.
The Company enters into various collateral arrangements, which
require both the pledging and accepting of collateral in
connection with its derivative instruments. At June 30,
2009 and December 31, 2008, the Company was obligated to
return cash collateral under its control of $3,123 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. At June 30, 2009 and December 31,
2008, the Company had also accepted collateral consisting of
various securities with an estimated fair value of
$406 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 June 30, 2009 and December 31, 2008, none of the
collateral had been sold or repledged.
At June 30, 2009 and December 31, 2008, the Company
provided securities collateral for various arrangements in
connection with derivative instruments of $567 million and
$776 million, respectively, which is included in fixed
maturity securities. The counterparties are permitted by
contract to sell or repledge this collateral. In addition, the
Company has exchange-traded futures, which require the pledging
of collateral. At June 30, 2009 and December 31, 2008,
the Company pledged securities collateral for exchange-traded
futures of $100 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 June 30, 2009 and December 31,
2008, the Company provided cash collateral for exchange-traded
futures of $590 million and $686 million,
respectively, which is included in premiums and other
receivables.
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. 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 Companys maximum amount at risk,
assuming the value of all referenced credit obligations is zero,
was $2,406 million and $1,875 million at June 30,
2009 and December 31, 2008, respectively. 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
June 30, 2009, the Company would have received
$13 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.
Embedded Derivatives. The embedded derivatives
measured at estimated fair value on a recurring basis and their
corresponding fair value hierarchy, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Net Embedded Derivatives Within
|
|
|
|
Asset Host
|
|
|
Liability Host
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
Significant other observable inputs (Level 2)
|
|
|
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
(7
|
)
|
Significant unobservable inputs (Level 3)
|
|
|
122
|
|
|
|
100
|
|
|
|
1,230
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
122
|
|
|
|
100
|
%
|
|
$
|
1,151
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
A rollforward of the fair value measurements for embedded
derivatives measured at estimated fair value on a recurring
basis using significant unobservable (Level 3) inputs
for the three months and six months ended June 30, 2009 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(1,812
|
)
|
|
$
|
(2,929
|
)
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
743
|
|
|
|
1,844
|
|
Other comprehensive loss
|
|
|
(16
|
)
|
|
|
25
|
|
Purchases, sales, issuances and settlements
|
|
|
(23
|
)
|
|
|
(48
|
)
|
Transfer in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,108
|
|
|
$
|
1,108
|
|
|
|
|
|
|
|
|
|
|
The valuation of the Companys guaranteed minimum benefit
riders includes an adjustment for the Companys own credit.
For the three months and six months ended June 30, 2009,
the Company recognized net investment losses of
$1,538 million and $710 million, respectively, in
connection with this adjustment.
Variable
Interest Entities
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 Companys financial statements at June 30, 2009
and December 31, 2008. Generally, creditors or beneficial
interest holders of VIEs where the Company is the primary
beneficiary have no recourse to the general credit of the
Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Total Assets
|
|
|
Total Liabilities
|
|
|
Total Assets
|
|
|
Total Liabilities
|
|
|
|
(In millions)
|
|
|
MRSC collateral financing arrangement (1)
|
|
$
|
3,073
|
|
|
$
|
|
|
|
$
|
2,361
|
|
|
$
|
|
|
Real estate joint ventures (2)
|
|
|
23
|
|
|
|
13
|
|
|
|
26
|
|
|
|
15
|
|
Other limited partnership interests (3)
|
|
|
135
|
|
|
|
33
|
|
|
|
20
|
|
|
|
3
|
|
Other invested assets (4)
|
|
|
31
|
|
|
|
2
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,262
|
|
|
$
|
48
|
|
|
$
|
2,417
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Liquidity and Capital
Resources The Holding Company Liquidity
and Capital Sources Collateral Financing
Arrangements for a description of the MRSC collateral
financing arrangement. At June 30, 2009 and
December 31, 2008, these assets are reflected at estimated
fair value and consist of the following: |
245
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
977
|
|
|
$
|
948
|
|
Asset-backed securities
|
|
|
848
|
|
|
|
409
|
|
Residential mortgage-backed securities
|
|
|
601
|
|
|
|
561
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
262
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
|
168
|
|
|
|
98
|
|
Foreign corporate securities
|
|
|
93
|
|
|
|
95
|
|
State and political subdivision securities
|
|
|
21
|
|
|
|
21
|
|
Foreign government securities
|
|
|
5
|
|
|
|
5
|
|
Cash and cash equivalents (including cash held-in-trust less
than $1 million and $60 million, respectively)
|
|
|
98
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,073
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Real estate joint ventures include partnerships and other
ventures which engage in the acquisition, development,
management and disposal of real estate investments. Upon
consolidation, the assets and liabilities are reflected at the
VIEs carrying amounts. At June 30, 2009 and
December 31, 2008, the assets consist of $18 million
and $20 million, respectively, of real estate and real
estate joint ventures held-for-investment, $4 million and
$5 million, respectively, of cash and cash equivalents and
$1 million and $1 million, respectively, of other
assets. At June 30, 2009 and December 31, 2008,
liabilities consist of $13 million and $15 million of
other liabilities, respectively. |
|
(3) |
|
Other limited partnership interests include partnerships
established for the purpose of investing in public and private
debt and equity securities. Upon consolidation, the assets and
liabilities are reflected at the VIEs carrying amounts. At
June 30, 2009 and December 31, 2008, the assets of
$135 million and $20 million, respectively, are
included within other limited partnership interests while the
liabilities of $33 million and $3 million,
respectively, are included within other liabilities. |
|
(4) |
|
Other invested assets includes tax-credit partnerships and other
investments 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. Upon
consolidation, the assets and liabilities are reflected at the
VIEs carrying amounts. At June 30, 2009 and
December 31, 2008, the assets of $31 million and
$10 million, respectively, are included within other
invested assets. At June 30, 2009 and December 31,
2008, the liabilities consist of $1 million and
$2 million, respectively, of long-term debt and less than
$1 million and $1 million, respectively, of other
liabilities. |
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
June 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
Amount (1)
|
|
|
to Loss (2)
|
|
|
Amount (1)
|
|
|
to Loss (2)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Fixed maturity securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
$
|
892
|
|
|
$
|
892
|
|
|
$
|
1,080
|
|
|
$
|
1,080
|
|
U.S. corporate securities
|
|
|
711
|
|
|
|
711
|
|
|
|
992
|
|
|
|
992
|
|
Real estate joint ventures
|
|
|
31
|
|
|
|
31
|
|
|
|
32
|
|
|
|
32
|
|
Other limited partnership interests
|
|
|
2,243
|
|
|
|
2,578
|
|
|
|
3,496
|
|
|
|
4,004
|
|
Other invested assets
|
|
|
383
|
|
|
|
257
|
|
|
|
318
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,260
|
|
|
$
|
4,469
|
|
|
$
|
5,918
|
|
|
$
|
6,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
(1) |
|
See Note 1 of the Notes to the Consolidated Financial
Statements included in the 2008 Annual Report for further
discussion of the Companys accounting policies with
respect to the basis for determining carrying value of these
investments. |
|
(2) |
|
The maximum exposure to loss relating to the fixed maturity
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 Companys 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 tax
credits guaranteed by third parties of $254 million and
$278 million at June 30, 2009 and December 31,
2008, respectively. |
As described in Note 11 of the Notes to the Interim
Condensed Consolidated Financial Statements, the Company makes
commitments to fund partnership investments in the normal course
of business. Excluding these commitments, MetLife did not
provide financial or other support to investees designated as
VIEs during the six months ended June 30, 2009.
Separate
Accounts
The Company had $127.0 billion and $120.8 billion held
in its separate accounts, for which the Company does not bear
investment risk, at June 30, 2009 and December 31,
2008, respectively. The Company manages each separate
accounts assets in accordance with the prescribed
investment policy that applies to that specific separate
account. The Company establishes separate accounts on a single
client and multi-client commingled basis in compliance with
insurance laws. Effective with the adoption of
SOP 03-1
on January 1, 2004, the Company reported separately, as
assets and liabilities, investments held in separate accounts
and liabilities of the separate accounts if:
|
|
|
|
|
such separate accounts are legally recognized;
|
|
|
|
assets supporting the contract liabilities are legally insulated
from the Companys general account liabilities;
|
|
|
|
investments are directed by the contractholder; and
|
|
|
|
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 estimated fair value. Investment performance
(including net 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 income.
The Companys revenues reflect fees charged to the separate
accounts, including mortality charges, risk charges, policy
administration fees, investment management fees and surrender
charges. Separate accounts not meeting the above criteria are
combined on a
line-by-line
basis with the Companys general account assets,
liabilities, revenues and expenses.
The separate accounts measured at estimated fair value on a
recurring basis and their corresponding fair value hierarchy,
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
$
|
96,050
|
|
|
|
75.7
|
%
|
Significant other observable inputs (Level 2)
|
|
|
29,364
|
|
|
|
23.1
|
|
Significant unobservable inputs (Level 3)
|
|
|
1,554
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
126,968
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
247
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 a
description of the nature of the Companys future policy
benefits, policyholder account balances, other policyholder
funds, policyholder dividends payable and policyholder dividend
obligations, see the 2008 Annual Report under the caption
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Policyholder Liabilities, as well as Notes 1 and 7 of
the Notes to the Interim Condensed Consolidated Financial
Statements also included therein. An analysis of certain
policyholder liabilities at June 30, 2009 and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy Benefits
|
|
|
Policyholder Account Balances
|
|
|
Other Policyholder Funds
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Institutional:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group life
|
|
$
|
3,370
|
|
|
$
|
3,346
|
|
|
$
|
14,517
|
|
|
$
|
14,044
|
|
|
$
|
2,713
|
|
|
$
|
2,532
|
|
Retirement & savings
|
|
|
40,288
|
|
|
|
40,320
|
|
|
|
53,320
|
|
|
|
60,787
|
|
|
|
29
|
|
|
|
58
|
|
Non-medical health & other
|
|
|
12,078
|
|
|
|
11,619
|
|
|
|
501
|
|
|
|
501
|
|
|
|
603
|
|
|
|
609
|
|
Individual:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
|
53,435
|
|
|
|
52,968
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1,545
|
|
|
|
1,423
|
|
Variable & universal life
|
|
|
1,288
|
|
|
|
1,129
|
|
|
|
15,403
|
|
|
|
15,062
|
|
|
|
1,432
|
|
|
|
1,452
|
|
Annuities
|
|
|
3,855
|
|
|
|
3,655
|
|
|
|
47,373
|
|
|
|
44,282
|
|
|
|
99
|
|
|
|
88
|
|
Other
|
|
|
6
|
|
|
|
2
|
|
|
|
2,783
|
|
|
|
2,524
|
|
|
|
1
|
|
|
|
1
|
|
International
|
|
|
10,200
|
|
|
|
9,241
|
|
|
|
6,123
|
|
|
|
5,654
|
|
|
|
1,462
|
|
|
|
1,227
|
|
Auto & Home
|
|
|
3,011
|
|
|
|
3,083
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
43
|
|
Corporate & Other
|
|
|
5,292
|
|
|
|
5,192
|
|
|
|
7,862
|
|
|
|
6,950
|
|
|
|
389
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,823
|
|
|
$
|
130,555
|
|
|
$
|
147,883
|
|
|
$
|
149,805
|
|
|
$
|
8,319
|
|
|
$
|
7,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Variable
Annuity Guarantees
The Company issues certain variable annuity products with
guaranteed minimum benefit 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 under
SOP 03-1
or as embedded derivatives under SFAS 133 depending on how
and when the benefit is paid. Specifically, a guarantee is
accounted for under SFAS 133 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 under
SOP 03-1
if a 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
SFAS 133 and
SOP 03-1
and in such cases the guarantee is accounted for under a split
of the two models.
248
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 7 of the Notes to the Interim Condensed Consolidated
Financial Statements represents managements estimate of
the current value of the benefits under these guarantees if they
were all exercised simultaneously at June 30, 2009 and
December 31, 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 guaranteed
minimum income benefit (GMIB) guarantees are
eligible for a guaranteed annuitization prior to 2011.
Guarantees, including portions thereof, accounted for as
embedded derivatives under SFAS 133, are recorded at
estimated fair value and included in policyholder account
balances. Guarantees accounted for as embedded derivatives
include guaranteed minimum accumulation benefit, the non
life-contingent portion of guaranteed minimum withdrawal benefit
(GMWB) and the portion of certain GMIB that do not
require annuitization. For more detail on the determination of
estimated fair value, see Note 24 of the Notes to the
Consolidated Financial Statements in the 2008 Annual Report.
The table below contains the carrying value for guarantees
included in policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Individual:
|
|
|
|
|
|
|
|
|
Guaranteed minimum accumulation benefit
|
|
$
|
107
|
|
|
$
|
169
|
|
Guaranteed minimum withdrawal benefit
|
|
|
206
|
|
|
|
750
|
|
Guaranteed minimum income benefit
|
|
|
320
|
|
|
|
1,043
|
|
International:
|
|
|
|
|
|
|
|
|
Guaranteed minimum accumulation benefit
|
|
|
168
|
|
|
|
271
|
|
Guaranteed minimum withdrawal benefit
|
|
|
418
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,219
|
|
|
$
|
3,134
|
|
|
|
|
|
|
|
|
|
|
Included in net investment gains (losses) for the three months
ended June 30, 2009 and 2008 were gains of
$855 million and gains of $358 million, respectively,
in embedded derivatives related to the change in estimated fair
value of the above guarantees. Included in net investment gains
(losses) for the six months ended June 30, 2009 and 2008
were gains of $1,940 million and losses of
$103 million, 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 Companys own
credit. In connection with this adjustment, gains/(losses) of
($1,538) million and ($710) million are included in
the gains/(losses) of $855 million and $1,940 million
in net investment gains (losses) for the three months and six
months ended June 30, 2009, respectively, and
gains/(losses) of ($79) million and $275 million are
included in the gains/(losses) of $358 million and
$103 million in net investment gains (losses) for the three
months and six months ended June 30, 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 Companys own credit, a decrease in the Companys
credit spreads could cause the value of these liabilities to
increase. Conversely, a widening of the Companys 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 Companys own credit
is not hedged.
249
The table below contains the carrying value of the derivatives
hedging guarantees accounted for as embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Risk Exposure
|
|
Derivative Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
(In millions)
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
8,067
|
|
|
$
|
244
|
|
|
$
|
223
|
|
|
$
|
5,572
|
|
|
$
|
632
|
|
|
$
|
7
|
|
|
|
Interest rate futures
|
|
|
5,407
|
|
|
|
14
|
|
|
|
6
|
|
|
|
9,264
|
|
|
|
36
|
|
|
|
56
|
|
Foreign currency
|
|
Foreign currency forwards
|
|
|
1,831
|
|
|
|
14
|
|
|
|
27
|
|
|
|
1,017
|
|
|
|
49
|
|
|
|
4
|
|
|
|
Currency options
|
|
|
580
|
|
|
|
35
|
|
|
|
|
|
|
|
582
|
|
|
|
68
|
|
|
|
|
|
Equity market
|
|
Equity futures
|
|
|
5,005
|
|
|
|
14
|
|
|
|
10
|
|
|
|
4,660
|
|
|
|
1
|
|
|
|
65
|
|
|
|
Equity options
|
|
|
23,059
|
|
|
|
1,968
|
|
|
|
659
|
|
|
|
4,842
|
|
|
|
1,997
|
|
|
|
|
|
|
|
Variance Swaps
|
|
|
11,582
|
|
|
|
271
|
|
|
|
12
|
|
|
|
8,835
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,531
|
|
|
$
|
2,560
|
|
|
$
|
937
|
|
|
$
|
34,772
|
|
|
$
|
3,179
|
|
|
$
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net investment gains (losses) for the three months
ended June 30, 2009 and 2008 were gains/(losses) of
($2,318) million and ($497) million, respectively, related
to the change in estimated fair value of the above derivatives.
Included in net investment gains (losses) for the six months
ended June 30, 2009 and 2008 were gains/(losses) of
($2,222) million and $184 million, respectively,
related to the change in estimated fair value of the above
derivatives.
Guarantees, including portions thereof, accounted for under
SOP 03-1
have liabilities established that are included in future policy
benefits. Guarantees accounted for in this manner include
guaranteed minimum death benefits, 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, the
SOP 03-1
reserves 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:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(In millions)
|
|
|
Individual:
|
|
|
|
|
|
|
|
|
Guaranteed minimum death benefit
|
|
$
|
178
|
|
|
$
|
204
|
|
Guaranteed minimum income benefit
|
|
|
445
|
|
|
|
403
|
|
International:
|
|
|
|
|
|
|
|
|
Guaranteed minimum death benefit
|
|
|
27
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
650
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
Included in policyholder benefits and claims for the three
months ended June 30, 2009 is a credit of $184 million
related to the change in liabilities for the above guarantees.
Included in policyholder benefits and claims for the six months
ended June 30, 2009 is a charge of $4 million related
to the change in liabilities for the above guarantees.
250
The carrying amount of guarantees accounted for as
SOP 03-1
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 and treasury futures.
Included in policyholder benefits and claims associated with the
hedging of the guarantees in future policy benefits for the
three months and six months ended June 30, 2009 were losses
of $84 million and $68 million, respectively, related
to reinsurance treaties containing embedded derivatives carried
at estimated fair value and losses of $210 million and
$97 million, respectively, related to freestanding
derivatives. Included in policyholder benefits and claims
associated with the hedging of the guarantees in future policy
benefits for the three months and six months ended June 30,
2008 were gains of $2 million and $59 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 Companys 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 Companys own credit that is not hedged,
changes in the Companys own credit may result in
significant volatility in net income.
|
|
Item 3.
|
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
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 MetLifes Chief Risk Officer. The Enterprise
Risk Management Departments primary responsibilities
consist of:
|
|
|
|
|
implementing a Board of Directors approved corporate risk
framework, which outlines the Companys 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;
|
251
|
|
|
|
|
deploying capital on an economic capital basis; and
|
|
|
|
reporting on a periodic basis to the Finance and Risk Policy
Committee of the Companys Board of Directors, and with
respect to credit risk to the Investment Committee of the
Companys 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 2009.
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 Committees 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 2009.
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 Companys 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
rate sensitive liabilities for purposes of this disclosure
include debt, policyholder account balances related to certain
investment type contracts, and net embedded derivatives within
liability host contracts 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
in the 2008 Annual Report.
Foreign Currency Exchange Rates. The
Companys 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
Companys investment portfolios are the Euro, the Canadian
dollar and the British pound. The principal currencies that
create foreign currency exchange risk in the Companys
liabilities are the British pound, the Euro, the Canadian dollar
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, in some countries, local surplus 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
252
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 variable annuities with
guaranteed minimum benefit riders, 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 riders. 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 Companys 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 MetLifes 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 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 Companys 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.
|
253
|
|
|
|
|
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 Companys 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 riders and equity securities. These derivatives include
exchange-traded equity futures, equity index options contracts
and equity variance swaps. The Companys 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
Companys 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
Companys use of derivatives by major hedge programs is as
follows:
|
|
|
|
|
Risks Related to Living Benefit Riders The Company
uses a wide range of derivative contracts to hedge the risk
associated with variable annuity living benefit riders. 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.
|
|
|
|
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 or equity
exposures to US dollars.
|
|
|
|
General ALM Hedging Strategies In the ordinary
course of managing the Companys 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 June 30, 2009. The sensitivity analysis
separately calculates each of the Companys market risk
exposures (interest rate, equity price and foreign currency
exchange
254
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
Companys 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 Companys 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.
The table below illustrates the potential loss in estimated fair
value for each market risk exposure of the Companys market
sensitive assets and liabilities at June 30, 2009:
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Non-trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
3,860
|
|
Foreign currency exchange rate risk
|
|
$
|
790
|
|
Equity price risk
|
|
$
|
435
|
|
Trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
2
|
|
Foreign currency exchange rate risk
|
|
$
|
51
|
|
255
Sensitivity Analysis: Interest Rates. The
table below provides additional detail regarding the potential
loss in fair value of the Companys trading and non-trading
interest sensitive financial instruments at June 30, 2009
by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
in the Yield
|
|
|
|
Amount
|
|
|
Fair Value (3)
|
|
|
Curve
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
211,563
|
|
|
$
|
(4,290
|
)
|
Equity securities
|
|
|
|
|
|
|
3,045
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
1,471
|
|
|
|
(8
|
)
|
Mortgage and consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
46,027
|
|
|
|
(211
|
)
|
Held-for-sale
|
|
|
|
|
|
|
4,271
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and consumer loans, net
|
|
|
|
|
|
|
50,298
|
|
|
|
(250
|
)
|
Policy loans
|
|
|
|
|
|
|
11,297
|
|
|
|
(188
|
)
|
Real estate joint ventures (1)
|
|
|
|
|
|
|
132
|
|
|
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
|
1,671
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
8,117
|
|
|
|
(2
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
123,533
|
|
|
|
6,912
|
|
|
|
(774
|
)
|
Mortgage servicing rights
|
|
|
|
|
|
|
670
|
|
|
|
77
|
|
Other
|
|
|
|
|
|
|
1,262
|
|
|
|
(8
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
|
13,213
|
|
|
|
|
|
Accrued investment income
|
|
|
|
|
|
|
3,019
|
|
|
|
|
|
Premiums and other receivables
|
|
|
|
|
|
|
2,965
|
|
|
|
(199
|
)
|
Other assets
|
|
|
|
|
|
|
777
|
|
|
|
(13
|
)
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
122
|
|
|
|
(21
|
)
|
Mortgage loan commitments
|
|
$
|
2,532
|
|
|
|
(82
|
)
|
|
|
(7
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
847
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(5,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
96,884
|
|
|
$
|
1,196
|
|
Short-term debt
|
|
|
|
|
|
|
4,757
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
12,604
|
|
|
|
283
|
|
Collateral financing arrangements
|
|
|
|
|
|
|
2,321
|
|
|
|
(20
|
)
|
Junior subordinated debt securities
|
|
|
|
|
|
|
2,115
|
|
|
|
86
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
24,607
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
67,395
|
|
|
|
3,689
|
|
|
|
(233
|
)
|
Trading liabilities
|
|
|
|
|
|
|
201
|
|
|
|
6
|
|
Other
|
|
|
|
|
|
|
1,648
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
1,151
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(3,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Total
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
Notional
|
|
|
Estimated
|
|
|
Estimated
|
|
|
in the Yield
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Curve-Net
|
|
|
|
(In millions)
|
|
|
Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
13,085
|
|
|
$
|
1,887
|
|
|
$
|
22,528
|
|
|
$
|
(1,336
|
)
|
|
$
|
551
|
|
|
$
|
(676
|
)
|
Interest rate floors
|
|
|
23,373
|
|
|
|
544
|
|
|
|
2,818
|
|
|
|
(51
|
)
|
|
|
493
|
|
|
|
(53
|
)
|
Interest rate caps
|
|
|
22,630
|
|
|
|
183
|
|
|
|
5
|
|
|
|
|
|
|
|
183
|
|
|
|
53
|
|
Interest rate futures
|
|
|
3,399
|
|
|
|
14
|
|
|
|
5,312
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
(92
|
)
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
(2
|
)
|
Interest rate forwards
|
|
|
14,651
|
|
|
|
191
|
|
|
|
4,926
|
|
|
|
(39
|
)
|
|
|
152
|
|
|
|
(104
|
)
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
8,548
|
|
|
|
1,438
|
|
|
|
8,979
|
|
|
|
(1,222
|
)
|
|
|
216
|
|
|
|
(48
|
)
|
Foreign currency forwards
|
|
|
2,411
|
|
|
|
61
|
|
|
|
3,881
|
|
|
|
(142
|
)
|
|
|
(81
|
)
|
|
|
1
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
Credit default swaps
|
|
|
4,205
|
|
|
|
166
|
|
|
|
2,662
|
|
|
|
(108
|
)
|
|
|
58
|
|
|
|
(1
|
)
|
Equity futures
|
|
|
4,638
|
|
|
|
20
|
|
|
|
1,707
|
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
|
|
Equity options
|
|
|
11,105
|
|
|
|
2,083
|
|
|
|
12,333
|
|
|
|
(659
|
)
|
|
|
1,424
|
|
|
|
(51
|
)
|
Variance swaps
|
|
|
9,985
|
|
|
|
283
|
|
|
|
1,984
|
|
|
|
(13
|
)
|
|
|
270
|
|
|
|
(11
|
)
|
Other Credit
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Equity
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
(98
|
)
|
|
|
(98
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
$
|
123,533
|
|
|
$
|
6,912
|
|
|
$
|
67,395
|
|
|
$
|
(3,689
|
)
|
|
$
|
3,223
|
|
|
$
|
(1,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
$837 million, or approximately 18%, to $3,862 million
at June 30, 2009 from $4,699 million at
December 31, 2008. The decrease in interest rate risk
associated with the use of derivatives decreased by
$1,526 million. Additionally, a change in the volume of
liabilities with guarantees, a decrease in the net embedded
derivatives, a change in long-term debt due to an improvement in
spreads, and an increase in the duration of the investment
portfolio, decreased risk by $318 million,
$287 million, $197 million and $133 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 $1,367 million. The increase in the
asset base of $227 million also increased interest rate
risk which contributed to the offset. The remainder of the
fluctuation is attributable to numerous immaterial items.
257
Sensitivity Analysis: Foreign Currency Exchange
Rates. The table below provides additional detail
regarding the potential loss in estimated fair value of the
Companys portfolio due to a 10% change in foreign currency
exchange rates at June 30, 2009 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
in the Foreign
|
|
|
|
Amount
|
|
|
Fair Value (1)
|
|
|
Exchange Rate
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
211,563
|
|
|
$
|
(1,826
|
)
|
Trading securities
|
|
|
|
|
|
|
1,471
|
|
|
|
(51
|
)
|
Equity securities
|
|
|
|
|
|
|
3,045
|
|
|
|
(4
|
)
|
Mortgage and consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
46,027
|
|
|
|
(332
|
)
|
Held-for-sale
|
|
|
|
|
|
|
4,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and consumer loans, net
|
|
|
|
|
|
|
50,298
|
|
|
|
(332
|
)
|
Policy loans
|
|
|
|
|
|
|
11,297
|
|
|
|
(36
|
)
|
Short-term investments
|
|
|
|
|
|
|
8,117
|
|
|
|
(80
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
123,533
|
|
|
|
6,912
|
|
|
|
(377
|
)
|
Mortgage servicing rights
|
|
|
|
|
|
|
670
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
1,262
|
|
|
|
(42
|
)
|
Accrued investment income
|
|
|
|
|
|
|
3,019
|
|
|
|
(8
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
|
13,213
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(2,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
96,884
|
|
|
$
|
1,196
|
|
Long-term debt
|
|
|
|
|
|
|
12,604
|
|
|
|
75
|
|
Derivative liabilities
|
|
$
|
67,395
|
|
|
|
3,689
|
|
|
|
652
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
1,151
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
1,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
Total
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
Estimated
|
|
|
in the Foreign
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Fair Value
|
|
|
Exchange Rate
|
|
|
|
(In millions)
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
13,085
|
|
|
$
|
1,887
|
|
|
$
|
22,528
|
|
|
$
|
(1,336
|
)
|
|
$
|
551
|
|
|
$
|
(1
|
)
|
Interest rate floors
|
|
|
23,373
|
|
|
|
544
|
|
|
|
2,818
|
|
|
|
(51
|
)
|
|
|
493
|
|
|
|
|
|
Interest rate caps
|
|
|
22,630
|
|
|
|
183
|
|
|
|
5
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
Interest rate futures
|
|
|
3,399
|
|
|
|
14
|
|
|
|
5,312
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
(6
|
)
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Interest rate forwards
|
|
|
14,651
|
|
|
|
191
|
|
|
|
4,926
|
|
|
|
(39
|
)
|
|
|
152
|
|
|
|
|
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
8,548
|
|
|
|
1,438
|
|
|
|
8,979
|
|
|
|
(1,222
|
)
|
|
|
216
|
|
|
|
108
|
|
Foreign currency forwards
|
|
|
2,411
|
|
|
|
61
|
|
|
|
3,881
|
|
|
|
(142
|
)
|
|
|
(81
|
)
|
|
|
248
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
(10
|
)
|
Credit default swaps
|
|
|
4,205
|
|
|
|
166
|
|
|
|
2,662
|
|
|
|
(108
|
)
|
|
|
58
|
|
|
|
|
|
Equity futures
|
|
|
4,638
|
|
|
|
20
|
|
|
|
1,707
|
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
(1
|
)
|
Equity options
|
|
|
11,105
|
|
|
|
2,083
|
|
|
|
12,333
|
|
|
|
(659
|
)
|
|
|
1,424
|
|
|
|
(60
|
)
|
Variance swaps
|
|
|
9,985
|
|
|
|
283
|
|
|
|
1,984
|
|
|
|
(13
|
)
|
|
|
270
|
|
|
|
(2
|
)
|
Other Credit
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Equity
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
(98
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
$
|
123,533
|
|
|
$
|
6,912
|
|
|
$
|
67,395
|
|
|
$
|
(3,689
|
)
|
|
$
|
3,223
|
|
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
$315 million, or 60%, to $841 million at June 30,
2009 from $526 million at December 31, 2008. This
increase was due to an increase in fixed maturities of
$240 million due to higher net exposures primarily to the
Canadian dollar, the British pound and the Euro. In addition, a
decrease of the foreign exchange exposure of $230 million
associated with liabilities also contributed to this increase.
Partially offsetting these changes was a decrease in the foreign
exposure related to the use of derivatives employed by the
Company of $167 million and a decrease in the risk
associated with the net embedded derivatives of
$57 million. The remainder is attributable numerous
immaterial items.
259
Sensitivity Analysis: Equity Prices. The table
below provides additional detail regarding the potential loss in
estimated fair value of the Companys portfolio due to a
10% change in equity at June 30, 2009 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
in Equity
|
|
|
|
Amount
|
|
|
Fair Value (1)
|
|
|
Prices
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
3,045
|
|
|
$
|
237
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
123,533
|
|
|
|
6,912
|
|
|
|
(640
|
)
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
122
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
96,884
|
|
|
$
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
67,395
|
|
|
|
3,689
|
|
|
|
(320
|
)
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
1,151
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Total
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
Notional
|
|
|
Estimated
|
|
|
Estimated
|
|
|
in Equity
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Prices
|
|
|
|
(In millions)
|
|
|
Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
13,085
|
|
|
$
|
1,887
|
|
|
$
|
22,528
|
|
|
$
|
(1,336
|
)
|
|
$
|
551
|
|
|
$
|
|
|
Interest rate floors
|
|
|
23,373
|
|
|
|
544
|
|
|
|
2,818
|
|
|
|
(51
|
)
|
|
|
493
|
|
|
|
|
|
Interest rate caps
|
|
|
22,630
|
|
|
|
183
|
|
|
|
5
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
Interest rate futures
|
|
|
3,399
|
|
|
|
14
|
|
|
|
5,312
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
|
|
Interest rate options
|
|
|
300
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Interest rate forwards
|
|
|
14,651
|
|
|
|
191
|
|
|
|
4,926
|
|
|
|
(39
|
)
|
|
|
152
|
|
|
|
|
|
Synthetic GICs
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
8,548
|
|
|
|
1,438
|
|
|
|
8,979
|
|
|
|
(1,222
|
)
|
|
|
216
|
|
|
|
|
|
Foreign currency forwards
|
|
|
2,411
|
|
|
|
61
|
|
|
|
3,881
|
|
|
|
(142
|
)
|
|
|
(81
|
)
|
|
|
|
|
Currency options
|
|
|
890
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
Credit default swaps
|
|
|
4,205
|
|
|
|
166
|
|
|
|
2,662
|
|
|
|
(108
|
)
|
|
|
58
|
|
|
|
|
|
Equity futures
|
|
|
4,638
|
|
|
|
20
|
|
|
|
1,707
|
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
(410
|
)
|
Equity options
|
|
|
11,105
|
|
|
|
2,083
|
|
|
|
12,333
|
|
|
|
(659
|
)
|
|
|
1,424
|
|
|
|
(580
|
)
|
Variance swaps
|
|
|
9,985
|
|
|
|
283
|
|
|
|
1,984
|
|
|
|
(13
|
)
|
|
|
270
|
|
|
|
9
|
|
Other Credit
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Equity
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
(98
|
)
|
|
|
(98
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
$
|
123,533
|
|
|
$
|
6,912
|
|
|
$
|
67,395
|
|
|
$
|
(3,689
|
)
|
|
$
|
3,223
|
|
|
$
|
(961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
(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 $259 million to
$435 million at June 30, 2009 from $176 million
at December 31, 2008. An increase of risk of
$221 million is attributed to the use of derivatives
employed by the Company to hedge its equity exposures, and the
remainder is attributable to numerous immaterial items.
|
|
Item 4.
|
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 Companys
disclosure controls and procedures as defined in Exchange Act
Rule 13a-15(e)
at 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 Companys internal control
over financial reporting as defined in Exchange Act
Rule 13a-15(f)
during the three months ended June 30, 2009 that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
Part II
Other Information
|
|
Item 1.
|
Legal
Proceedings
|
The following should be read in conjunction with
(i) Part I, Item 3, of the 2008 Annual Report;
(ii) Part II, Item 1 of MetLifes Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2009; and
(iii) Note 11 to the interim condensed consolidated
financial statements in Part I of this report.
Demutualization
Actions
Several lawsuits were brought in 2000 challenging the fairness
of the Plan and the adequacy and accuracy of MLICs
disclosure to policyholders regarding the Plan. The actions
discussed below name as defendants some or all of MLIC, the
Holding Company, and individual directors. MLIC, the Holding
Company, and the individual directors believe they have
meritorious defenses to the plaintiffs claims and are
contesting vigorously all of the plaintiffs claims in
these actions.
In re MetLife Demutualization Litig. (E.D.N.Y., filed
April 18, 2000). In this class action
against MLIC and the Holding Company, plaintiffs served a second
consolidated amended complaint in 2004. Plaintiffs assert
violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934 in connection with the Plan, claiming that
the Policyholder Information Booklets failed to disclose certain
material facts and contained certain material misstatements.
They seek rescission and compensatory damages. By orders dated
July 19, 2005 and August 29, 2006, the federal trial
court certified a litigation class of present and former
policyholders. Pursuant to the courts order, plaintiffs
have given notice to the class of the pendency of this action.
On March 30, 2009 the court denied MLICs and the
Holding Companys motion for summary judgment, and
plaintiffs motion for partial summary judgment. On
July 17, 2009, the court entered an order setting the trial
to begin on September 8, 2009.
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.
As reported in the 2008 Annual Report, MLIC received
approximately 5,063 asbestos-related claims in 2008. During the
six months ended June 30, 2009 and 2008, MLIC received
approximately 1,726 and 2,863 new asbestos-related claims,
respectively. See Note 16 of the Notes to Consolidated
Financial Statements included in the 2008 Annual Report for
historical information concerning asbestos claims and
MLICs increase in its recorded liability at
261
December 31, 2002. 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.
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. Based upon its regular reevaluation of its
exposure from asbestos litigation, MLIC has updated its
liability analysis for asbestos-related claims through
June 30, 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 Companys 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. Regulators also
have requested information relating to market timing and late
trading of mutual funds and variable insurance products and,
generally, the marketing of products. 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
Company has been cooperating fully.
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 defendants 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
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. A third putative
nationwide class action relating to the payment of medical
providers, Innovative Physical Therapy, Inc. v. MetLife
Auto & Home, et ano (D. N.J., filed November 12,
2007), was filed against Metropolitan Property and Casualty
Insurance Company in federal court in New Jersey. The court
granted the defendants motion to dismiss, and the
U.S. Court of Appeals for the Third Circuit issued an order
on July 22, 2009 affirming the dismissal. Simon v.
Metropolitan Property and Casualty Ins. Co. (W.D. Okla., filed
September 23, 2008), a fourth 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.
262
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 June 30, 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 Companys consolidated financial
statements, have arisen in the course of the Companys
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 Companys
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 Companys financial
position, based on information currently known by the
Companys 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 Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
The following should be read in conjunction with and supplements
and amends the factors that may affect the Companys
business or operations described under Risk Factors
in Part I, Item 1A, of the 2008 Annual Report, and the
Risk Factors in Part II, Item 1A of the
Companys
Form 10-Q
for the quarter ended March 31, 2009.
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 MetLifes
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 Federal Government,
Federal Reserve Bank of New York, the Federal Deposit Insurance
Corporation (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 has been making funds available
to commercial and financial companies under a number of
programs, including the Commercial Paper Funding Facility 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.
There can be no assurance as to what impact such actions will
have on the financial markets, whether on the level of
volatility, the level of lending by financial institutions, the
prices buyers are willing to pay for financial assets or
otherwise. Continued low levels of credit availability and low
prices for financial assets materially and adversely affect our
business, financial condition and results of operations and the
trading price of our common stock. Furthermore, Congress has
considered, and likely will continue to consider, legislative
proposals that could
263
impact the value of mortgage loans, such as legislation that
would permit bankruptcy courts to reduce 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 nonagency prime residential mortgage backed
security holdings and could cause a ratings downgrade in such
holdings which, in turn, would cause an increase in unrealized
losses on such securities. See Risk Factors 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 the 2008 Annual Report. In
addition, the 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 mortgages. 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. The choices made by the
U.S. Treasury, the Federal Reserve Board and the FDIC in
their distribution of amounts available under EESA and under the
proposed new asset purchase programs could have the effect of
supporting some aspects of the finance industry more than
others. See Risk Factors Competitive Factors
May Adversely Affect Our Market Share and Profitability in
the 2008 Annual Report. We cannot predict whether the
$700 billion of funds made and to be made available
pursuant to EESA will be enough to further stabilize and revive
the financial markets or, if additional amounts are necessary,
whether Congress will be willing to make the necessary
appropriations, what the publics sentiment would be
towards any such appropriations, or what additional requirements
or conditions might be imposed on the use of any such additional
funds.
MetLife, Inc. and some or all of its affiliates may be eligible
to sell assets under one or more of the programs established in
whole or in part under EESA or under other programs made
available by the Federal Government and its agencies, and some
of their assets may be among those that are eligible for sale
under the programs. MetLife, Inc. and some of its affiliates may
also be eligible to invest in vehicles established to purchase
troubled assets from other financial institutions under these
programs, and to borrow funds under other programs to purchase
specified types of asset-backed securities. Furthermore, as a
bank holding company, MetLife, Inc. is formally eligible to
participate in a capital infusion program established by the
U.S. Treasury under EESA, pursuant to which the
U.S. Treasury purchases preferred shares of banking
institutions or their holding companies and acquires warrants
for their common shares. Participation in one or more of various
government programs would subject us to restrictions on the
compensation that we can offer or pay to certain executive
employees, including incentives or performance-based
compensation. 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 and deducting 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 other programs established in whole or in part
under EESA. In April 2009, MetLife announced that it has elected
not to participate in the Capital Purchase Program, a voluntary
capital infusion program established by the U.S. Treasury
under EESA. In May 2009, MetLife also announced that it had been
informed by the Federal Reserve Board that it had completed the
U.S. Treasurys Supervisory Capital Assessment Program
and that, based on the assessments economic scenarios and
methodology, MetLife has adequate capital to sustain a further
deterioration in the economy. Some of our competitors have
received or have been selected to receive funding under the
federal governments capital infusion programs, which could
adversely affect our competitive position.
As part of its efforts to stabilize and revitalize the financial
system and the economy, the Obama Administration has also
proposed making changes in capital and liquidity requirements
for bank holding companies and banks. The Administration also
proposes establishing special regulatory and insolvency regimes,
including even higher capital and liquidity standards, for
financial institutions that are deemed to be systemically
significant. It has also proposed imposing new conditions on the
writing and trading of certain standardized and non-standardized
derivatives and has submitted a bill to Congress that would
establish 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 would exclude
the business of insurance (other than mortgage
insurance, title insurance and credit insurance), the creation
of an additional supervisor with authority over MetLife, Inc.
and its subsidiaries, the likelihood of additional regulations,
and the other changes listed in this paragraph could require
changes to MetLifes operations. Whether such changes would
affect our competitiveness in comparison to other institutions
is uncertain, since it is possible that all of our competitors
will be similarly affected. Competitive effects are possible,
however, if MetLife,
264
Inc. were determined to be systemically significant and is
subject to higher capital and liquidity requirements as a
result. It is unclear at present whether systemically
significant institutions will be helped or hurt competitively if
such additional requirements are imposed.
Proposals by the Administration, Congress and the SEC to ensure
the integrity of the financial markets and to protect investors
by imposing a consistent fiduciary standard on both
broker-dealers and investment advisers, and to more closely
regulate compensation arrangements for sales of financial
products, could, if enacted and implemented, have a material
adverse effect on our ability to distribute our variable
insurance products, as well as other securities products.
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. Management updates its evaluations regularly
and reflects changes in allowances and impairments in operations
as such evaluations are revised. There can be no assurance that
our management has accurately assessed the level of impairments
taken and allowances 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 in value deemed to be
other-than-temporary
that are charged to earnings and in the period in which the
determination is made. The assessment of whether impairments
have occurred is based on managements
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 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, our management considers a wide range of factors
about the security issuer and uses their 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 managements 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
market 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 fair value below amortized
cost, and 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 value to an
amount at least equal to its cost or amortized cost;
(vii) unfavorable changes in forecasted cash flows on
mortgage-backed and asset-backed securities; and
(viii) other subjective factors, including concentrations
and information obtained from regulators and rating agencies.
Defaults, Downgrades or Other Events Impairing the Value
of Our Fixed Maturity 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. At December 31, 2008, the fixed
maturity securities of $188.3 billion in our investment
portfolio represented 58.4% of our total cash and invested
assets. The occurrence
265
of a major economic downturn (such as the current downturn in
the economy), 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 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 a loan-backed security we hold could
indicate the credit quality of that security has deteriorated.
Any event reducing the 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 write down or impairment 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.
Our Insurance 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 in the 2008 Annual Report. 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
266
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 in the 2008 Annual Report.
State insurance regulators and the National Association of
Insurance Commissioners (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 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. 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, privacy, tort reform legislation and taxation. In
addition, various forms of direct federal regulation of
insurance have been proposed, including proposals for the
establishment of an optional federal charter for insurance
companies and creation of an Office of National Insurance,
expansion of the Federal Reserve Boards authority to
regulate financial holding companies and bank holding companies,
and establishment of the Federal Reserve Board as a systemic
risk regulator that would no longer be required to defer to
functional regulators. In view of recent events involving
certain financial institutions and the financial markets, it is
possible that the U.S. federal government will heighten its
oversight of insurers
and/or
insurance holding companies such as us, including possibly
through a federal system of insurance regulation, new powers for
the regulation of systemic risk to the financial system and the
regulation and resolution of systemically significant financial
companies (which could vary from the resolution regimes
currently applicable to some subsidiaries of such companies),
federal consumer protection respecting certain financial
services and products
and/or that
the oversight responsibilities and mandates of existing or newly
created regulatory bodies could change. 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.
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 Risk Factors Our
International Operations Face Political, Legal, Operational and
Other Risks that Could Negatively Affect Those Operations or Our
Profitability in the 2008 Annual Report.
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.
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 in
the 2008 Annual Report.
267
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.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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Issuer
Purchases of Equity Securities
Purchases of common stock made by or on behalf of the Company or
its affiliates during the quarter ended June 30, 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
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Plans or Programs (2)
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April 1 April 30, 2009
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5,912
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$
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22.80
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$
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1,260,735,127
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May 1 May 31, 2009
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33
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$
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29.41
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$
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1,260,735,127
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June 1 June 30, 2009
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1,095
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$
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29.85
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$
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1,260,735,127
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Total
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7,040
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$
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23.92
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$
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1,260,735,127
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(1) |
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During the periods April 1 April 30, 2009, May
1 May 31, 2009 and June 1
June 30, 2009, separate account affiliates of the Company
purchased 5,912 shares, 33 shares and
1,095 shares, respectively, 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. |
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(2) |
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At June 30, 2009, the Company had $1,261 million
remaining under its common stock repurchase program
authorizations. In April 2008, the Companys Board of
Directors authorized a $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 June 30, 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. The Company does not
intend to make any purchases under the common stock repurchase
programs in 2009. |
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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The information called for by Part II, Item 4 is
incorporated herein by reference to Part II, Item 4,
Submission of Matters to a Vote of Security Holders,
in MetLifes Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009.
268
(Note Regarding Reliance on Statements in Our Contracts:
In reviewing the agreements included as exhibits to this
Quarterly Report on
Form 10-Q,
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 Quarterly Report on
Form 10-Q
and MetLife, Inc.s other public filings, which are
available without charge through the SECs website at
www.sec.gov.)
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Exhibit
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No.
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Description
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4
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.1
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Fifteenth Supplemental Indenture, dated May 29, 2009, between
the Company 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 (Incorporated by reference to Exhibit 4.1 to
MetLife, Inc.s Current Report on Form 8-K dated May 29,
2009).
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4
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.2
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Form of security certificate representing MetLife, Inc.s
6.75% Senior Notes due 2016 (Incorporated by reference to
Exhibit 4.1 to MetLife, Inc.s Current Report on Form 8-K
dated May 29, 2009).
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10
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.1
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Separation Agreement, Waiver and General Release dated as of
February 27, 2009 between Ruth A. Fattori and MetLife Group, Inc.
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31
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.1
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Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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31
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.2
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Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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32
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.1
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Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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32
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.2
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Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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101
|
.INS
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XBRL Instance Document.
|
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101
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.SCH
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XBRL Taxonomy Extension Schema Document.
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101
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.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101
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.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
|
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101
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.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
|
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101
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.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
|
269
Signatures
Pursuant to the requirements 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.
METLIFE, INC.
Name: Peter M. Carlson
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Title:
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Executive Vice President, Finance
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Operations and Chief Accounting Officer
(Authorized Signatory and Principal
Accounting Officer)
Date: August 3, 2009
270
Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts:
In reviewing the agreements included as exhibits to this
Quarterly Report on
Form 10-Q,
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 at 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 at the
date they were made or at any other time. Additional information
about MetLife, Inc. and its subsidiaries may be found elsewhere
in this Quarterly Report on
Form 10-Q
and MetLife, Inc.s other public filings, which are
available without charge through the SECs website at
www.sec.gov.)
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Exhibit
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No.
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|
Description
|
|
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4
|
.1
|
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Fifteenth Supplemental Indenture, dated May 29, 2009,
between the Company 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
(Incorporated by reference to Exhibit 4.1 to MetLife,
Inc.s Current Report on
Form 8-K
dated May 29, 2009).
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4
|
.2
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Form of security certificate representing MetLife, Inc.s
6.75% Senior Notes due 2016 (Incorporated by reference to
Exhibit 4.1 to MetLife, Inc.s Current Report on
Form 8-K
dated May 29, 2009).
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10
|
.1
|
|
Separation Agreement, Waiver and General Release dated as of
February 27, 2009 between Ruth A. Fattori and MetLife
Group, Inc.
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|
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.
|
E-1